SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
NiSource Inc.
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(Name of Registrant as Specified in Its Charter)
NiSource Inc.
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[NISOURCE LOGO]
NISOURCE INC.
801 E. 86th Avenue - Merrillville, IN 46410 - (877) 647-5990
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NOTICE OF ANNUAL MEETING
April 16, 2002
To the Holders of Common Stock of NiSource Inc.:
The annual meeting (the "Annual Meeting") of the stockholders of NiSource
Inc. (the "Company") will be held at the Le Meridien Boston, 250 Franklin
Street, Boston, Massachusetts, on Tuesday, May 21, 2002, at 10:00 a.m., local
time, for the following purposes:
(1) To elect four members of the board of directors, each for a term of
three years;
(2) To approve an amendment to the Amended and Restated Long-Term Incentive
Plan; and
(3) To transact any other business that may properly come before the
meeting.
All persons who are stockholders of record at the close of business on
April 2, 2002 will be entitled to vote at the Annual Meeting.
Please act promptly to vote your shares with respect to the proposals
described above. You may vote your shares by marking, signing, dating and
mailing the enclosed proxy card. You may also vote by telephone or through the
Internet by following the instructions set forth on the proxy card. If you
attend the annual meeting, you may vote in person, even if you have previously
submitted a proxy.
In order to help us arrange for the Annual Meeting, if you plan to attend
the Annual Meeting, please so indicate in the space provided on the proxy card
or respond when prompted on the telephone or through the Internet.
PLEASE VOTE YOUR SHARES BY TELEPHONE, THROUGH THE INTERNET OR BY PROMPTLY
MARKING, DATING, SIGNING AND RETURNING THE ENCLOSED PROXY CARD.
/s/ Gary W. Pottorff
Gary W. Pottorff
Secretary
PROXY STATEMENT
THE ACCOMPANYING PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY. THE COMMON STOCK, $.01 PAR VALUE PER SHARE, OF THE COMPANY
REPRESENTED BY THE PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN,
SHARES REPRESENTED BY THE ACCOMPANYING PROXY WILL BE VOTED "FOR" ALL OF THE
NOMINEES FOR DIRECTOR AND "FOR" APPROVAL OF THE AMENDMENT TO THE 1994 LONG-TERM
INCENTIVE PLAN (THE "LONG-TERM INCENTIVE PLAN"). IF ANY OTHER MATTERS PROPERLY
COME BEFORE THE ANNUAL MEETING, THE PERSONS NAMED IN THE ACCOMPANYING PROXY WILL
VOTE THE SHARES REPRESENTED BY SUCH PROXY ON SUCH MATTERS IN ACCORDANCE WITH
THEIR BEST JUDGMENT.
This proxy statement and form of proxy are first being sent to stockholders
on April 16, 2002. The Company will bear the expense of this solicitation. The
original solicitation of proxies by mail and a reminder letter may be
supplemented by telephone, facsimile and personal solicitation by officers and
regular employees of the Company or its subsidiaries. To aid in the solicitation
of proxies, the Company has retained Mellon Investor Services LLC for a fee of
$7,500 plus reimbursement of expenses. The Company also will request brokerage
houses and other nominees and fiduciaries to forward proxy materials, at the
Company's expense, to the beneficial owners of stock held of record by such
persons.
WHO MAY VOTE --
The close of business on April 2, 2002, is the date for determining
stockholders entitled to notice of and to vote at the Annual Meeting. As of
April 2, 2002, 207,522,305 shares of common stock were issued and outstanding.
Each share of common stock outstanding on that date is entitled to one vote on
each matter presented at the Annual Meeting.
VOTING YOUR PROXY --
If you are a stockholder of record (that is, if you hold shares of common
stock of the Company in your own name), you may vote your shares by proxy using
any of the following methods:
- Telephoning the toll-free number listed on the proxy card;
- Using the Internet site listed on the proxy card; or
- Marking, dating, signing and returning the enclosed proxy card.
If your shares are held by a broker, bank or other nominee in "street
name," you will receive voting instructions from the record holder that you must
follow in order to have your shares of common stock voted at the Annual Meeting.
If your shares are held by a broker or other nominee, that broker or nominee
will have the discretionary authority to vote your shares of common stock with
regard to both proposals scheduled for consideration at the Annual Meeting if
you or any other person entitled to vote those shares do not provide the broker
or other nominee with instructions.
If you plan to attend the Annual Meeting, please so indicate when you vote,
so that the Company may facilitate arrangements.
VOTING IN PERSON --
You also may come to the Annual Meeting and vote your shares in person by
obtaining and submitting a ballot that will be provided at the meeting. However,
if your shares are held by a broker, bank or other nominee in street name, to be
able to vote at the meeting you must obtain a proxy, executed in your favor,
from the institution that holds your shares, indicating that you were the
beneficial owner of the shares on April 2, 2002, the record date for voting.
REVOKING YOUR PROXY --
This proxy may be revoked by the stockholder at any time before a vote is
taken or the authority granted is otherwise exercised. To revoke a proxy, you
may send to the Company's Secretary a letter indicating that
you want to revoke your proxy or you can supersede your initial proxy by (i)
delivering to the Secretary a duly executed proxy bearing a later date, (ii)
voting by telephone or through the Internet on a later date, or (iii) attending
the meeting and voting in person. Attending the Annual Meeting will not in and
of itself revoke a proxy.
QUORUM FOR THE MEETING --
A quorum of stockholders is necessary to take action at the Annual Meeting.
A majority of the outstanding shares of common stock, represented in person or
by proxy, will constitute a quorum of stockholders at the Annual Meeting. Votes
cast by proxy or in person at the meeting will be tabulated by the inspectors of
election. The inspectors of election appointed for the Annual Meeting will
determine whether or not a quorum is present. The inspectors of election will
treat instructions to withhold authority, abstentions and broker non-votes as
present and entitled to vote for purposes of determining the presence of a
quorum. A broker non-vote occurs when a broker holding shares for a beneficial
owner does not have authority to vote the shares and has not received
instructions from the beneficial owner as to how the beneficial owner would like
the shares to be voted.
VOTES REQUIRED --
A plurality of the votes cast at the meeting is required to elect a
director. Approval of the amendment to the Long-Term Incentive Plan requires the
affirmative vote of the majority of the shares present in person or represented
by proxy at the meeting and entitled to vote. Abstentions will not have any
effect on the election of the directors; however, abstentions will be counted as
a vote against the proposal to approve the amendment to the Long-Term Incentive
Plan. Since brokers have the authority to vote on both of the proposals
scheduled for consideration at the Annual Meeting, it is not anticipated that
there will be any broker non-votes.
PROPOSAL I -- ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS NISOURCE DIRECTORS
The Company's board of directors is composed of eleven directors, who are
divided into three classes. Each class serves for a term of three years, and one
class is elected each year. The NiSource board of directors, with the
recommendation of its Nominating and Compensation Committee, has nominated
Stephen P. Adik, Ian M. Rolland, John W. Thompson and Roger A. Young for
election as directors of the Company, each for a term of three years that will
expire in 2005. Each of the nominees currently serves as a director of the
Company. The board of directors does not anticipate that any of the nominees
will be unable to serve, but if any nominee is unable to serve the proxies will
be voted in accordance with the best judgment of the person or persons acting
thereunder.
The following chart gives information about nominees (who have consented to
being named in the proxy statement and to serve if elected) and other incumbent
directors. The dates shown for service as a director include service as a
director of our corporate predecessors NiSource Inc. (incorporated in Indiana)
and Northern Indiana Public Service Company. James T. Morris retired as a
director of the Company on April 7, 2002, in order to pursue his appointment as
the Executive Director of the World Food Programme in Rome, Italy, an autonomous
joint subsidiary program of the United Nations and the Food and Agriculture
Organization. The board of directors has not yet filled the vacancy resulting
from Mr. Morris' resignation.
