-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A4avIiF+DiKY3OwoDeZMVIsxaQs8WDNrWQXcTUsQPYDCMkCBVd6w471ip8B9dLT6 cmMfuWH60rwckdbe6wUELQ== 0000893220-96-000289.txt : 19960208 0000893220-96-000289.hdr.sgml : 19960208 ACCESSION NUMBER: 0000893220-96-000289 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960207 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA GAS SYSTEM INC CENTRAL INDEX KEY: 0000022099 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 131594808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 1935 Act SEC FILE NUMBER: 070-08791 FILM NUMBER: 96512374 BUSINESS ADDRESS: STREET 1: 20 MONTCHANIN RD CITY: WILMINGTON STATE: DE ZIP: 19807 BUSINESS PHONE: 3024295000 U-1 1 FORM U-1 COLUMBIA GAS SYSTEMS 1 File No. 70- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 THE COLUMBIA GAS SYSTEM, INC. 20 Montchanin Road Wilmington, DE 19807 - -------------------------------------------------------------------------------- (Names of company or companies filing this statement and addresses of principal executive offices) L. J. Bainter, Treasurer The Columbia Gas System, Inc. 20 Montchanin Road Wilmington, DE 19807 - -------------------------------------------------------------------------------- (Name and address of agent for service) 2 PAGE 2 Item 1. Description of Proposed Transaction (a) Furnish a reasonably detailed and precise description of the proposed transaction, including a statement of the reasons why it is desired to consummate the transaction and the anticipated effect thereof. If the transaction is part of a general program, describe the program and its relation to the proposed transaction The Columbia Gas System, Inc. ("Columbia" or the "Applicant-Declarant"), Wilmington, Delaware, a Delaware corporation, is a registered holding company under the Public Utility Holding Company Act of 1935 as amended (the "Act"). Columbia, its service subsidiary and its operating subsidiaries constitute an integrated natural gas system, involved in all aspects of the natural gas industry, including exploration and production, distribution, transmission, and marketing as well as propane distribution and electric generation through qualifying cogeneration facilities. Columbia and its subsidiaries (the "System") have approximately 10,000 officers and employees employed by the System. Following the issuance of an order of the U.S. Securities and Exchange Commission (the "Commission") dated April 29, 1986 (HCAR No. 24074), Columbia's shareholders approved a Long-Term Incentive Plan at the 1986 annual meeting of shareholders. The plan, which was designed to provide long-term incentives in the form of nonqualified stock options, incentive stock options, contingent stock awards, and stock appreciation rights to certain officers and key employees of the System, terminated on September 18, 1995. The Columbia Board of Directors has approved the adoption of a new Long-Term Incentive Plan (the "Plan"), subject to shareholder approval at the April 26, 1996 annual meeting of Columbia's shareholders and receipt of the Commission's approval pursuant to the Act. The purpose of the Plan is to provide incentives to specified individuals to continuously add value to Columbia. By so doing, Columbia believes that the Plan will facilitate attracting, 3 PAGE 3 retaining and motivating employees and directors of high caliber and potential. The Plan provides long-term incentives to (1) those officers and key employees of the System (the "Employees") who, in the opinion of the Compensation Committee of Columbia's Board of Directors (the "Committee"), may be able to make substantial contributions to the System by their ability and efforts; and (2) members of the Board of Directors of Columbia who are not employees ("Outside Directors"). Thus, the Plan design helps to align the interests of Employees and directors of Columbia with those of Columbia's shareholders. Although the Committee will determine which positions have the potential to make substantial contributions to the System, it is currently contemplated that approximately 170 officers and employees will be considered eligible under the Plan. The Plan is to be effective for ten years, beginning February 21, 1996, subject to stockholder approval and approval of the Commission hereunder. In general, the Plan is designed to comply with the Commission's rules promulgated pursuant to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. No award may be granted more than ten years after the Plan is adopted by Columbia. Columbia proposes to make available for issuance under the Plan up to 3 million shares, or 3% of the authorized number of shares, of common stock of Columbia, $10 par value per share. The maximum number of shares that may be awarded pursuant to the contingent and restricted stock award provisions will be 20 percent of the total shares authorized for issuance under the Plan, or 600,000 shares. The maximum number of shares that may be awarded to any individual during the life of the Plan will be 20 percent of the total shares authorized for issuance under the Plan, or 600,000 shares. The shares that may be issued under the Plan may be authorized and unissued shares or treasury shares. 4 PAGE 4 Shares of common stock subject to options and awards that expire or terminate for reasons other than the exercise of a stock appreciation right would again be available for awards under the Plan. The Columbia Board of Directors may suspend, terminate or amend the Plan at any time but may not, without seeking shareholder approval pursuant to Commission authorization, if required, adopt any amendment which would (1) materially increase the benefits accruing to participants, (2) materially increase the maximum number of shares which may be issued under the Plan, subject to equitable adjustment (for any changes in the outstanding common stock of Columbia by reasons of recapitalizations and the like), (3) materially modify the Plan's eligibility requirements, or (4) change the basis on which awards are granted to Outside Directors. With respect to the portions of the plan governing awards to Outside Directors, the Plan may not be amended more than once every six months except as may be consistent with Exchange Act Rule 16b-3(c)(2)(ii)(B). Furthermore, Columbia reserves the right to terminate the Plan, in whole or in part and at any time and for any reason, so long as full and equitable compensation is made to participants with respect to awards previously granted. The following types of awards may be made under the Plan: (1) stock options, including incentive stock options and nonqualified stock options; (2) stock appreciation rights ("SARs"); (3) contingent stock; (4) restricted stock; and (5) any award in other forms that the Committee may in its discretion deem appropriate but in any event which are consistent with the Plan's purpose, including any combination of the foregoing. Employees would be eligible to receive any form of award permitted under the Plan. Outside Directors are eligible only for nonqualified stock option awards, according to the formula set forth in the Plan, as described below. 5 PAGE 5 The portions of the Plan applicable to Employees will be administered by the Committee, which is composed only of Outside Directors who qualify both as "disinterested persons" under Exchange Act Rule 16b-3 and "outside directors" under Section 162(m) of the Internal Revenue Code of 1986, as amended ("IRC"), and the regulations promulgated thereunder. Members of the Committee are selected by the Board for one-year terms. Among other things, the Committee will designate the Employees to receive awards, the number of options to be granted and awarded and the terms of options and any accompanying SARs, and contingencies and restrictions applicable to contingent and restricted stock awards. With regard to its administration, the Committee will have full and final authority in its discretion to conclusively interpret the provisions of the Plan pertaining to Employees and to decide all questions of fact arising in its application; to determine the Employees to whom awards shall be made under the Plan; to determine the type of award to be made and the amount, size and terms of each such award; to determine the time when awards will be granted; to make all other determinations necessary or advisable for the administration of the Plan; and to accelerate the exercise period of an option or the restriction/contingency period of restricted and contingent stock awards. The Committee will also administer the portions of the Plan applicable to Outside Directors but only with respect to ministerial matters. With respect to awards to Outside Directors, the Plan is designed to be a "formula plan" meeting the requirements of Exchange Act Rule 16b-3(c)(2) and, accordingly, is intended to be self-governing. The Committee will have no discretion with respect to the amount, price and timing of awards to Outside Directors. Consequently, the Committee's administration of the portions of the Plan applicable to Outside Directors will be confined to ministerial matters. Consistent with the limited discretion over the 6 PAGE 6 Plan regarding the portions of the Plan governing awards to Outside Directors, the Plan may not be amended more than once every six months except as may be consistent with Exchange Act Rule 16b-3(c)(ii)(B). See Central and South West Corp., HCAR No. 25511 (Apr. 7, 1992) (order authorizing CSW's Directors Restricted Stock Plan, which comports with "disinterested administration" under Rule 16b-3 of the Exchange Act). AWARDS UNDER THE PLAN. Stock Options: Outside Directors' Options. Stock option awards will be made to Outside Directors if Columbia's Total Shareholder Return (defined as market appreciation and dividends declared in a year) for a fiscal year exceeds the median of the Total Shareholder Return for the peer group of companies utilized for comparison purposes in Columbia's annual proxy statement. If Columbia's Total Shareholder Return falls within the third quartile (between 50% and 75%) of the peer group, then options will be granted to each Outside Director to purchase 3,000 shares of Columbia common stock. If Columbia's Total Shareholder Return falls within the fourth quartile (between 75% and 100%) of the peer group, then options will be granted to each Outside Director to purchase 6,000 shares. No stock option awards will be made if Total Shareholder Return is at or below the median. Stock option awards for Outside Directors, if any, would be granted effective as of 90 days after the close of the Corporation's fiscal year for Total Shareholder Return performance for the preceding fiscal year. Grants to Outside Directors would vest one-third upon the date of the grant, two-thirds upon the first anniversary of the grant, and fully upon the second anniversary of the grant. The purchase price per share of stock for Outside Directors' awards would be 100 7 PAGE 7 percent of the fair market value of the stock on the day the option is granted less any dividends paid as long as the option is outstanding, but in no event less than the par value of such stock. For awards to Outside Directors, "fair market value" means the average of the high and low sales prices per share of Columbia's common stock on The New York Stock Exchange as reported in The Wall Street Journal for a given date. In all other respects and to the extent consistent with Exchange Act Rule 16b-3(c)(2), Outside Director stock options will be governed by the provisions of the Plan governing Employee options. Employee Options. Options will be evidenced by stock option agreements containing in substance the terms and conditions described below. The purchase price per share of stock deliverable upon the exercise of an incentive stock option will be 100 percent of the fair market value of the stock on the day the option is granted. The purchase price per share of stock deliverable upon the exercise of a nonqualified stock option will be 100 percent of the fair market value of the stock on the day the option is granted, less any dividends paid as long as the option is outstanding, but in no event less than the par value of such stock. Each stock option agreement will state the period or periods of time, as may be determined by the Committee, within which the option may be exercised by the participant, in