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN A
FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD DIRECTOR SINCE
-------------------------------------------------- --------------
NOMINEES FOR TERMS TO EXPIRE IN 2005
Stephen P. Adik, 58
Vice Chairman of the Company since November 1, 2000;
prior thereto, Senior Executive Vice President since
February 1999, and Chief Financial Officer of the
Company since 1994. ................................... 2000
Ian M. Rolland, 68
Prior to his retirement in 1998, Mr. Rolland served as
Chairman and Chief Executive Officer of Lincoln
National Corporation, Ft. Wayne, Indiana, a provider of
financial products and services. Mr. Rolland also is a
director of Bright Horizons Family Solutions and on the
board of advisors of CID Partners...................... 1973
John W. Thompson, 52
Chairman and Chief Executive Officer of Symantec Corp.,
Cupertino, California, a provider of software and
Internet security technology. Prior to joining Symantec
in 1999, Mr. Thompson was General Manager of IBM
Americas. Mr. Thompson also is a director of United
Parcel Service, Inc. .................................. 1993
Roger A. Young, 56
Chairman, Bay State Gas Company, Westborough,
Massachusetts since 1996. Bay State Gas Company has
been a subsidiary of the Company since 1999. Mr. Young
also served as Chief Executive Officer of Bay State Gas
Company from 1990 to 1999. Mr. Young also is a director
of Watts Industries, Inc. ............................. 1999
DIRECTORS WHOSE TERMS EXPIRE IN 2004
Steven C. Beering, 69
President Emeritus of Purdue University, West
Lafayette, Indiana. Dr. Beering was President of Purdue
University from 1983 to 2000. Dr. Beering also is a
director of ArvinMeritor, Inc., American United Life
Insurance Company and Eli Lilly and Company............ 1986
2
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN A
FOR PAST FIVE YEARS AND PRESENT DIRECTORSHIPS HELD DIRECTOR SINCE
-------------------------------------------------- --------------
Dennis E. Foster, 61
Prior to his retirement in 2000, Mr. Foster was Vice
Chairman of ALLTEL Corporation, Little Rock, Arkansas,
a full service telecom and information service
provider. Mr. Foster also is a director of ALLTEL
Corporation, Yellow Corporation and Salient 3
Communications......................................... 1999
Carolyn Y. Woo, 47
Martin J. Gillen Dean and Ray and Milann Siegfried
Professor of Management, Mendoza College of Business,
University of Notre Dame, Notre Dame, Indiana. Dr. Woo
also is a director of AON Corporation, Circuit City,
Inc. and St. Joseph Capital Bank....................... 1997
DIRECTORS WHOSE TERMS EXPIRE IN 2003
Arthur J. Decio, 71
Chairman of the Board of Skyline Corporation, Elkhart,
Indiana, a manufacturer of manufactured housing and
recreational vehicles.................................. 1991
Gary L. Neale, 62
Chairman, President and Chief Executive Officer of the
Company since 1993. Mr. Neale also is a director of
Modine Manufacturing Company, Chicago Bridge and Iron
Company, and Mercantile National Bank of Indiana....... 1991
Robert J. Welsh, 67
Chairman of the Board and Chief Executive Officer of
Welsh Holdings, LLC, Merrillville, Indiana, a real
estate holding company. Prior to its sale in 2001, Mr.
Welsh was Chairman and Chief Executive Officer of
Welsh, Inc., Merrillville, Indiana, a marketer of
petroleum products through convenience stores and
travel centers. Mr. Welsh also is a director of
Mercantile National Bank of Indiana.................... 1988
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO ELECT MESSRS. ADIK, ROLLAND, THOMPSON AND YOUNG AS DIRECTORS OF THE
COMPANY, EACH TO SERVE FOR A TERM OF THREE YEARS UNTIL 2005.
3
MEETINGS AND COMMITTEES OF THE COMPANY'S BOARD OF DIRECTORS
The board of directors of the Company met nine times during 2001. The board
has the following six standing committees:
- Executive,
- Audit,
- Corporate Governance,
- Environmental, Health and Safety,
- Nominating and Compensation, and
- Public Affairs and Career Development.
During 2001, each director attended at least 75% of the combined total
number of the Company's board meetings and the meetings of the committees on
which he or she was a member, except for Mr. Thompson who attended 74% of the
board meetings and the meetings of the committees of which he was a member.
The Executive Committee met once in 2001. The Executive Committee has the
authority to act on behalf of the board if reasonably necessary when the board
is not in session. Mr. Neale was Chairman and Dr. Beering and Messrs. Decio,
Rolland and Welsh were members of the Executive Committee in 2001.
The Audit Committee met eight times in 2001. The Audit Committee meets with
the independent public accountants and officers responsible for company
financial matters. NiSource adopted a charter for the Audit Committee on
November 1, 2000. The Audit Committee has reviewed and made recommendations to
the board with respect to the engagement of the independent public accountants,
both for 2001 and 2002, and the fees relating to audit services and other
services performed by them. Mr. Rolland was Chairman and Dr. Woo and Messrs.
Foster and Thompson were members of the Audit Committee in 2001.
The Corporate Governance Committee met once in 2001. The Corporate
Governance Committee consists of all members of the board who are not also
officers of the Company or its subsidiaries. The Corporate Governance Committee
meets once a year to evaluate and advise the board regarding the performance of
the Chief Executive Officer. Mr. Rolland was Chairman and Drs. Beering and Woo
and Messrs. Decio, Foster, Thompson and Welsh were members of the Corporate
Governance Committee in 2001.
The Environmental, Health and Safety Committee met twice during 2001. This
committee reviews the status of environmental compliance of the Company and
considers environmental public policy issues. In 2001, this committee adopted a
new committee charter and expanded its scope to include a review of health and
safety issues affecting the Company. In order to reflect the newly expanded
duties, the committee changed its name from the Environmental Affairs Committee.
Mr. Welsh was Chairman and Messrs. Decio, Morris and Young were members of the
Environmental Affairs Committee in 2001.
The Nominating and Compensation Committee met four times in 2001. This
committee advises the board with respect to nominations of directors and the
salary, compensation and benefits of directors and officers of the Company. The
Nominating and Compensation Committee considers nominees for directors
recommended by stockholders. For information on how to nominate a person for
election as a director at the 2003 annual meeting please see the discussion
under the heading "Stockholder Proposals and Nominations for 2003 Annual
Meeting." Dr. Beering was Chairman and Messrs. Decio and Welsh were members of
the Nominating and Compensation Committee during 2001.
The Public Affairs and Career Development Committee met twice in 2001. This
committee advises the board regarding charitable and political contributions,
employment policies, stockholder proposals concerning matters of general public
interest and consumer and utility industry related issues. Mr. Thompson was
Chairman and Drs. Beering and Woo and Messrs. Foster and Rolland were members of
the Public Affairs and Career Development Committee in 2001.
4
COMPENSATION OF THE COMPANY'S DIRECTORS
The Company pays each director who is not receiving a salary from the
Company $30,000 per year, $3,000 annually per standing committee on which the
director sits, $1,000 annually for each committee chairmanship, $1,200 for each
board meeting attended and $750 per committee meeting attended. Under a deferred
compensation arrangement, directors may elect to have their fees deferred in the
current year and credited to an interest-bearing account or to a phantom stock
account for payment in the future.