whole or in part, provided that the option period will not commence earlier than six months after the date of the grant of the option or end later than ten years after the date of the grant of the option. Notwithstanding the foregoing, the Committee will have the discretion to permit an acceleration of the previously determined exercise terms, subject to the terms of this Plan and to 8 PAGE 8 the extent permitted by Exchange Act Rule 16b-3(c), under such circumstances and upon such terms and conditions as deemed appropriate. Stock purchased pursuant to an option agreement is to be paid for in full at the time of purchase, either in the form of cash, common stock of Columbia at fair market value, or in a combination thereof, as the Committee may determine. In the event that an optionee ceases to be an Employee of the System or an Outside Director for any cause other than death, disability or retirement or a "Change in Control" as defined in the Plan and discussed below, the optionee may exercise the option during its term within a period of three months after such termination to the extent that the option was exercisable at the date of such termination, or during such other period or subject to such terms as may be determined by the Committee. In the event that an optionee is terminated due to death, retirement, disability or a Change in Control prior to termination of his option without having fully exercised his option, the optionee or his successor may have the right to exercise the option during its term within a period of 24 months after the date of such termination to the extent that the option was exercisable at the date of termination or, during such other period and subject to such terms as may be determined by the Committee. The aggregate fair market value (determined as of the time the option is granted) of incentive stock options for any participant which may become first exercisable in any calendar year will not exceed $100,000. In addition, no incentive stock option will be granted to any individual if at the time the option is to be granted the individual owns stock possessing more than ten percent of the total combined voting power of all classes of outstanding stock of Columbia unless at the time such option is granted the option price is at least 110 percent of the 9 PAGE 9 fair market value of the stock subject to option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted. Each incentive stock option agreement may contain such other terms, conditions and provisions as the Committee may determine to be necessary or desirable in order to qualify such option as a tax-favored option within the meaning of IRC Section 422, or any amendment thereof, substitute therefor, or regulation thereunder. Subject to limitations as noted above on the Committee's ability to amend the Plan, the Committee will have the power without further approval to amend the terms of any option granted to Employees. Stock Appreciation Rights. SARs will be evidenced by SAR agreements in such form, not inconsistent with the Plan, as the Committee may approve from time to time, and will contain in substance the following terms and conditions. An SAR may be granted in connection with an option and will entitle the grantee, subject to such terms and conditions determined by the Committee, to receive, upon surrender of the option, all or a portion of the excess of (1) the fair market value of a specified number of shares of Columbia's common stock at the time of surrender, as determined by the Committee, over (2) 100 percent of the fair market value of the same number of shares at the time the option was granted less any dividends paid while the option was outstanding but unexercised. SARs will be granted for a period of not less than six months nor more than ten years, and will be exercisable in whole or in part, at such time or times and subject to such other terms and conditions as may be prescribed by the Committee at the time of grant, subject to the following: (1) no SAR will be exercisable, in whole or in part, during the six-month period starting with the date of grant; and (2) SARs will be exercisable only during a grantee's 10 PAGE 10 employment by the System, except that the Committee may permit an SAR to be exercisable for up to three months after the grantee's employment is terminated for any reason other than death, retirement or disability. In the event that a grantee's employment is terminated as a result of death, retirement or disability without having fully exercised his SARs, the grantee or his successor may exercise the SARs during their term within a period of 24 months after the date of such termination to the extent that the right was exercisable at the date of such termination, or during such other period and subject to such terms as may be determined by the Committee. The Committee may reserve the right to accelerate previously determined exercise terms as it deems appropriate. Upon exercise of an SAR, payment will be made in the form of Columbia common stock (at fair market value on the date of exercise), cash, or a combination thereof, as the Committee may determine. Contingent Stock Awards. Under a contingent stock award, an individual is given the right to receive shares of stock when the terms of employment or other terms of the award are met. The stock is not issued until the right to receive the stock is vested. Contingent stock awards under the Plan will be evidenced by contingent stock agreements in such form, not inconsistent with the Plan, as the Committee may approve from time to time and will contain in substance the terms and conditions described below. The Committee will determine the amount of a contingent stock award to be granted to an Employee based on the expected impact the participant may have on the financial well-being of the System and other factors deemed by the Committee to be appropriate. Contingent stock awards will be subject to such terms, conditions, contingencies, and restrictions, including substantial risks of forfeiture and/or attainment of performance objectives, and for such period(s) 11 PAGE 11 in excess of six months as will be determined by the Committee at the time of grant. The Committee may permit an acceleration of the expiration of the applicable contingency period with respect to any part or all of the award to any participant, so long as the minimum six-month period is retained. The agreement will also specify the terms and conditions upon which any contingencies on the right to receive shares representing contingent stock awarded under the Plan will lapse. Upon the lapse of such contingencies; shares of common stock will be issued to the participant or his legal representative. In the event of a participant's termination of employment for any reason prior to the lapse of contingencies, all rights to shares as to which there still remain unlapsed contingencies will be forfeited by such participant to Columbia without payment or any consideration by Columbia, and neither the participant nor any of his successors, heirs, assigns or personal representatives will have any further rights or interest in such shares, unless otherwise provided for in the Plan or in the applicable award agreement. Restricted Stock Award. Restricted stock awards under the Plan will be evidenced by restricted stock agreements in such form, and not inconsistent with the Plan, as the Committee may approve from time to time and will contain in substance the terms and conditions described below. The Committee may determine the amount of a restricted stock award to be granted to an Employee based on the past or expected impact the Employee has had or can have on the financial well-being of Columbia and other factors deemed by the Committee to be appropriate. Restricted stock awards will be subject to such terms, conditions, and restrictions, including substantial risks of forfeiture and/or attainment of performance objectives, and for such period or 12 PAGE 12 periods in excess of six months as will be determined by the Committee at the time of grant. The Committee may permit an acceleration of the expiration of the applicable restriction period with respect to any part or all of the award to any participant, so long as the minimum six-month period is retained. Upon issuance of a restricted stock award, shares will be issued in the name of the recipient, but the recipient will not receive the shares until the specified restrictions lapse, or if he receives them, the shares will bear a legend as to their restricted status. During the restriction period, recipients will have the rights of a stockholder for all such shares of restricted stock, including the right to vote and the right to receive dividends thereon as paid. Each certificate evidencing stock subject to restricted stock awards will bear an appropriate legend referring to the terms, conditions and restrictions applicable to such award, and any attempt to dispose of stock in contravention of such terms, conditions and restrictions will be ineffective. The restricted stock agreement will specify the terms and conditions upon which any restrictions on the right to receive shares representing restricted stock awarded under the Plan will lapse. Upon the lapse of such restrictions, shares of common stock will be issued to the participant or his legal representative. In the event of a participant's termination of employment for any reason prior to the lapse of restrictions and unless otherwise provided for in the Plan or in the applicable award agreement, all rights to shares as to which there still remain unlapsed restrictions will be forfeited by the participant to Columbia, without payment or any other consideration by Columbia, and neither the participant nor his successors, heirs, assigns or personal representatives will have any further rights or interest in such shares. Notwithstanding any other provision to the contrary, additional provisions will apply to contingent and restricted stock awards and to stock option awards. First, for contingent and 13 PAGE 13 restricted stock awards only, if a recipient of a contingent or restricted stock award has his employment terminated but his salary is continued through an employment agreement, severance program or any other comparable arrangement, then any contingencies and restrictions which are satisfied or which could have been satisfied during the period for which the recipient's salary is to be continued will be deemed to have been satisfied, and such shares of contingent and/or restricted stock will be issued and delivered to the recipient or his legal representative no later than the end of the salary continuation program. Second, for contingent and restricted stock awards and stock option awards (including any accompanying SARs), upon a Change in Control, all such awards will automatically vest as of that date, and all restrictions or contingencies will be deemed to have been satisfied. The term "Change in Control" means the occurrence of any of the following events: (1) the acquisition by any party or parties of the beneficial ownership of 25 percent or more of the voting shares of Columbia; (2) the occurrence of a transaction requiring shareholders' approval for the acquisition of Columbia through purchase or exchange of stock or assets, or by merger, or otherwise; or (3) the election during a period of 24 months, or less, of 30 percent or more of the members of Columbia's board of directors, without the approval of a majority of the board as constituted at the beginning of the period. In addition, for all awards under the Plan, in the event of any change in the outstanding common stock of Columbia by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee will adjust the number of shares of common stock which may be issued under the Plan and will provide for 14 PAGE 14 an equitable adjustment of any outstanding award or shares issuable pursuant to an outstanding award under the Plan. The Plan will remain in effect until all awards under the Plan have been satisfied by the issuance of shares or the payment of cash, but no award may be granted more than ten years after the date the Plan is adopted. TIMETABLE AND AUTHORIZATIONS SOUGHT Columbia proposes to solicit proxies from shareholders for purposes of voting in favor of the Plan at the Annual Meeting of Stockholders to be held on April 26, 1996. Other matters for which shareholder approval will be sought include the election of five directors, approval of Arthur Andersen L.L.P. as Columbia's independent auditors, and approval of an incentive compensation plan for Outside Directors (the Phantom Stock Plan for Outside Directors) under which Outside Directors may receive benefits in lieu of a retirement plan and defer current compensation in the form of phantom stock units. These matters do not require the filing of a preliminary proxy statement. A substantially final draft of the portion of the proxy statement discussing the Plan will be filed by Amendment. Columbia requests that the Commission issue its order permitting the solicitation of proxies in the Notice of the proposed adoption of the Plan and thereafter issue an order permitting the Application-Declaration to become effective subject to compliance with registration requirements under the Securities Act of 1933 when required. 15 PAGE 15 Item 2. Fees, Commissions and Expenses (a) State (1) the fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, in connection with the proposed transaction by the applicant or declarant or any associate company thereof, and (2) if the proposed transaction involves the sale of securities at competitive bidding, the fees and expenses to be paid to counsel selected by applicant or declarant to act for the successful bidder. The Columbia Gas System Service Corporation has provided certain services in connection with the preparation of this filing as follows: Securities and Exchange Commission Filing Fee . . . . . . . . . . . . . $ 2,000 Services of Columbia Gas System Service Corporation in connection with the preparation of the Application-Declaration . . . 20,000 -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,000 ========