The Company's Nonemployee Director Retirement Plan provides a retirement
benefit for each nonemployee director currently serving on the board who has
completed at least five years of service on the board. The benefit under the
plan is an annual amount equal to the annual retainer for board service in
effect at the time of the director's retirement from the board and will be paid
for ten years, or the number of years of service the individual served as a
nonemployee director of the Company, whichever is less. Directors first elected
after 2001 will not participate in the retirement plan, but instead will
receive, on the date of each election or re-election, restricted shares of
common stock and restricted stock unit grants with a value equivalent to the
retirement benefit earned by the directors serving prior to 2001.
The Company's Nonemployee Director Stock Incentive Plan provides for a
grant of 2,600 (previously 2,000) restricted shares of common stock to each
nonemployee director of the Company upon his or her election or re-election as a
director of the Company. The grants of restricted common stock vest in 20%
annual increments, with all of a director's stock vesting five years after the
date of award. In 2001, Drs. Beering and Woo and Mr. Foster each received a
grant of 2,000 restricted shares of common stock under this plan. The board may
designate that a scheduled award will consist of nonqualified stock options
rather than restricted stock; if so, then, in lieu of restricted shares, each
nonemployee director shall be granted a nonqualified option to purchase 6,000
shares of common stock. Grants of nonqualified stock options vest in 20% annual
increments and become fully vested on the fifth anniversary of the date of the
grant.
The Company's Nonemployee Director Restricted Stock Unit Plan is a phantom
stock plan that provides for grants to nonemployee directors of restricted stock
units that have a value related to the Company's common stock. Each nonemployee
director received an initial grant of 500 units in April 1999. Beginning in
2002, grants of 600 units will be made to nonemployee directors upon election or
re-election to the Board. The grants of units vest in 20% annual increments,
with all of a director's units vesting five years after the date of award.
Additional units are credited to each nonemployee director with respect to the
units included in his or her account from time to time to reflect dividends paid
to stockholders of the Company with respect to common stock. The units have no
voting or other stock ownership rights and are payable in cash. In 2001, Drs.
Beering and Woo and Mr. Foster each received a grant of 500 units.
The Company has adopted a Directors' Charitable Gift Program for
nonemployee directors. Under the program, the Company makes a donation to one or
more eligible tax-exempt organizations as designated by each eligible director.
The Company contributes up to an aggregate of $125,000 for each nonemployee
director who has served as a director of the Company for at least five years and
up to an additional $125,000 (for an overall $250,000) for each nonemployee
director who has served ten years or more. Organizations eligible to receive a
gift under the program include charitable organizations and accredited United
States institutions of higher learning. Individual directors derive no financial
benefit from the program, as all deductions relating to the charitable donations
accrue solely to the Company. A director's private foundation is not eligible to
receive donations under the program. All current nonemployee directors are
eligible to participate in the program.
5
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information about those persons or groups
which are known to the Company to be the beneficial owners of more than five
percent of the outstanding common stock.
AMOUNT AND NATURE OF PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
------------------------------------ -------------------- ----------------
Capital Research & Management Company.... 16,074,880 7.8(1)
333 South Hope Street, 55th Floor
Los Angeles, California 90071
Putnam Investment Management, LLC........ 11,568,237 5.5(2)
The Putnam Advisory Company, LLC
One Post Office Square
Boston, Massachusetts 02109
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(1) As reported on statements made on Schedule 13G filed with the Securities and
Exchange Commission on February 11, 2002 on behalf of Capital Research &
Management Company. According to the report, the amount shown includes
67,530 shares resulting form the assumed conversion of 428,490 shares of
convertible preferred securities, due November 1, 2004; and includes 523,350
shares resulting from the assumed conversion of 325,000 shares of the
Convertible Preferred PIES, due February 19, 2003.
(2) As reported on statements made on Schedule 13G filed with the Securities and
Exchange Commission on February 15, 2002 on behalf of Marsh & McLennan
Companies, Inc., Putnam Investments, LLC, Putnam Investment Management, LLC
and The Putnam Advisory Company, LLC as a group. According to the report,
the amount shown represents shares beneficially owned by Putnam Investment
Management, LLC (10,311,017) and The Putnam Advisory Company, LLC
(1,257,220).
The following table contains information about the beneficial ownership of
the Company's common stock as of March 1, 2002, for each of the directors,
nominees and named executive officers, and for all directors and executive
officers as a group.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)(2)
------------------------ ---------------------------
Stephen P. Adik......................................... 555,312
Steven C. Beering....................................... 10,030
Arthur J. Decio......................................... 10,500
Dennis E. Foster........................................ 9,305
Gary L. Neale........................................... 1,349,118
Ian M. Rolland(3)....................................... 24,177
John W. Thompson........................................ 12,708
Robert J. Welsh......................................... 14,000
Carolyn Y. Woo.......................................... 4,000
Roger A. Young.......................................... 72,745
Patrick J. Mulchay...................................... 409,690
Michael W. O'Donnell.................................... 87,008
Jeffrey W. Yundt........................................ 421,909
All directors and executive officers as a group......... 3,427,120
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(1) The number of shares owned includes shares held in the Company's Automatic
Dividend Reinvestment and Share Purchase Plan, shares held in the Company's
Tax Deferred Savings Plans (the "401(k)"), Employee Stock Purchase Plan and
restricted shares awarded under the Company's 1988 and 1994 Long-Term
Incentive Plans (the "Incentive Plans") and Nonemployee Director Stock
Incentive Plan, where
6
applicable. The percentage of common stock owned by all directors and
executive officers as a group is approximately 1.65 percent of the common
stock outstanding as of March 1, 2002.
(2) The totals include shares for which the following executive officers have a
right to acquire beneficial ownership, within 60 days after March 1, 2002,
by exercising stock options granted under the Incentive Plan: Stephen P.
Adik -- 300,604 shares; Gary L. Neale --770,377 shares; Roger A.
Young -- 43,242 shares; Patrick J. Mulchay -- 258,198 shares; Michael W.
O'Donnell -- 25,472 shares; Jeffrey W. Yundt -- 258,198 shares; and all
executive officers as a group -- 1,867,986 shares.
(3) The number of shares owned by Mr. Rolland includes 9,277 shares owned by the
Ian and Miriam Rolland Foundation over which Mr. Rolland maintains
investment control, but for which Mr. Rolland disclaims beneficial
ownership.
7
EXECUTIVE COMPENSATION
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Nominating and Compensation Committee's compensation policy is designed
to relate total compensation (base salary, incentive bonus and long-term
stock-based compensation) to corporate performance. This policy applies to all
executive officers, including the Chief Executive Officer of NiSource and the
four other most highly compensated executive officers, who collectively
constitute the "Named Officers." In 2001, the Named Officers were the Chief
Executive Officer, Mr. Neale, and Messrs. Adik, Mulchay, O'Donnell and Yundt.
The Committee has implemented a "pay-for-performance" program which is designed
to position the Company's executive compensation competitively and to reward
performance that creates additional stockholder value. The Committee discusses
and considers executive compensation matters, then makes recommendations to the
full board of directors, which takes the final action on these matters. The
board accepted all of the Committee's recommendations in 2001.
The Committee has engaged Hewitt Associates, an independent compensation
consulting firm, to advise it and provide surveys of comparative compensation
practices for (1) a group of similarly sized energy-oriented companies,
including electric, gas or combination utility companies, diversified energy
companies and companies with gas marketing, transmission and distribution
operations and energy services operations, and (2) a group of similarly sized
companies in general industry. Each of these 2001 executive compensation
comparative groups consisted of 34 companies from which data was available to
Hewitt and which the Committee believed to be competitors of the Company for
executive talent. The Committee may change the companies contained within the
comparative compensation groups in future years if information about any company
included in a group is not available, any companies included in a group are no
longer competitors for executive talent, or if the Committee determines that
different energy or other types of companies are competitors of the Company. The
Company's comparative compensation group is not the same as the corporations
that make up the Dow Jones Utilities Index in the Stock Price Performance Graph
included in this proxy statement.
The Committee considers the surveys provided by Hewitt in determining base
salary, incentive bonus and long-term stock-based compensation. The Committee's
philosophy is to set conservative base salaries at or near the medians of the
utility and energy comparative group, which are similar, while providing
performance-based variable compensation through the bonus and incentive plans
described below to allow total compensation to fluctuate according to the
Company's financial performance. Long-term incentive awards are stock-based (for
example, stock options, restricted stock awards or performance-based contingent
stock awards) to emphasize long-term stock price appreciation and the
concomitant increased stockholder value. In 2001, total compensation of the
executive officers, including the Chief Executive Officer, was targeted between
the 50th and the 75th percentile of the relevant comparative compensation group.
Total compensation would reach this level only if the Company met the applicable
performance targets under the bonus incentive plans. For those executive
officers with significant responsibilities for certain business units, total
compensation is dependent on the Company's financial performance and on business
unit operating income or on other measures unique to the respective business
unit.
In establishing Mr. Neale's base salary for 2001, the Committee reviewed
information provided by Hewitt regarding the chief executive officer
compensation practices of comparable utility and energy companies. The Committee
determined to set base salary near the median salary of the comparative group,
giving regard to Mr. Neale's proven abilities and strong performance with the
Company since joining it as Executive Vice President and Chief Operating Officer
in 1989. As with the other executive officers, Mr. Neale's total compensation
was targeted to be between the 50th and the 75th percentile of the relevant
comparative compensation group, depending upon the Company's financial
performance. The result of the Committee's determination as to Mr. Neale's total
compensation package was that, as of the time of the grant, approximately 75% of
Mr. Neale's total target compensation was performance-based and at risk,
dependent upon the Company's earnings per share and stock price performance.
8
The Committee determines annual incentive awards for all executive officers
in accordance with the Senior Management Incentive Plan. This Plan sets forth a
formula established at the beginning of each fiscal year by the Committee for
awarding incentive bonuses, based upon the Company's financial performance.
Bonuses awarded to each of the Named Officers (including the Chief Executive
Officer) are based on overall corporate performance, rather than individual
performance of the executive. The bonus formula is based upon attaining targets
for the Company's earnings per share. The Incentive Plan establishes a threshold
level of financial performance (below which no bonus is paid), a target level,
and a maximum level (above which no additional bonus is paid). The range of
awards and levels of awards (as a percent of base salary), if financial
performance thresholds are achieved, are as follows:
AWARD IF
RANGE TARGETS MET
------------- -----------
Chief Executive Officer................... 40 to 120 % 80%
Vice Chairman............................. 35 to 105 % 70%
Group Presidents.......................... 32.5 to 97.5% 65%
Executive and Senior Vice Presidents...... 20 to 97.5% 40% - 65%
Other Vice Presidents..................... 17.5 to 75 % 35% - 50%
In 2001, the Company's actual earnings per share were lower than the
threshold. None of the Named Officers (including Mr. Neale) received a bonus in
2001.
Executive officers are also eligible to receive awards under the Company's
Long-Term Incentive Plan. Under the Long-Term Incentive Plan, stock options,
stock appreciation rights, performance units, restricted stock awards,
contingent stock awards and dividend equivalents may be awarded. The Committee
considers base salaries of the executive officers, prior awards under the
Long-Term Incentive Plan, and the Company's total compensation target in
establishing long-term incentive awards. Options granted to executive officers
are valued using the Black-Scholes option pricing model at the time of grant and
restricted stock awards and contingent stock awards granted to executive
officers are valued using Hewitt's present value pricing model for purposes of
determining the number of options and/or shares to be granted to reach total
target compensation. In 2001, stock options, restricted stock and contingent
stock were awarded to Messrs. Neale, Adik, Mulchay, Yundt and O'Donnell. The
number of options, restricted stock awards and contingent stock awards granted
to the Chief Executive Officer and other executive officers (including Messrs.
Adik, Mulchay, Yundt and O'Donnell) was based on these considerations. The
compensation value of stock options, restricted stock awards and/or contingent
stock awards depends on actual stock price appreciation. In addition, the
contingent stock awards are subject to performance vesting criteria as
established by the Committee. Historically, the restricted stock awards were
also subject to performance vesting criteria as established by the Committee;
however, in order to avoid certain variable accounting issues associated with
the performance objectives, in 2001, the Company offered to exchange restricted
stock awards made in 2000 and 2001 to the Named Officers (including Mr. Neale)
for replacement restricted stock awards without performance objectives. Details
of the exchange are set forth in note (1) to the Long-Term Stock Incentive Plans
Table.
Section 162(m) of the Internal Revenue Code provides that compensation in
excess of $1,000,000 per year paid to the chief executive officer or any of the
four other most highly compensated executive officers employed at year-end,
other than compensation meeting the definition of "performance based
compensation," will not be deductible by a corporation for federal income tax
purposes. The Committee believes that, except as identified in the preceding
paragraph and except for options granted at less than market value, the
Company's long-term stock-based incentive awards constitute performance-based
compensation for purposes of Section 162(m) of the Internal Revenue Code. In
light of its emphasis on such performance based compensation, the Committee does
not anticipate that the limits of Section 162(m) will materially affect the
deductibility of compensation paid by the Company in 2001. However, the
Committee will continue to review the deductibility of compensation under
Section 162(m) and related regulations.
9
The Committee believes that its overall executive compensation program has
been successful in providing competitive compensation sufficient to attract and
retain highly qualified executives, while at the same time encouraging increased
performance from the executive officers which creates additional stockholder
value.
Nominating and Compensation Committee
Steven C. Beering, Chairman
Arthur J. Decio
Robert J. Welsh
March 25, 2002
10
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative
total stockholder return on common stock (for both the Company and its corporate
predecessor NiSource Inc. (incorporated in Indiana)) from 1996 through 2001,
with the cumulative total return on the Standard & Poor's 500 Stock Index and
the Dow Jones Utilities Average, assuming the investment of $100 on December 31,
1996 and the reinvestment of dividends.
LOGO
-----------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
----------------------------------------------------------------------------------------------------------------
NiSource 100.00 130.33 166.25 101.68 184.55 144.55
S & P 500 100.00 133.35 171.46 207.54 188.67 166.26
DJ Utilities 100.00 122.99 146.15 137.67 207.14 153.10
11
COMPENSATION OF EXECUTIVE OFFICERS
Summary. The following table summarizes compensation for services to
NiSource and its corporate predecessor NiSource Inc. (incorporated in Indiana)
and their subsidiaries for the years 2001, 2000 and 1999 awarded to, earned by
or paid to each of the Named Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
------------------------------- ----------------------
AWARDS PAYOUTS
---------- ---------
SECURITIES LONG-
OTHER UNDER- TERM ALL
ANNUAL LYING INCENTIVE OTHER
COMPEN- OPTIONS/ PLAN COMPEN-
NAME AND SALARY BONUS SATION SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) (#) ($)(4) ($)(5)
------------------ ---- ------- --------- --------- ---------- --------- ---------
Gary L. Neale,................... 2001 950,000 0 9,774 160,377 285,000 22,273
Chairman, President and 2000 800,000 1,060,000 9,985 250,000 2,340,665 28,240
Chief Executive Officer 1999 689,583 0 6,436 50,000 484,313 33,465
Stephen P. Adik,................. 2001 500,000 0 4,337 56,604 0 4,796
Vice Chairman 2000 425,000 526,250 15,258 90,000 1,058,738 5,284
1999 343,749 0 2,980 30,000 -- 5,645
Patrick J. Mulchay (6)........... 2001 392,821 0 8,064 34,198 0 5,883
Group President, 2000 375,000 253,125 3,253 75,000 1,058,738 5,948
Merchant Energy 1999 294,166 104,670 2,800 25,000 -- 7,163
Jeffrey W. Yundt (6)............. 2001 400,000 0 194,467 34,198 0 4,222
Group President, 2000 350,000 218,050 5,545 75,000 1,058,738 3,512
Energy Distribution 1999 294,166 62,130 149,415 25,000 -- 3,776
Michael W. O'Donnell (7)......... 2001 400,000 0 2,385,937(8) 25,472 0 24,850
Executive Vice President and 2000 325,000 273,000 0 0 0 24,000
Chief Financial Officer 1999 -- -- -- -- -- --
---------------
(1) Compensation deferred at the election of the Named Officer is reported in
the category and year in which such compensation was earned.