(b) If any person to whom fees or commissions have been or are to be paid in connection with the proposed transaction is an associate company or an affiliate of any applicant or declarant, or is an affiliate of an associate company, set forth the facts with respect thereto. Columbia Gas System Service Corporation is a wholly owned subsidiary of Columbia and has performed certain services at cost as set forth in Item 2(a) (1) above. Item 3. Applicable Statutory Provisions. (a) State the section of the Act and the rules thereunder believed to be applicable to the proposed transaction. If any section or rule would be applicable in absence of a specific exemption, state the basis of exemption. Sections 6(a) and 7 of the Act are considered applicable to the proposed issuance and sale by Columbia of common stock pursuant to the terms of the Plan. Section 12(e) of the Act and Rules 62 and 65 are considered applicable to the solicitation of proxies by Columbia for its annual meeting of stockholders. Sections 12(c) and Rule 42 are considered applicable for Columbia to acquire previously awarded shares, through the forfeiture provisions of the Plan. 16 PAGE 16 Permission is requested to file quarterly Rule 24 letters to reflect the common stock issued under the Plan. To the extent that the proposed transaction is considered by the Commission to require authorization, approval or exemption under any section of the Act or provisions of the rules or regulations other than those specifically referred to herein, request for such authorization, approval or exemption is hereby made. Columbia does not own or operate, nor is it an equity participant in, any exempt wholesale generator (EWG) or any foreign utility company (FUCO) and will not be a company that owns, operates or has an equity participation in an EWG or FUCO as a result of the approvals requested herein. Columbia does not have any rights, nor will it have any rights or obligations, under a service, sales or construction contract with an EWG or FUCO as a result of the proposed transactions. (b) If any applicant is not a registered holding company or a subsidiary thereof, state the name of each public utility company of which it is an affiliate, or of which it will become an affiliate as a result of the proposed transaction, and the reasons why it is or will become such an affiliate. Not applicable. Item 4. Regulatory Approval. (a) State the nature and extent of the jurisdiction of any State commission or any Federal commission (other than the Securities and Exchange Commission) over the proposed transaction. No State commission or Federal commission (other than the Securities and Exchange Commission) has jurisdiction over the proposed transaction. 17 PAGE 17 (b) Describe the action taken or proposed to be taken before any commission named in answer to paragraph (a) of this item in connection with the proposed transaction. Not applicable. Item 5. Procedure. (a) State the date when Commission action is requested. If the date is less than 40 days from the date of the original filing, set forth the reasons for the acceleration. It is respectfully requested that the Commission issue its notice (including its order permitting solicitation of proxies) by February 16, 1996, and its order on or by March 20, 1996. (b) State (I) whether there should be a recommended decision by a hearing officer, (ii) whether there should be a recommended decision by any other responsible officer of the Commission, (iii) whether the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) whether there should be a 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. The Applicants hereby (i) waive a recommended decision by a hearing officer, (ii) waive a recommended decision by any other responsible officer of the Commission, (iii) specify that the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) specifies that there should not be a 30-day waiting period between the issuance of the Commission's order and the date o which it is to become effective. Item 6. Exhibits and financial statements. (a) Exhibits A-1 The Columbia Gas System, Inc. Long-Term Incentive Plan in substantially final form A-2 Section of The Columbia Gas System, Inc. Proxy Statement pertaining to the adoption of the Long-Term Incentive Plan (to be filed by amendment) F Opinion of Counsel (to be filed by amendment) 18 PAGE 18 G Financial Data Schedules H Draft Notice (b) Financial Statements (1) The Columbia Gas System, Inc. and Subsidiaries (a) Balance Sheets as of November 30, 1995 (actual and pro forma) (b) Statements of Capitalization as of November 30 (actual and pro forma) (c) Statements of Income for the Twelve Months ended November 30, 1995 (actual and pro forma) (d) Statements of Common Stock Equity as of November 30, 1995 (actual and pro forma) (2) The Columbia Gas System, Inc. (a) Balance Sheets as of November 30, 1995 (actual and pro forma) (b) Statements of Capitalization as of November 30, 1995 (actual and pro forma) (c) Statements of Income for the Twelve Months ended November 30, 1995 (actual and pro forma) (d) Statements of Common Stock Equity as of November 30, 1995 (actual and pro forma) There have been no material changes, not in the ordinary course of business, since the date of the financial statements filed herewith. 19 PAGE 19 Item 7. Information as to Environmental Effects. (a) Describe briefly the environmental effects of the proposed transaction in terms of the standards set forth in Section 102(2)(C) of the National Environmental Policy Act (42 U.S.C. 4232(2)(C)). If the response to this item is a negative statement as to the applicability of Section 102(2)(c) in connection with the proposed transaction, also briefly state the reasons for that response. As more fully described in Item 1, the proposed transactions relate only to issuances of securities and have no environmental impact in and of themselves. (b) State whether any other federal agency has prepared or is preparing an environmental impact statement (EIS) with respect to the proposed transaction. If any other federal agency has prepared or is preparing an EIS, state which agency or agencies and indicate the status of that EIS preparation. No federal agency has prepared or is preparing an EIS with respect to the proposed transaction. 20 PAGE 20 SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, each of the undersigned companies has duly caused this Declaration to be signed on its behalf by the undersigned thereunto duly authorized. THE COLUMBIA GAS SYSTEM, INC. Date: February 7, 1996 By: /s/ L. J. Bainter --------------------------- L. J. Bainter Treasurer 21 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(a) (1 of 2) CONSOLIDATED BALANCE SHEET ACTUAL and PRO FORMA As of November 30, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma ----------- ----------- ----------- ASSETS Property, Plant and Equipment Gas utility and other plant, at original cost .... 6,942,364 - 6,942,364 Accumulated depreciation and depletion ........... (3,321,552) - (3,321,552) ----------- ----------- ----------- Net Gas Utility and Other Plant .................. 3,620,812 - 3,620,812 ----------- ----------- ----------- Oil and gas producing properties, full cost method 1,281,641 - 1,281,641 Accumulated depletion ............................ (663,653) - (663,653) ----------- ----------- ----------- Net Oil and Gas Producing Properties ............. 617,988 - 617,988 ----------- ----------- ----------- Net Property, Plant, and Equipment ................. 4,238,800 - 4,238,800 ----------- ----------- ----------- Investments and Other Assets Accounts receivable - noncurrent ................. 13,882 - 13,882 Unconsolidated affiliates ........................ 80,909 - 80,909 Other ............................................ 6,629 - 6,629 ----------- ----------- ----------- Total Investments and Other Assets ................. 101,420 - 101,420 ----------- ----------- ----------- Current Assets Cash and temporary cash investments .............. 145,564 132,000 277,564 Accounts receivable, net ......................... 379,992 - 379,992 Income tax refunds ............................... 293,259 293,259 Gas inventories .................................. 241,375 - 241,375 Other inventories at average cost ................ 41,589 - 41,589 Prepayments ...................................... 76,517 - 76,517 Other ............................................ 170,651 - 170,651 ----------- ----------- ----------- Total Current Assets ............................... 1,348,947 132,000 1,480,947 ----------- ----------- ----------- Deferred Charges ................................... 289,283 - 289,283 ----------- ----------- ----------- Total Assets ....................................... 5,978,450 132,000 6,110,450 ----------- ----------- -----------
22 PAGE 2 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(a) (2 of 2) CONSOLIDATED BALANCE SHEET ACTUAL and PRO FORMA As of November 30, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma ----------- ----------- ----------- CAPITALIZATION AND LIABILITIES Capitalization Common stock equity .............................. 1,101,073 132,000 1,233,073 Preferred stock equity ........................... 399,945 - 399,945 Long-term debt ................................... 2,004,452 - 2,004,452 ----------- ----------- ----------- Total Capitalization ............................... 3,505,470 132,000 3,637,470 ----------- ----------- ----------- Current Liabilities Debt obligations ................................. 370,532 - 370,532 Accounts and drafts payable ...................... 348,355 - 348,355 Accrued taxes .................................... 68,352 - 68,352 Accrued interest ................................. 8,196 - 8,196 Estimated rate refunds ........................... 56,468 - 56,468 Estimated supplier obligations ................... 203,639 - 203,639 Deferred income taxes - current .................. - - - Other ............................................ 407,917 - 407,917 ----------- ----------- ----------- Total Current Liabilities .......................... 1,463,459 - 1,463,459 ----------- ----------- ----------- Other Liabilities and Deferred Credits Deferred income taxes, noncurrent ................ 520,445 - 520,445 Deferred investment tax credits .................. 37,257 - 37,257 Postretirement benefits other than pensions ...... 217,044 - 217,044 Other ............................................ 234,775 - 234,775 ----------- ----------- ----------- Total Other Liabilities and Deferred Credits ....... 1,009,521 - 1,009,521 ----------- ----------- ----------- Total Capitalization and Liabilities ............... 5,978,450 132,000 6,110,450 ----------- ----------- -----------