(2) All bonuses are paid pursuant to the Senior Management Incentive Plan,
except for the bonus paid to Mr. O'Donnell in 2000 which was paid pursuant
to the Columbia Annual Incentive Plan and a portion of the bonuses to
Messrs. Mulchay and Yundt, which are described in note (6). The incentive
plan is designed to supplement a conservative base salary with incentive
bonus payments if targeted financial performance is attained. No bonuses
were paid pursuant to the Senior Management Incentive Plan in 2001. The
amounts shown for Messrs. Neale and Adik in 2000 include bonuses of $500,000
and $250,000, respectively, received in consideration for their performance
and efforts in connection with the acquisition of Columbia Energy Group.
(3) The 2001 amount shown for Mr. Yundt includes a relocation allowance of
$82,496 and a related tax allowance of $57,321. The 2001 amount for Mr.
O'Donnell includes a relocation allowance of $49,407 and a related tax
allowance of $40,793 as well as other amounts as described in note (8). The
1999 amount for Mr. Yundt also included a relocation allowance of $85,305
and a related tax allowance of $60,412.
(4) The payouts shown are based on the value, at date of vesting, of restricted
shares awarded under the Long-Term Incentive Plan which vested during the
years shown. The amounts shown for 2000 include amounts attributable to the
restricted stock awards granted in 1998 for which performance requirements
were waived by the Nominating and Compensation Committee. Total restricted
shares held (assuming 100% vesting) and aggregate market value at December
31, 2001 (based on the average of the high and low sale prices of the common
stock on that date as reported on the New York Stock Exchange Composite
Transactions Tape) for the Named Officers were as follows: Mr. Neale,
441,563 shares valued at $10,310,496; Mr. Adik, 161,581 shares valued at
$3,772,916; Mr. Mulchay 98,966 shares valued at
12
$2,310,856; Mr. Yundt, 97,466 shares valued at $2,275,831 and Mr. O'Donnell,
55,836 shares valued at $1,303,770. Dividends on the restricted shares are
paid to the Named Officers.
(5) The Chairman, President and Chief Executive Officer, the Vice Chairman, and
certain Group Presidents of the Company have available to them a
supplemental life insurance plan which provides split-dollar coverage of up
to 3.5 times base compensation as of commencement of the plan in 1991 and
could provide life insurance coverage after retirement if there is adequate
cash value in the respective policy. "All Other Compensation" represents
Company contributions to the 401(k) Plan and the dollar value of the benefit
to the Named Officers under the supplemental life insurance plan, as
follows: Mr. Neale-$1,155 401(k) Plan, $17,782 premium value and $3,336 term
insurance cost; Mr. Adik-$1,155 401(k) Plan, $2,350 premium value and $1,291
term insurance cost; Mr. Mulchay-$1,155 401(k) Plan, $3,685 premium value
and $1,043 term insurance cost, and Mr. Yundt-$1,155 401(k) Plan, $2,175
premium value and $892 term insurance cost. The value of the life insurance
premiums paid by the Company in excess of term insurance cost on behalf of
the Named Officers under the supplemental life insurance plan has been
restated for all periods in accordance with the present value interest-free
loan method. The amount shown for 2001 for Mr. O'Donnell includes $11,050
paid by Columbia Energy Group to its Employee Savings Plan and $13,800 paid
by Columbia Energy Group to its Employee Savings Restoration Plan.
(6) Mr. Mulchay was President of Northern Indiana Public Service Company and Mr.
Yundt was President of Bay State Gas Company and 50% of their 1999 and 2000
annual incentive compensation was determined based on the financial
performance of the business units for which they were responsible.
(7) The amounts shown for 2000 for Mr. O'Donnell include 10 months of
compensation paid to Mr. O'Donnell in his capacity as Senior Vice President
and Chief Financial Officer of Columbia Energy Group prior to the
acquisition of Columbia Energy Group by the Company and 2 months of
compensation paid to Mr. O'Donnell in his capacity as Executive Vice
President and Chief Financial Officer of the Company.
(8) The compensation reported represents perquisites and other personal benefits
as discussed in note (3) as well as phantom stock units granted to Mr.
O'Donnell pursuant to an agreement under which the Company established a
phantom stock unit account for his benefit which consisted initially of
73,020 units in consideration of his acceptance of employment and 26,533
units in consideration of his willingness to enter into a non-competition
agreement with the Company. A phantom stock unit is a unit whose value is
related to the value of the common stock of the Company. Mr. O'Donnell is
entitled to receive dividend equivalents with respect to the units in either
cash or additional units. Upon termination of employment, Mr. O'Donnell (or
his beneficiary) will be entitled to receive from the Company a cash
distribution in an amount, with respect to each unit credited to his
account, equal to the greater of (i) the price per share of the Company's
common stock at the close of business on the date of termination, and (ii)
85% of the price per share of the Company's common stock on November 1,
2000. The 26,533 units credited to Mr. O'Donnell's account in connection
with the non-competition portion of the agreement, and any dividend
equivalents paid thereon, are subject to forfeiture in the event that Mr.
O'Donnell violates the non-competition provisions of the agreement at any
time during the term of the agreement or for a period of one year following
his termination. The amount shown represents the value of the phantom stock
units granted pursuant to the Phantom Stock Agreement based on the closing
sale price of the common stock on December 31, 2001, as reported in The Wall
Street Journal.
13
Option Grants in 2001. The following table sets forth information
concerning the grants of options to purchase common stock made during 2001 to
the Named Officers. No stock appreciation rights were awarded during 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
NUMBER OF PERCENT OF TOTAL MARKET
SECURITIES OPTIONS/SARS EXERCISE PRICE ON
UNDERLYING GRANTED TO OR BASE DATE OF GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE GRANT EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR (2) ($/SH)(3) ($/SH)(4) DATE VALUE ($)(5)
---- -------------- ---------------- --------- --------- ---------- ------------
Gary L. Neale............ 160,377 9.30 25.94 30.19 12/31/2010 1,133,865
Stephen P. Adik.......... 56,604 3.28 25.94 30.19 12/31/2010 400,190
Patrick J. Mulchay....... 34,198 1.98 25.94 30.19 12/31/2010 241,779
Jeffrey W. Yundt......... 34,198 1.98 25.94 30.19 12/31/2010 241,779
Michael W. O'Donnell..... 25,472 1.48 25.94 30.19 12/31/2010 180,087
---------------
(1) All options granted in 2001 are fully exercisable commencing one year from
the date of grant. Vesting may be accelerated as a result of certain events
relating to a change in control of the Company. The exercise price and tax
withholding obligation related to exercise may be paid by delivery of
already owned shares of common stock or by reducing the number of shares of
common stock received on exercise, subject to certain conditions.