23 PAGE 3 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(b) CONSOLIDATED STATEMENT OF CAPITALIZATION ACTUAL and PRO FORMA As of November 30, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma ----------- ----------- ----------- Common Stock Equity Common Stock, The Columbia Gas System, Inc., $10 par value, authorized 100,000,000 shares, issued 50,614,830, outstanding 49,198,675 shares and outstanding 52,198,675 shares pro forma ..... 506,148 30,000 536,148 Additional paid in capital ....................... 601,476 102,000 703,476 Retained earnings ................................ 51,256 - 51,256 Reacquired capital stock (1,416,155 shares)....... (57,807) - (57,807) Unearned employee compensation ................... - - - ----------- ----------- ----------- Total Common Stock Equity .......................... 1,101,073 132,000 1,233,073 ----------- ----------- ----------- Preferred Stock Series A ......................................... 199,967 - 199,967 Series B ......................................... 199,978 - 199,978 ----------- ----------- ----------- Total Preferred Stock .............................. 399,945 - 399,945 ----------- ----------- ----------- Long-Term Debt: Debentures: 6.39% due November 2000 ......................... 310,876 - 310,876 6.61% due November 2002.......................... 281,530 - 281,530 6.80% due November 2005 ......................... 281,530 - 281,530 7.05% due November 2007 ......................... 281,530 - 281,530 7.32% due November 2010 ......................... 281,530 - 281,530 7.42% due November 2015 ......................... 281,530 - 281,530 7.62% due November 2025 ......................... 281,530 - 281,530 ----------- ----------- ----------- Total Debentures ................................. 2,000,056 - 2,000,056 ----------- ----------- ----------- Miscellaneous debt of subsidiaries ............... 1,520 - 1,520 Capitalized lease obligations .................... 2,876 - 2,876 ----------- ----------- ----------- Total Long-Term Debt ............................... 2,004,452 - 2,004,452 ----------- ----------- ----------- Total Capitalization ......................... .... 3,505,470 132,000 3,637,470 ----------- ----------- -----------
24 PAGE 4 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(c) STATEMENT OF CONSOLIDATED INCOME ACTUAL and PRO FORMA Twelve Months Ended November 30, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma ----------- ----------- ----------- Operating Revenues Gas sales......................................... 1,812,529 - 1,812,529 Transportation ................................... 573,251 - 573,251 Storage .......................................... 63,170 - 63,170 Other ............................................ 169,947 - 169,947 ----------- ----------- ----------- Total Operating Revenues ........................... 2,618,897 - 2,618,897 ----------- ----------- ----------- Operating Expenses Products purchased .............................. 773,161 - 773,161 Operation ........................................ 1,002,117 - 1,002,117 Maintenance ...................................... 120,920 - 120,920 Depreciation and depletion ....................... 270,765 - 270,765 Other taxes ...................................... 210,889 - 210,889 ----------- ----------- ----------- Total Operating Expenses ........................... 2,377,852 - 2,377,852 ----------- ----------- ----------- Operating Income ................................... 241,045 - 241,045 ----------- ----------- ----------- Other Income (Deductions) Interest income and other, net ................... 20,927 - 20,927 Interest expense and related charges.............. (975,525) - (975,525) Reorganization items, net ........................ 50,238 - 50,238 ---------- ----------- ----------- Total Other Income (Deductions) .................... (904,360) - (904,360) ----------- ----------- ----------- Loss before Income Taxes, Extraordinary Item and Cummulative Effect of Accounting Change .......... (663,315) - (663,315) Income taxes ....................................... (256,280) - (256,280) ----------- ----------- ----------- Loss before Extraordinary Item and Cummulative Effect of Accounting Change ...................... (407,035) - (407,035) Extraordinary Item ................................. 51,192 - 51,192 Cummulative Effect of Change in Accounting for Postemployment Benefits .......................... (7) - (7) ----------- ----------- ----------- Net Loss ........................................... (355,850) - (355,850) ----------- ----------- -----------
25 PAGE 5 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES UNAUDITED 6(b)(1)(d) CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY ACTUAL and PRO FORMA Twelve Months Ended November 30, 1995 ($000)
CGS Pro Forma CGS Actual Entries Pro Forma ----------- ----------- ----------- COMMON STOCK Balance at December 1, 1994 ........................ 505,633 - 505,633 Common stock issued - Leveraged employee stock ownership plan (LESOP) .. - - - Dividend reinvestment plan ....................... - - - Long-term incentive plan ......................... 515 30,000 30,515 Public offering .................................. - - - ----------- ----------- ----------- Balance at November 30, 1995 ....................... 506,148 30,000 536,148 ----------- ----------- ----------- ADDITIONAL PAID IN CAPITAL Balance at December 1, 1994 ........................ 601,828 - 601,828 Common stock issued - Leveraged employee stock ownership plan (LESOP) .. (1,944) - (1,944) Dividend reinvestment plan ....................... - - - Long-term incentive plan ......................... 1,592 102,000 103,592 Public offering .................................. - - - Preferred stock issued ............................. - - - ----------- ----------- ----------- Balance at November 30, 1995 ....................... 601,476 102,000 703,476 ----------- ----------- ----------- RETAINED EARNINGS Balance at December 1, 1994 ........................ 407,325 - 407,325 Net income ......................................... (355,850) - (355,850) Common stock dividends ............................. - - - Other .............................................. (219) - (219) ----------- ----------- ----------- Balance at November 30, 1995 ....................... 51,256 - 51,256 ----------- ----------- ----------- Reacquired Capital Stock ........................... (57,807) - (57,807) ----------- ----------- ----------- UNEARNED EMPLOYEE COMPENSATION Balance at December 1, 1994 ........................ (69,966) - (69,966) Adjustment ......................................... 69,966 - 69,966 ----------- ----------- ----------- Balance at November 30, 1995 ....................... - - - ----------- ----------- ----------- Total Common Stock Equity 1,101,073 132,000 1,233,073 ----------- ----------- -----------
26 PAGE 6 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED AND SUBSIDIARIES 6(b)(1)(e) PRO FORMA ENTRIES ($000)
Debit Credit 1. Cash 132,000 Paid in Capital 102,000 Common Stock Equity 30,000
To record the issuance of 3,000,000 shares of common stock at an assumed price of $44 per share. 27 PAGE 7 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(a) (1 of 2) BALANCE SHEET ACTUAL and PRO FORMA As of November 30, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ------------ ------------ ------------ ASSETS Investments and Other Assets Accounts receivable - noncurrent ................. 4,183 - 4,183 Unconsolidated affiliates ........................ - - - ------------ ------------ ------------ Total Investments and Other Assets ................. 4,183 - 4,183 ------------ ------------ ------------ Investments in Subsidiaries Capital stock .................................... 2,530,364 - 2,530,364 Equity in undistributed retained earnings ........ (437,917) - (437,917) Installment promissory notes receivable .......... 663,658 - 663,658 Other investments ................................ 900,000 - 900,000 Other receivables - TCO .......................... - - - ------------ ------------ ------------ Total Investments in Subsidiaries .................. 3,656,105 - 3,656,105 ------------ ------------ ------------ Current Assets Cash and temporary cash investments .............. - 132,000 132,000 Accounts receivable, net Customers ...................................... - - - Affiliated ..................................... 313,836 - 313,836 Other .......................................... 9,052 - 9,052 Prepayments ...................................... 326 - 326 Other ............................................ 21,762 - 21,762 ------------ ------------ ------------ Total Current Assets ............................... 344,976 132,000 476,976 ------------ ------------ ------------ Deferred Charges ................................... 3,701 - 3,701 ------------ ------------ ------------ Total Assets ....................................... 4,008,965 132,000 4,140,965 ------------ ------------ ------------
28 PAGE 8 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(a) (2 of 2) BALANCE SHEET ACTUAL and PRO FORMA As of November 30, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ------------ ------------ ------------ CAPITALIZATION AND LIABILITIES Capitalization Common stock equity .............................. 1,101,073 132,000 1,233,073 Preferred stock .................................. 399,945 399,945 Long-term debt ................................... 2,000,056 - 2,000,056 ------------ ------------ ------------ Total Capitalization ............................... 3,501,074 132,000 3,633,074 ------------ ------------ ------------ Current Liabilities Debt obligations ................................. 370,000 - 370,000 Accounts and drafts payable ...................... 143,196 - 143,196 Affiliated accounts payable ...................... 7,786 - 7,786 Accrued taxes .................................... (75,711) - (75,711) Accrued interest ................................. 9,266 - 9,266 Deferred income taxes - current .................. - - - Other ............................................ 15,249 - 15,249 ----------- ------------ ------------ Total Current Liabilities .......................... 469,786 - 469,786 ----------- ------------ ------------ Other Liabilities and Deferred Credits Deferred income taxes, noncurrent ................ - - - Postretirement benefits other than pensions ...... 5,717 - 5,717 Other ............................................ 32,388 - 32,388 ----------- ------------ ------------ Total Other Liabilities and Deferred Credits ....... 38,105 - 38,105 ----------- ------------ ------------ Total Capitalization and Liabilities ............... 4,008,965 132,000 4,140,965 ------------ ------------ ------------
29 PAGE 9 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(b) STATEMENT OF CAPITALIZATION ACTUAL and PRO FORMA As of November 30, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ------------ ------------ ------------ Common Stock Equity Common stock, $10 par value, authorized 100,000,000 shares, issued 50,614,830 shares, outstanding 49,198,675 shares and outstanding 52,198,675 shares pro forma ..... 506,148 30,000 536,148 Additional paid in capital ....................... 601,476 102,000 703,476 Retained earnings ................................ 51,256 - 51,256 Reacquired captial stock (1,416,155 shares) ...... (57,807) - (57,807) Unearned employee compensation ................... - - - ------------ ------------ ------------ Total Common Stock Equity .......................... 1,101,073 132,000 1,233,073 ------------ ------------ ------------ Preferred Stock Series A ......................................... 199,967 - 199,967 Series B ......................................... 199,978 - 199,978 ------------ ------------ ------------ Total Preferred Stock .............................. 399,945 - 399,945 ------------ ------------ ------------ Long-Term Debt: Debentures: 6.39% due November 2000 ......................... 310,876 - 310,876 6.61% due November 2002.......................... 281,530 - 281,530 6.80% due November 2005 ......................... 281,530 - 281,530 7.05% due November 2007 ......................... 281,530 - 281,530 7.32% due November 2010 ......................... 281,530 - 281,530 7.42% due November 2015 ......................... 281,530 - 281,530 7.62% due November 2025 ......................... 281,530 - 281,530 ------------ ------------ ------------ Total Debentures ................................. 2,000,056 - 2,000,056 ------------ ------------ ------------ Total Long-Term Debt ............................... 2,000,056 - 2,000,056 ------------ ------------ ------------ Total Capitalization ............................... 3,501,074 132,000 3,633,074 ------------ ------------ ------------