(2) Based on an aggregate of 1,725,105 options granted to all employees in 2001.
(3) The options were granted at the average of high and low sale prices of the
common stock on December 1, 2000, as reported on the New York Stock Exchange
Composite Transactions Tape.
(4) Based on the average of high and low sale prices of the common stock on
January 2, 2001, as reported on the New York Stock Exchange Composite
Transactions Tape.
(5) Grant date present value is determined using the Black-Scholes option
pricing model. The assumptions used in the Black-Scholes option pricing
model for the January 1, 2001 grants (expiring December 31, 2010) were as
follows: expected volatility -- 20% (estimated stock price volatility for
the term of the grant); risk-free rate of return -- 5.9% (the rate for a
ten-year U.S. treasury); risk of forfeiture -- 10%; estimated annual
dividend -- $1.19; option term -- ten years; vesting -- 100% one year after
date of grant; and an expected option term of 5.4 years. No assumption was
made relating to non-transferability. Actual gains, if any, on option
exercises and common shares are dependent on the future performance of the
common stock and overall market condition. The amounts reflected in this
table may not be achieved.
Option Exercises in 2001. The following table sets forth certain
information concerning the exercise of options or stock appreciation rights
during 2001 by each of the Named Officers and the number and value of
unexercised options and stock appreciation rights at December 31, 2001.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Gary L. Neale.................. 0 0 610,000 160,377 2,391,145 0
Stephen P. Adik................ 18,000 346,682 244,000 56,604 933,120 0
Patrick J. Mulchay............. 18,000 349,412 244,000 34,198 887,801 0
Jeffrey W. Yundt............... 18,000 324,074 244,000 34,198 887,801 0
Michael W. O'Donnell........... 0 0 0 25,472 0 0
---------------
(1) Represents the difference between the option exercise price and $23.35, the
average of high and low sale prices of the common shares on December 31,
2001, as reported on the New York Stock Exchange Composite Transactions
Tape.
14
Long-Term Incentive Plan Awards in 2001. The following table sets forth
information concerning the shares of restricted stock and shares of contingent
stock awarded pursuant to the Long-Term Incentive Plan during 2001 to each of
the Named Officers.
LONG-TERM STOCK INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER MATURATION ---------------------------------------
NAME RIGHTS(#) OR PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
---- ----------------- ------------ ------------ --------- ----------
Gary L. Neale.................. 171,562(1) Variable 171,562 171,562 171,562
114,375(2) 4-5yrs 0 114,375 228,750
Stephen P. Adik................ 49,081(1) Variable 49,081 49,081 49,081
32,271(2) 4-5yrs 0 32,271 64,542
Patrick J. Mulchay............. 26,966(1) Variable 26,966 26,966 26,966
17,977(2) 4-5yrs 0 17,977 35,954
Jeffrey W. Yundt............... 29,966(1) Variable 29,966 29,966 29,966
19,977(2) 4-5yrs 0 19,977 39,954
Michael W. O'Donnell........... 55,836(1) Variable 55,836 55,836 55,836
37,224(2) 4-5yrs 0 37,224 74,448
---------------
(1) On December 31, 2001, Messrs. Neale, Adik, Mulchay, Yundt and O'Donnell
exchanged restricted stock awards made in 2000 and 2001 for replacement
restricted stock awards. The original 2000 and 2001 awards were scheduled to
vest on December 31, 2002 at percentages varying from 0% to 200% related to
specific financial performance objectives, including earnings per share
targets, stock price targets and total shareholder return. Based on
performance up to the time of the exchange, Messrs. Neale, Adik, Mulchay,
Yundt and O'Donnell would have been eligible to receive approximately 160%
of the restricted stock awards made in 2000 and 2001. The award holders
exchanged the original awards for replacement awards equal to 150% of the
shares subject to the original awards. The replacement awards will be
subject to a holding period which will require that any shares representing
the replacement awards shall not be disposed of until December 31, 2004,
except in the case of death, disability, termination without cause, change
of control or retirement, in which case the shares are not subject to the
holding period. The terms of the awards issued in exchange for the 2001
awards are shown in the table above. The numbers of restricted shares issued
in exchange for the 2000 awards are as follows: Mr. Neale, 270,000; Mr.
Adik, 112,500; Mr. Mulchay, 72,000; and Mr. Yundt, 67,500. The awards for
Mr. Neale will vest only following the end of the year of death, disability,
termination without cause, change of control or retirement. In the case of
each of the other Named Officers, the awards will vest, commencing in 2003,
only to the extent that the value of shares vested in any calendar year,
when added to other non-performance based compensation for that year, does
not exceed $999,999; in addition, awards will vest following the end of the
year of death, disability, termination without cause, change of control or
retirement.
(2) Represents contingent stock awards granted to each Named Officer in 2001.
The restrictions on 50% of the contingent stock awarded during 2001 lapse on
December 31, 2004. The restrictions on the remaining 50% lapse on December
31, 2005. The vesting of the contingent stock varies from 0% to 200% of the
number awarded, based upon meeting certain specific financial performance
objectives, including earnings per share targets, stock price targets and
total shareholder return. There is a one-year holding period after the
restrictions lapse for the first 50% of the shares of contingent stock
awarded. The remaining shares of contingent stock awarded are not subject to
a holding period.
15
PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following table shows estimated annual benefits, giving effect to the
Company's Pension Plan and Supplemental Executive Retirement Plan, payable upon
retirement to persons in the specified remuneration and years-of-service
classifications.
PENSION PLAN TABLE
YEARS OF SERVICE
------------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- ---------- ---------- ---------- ----------
$ 300,000........................ $121,200 $ 161,100 $ 169,100 $ 176,600 $ 176,600
400,000........................ 166,200 221,600 231,600 241,600 241,600
500,000........................ 211,200 281,600 294,100 306,600 306,600
600,000........................ 256,200 341,600 356,600 371,600 371,600
700,000........................ 301,200 401,600 419,100 436,600 436,600
800,000........................ 346,200 461,600 481,600 501,600 501,600
900,000........................ 391,200 521,600 544,100 566,600 566,600
1,000,000........................ 436,200 581,600 606,600 631,600 631,600
1,100,000........................ 481,200 641,600 669,100 696,600 696,600
1,200,000........................ 526,200 701,600 731,600 761,600 761,600
1,300,000........................ 571,200 761,600 794,100 826,600 826,600
1,400,000........................ 616,200 821,600 856,660 891,600 891,600
1,500,000........................ 661,200 881,600 919,100 956,600 956,600
1,600,000........................ 706,200 941,600 981,600 1,021,600 1,021,600
1,700,000........................ 751,200 1,001,600 1,044,100 1,086,600 1,086,600
1,800,000........................ 796,200 1,061,600 1,106,600 1,151,600 1,151,600
1,900,000........................ 841,200 1,121,600 1,169,100 1,216,600 1,216,600
2,000,000........................ 886,200 1,181,600 1,231,600 1,281,600 1,281,600
The credited years of service for each of the Named Officers (other than
Michael W. O'Donnell), pursuant to the Pension Plan and Supplemental Executive
Retirement Plan, are as follows: Gary L. Neale -- 27 years; Stephen P.
Adik -- 23 years; Patrick J. Mulchay -- 39 years; and Jeffrey W. Yundt -- 22
years.