30 PAGE 10 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(c) STATEMENT OF INCOME ACTUAL and PRO FORMA Twelve Months Ended November 30, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ------------ ------------ ------------ Operating Revenues Gas sales ........................................ - - - Transportation ................................... - - - Other ............................................ - - - ------------ ------------ ------------ Total Operating Revenues ........................... - - - ------------ ------------ ------------ Operating Expenses Products purchased ............................... - - - Operation ........................................ 116,465 - 116,465 Maintenance ...................................... - - - Depreciation and depletion ....................... - - - Other taxes ...................................... 370 - 370 ------------ ------------ ------------ Total Operating Expenses ........................... 116,835 - 116,835 ------------ ------------ ------------ Operating Income (Loss) ............................ (116,835) - (116,835) ------------ ------------ ------------ Other Income (Deductions) Interest income and other, net ................... 464,611 - 464,611 Interest expense and related charges ............. (991,973) - (991,973) Reorganization items, net ........................ 38 - 38 ------------ ------------ ------------ Total Other Income (Deductions) .................... (527,324) - (527,324) ------------ ------------ ------------ Loss before Income Taxes, Extraordinary Item and Cummulative Effect of Accounting Change .......... (644,159) - (644,159) Income Taxes ....................................... (299,415) - (299,415) ------------ ------------ ------------ Loss before Extraordinary Item and Cummulative Effect of Accounting Change ...................... (344,744) - (344,744) Extraordinary Item ................................. (11,099) - (11,099) Cummulative Effect of Accounting for Postemployment Benefits ......................................... (7) - (7) ------------ ------------ ------------ Net Loss ........................................... (355,850) - (355,850) ------------ ------------ ------------
31 PAGE 11 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(d) STATEMENT OF COMMON STOCK EQUITY ACTUAL and PRO FORMA Twelve Months Ended November 30, 1995 ($000)
CG Pro Forma CG Actual Entries Pro Forma ------------ ------------ ------------ COMMON STOCK Balance at December 1, 1994 ........................ 505,633 - 505,633 Common stock issued - Subsidiaries ..................................... - - - Leveraged employee stock ownership plan (LESOP) .. - - - Dividend reinvestment plan ....................... - - - Long-term incentive plan ......................... 515 30,000 30,515 Public offering .................................. - - - ------------ ------------ ------------ Balance at November 30, 1995 ....................... 506,148 30,000 536,148 ------------ ------------ ------------ ADDITIONAL PAID IN CAPITAL Balance at December 1, 1994 ........................ 601,828 - 601,828 Common stock issued - Subsidiaries ..................................... - - - Leveraged employee stock ownership plan (LESOP) .. (1,944) - (1,944) Dividend reinvestment plan ....................... - - - Long-term incentive plan ......................... 1,592 102,000 103,592 Public offering .................................. - - - Preferred stock issued ............................. - - - ------------ ------------ ------------ Balance at November 30, 1995 ....................... 601,476 102,000 703,476 ------------ ------------ ------------ RETAINED EARNINGS Balance at December 1, 1994 ........................ 407,325 - 407,325 Net income ......................................... (355,850) - (355,850) Common stock dividends - CG ............................................... - - - Subsidiaries (to CG) ............................. - - - Other .............................................. (219) - (219) ------------ ------------ ------------ Balance at November 30, 1995 ....................... 51,256 - 51,256 ------------ ------------ ------------ Reacquired Capital Stock ........................... (57,807) - (57,807) ------------ ------------ ------------ UNEARNED EMPLOYEE COMPENSATION Balance at December 1, 1994 ........................ (69,966) - (69,966) Adjustment ......................................... 69,966 - 69,966 ------------ ------------ ------------ Balance at November 30, 1995 ....................... 0 - 0 ------------ ------------ ------------ Total Common Stock Equity .......................... ,101,073 132,000 1,233,073 ------------ ------------ ------------
32 PAGE 12 THE COLUMBIA GAS SYSTEM, INC. UNAUDITED 6(b)(2)(e) PRO FORMA ENTRIES ($000)
Debit Credit 1. Cash 132,000 Paid In Capital 102,000 Common Stock Equity, $10 par value 30,000
To record the issuance of 3,000,000 shares of common stock at an assumed price of $44 per share. 33 PAGE 1 EXHIBIT INDEX (a) Exhibits A-1 The Columbia Gas System, Inc. Long-Term Incentive Plan in substantially final form A-2 Section of The Columbia Gas System, Inc. Proxy Statement pertaining to the adoption of the Long-Term Incentive Plan (to be filed by amendment) F Opinion of Counsel (to be filed by amendment). G Financial Data Schedules H Draft Notice EX-99.A1 2 LONG-TERM INCENTIVE PLAN 1 PAGE 1 EXHIBIT A-1 DRAFT THE COLUMBIA GAS SYSTEM, INC. LONG-TERM INCENTIVE PLAN 1. Purpose. The purpose of The Columbia Gas System, Inc. Long-Term Incentive Plan ("Plan") is to provide incentives to specified individuals to continuously add value to The Columbia Gas System, Inc. (the "Corporation"). Plan participants consist of: (i) those officers and key employees of the Corporation and its subsidiary companies (the "Employees") who, in the opinion of the Compensation Committee of the Board of Directors of the Corporation (the "Committee"), are making or are in a position to make substantial contributions to the Corporation by their ability and efforts; and (ii) members of the Board of Directors of the Corporation who are not employees ("Outside Directors"). The Corporation also believes that the Plan will facilitate attracting, retaining and motivating Employees and directors of high caliber and potential. 2. Effective Date. This Plan is to be effective February 21, 1996, subject to shareholder and regulatory approvals. 3. Administration. The Plan shall be administered by the Committee. As applied to Employees, the Committee shall have full and final authority in its discretion to conclusively interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the individuals to whom awards shall be made under the Plan; to determine the type of award to be made to such Employees and the amount, size and terms of each such award; to determine the time when awards will be granted to Employees; and to make all other determinations necessary or advisable for the administration of this Plan. The Committee shall have no discretion with respect to the amount, price and timing of awards to Outside Directors. In this regard, the portions of the Plan applicable to Outside Directors are designed to meet the requirements of Rule 16b-3(c)(2)(ii) promulgated by the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and accordingly are intended to be self-governing and to operate automatically. With respect to ministerial matters regarding the portions of the Plan applicable to Outside Directors, the Plan will be administered by the Committee. 4. Shares Subject to Plan. The shares that may be issued under the Plan pursuant to Paragraph 7 shall not exceed in the aggregate 3,000,000 shares of the Corporation's common stock. Such shares may be authorized and unissued shares or treasury shares. 2 PAGE 2 The maximum number of shares that may be awarded pursuant to the contingent or restricted stock award provisions of Paragraphs 10 and 11 shall be 20 percent of the total shares authorized for issuance under the Plan. Except as otherwise provided herein, any shares subject to an option or right which for any reason expires or is terminated unexercised as to such shares shall again be available under the Plan. 5. Participants. Persons eligible to participate shall be limited to (1) with regard to any awards permitted pursuant to Paragraph 7, the Employees; and (2) with regard to stock options permitted pursuant to Paragraph 8, the Outside Directors. 6. Outside Directors. Outside Directors shall be eligible under this Plan only for nonqualified stock option awards. Consistent with Exchange Act Rule 16b-3(c)(2)(ii)'s criteria, such stock option awards shall be made if the Corporation's Total Shareholder Return (defined as market appreciation and dividends declared in a year) for a fiscal year exceeds the median of the Total Shareholder Return for the group of peer companies utilized for comparison purposes in the Corporation's Annual Proxy Statement. If the Corporation's Total Shareholder Return falls in the third quartile of the peer group, then options shall be granted to each Outside Director to purchase 3,000 shares of common stock. If the Corporation's Total Shareholder Return falls in the fourth quartile of the peer group, then options shall be granted to each Outside Director to purchase 6,000 shares of common stock. No stock option awards shall be made to Outside Directors if Total Shareholder Return is at or below the median of the group for a fiscal year. Stock option awards for Outside Directors, if any, shall be granted effective as of 90 days after the close of the Corporation's fiscal year for Total Shareholder Return performance for the preceding fiscal year. Grants to Outside Directors shall vest one-third upon the date of the grant, two-thirds upon the first anniversary of the grant, and 100 percent upon the second anniversary of the grant. Additional terms of stock option awards to Outside Director shall be governed by Paragraph 8, as may be supplemented by Paragraphs 12(b) and 13-24. 