Upon their retirement, regular employees and officers of the Company and
its subsidiaries which adopt the plan (including directors who are also
full-time officers) will be entitled to a monthly pension in accordance with the
provisions of the Company's pension plan, originally effective as of January 1,
1945. The directors who are not and have not been officers of the Company are
not included in the pension plan. The pensions are payable out of a trust fund
established under the pension plan with The Northern Trust Company, trustee. The
trust fund consists of contributions made by the Company and the earnings of the
fund. Over a period of years the contributions are intended to result in overall
actuarial solvency of the trust fund. The pension plan of the Company has been
determined by the Internal Revenue Service to be qualified under Section 401 of
the Internal Revenue Code.
Pension benefits are determined separately for each participant. The
formula for a monthly payment for retirement at age 65 is 1.7% of average
monthly compensation multiplied by years of service (to a maximum of 30 years)
plus 0.6% of average monthly compensation multiplied by years of service over
30. Average monthly compensation is the average for the 60 consecutive
highest-paid months in the employee's last 120 months of service. Covered
compensation is defined as wages reported as W-2 earnings (up to a limit set
forth in the Internal Revenue Code and adjusted periodically) plus any salary
reduction contributions made under the Company's 401(k) plan, minus any portion
of a bonus in excess of 50% of base pay and any amounts paid for unused vacation
time and vacation days carried forward from prior years. The benefits listed in
the Pension Plan table are not subject to any deduction for Social Security or
other offset amounts.
The Company also has a Supplemental Executive Retirement Plan for officers.
Participants in the supplemental plan are selected by the board of directors.
Benefits from this plan are to be paid from the general assets of the Company.
The Supplemental Executive Retirement Plan provides a retirement benefit at
age 65 of the greater of (i) 60% of five-year average pay (prorated for less
than 20 years of service) and an additional 0.5% of 5-year
16
average pay less Primary Social Security Benefits per year for participants with
between 20 and 30 years of service, or (ii) the benefit formula under the
Company's Pension Plan. In either case, the benefit is reduced by the actual
pension payable from the Company's Pension Plan. In addition, the Supplemental
Executive Retirement Plan provides certain early retirement and disability
benefits and pre-retirement death benefits for the spouse of a participant.
Michael W. O'Donnell continues to participate in the Retirement Plan of
Columbia Energy Group, a subsidiary of the Company. Mr. O'Donnell has 30
credited years of service under this plan. The formula for a retiree's monthly
retirement benefit at age 65 under the Retirement Plan of Columbia Energy Group
is (i) 1.15% of the retiree's final average compensation that does not exceed
1/2 of the average Social Security wage base times years of service up to 30,
plus (ii) 1.5% of the retiree's final average compensation in excess of 1/2 of
the average Social Security wage base times years of service up to 30, plus
(iii) .5% of the retiree's final average compensation times years of service
between 30 and 40.
CHANGE IN CONTROL AND TERMINATION AGREEMENTS
The Company has entered into Change in Control and Termination Agreements
with Mr. Neale and the other Named Officers. The Company believes that these
agreements are in the best interests of the stockholders, to insure that in the
event of extraordinary events, totally independent judgment is enhanced to
maximize stockholder value. The agreements can be terminated on three years'
notice and provide for the payment of specified benefits if the executive
terminates employment for good reason or is terminated by the Company for any
reason other than good cause within 24 months following certain changes in
control. Each of these agreements also provides for payment of these benefits if
the executive voluntarily terminates employment for any reason during a
specified one-month period within 24 months following a change in control or, in
the case of Messrs. Neale and Adik, at any time during this 24 month period. No
amounts will be payable under the agreements if the executive's employment is
terminated by the Company for good cause (as defined in the agreements).
The agreements provide for the payment of three times the executive's
current annual base salary and target incentive bonus compensation. The
executive will also receive a pro rata portion of the executive's targeted
incentive bonus for the year of termination. The executive would also receive
benefits from the Company that would otherwise be earned during the three-year
period following the executive's termination under the Company's Supplemental
Executive Retirement Plan and qualified retirement plans. All stock options held
by the executive would become immediately exercisable upon the date of
termination of employment, and the restrictions would lapse on all restricted
shares awarded to the executive. The Company will increase the payment made to
the executive as necessary to compensate the executive on an after-tax basis for
any parachute penalty tax imposed on the payment of amounts under the contracts.
During the three-year period following the executive's termination, the
executive and his or her spouse or other dependents will continue to be covered
by applicable health or welfare plans of the Company. If the executive dies
during the three-year period following the executive's termination, all amounts
payable to the executive will be paid to a named beneficiary.
The agreement with Mr. Neale provides for the same severance payments as
described above in the event his employment is terminated at any time by the
Company (other than for good cause) or due to death or disability, or if he
voluntarily terminates employment with good reason (as defined in the
agreement), even in the absence of a change in control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 2001, the Company's subsidiary NiSource Development Company, Inc.
purchased approximately three acres of land and an approximately 16,030 square
foot office building located in Merrillville, Indiana adjacent to the Company's
corporate headquarters from Keystone Investment Company, an Indiana general
partnership owned by the adult children of Robert J. Welsh, a director of the
Company, for $2,000,000. The purchase price was based on appraisals performed by
independent third-party commercial real estate appraisers. The transaction was
part of a series of transactions resulting in the sale of substantially all of
the assets of Welsh, Inc., the company of which Mr. Welsh was Chairman and Chief
Executive Officer.
17
AUDIT COMMITTEE REPORT
The board of directors adopted an Audit Committee Charter in November,
2000. The Audit Committee has reviewed Rule 4200(a)(14) of the National
Association of Securities Dealers and Sections 303.01(B)(2)(a) and (3) of the
New York Stock Exchange Listing Standards and has determined that the Audit
Committee is independent as defined under these rules.
The Audit Committee has reviewed and discussed the audited financial
statements with management and has discussed with Arthur Andersen LLP, the
Company's independent auditor, the matters required to be discussed by Statement
on Auditing Standards No. 61. The Audit Committee also has received the written
disclosures and the letter from Arthur Andersen LLP required by Independence
Standards Board Standard No. 1, and has discussed with Arthur Andersen LLP its
independence. The Audit Committee has considered whether Arthur Andersen LLP's
provision of other non-audit services to the Company is compatible with
maintaining Arthur Andersen LLP's independence.
In reliance on the review and discussions referred to above, the Audit
Committee recommended to the board of directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
Independent Public Accountants.
Arthur Andersen LLP served as the Company's independent public accountants
for the year 2001, as they have served for many years in the past. In light of
the recent business and legal developments affecting Arthur Andersen LLP, the
board of directors is reviewing the selection of independent public accountants
for the year 2002. A representative of Arthur Andersen LLP will be present at
the meeting and will be given an opportunity to make a statement if he so
desires. The Arthur Andersen LLP representative has informed NiSource that he
does not presently intend to make a statement. The representative will also be
available to respond to questions from stockholders. The Company paid to Arthur
Andersen LLP the following fees for services in 2001:
Audit Fees.................................................. $2,610,357
==========
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
==========
All Other Fees:
Northern Indiana Public Service Company Rate Case Fees.... $1,706,826
Audit Related Fees........................................ 1,460,599
Tax Services.............................................. 486,068
Other Miscellaneous Fees.................................. 232,380
----------
Total of All Other Fees..................................... $3,885,873
==========
The majority of "Audit Related Fees" consist of work performed in
connection with the acquisition of Columbia Energy Group, the disposition of
Indianapolis Water Company and Columbia Propane Company, accounting for various
energy supply services and energy trading activities, registration statements
and the related comfort letters, and the audits of the various benefits plans of
the Company and its subsidiaries.