7. Awards under the Plan. Subject to the limitations provided under Paragraph 6 for awards to Outside Directors, awards under the Plan may be in the form of stock options (both nonqualified stock options and incentive stock options under Section 422 of the Internal Revenue Code or any amendment thereof or substitute therefor), contingent stock, restricted stock and stock appreciation rights, or such other forms as the Committee may in its discretion deem appropriate but in any event which are consistent with the Plan's purpose, including any combination of the above. The maximum number of shares that may be awarded to any one person during the life of the Plan shall be 20 percent of the total shares authorized for issuance under the Plan. 3 PAGE 3 8. Stock Options. Options shall be evidenced by stock option agreements in such form, not inconsistent with this Plan or Exchange Act Rule 16b-3(c), as the Committee shall approve from time to time, which agreements shall contain in substance the following terms and conditions. (a) Option Price. The purchase price per share of stock deliverable upon the exercise of an incentive stock option shall be 100 percent of the fair market value of the stock on the day the option is granted, as determined by the Committee. The purchase price per share of stock deliverable upon the exercise of a nonqualified stock option shall be 100 percent of the fair market value of the stock on the day the option is granted, as determined by the Committee. "Fair market value" for awards to Outside Directors shall be the average of the high and low sales prices per share of the Corporation's common stock on The New York Stock Exchange as reported in The Wall Street Journal for a given date. The option agreement for nonqualified options shall provide for a reduction of the purchase price by dividends paid on a share of common stock of the Corporation as long as the option is outstanding and not exercised, but in no event shall this price be less than the par value of such stock. (b) Exercise of Option. Each stock option agreement shall state the period or periods of time, as may be determined by the Committee, within which the option may be exercised by the participant, in whole or in part, provided that the option period shall not commence earlier than six months after the date of the grant of the option or end later than ten years after the date of the grant of the option. The Committee shall have the power to permit in its discretion an acceleration of the previously determined exercise terms, subject to the terms of this Plan, to the extent permitted by Exchange Act Rule 16b-3(c), and under such circumstances and upon such terms and conditions as deemed appropriate and which are not inconsistent with Exchange Act Rule 16b-3(c)(1). (c) Payment for Shares. Stock purchased pursuant to an option agreement shall be paid for in full at the time of purchase, either in the form of cash, common stock of the Corporation at fair market value, or in a combination thereof, as the Committee may determine. (d) Rights upon Termination of Employment or Board Service. In the event that an optionee ceases to be employed by the Corporation or its subsidiaries or ceases to serve as an Outside Director of the Corporation for any cause other than death, disability, retirement, or a Change in Control as defined in Paragraph 12(b), the optionee shall have the right, 4 PAGE 4 subject to the requirements of Exchange Act Rule 16b-3(c)(1), to exercise the option during its term within a period of three months after such termination to the extent that the option was exercisable at the date of such termination, or during such other period and subject to such terms as may be determined by the Committee. In the event that an optionee is terminated due to death, retirement, disability or a Change in Control, prior to termination of his option without having fully exercised his option, the optionee or his successor may have the right, subject to the requirements of Exchange Act Rule 16b-3(c)(1), to exercise the option during its term within a period of 24 months after the date of such termination due to death, disability, retirement, or a Change in Control to the extent that the option was exercisable at the date of such termination, or during such other period and subject to such terms as may be determined by the Committee. (e) Individual Limitations. (i) Notwithstanding anything herein to the contrary, the aggregate fair market value (determined as of the time the option is granted) of incentive stock options for any Employee which may become first exercisable in any calendar year shall not exceed $100,000. (ii) Notwithstanding anything herein to the contrary, no incentive stock option shall be granted to any individual if, at the time the option is to be granted, the individual owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation unless at the time such option is granted the option price is at least 110 percent of the fair market value of the stock subject to option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted. (f) Other Terms. Each incentive stock option agreement shall contain such other terms, conditions and provisions as the Committee may determine to be necessary or desirable in order to qualify such option as a tax-favored option within the meaning of Section 422 of the Internal Revenue Code, or any amendment thereof, substitute therefor, or regulation thereunder. Subject to the limitations of Paragraph 20, and without limiting any other provisions hereof, the Committee shall have the power without further approval to amend the terms of any option for Employees. 5 PAGE 5 9. Stock Appreciation Rights. Stock appreciation rights ("SARs") shall be evidenced by SAR agreements in such form, and not inconsistent with this Plan or Exchange Act Rule 16b-3(c)(1), as the Committee shall approve from time to time, which agreements shall contain in substance the following terms and conditions: (a) Award. An SAR may be granted in connection with an option and shall entitle the grantee, subject to such terms and conditions determined by the Committee, to receive, upon surrender of the option, all or a portion of the excess of (i) the fair market value of a specified number of shares of common stock of the Corporation at the time of the surrender, as determined by the Committee, over (ii) 100 percent of the fair market value of the stock at the time the option was granted less any dividends paid while the option was outstanding but unexercised. (b) Term. SARs shall be granted for a period of not less than six months nor more than ten years, and shall be exercisable in whole or in part, at such time or times and subject to such other terms and conditions as shall be prescribed by the Committee at the time of grant, subject to the following: (i) No SAR shall be exercisable, in whole or in part, during the six- month period starting with the date of grant; and (ii) SARs will be exercisable only during a grantee's employment by the Corporation or its subsidiaries, except that in the discretion of the Committee an SAR may be made exercisable for up to three months after the grantee's employment is terminated for any reason other than death, retirement or disability. In the event that a grantee's employment is terminated as a result of death, retirement or disability without having fully exercised his SARs, the grantee or his successor may have the right to exercise the SARs during their term within a period of 24 months after the date of such termination to the extent that the right was exercisable at the date of such termination, or during such other period and subject to such terms as may be determined by the Committee. The Committee in its sole discretion may reserve the right to accelerate previously determined exercise terms, within the terms of the Plan, under such circumstances and upon such terms and conditions as it deems appropriate. (iii) The Committee shall establish such additional terms and conditions, without limiting the foregoing, as it determines to be 6 PAGE 6 necessary or desirable to avoid "short-swing" trading liability in connection with an SAR under Section 16(b) of the Exchange Act. (c) Payment. Upon exercise of an SAR, payment shall be made in the form of common stock of the Corporation (at fair market value on the date of exercise), cash, or a combination thereof, as the Committee may determine. 10. Contingent Stock Awards. Contingent stock awards under the Plan shall be evidenced by contingent stock agreements in such form and not inconsistent with this Plan as the Committee shall approve from time to time, which agreements shall contain in substance the following terms and conditions: (a) Award. The Committee shall determine the amount of a contingent stock award to be granted to an Employee based on the expected impact the Employee can have on the financial well-being of the Corporation and other factors deemed by the Committee to be appropriate. (b) Restriction Period. Contingent stock awards made pursuant to this Plan shall be subject to such terms, conditions, and restrictions, including without limitation, substantial risks of forfeiture and/or attainment of performance objectives, and for such period or periods (in excess of six months) as shall be determined by the Committee at the time of grant. The Committee shall have the power to permit, in its discretion, an acceleration of the expiration of the applicable restriction period (so long as the minimum six-month period is retained) with respect to any part or all of the award to any participant. (c) Lapse of Restrictions. The agreement shall specify the terms and conditions upon which any restrictions on the right to receive shares representing contingent stock awarded under the Plan shall lapse, as determined by the Committee. Upon the lapse of such restrictions, shares of common stock shall be issued to the participant or his legal representative. (d) Termination Prior to Lapse of Restrictions. In the event of a participant's termination of employment for any reason prior to the lapse of restrictions applicable to a contingent stock award made to such participant and unless otherwise provided for herein by this Plan or as provided for in the contingent stock agreement, all rights to shares as to which there still remain unlapsed restrictions shall be forfeited by such participant to the Corporation without payment or any consideration by the Corporation, and 7 PAGE 7 neither the participant nor any successors, heirs, assigns or personal representatives of such participant shall thereafter have any further rights or interest in such shares. 11. Restricted Stock Award. Restricted stock awards under the Plan shall be evidenced by restricted stock agreements in such form, and not inconsistent with this Plan, as the Committee shall approve from time to time, which agreements shall contain in substance the following terms and conditions: (a) Award. The Committee shall determine the amount of a restricted stock award to be granted to an Employee based on the past or expected impact the Employee has had or can have on the financial well-being of the Corporation and other factors deemed by the Committee to be appropriate. (b) Restriction Period. Restricted stock awards made pursuant to this Plan shall be subject to such terms, conditions, and restrictions, including without limitation, substantial risks of forfeiture and/or attainment of performance objectives, and for such period or periods (in excess of six months) as shall be determined by the Committee at the time of grant. The Committee shall have the power to permit, in its discretion, an acceleration of the expiration of the applicable restriction period (so long as the minimum six-month period is retained) with respect to any part or all of the award to any participant. Upon issuance of a restricted stock award, shares will be issued in the name of the recipient. During the restriction period, recipients shall have the rights of a shareholder for all such shares of restricted stock, including the right to vote and the right to receive dividends thereon as paid. (c) Restrictive Legend and Stock Power. Each certificate evidencing stock subject to restricted stock awards shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such award. Any attempt to dispose of stock in contravention of such terms, conditions and restrictions shall be ineffective. The Committee may adopt rules which provide that the certificates evidencing such shares may be held in custody by a bank or other institution, or that the Corporation may itself hold such shares in custody, until the restrictions thereon shall have lapsed and may require as a condition of any award that the recipient shall have delivered a stock power endorsed in blank relating to the stock covered by such award. (d) Lapse of Restrictions. The restricted stock agreement shall specify the terms and conditions upon which any restrictions on the right to receive shares representing restricted stock awarded under the Plan shall lapse, as determined by the Committee. Upon the lapse of such restrictions, shares of common stock which 8 PAGE 8 have not been delivered to the participant or his legal representative shall be delivered to such participant or his legal representative. (e) Termination Prior to Lapse of Restrictions. In the event of a participant's termination of employment for any reason prior to the lapse of restrictions applicable to a restricted stock award made to such participant and unless otherwise provided for herein by this Plan or as provided for in the restricted stock agreement, all rights to shares as to which there still remain unlapsed restrictions shall be forfeited by such participant to the Corporation without payment or any consideration by the Corporation, and neither the participant nor any successors, heirs, assigns or personal representatives of such participant shall thereafter have any further rights or interest in such shares. 12. Other Provisions Relating to Contingent and Restricted Stock Awards and Stock Options. Notwithstanding any other provision to the contrary in Paragraphs 6, 8, 10 or 11 or elsewhere in this Plan, the following additional provisions shall apply to contingent and restricted stock awards and stock option awards (except that Paragraph 12(a) shall only apply to contingent and restricted stock awards): (a) Effect of Salary Continuation on Termination Prior to Lapse of Restrictions. If a recipient of a contingent or restricted stock award has his employment terminated and his salary continued through an employment agreement, severance program or any other comparable arrangement, then any contingencies and restrictions which are satisfied or which could have been satisfied during the period for which the recipient's salary is to be continued, irrespective of form, will be deemed to have been satisfied, and such shares of contingent and/or restricted stock will be issued and delivered to the recipient or his legal representative no later than the expiration of the salary continuation program. (b) Change in Control. Upon a "Change in Control" as defined below, all options (including any accompanying SARs), contingent stock awards and restricted stock awards will automatically vest as of that date, and all restrictions or contingencies will be deemed to have been satisfied. The term "Change in Control" means the occurrence of any of the following events: (i) the acquisition by any party or parties of the beneficial ownership of 25 percent or more of the voting shares of the Corporation; (ii) the occurrence of a transaction requiring shareholders' approval for the acquisition of the Corporation through purchase or exchange of stock or assets, or by merger, or otherwise; or 9 PAGE 9 (iii) the election during a period of 24 months, or less, of 30 percent or more of the members of the Board, without the approval of a majority of the Board as constituted at the beginning of the period. 13. General Restrictions. The Plan and each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of common stock subject or related thereto upon any securities exchange or under any state or federal law, (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an award with respect to the disposition of shares of common stock, is necessary or desirable as a condition of, or in connection with the Plan or the granting of such award or the issue or purchase of shares of common stock thereunder, the Plan will not be effective and/or the award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 14. Rights of a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of common stock are issued to him, except for the rights provided for in Paragraph 11 of this Plan as it pertains to restricted stock awards. 15. Rights to Terminate Employment. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in the employment or Board service of the Corporation or its subsidiary companies or affect any right which the Corporation or its subsidiary companies may have to terminate the employment or Board service of such participant. 16. Withholding of Taxes. Whenever the Corporation proposes or is required to issue or transfer shares of common stock under the Plan, the Corporation shall have the right to require the recipient to remit to the Corporation an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any federal, state and/or local withholding tax requirements. 17. Nonassignability. No award or benefit under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution. During the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative. 10 PAGE 10 18. Non-Uniform Determinations. The Committee's determinations under the Plan (including, without limitation, determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by the Committee selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. 19. Adjustments. In the event of any change in the outstanding common stock of the Corporation by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee shall adjust the number of shares of common stock which may be issued under the Plan and shall provide for an equitable adjustment of any outstanding award or shares issuable pursuant to an outstanding award under this Plan. 20. Amendment. Subject to U.S. Securities and Exchange Commission approval, if required, the Board of Directors of the Corporation may amend the Plan at any time, except that without shareholder approval, the Board may not (i) materially increase the benefits accruing to participants, (ii) materially increase the maximum number of shares which may be issued under the Plan (other than equitable adjustment pursuant to Paragraph 19 hereof), (iii) materially modify the Plan's eligibility requirements, or (iv) change the basis on which awards are granted to Outside Directors. With respect to Outside Directors, this Plan may not be amended more than once every six months except as may be consistent with Exchange Act Rule 16b-3(c)(2)(ii)(B). The termination or any modification or amendment of the Plan shall not, without the consent of a participant, affect a participant's rights under an award previously granted. Notwithstanding the foregoing, however, the Corporation reserves the right to terminate the Plan in whole or in part, at any time and for any reason, provided that full and equitable compensation is made to participants with respect to awards previously granted. 21. Effect on Other Plan. Participation in this Plan shall not affect a participant's eligibility to participate in any other benefit or incentive plan of the Corporation, and any awards made pursuant to this Plan shall not be used in determining the benefits provided under any other plan of the Corporation unless specifically provided. 22. Duration of the Plan. The Plan shall remain in effect until all awards under the Plan have been satisfied by the issuance of shares or the payment of cash, but no award shall be granted more than ten years after the date the Plan is adopted by the Corporation. 23. Funding of the Plan. This Plan shall be unfunded. The Corporation shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under this Plan, and payment of awards shall be on the 11 PAGE 11 same basis as the claims of the Corporation's general creditors. In no event shall interest be paid or accrued on any award, including unpaid installments of awards. 24. Governing Law. The laws of the State of Delaware shall govern, control and determine all questions arising with respect to the Plan and the interpretation and validity of its respective provisions. Approved by the Board of Directors of The Columbia Gas System, Inc. at a meeting held on ________________, 1996 and approved by the shareholders of The Columbia Gas System, Inc. on ________________. (CORPORATE SEAL) -------------------------------------- Secretary EX-27.1 3 FINANICIAL DATA SCHEDULE COLUMBIA GAS SYSTEM, INC. WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 1 CG 1,000 1,000 12-MOS 12-MOS DEC-31-1995 DEC-31-1995 DEC-01-1994 DEC-01-1994 NOV-30-1995 NOV-30-1995 PER-BOOK PRO-FORMA 0 0 3,660,288 3,660,288 344,976 476,976 3,701 3,701 0 0 4,008,965 4,140,965 506,148 536,148 601,476 703,476 51,256 51,256 1,101,073 1,233,073 0 0 399,945 399,945 2,000,056 2,000,056 0 0 0 0 0 0 0 0 0 0 0 0 0 0 507,891 507,891 4,008,965 4,140,965 0 0 (299,415) (299,415) 116,835 116,835 116,835 116,835 (116,835) (116,835) 464,649 464,649 347,814 347,814 991,973 991,973 (355,850) (355,850) 0 0 (355,850) (355,850) 0 0 0 0 0 0 (7.04) (7.00) (7.04) (7.00)
EX-27.2 4 FINANICIAL DATA SCHEDULE COLUMBIA GAS SYSTEM, INC. WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 2 CGS 1,000 1,000 12-MOS 12-MOS DEC-31-1995 DEC-31-1995 DEC-01-1994 DEC-01-1994 NOV-30-1995 NOV-30-1995 PER-BOOK PRO-FORMA 3,620,812 3,620,812 719,408 719,408 1,348,947 1,480,947 289,283 289,283 0 0 5,978,450 6,110,450 506,148 536,148 601,476 703,476 51,256 51,256 1,101,073 1,233,073 0 0 399,945 399,945 2,004,452 2,004,452 0 0 0 0 0 0 1,520 1,520 0 0 2,876 2,876 0 0 2,472,980 2,472,980 5,978,450 6,110,450 2,618,897 2,618,897 (256,280) (256,280) 2,377,852 2,377,852 2,377,852 2,377,852 241,045 241,045 71,165 71,165 312,210 312,210 975,525 975,525 (355,850) (355,850) 0 0 (355,850) (355,850) 0 0 0 0 0 0 (7.04) (7.00) (7.04) (7.00)
EX-99.H 5 DRAFT NOTICE COLUMBIA GAS SYSTEM, INC. 1 PAGE 1 EXHIBIT H SECURITIES AND EXCHANGE COMMISSION (Release No. ) The Columbia Gas System, Inc. ("Columbia"), Wilmington, Delaware, a registered holding company, has filed with this Commission an application-declaration under Sections 6(a), 7, 12(c) and 12(e) of the Public Utility Holding Company Act of 1935 (the "Act") and Rules 42, 62 and 65 thereunder. On December 20, 1995 Columbia's Board of Directors approved the adoption of a Long-Term Incentive Plan ("Plan), subject to the approval of the Commission and of Columbia's stockholders at its April 26, 1996 annual meeting of stockholders. The purpose of the Plan is to provide incentives to specified individuals to continuously add value to Columbia. By so doing, Columbia believes that the Plan will facilitate attracting, retaining and motivating employees and directors of high caliber and potential. The Plan provides long-term incentives to (1) those officers and key employees of Columbia and its subsidiaries (the "System") who, in the opinion of the Compensation Committee of Columbia's Board of Directors (the "Committee"), may be able to make substantial contributions to the System by their ability and efforts; and (2) members of the Board of Directors of Columbia who are not employees ("Outside Directors"). Columbia states the Plan design helps to align the interests of Employees and Outside Directors of Columbia with those of the company's stockholders. The following types of awards may be made under the Plan: stock options, including incentive stock options and nonqualified stock options, stock appreciation rights ("SARs"), contingent stock, restricted stock, and any award in other forms that the Committee may deem appropriate but in any event which are consistent with the Plan's purpose, including combinations of the foregoing. Employees would be eligible to receive any form of award permitted under the Plan. Outside Directors are eligible only for nonqualified stock option awards, according to the formula set forth in the Plan. The aggregate number of shares which may be granted under the Plan is 3 million shares, $10 par value per share, subject to equitable adjustment in order to prevent dilution or enlargement of the participants' rights under the Plan in the event of a change in the outstanding common stock of Columbia by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like (an "Equitable Adjustment Event"). The maximum number of shares that may be awarded pursuant to the contingent and restricted stock award provisions will be 20 percent of the total shares authorized for issuance under the Plan, or 600,000 shares. The maximum number of shares that may be awarded to any individual during the life of the Plan will be 20 percent of the total shares authorized for issuance under the Plan, or 600,000 shares. The shares that may be issued under the Plan may be authorized and unissued shares or treasury shares. Shares of common stock subject to options 2 PAGE 2 and awards that expire or terminate for reasons other than the exercise of a stock appreciation right would again be available for awards under the Plan. The portions of the Plan applicable to Employees will be administered by the Committee, which is composed only of Outside Directors who qualify both as "disinterested persons" under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and as "outside directors" under Section 162(m) of the Internal Revenue Code of 1986 ("IRC"), as amended, and the regulations promulgated thereunder. With regard to its administration, the Committee will have full and final authority in its discretion to conclusively interpret the provisions of the Plan pertaining to Employees and to decide all questions of fact arising in its application; to determine the Employees to whom awards shall be made under the Plan; to determine the type of award to be made and the amount, size and terms of each such award; to determine the time when awards will be granted; to make all other determinations necessary or advisable for the administration of the Plan; and to accelerate the exercise period of an option or the restriction/contingency period of restricted and contingent stock awards. The Committee will also administer the portions of the Plan applicable to Outside Directors, but only with respect to ministerial matters. With respect to awards to Outside Directors, Columbia states that the Plan is designed to be a "formula plan" meeting the requirements of Exchange Act Rule 16b-3(c)(2) and, accordingly, is intended to be self-governing. The Committee will have no discretion with respect to the amount, price and timing of awards to Outside Directors. Consequently, Columbia states that the Committee's administration of the portions of the Plan applicable to Outside Directors will be confined to ministerial matters. Consistent with the limited discretion over the Plan regarding the portions of the Plan governing awards to Outside Directors, the Plan may not be amended more than once every six months except as may be consistent with Exchange Act Rule 16b-3(c)(ii)(B). Nonqualified stock option awards will be made to Outside Directors if Columbia's Total Shareholder Return (defined as market appreciation and dividends declared in a year) for a fiscal year exceeds the median of the Total Shareholder Return for the peer group of companies utilized for comparison purposes in Columbia's annual proxy statement. If Columbia's Total Shareholder Return falls within the third quartile (between 50% and 75%) of the peer group, then options will be granted to each Outside Director to purchase 3,000 shares of Columbia common stock. If Columbia's Total Shareholder Return falls within the fourth quartile (between 75% and 100%) of the peer group, then options will be granted to each Outside Director to purchase 6,000 shares. No stock option awards will be made to Outside Directors if Total Shareholder Return is at or below the median. Nonqualified stock option awards for Outside Directors, if any, would be granted effective as of 90 days after the close of Columbia's fiscal year for Total Shareholder Return performance for the preceding fiscal year. Grants to Outside Directors would vest one-third upon the date of the grant, one-third upon the first anniversary of the grant, and one-third upon the second anniversary of the grant. The purchase price per share of stock for Outside Directors' awards would be 100 percent of the fair market value of the stock on the day the option is granted less any dividends paid as long as the option is outstanding, but in no event less than the par value of such stock. For awards to Outside Directors, "fair market value" means the average 3 PAGE 3 of the high and low sales prices per share of Columbia's common stock on the New York Stock Exchange as reported in The Wall Street Journal for a given date. In all other respects and to the extent consistent with Exchange Act Rule 16b-3(c)(2), Outside Director stock options will be governed by the provisions of the Plan governing Employee options. Options will be evidenced by stock option agreements containing in substance the following terms and conditions. The purchase price per share of stock deliverable upon the exercise of an incentive stock option will be 100 percent of the fair market value of the stock on the day the option is granted. The purchase price per share of stock deliverable upon the exercise of a nonqualified stock option will be 100 percent of the fair market value of the stock on the day the option is granted, less any dividends paid as long as the option is outstanding, but in no event less than the par value of such stock. The option period will not commence earlier than six months, nor end later than ten years, after the date of the grant of the option. However, the Committee may permit an acceleration of the previously determined exercise terms, subject to the terms of the Plan and to the extent permitted by Exchange Act Rule 16b-3(c). If an optionee ceases to be an Employee of the System or Outside Director of Columbia for any cause other than death, disability or retirement or a "Change in Control," the optionee may be able to exercise the option during its term within a period of three months after such termination. If an optionee terminates service as an Employee or Outside Director due to death, retirement, disability or a Change in Control prior to termination of his option, without having fully exercised the option, the optionee or his successor may be able to exercise the option within a period of 24 months after the date of termination. Incentive stock option agreements may contain such terms, conditions and provisions as the Committee may determine to be necessary or desirable in order to qualify such option as a tax-favored option within the meaning of IRC Section 422. SARs may be granted in connection with options and will entitle the grantee to receive, upon surrender of the option, all or a portion of the excess of (1) the fair market value of a specified number of shares of Columbia's common stock at the time of surrender, over (2) 100 percent of the fair market value of the same number of shares at the time the option was granted, less any dividends paid while the option was outstanding but unexercised. SARs will be granted for a period of not less than six months nor more than 10 years. No SAR will be exercisable during the six-month period starting with the date of grant, and SARs will be exercisable only during a grantee's employment by the System, except that the Committee may permit an SAR to be exercisable for up to three months after the grantee's employment is terminated for any reason other than death, retirement or disability. In the event of termination due to death, disability, or retirement, the grantee or his successor may be able to exercise the SAR within a period of 24 months after the date of such termination. The Committee may reserve the right to accelerate previously determined exercise terms as it deems appropriate. Under contingent and restricted stock awards, Employees are given the right to receive shares of stock when the contingencies or restrictions set forth in the accompanying award agreement have been satisfied. Contingent and restricted stock awards will be subject to such periods in excess of six months as determined by the Committee, and the Committee may accelerate the expiration of the applicable contingency or restriction period so long as the minimum six-month period is retained. In the event of a participant's termination of 4 PAGE 4 employment for any reason prior to the lapse of contingencies or restrictions and unless otherwise provided for in the Plan or in the applicable award agreement, all rights to the contingent or restricted shares as to which there still remain unlapsed contingencies or restrictions will be forfeited by the participant to Columbia, without payment or any other consideration by Columbia. If a recipient of a contingent or restricted stock award has his employment terminated but his salary is continued through an employment agreement, severance program or any other comparable arrangement, then any contingencies and restrictions which are satisfied or could have been satisfied during the period for which the recipient's salary is to be continued will be deemed to have been satisfied, and such shares of contingent and/or restricted stock will be issued and delivered to the recipient or his legal representative no later than the end of the salary continuation program. With regard to contingent stock awards, the stock is not issued until the right to receive the stock is vested. For restricted stock awards, shares will be issued in the name of the recipient, but the recipient will not receive them until the specified restrictions lapse, or if he receives them, the shares will bear a legend as to their restricted status. Each certificate evidencing stock subject to restricted stock awards will bear an appropriate legend referring to the terms, conditions and restrictions applicable to such award, and any attempt to dispose of stock in contravention of such terms, conditions and restrictions will be ineffective. During the restriction period for restricted stock awards, the recipient will have the rights of a stockholder for all such shares of restricted stock, including the right to vote and the right to receive dividends thereon as paid. For contingent and restricted stock awards and stock option awards (including any accompanying SARs), upon a Change in Control, all such awards will automatically vest as of that date, and all restrictions or contingencies will be deemed to have been satisfied. The term "Change in Control" means the occurrence of any of the following events: (1) the acquisition by any party or parties of the beneficial ownership of 25 percent or more of the voting shares of Columbia; (2) the occurrence of a transaction requiring shareholders' approval for the acquisition of Columbia through purchase or exchange of stock or assets, or by merger, or otherwise; or (3) the election during a period of 24 months, or less, of 30 percent or more of the members of Columbia's board of directors, without the approval of a majority of the board as constituted at the beginning of the period. In addition, for all awards under the Plan, upon the occurrence of an Equitable Adjustment Event, the Committee will adjust the number of shares of common stock which may be issued under the Plan and will provide for an equitable adjustment of any outstanding award or shares issuable pursuant to an outstanding award under the Plan. Columbia may suspend, terminate or amend the Plan at any time but may not, without seeking shareholder approval pursuant to Commission authorization, if required, adopt any amendment which would (1) materially increase the benefits accruing to participants, (2) materially increase the maximum number of shares which may be issued under the Plan, subject to equitable adjustment, (3) materially modify the Plan's eligibility requirements, or (4) change the basis on which awards are granted to Outside Directors. Columbia reserves the right to terminate the Plan, in whole or in part, at any time and for any reason so long as full and equitable compensation is made to participants with respect to awards previously granted. 5 PAGE 5 Upon approval of the Plan by the Commission and Columbia's stockholders, the Plan would be effective as of February 21, 1996. The Plan would remain in effect until all awards under the Plan have been satisfied by the issuance of shares or payment of cash, but no award may be granted more than ten years after the Plan is adopted. Columbia proposes to solicit proxies from stockholders for purposes of voting in favor of the Plan at the Annual Meeting of Stockholders to be held on April 26, 1996. Columbia requests that the Commission issue an order declaring the Application-Declaration to become effective subject to compliance with the registration requirements under the Securities Act of 1933 when required. Fees and expenses estimated at $22,000 are expected to be incurred in connection with the proposed transaction, including $15,000 to be expended for proxy solicitation services. The application-declaration and any amendments thereto are available for public inspection through the Commission's Office of Public Reference. Interested persons wishing to comment or request a hearing should submit their views in writing by ________________, 1996, to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549, and serve a copy on the applicant-declarant at the address specified above. Proof of service (by affidavit or, in case of an attorney-at-law, by certificate) should be filed with the request. Any request for a hearing shall identify specifically the issues of fact or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in this matter. After said date, the application-declaration, as filed or as it may be amended, may be permitted to become effective. It appearing to the Commission that Columbia's declaration regarding the proposed solicitation of proxies should be permitted to become effective forthwith pursuant to Rule 62(d): IT IS ORDERED that the declaration regarding the proposed solicitation of proxies be, and it hereby is, permitted to become effective forthwith pursuant to Rule 62(d) and subject to the terms and conditions prescribed in Rule 24 under the Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Jonathan G. Katz, Secretary -----END PRIVACY-ENHANCED MESSAGE-----