Audit Committee
Ian M. Rolland, Chairman
Dennis E. Foster
John W. Thompson
Carolyn Y. Woo
March 25, 2002
18
PROPOSAL II -- AMENDMENT TO LONG TERM INCENTIVE PLAN
BACKGROUND
At the annual meeting of stockholders held on April 13, 1994, the
stockholders of NiSource approved an amendment and restatement of the NIPSCO
Industries, Inc. 1994 Long-Term Incentive Plan. The stockholders of the Company
approved additional amendments the plan at the annual meetings of stockholders
on April 14, 1999 and June 1, 2000. At the June 1, 2000 annual meeting the
stockholders approved the Amended and Restated Long-Term Incentive Plan,
effective January 1, 2000. The plan was further amended as of October 1, 2001.
DESCRIPTION OF THE PLAN
General. The plan is a stock-based compensation plan, currently providing
for the grant of:
- Incentive stock options within the meaning of section 422 of the
Internal Revenue Code,
- Options not intended to be incentive stock options (nonqualified stock
options),
- Stock appreciation rights
- Contingent stock
- Performance units and
- Dividend equivalents payable on grants of contingent stock
to officers and other key executives of the Company who are in a position in
which their decisions, actions and counsel significantly impact profitability.
The plan is intended to recognize the contributions made to the Company by
officers and other key executives who make substantial contributions through
their loyalty, ability, industry and invention, and to improve the ability of
the Company to secure, retain and motivate such employees upon whom the
Company's future earnings depend, by providing them with an opportunity either
to acquire or increase their proprietary interest in the Company or to receive
additional compensation based upon the performance of the Company's common
stock.
Shares Subject to Award. Under the proposed amendments, the maximum number
of the Company's shares of common stock that may be subject to awards shall be
increased from 11,000,000 shares of common stock to 21,000,000 shares of common
stock. All awards and common stock available under the plan are subject to
adjustment in the event of a merger, recapitalization, stock dividend, stock
split or other similar change affecting the number of outstanding shares of
common stock of the Company. Unpurchased shares of common stock subject to an
option or stock appreciation right that lapses or terminates without exercise
are available for future awards. Shares of common stock delivered in lieu of
cash payments or withheld by the Company to satisfy income and withholding
obligations are considered to have been used by the plan and are not available
for further awards or such delivery.
Information relating to awards which have been granted to the executive
officers named in the Summary Compensation Table is presented in the various
tables located in the portion of this proxy concerning the election of directors
under the caption "Executive Compensation." As of December 31, 2001, 1,329,744
options had been granted under the plan to all executive officers as a group at
exercise prices ranging from $16.21 to $29.22; 147,726 options had been granted
to current directors who are not executive officers (but who are officers of a
subsidiary) as a group at exercise prices ranging from $16.21 to $29.22; and,
6,229,335 options had been granted to all employees as a group at exercise
prices from $16.22 to $29.22. As of December 31, 2001, there were 1,854,345
shares of restricted stock that had been granted to all executive officers under
the plan which had not yet vested and 3,413,013 shares of restricted stock that
had been granted to all employees as a group which had not yet vested. Future
awards to be made are within the discretion of the Compensation Committee.
Administration. The plan is administered by the Nominating and
Compensation Committee, which must be composed of two or more directors who are
"nonemployee directors" within the meaning of
19
Rule 16b-3 of the Securities Exchange Act and are "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code.
The Nominating and Compensation Committee has the sole power to administer
the plan and to make rules with regard to how the plan is implemented. Subject
to the provisions of the plan, the committee's powers include determining the
officers and employees of the Company and its subsidiaries to whom awards shall
be granted, and fixing the size, terms, conditions and timing of all awards. The
committee is, however, limited in the number of shares of common stock subject
to awards that may be granted to certain executives of the Company.
Eligibility. The Nominating and Compensation Committee may select to be a
participant in the plan any executive and managerial employee of the Company and
its subsidiaries who is in a position in which the employee's decisions, actions
and counsel significantly impact profitability. A director who is not an
employee is not eligible to receive awards under the plan. The determination of
who is eligible to participate and the awards to be granted is made on a
year-to-year basis. Approximately 400 employees were eligible to participate in
the plan in 2001.
Stock Options. An incentive stock option or a nonqualified option is the
right to purchase, in the future, shares of the Company's common stock at a set
price. Under the plan, the purchase price of shares subject to any option, which
can be either an incentive stock option or a nonqualified option, must be at
least 100% of the fair market value of the shares on the day the option is
granted, as determined by the Committee. Fair market value is defined as the
average of the high and low prices of the Company's common stock on the New York
Stock Exchange Composite Transactions Tape on the date of the grant, or any
other applicable date. On March 1, 2002, the closing price of the Company's
common stock on the New York Stock Exchange was $21.38.
Each option terminates on the earliest of (1) the expiration of the term,
which may not be less than 6 months and may not exceed ten years from the date
of grant; (2) 30 days after the date the option holder's employment terminates
for any reason other than disability, death or retirement, or during such other
period determined by the Nominating and Compensation Committee; or (3) the
expiration of three years from the date an option holder's employment terminates
by reason of such option holder's disability, death or retirement, or during
such other period determined by the Nominating and Compensation Committee.
An option holder may pay the exercise price for an option (1) in cash, (2)
in cash received from a broker-dealer to whom the holder has submitted an
exercise notice consisting of a fully endorsed option (however, in the case of a
holder subject to Section 16 of the Securities Exchange Act, this payment option
shall only be available to the extent such holder complies with Regulation T
issued by the Federal Reserve Board), (3) by delivering shares of common stock
having an aggregate fair market value on the date of exercise equal to the
exercise price, (4) by directing the Company to withhold such number of shares
of common stock otherwise issuable upon exercise of such option having an
aggregate fair market value on the date of exercise equal to the exercise price,
(5) by such other medium of payment as the Nominating and Compensation
Committee, in its discretion, shall authorize at the time of grant, or (6) by
any combination of these methods.
Restricted Stock Awards. A restricted stock award is the grant of a right
to receive shares of common stock of the Company, subject to satisfaction of
certain criteria or conditions, which may or may not be performance based.
Shares of common stock awarded may not be transferred or encumbered until the
restrictions established by the Nominating and Compensation Committee lapse. In
the event of a participant's termination of employment (other than due to death,
disability or retirement) prior to the lapse of applicable restrictions, all
shares as to which there still remain unlapsed restrictions shall be forfeited.
The Nominating and Compensation Committee has the authority to permit an
acceleration of the expiration of the applicable restriction period with respect
to any part or all of a restricted stock award.
Stock Appreciation Rights. A stock appreciation right is a right to
receive, in the future in cash or common stock, all or a portion of the excess
of the fair market value of the Company's common stock, at the time the stock
appreciation right is exercised, over a specified price not less than the fair
market value of the
20
common stock of the Company at the date of the grant. Stock appreciation rights
may be granted in tandem with a previously or contemporaneously granted stock
option, or separately from the grant of a stock option. Stock appreciation
rights granted under the plan may not be granted for a period of more than ten
years and will be exercisable in whole or in part, at such time or times and as
determined by the Nominating and Compensation Committee at the time of the
grant, which period may not commence any earlier than six months after the date
of grant.
Performance Units. A performance unit is a right to a future payment,
either in cash or common stock, based upon the achievement of pre-established
long-term performance objectives. The Nominating and Compensation Committee may
establish performance periods of not less than two, nor more than five years,
and maximum and minimum performance targets during the period. The level of
achievement of targets will determine what portion of value of a unit is
awarded. In the event a participant holding a performance unit ceases to be
employed prior to the end of the applicable performance period by reason of
death, disability or retirement, such participant's units, to the extent earned,
shall be payable at the end of the performance period in proportion to the
active service of the participant during the performance period. Upon any other
termination of employment, participation will terminate and all outstanding
performance units will be canceled.
Contingent Stock Awards. A contingent stock award is a contingent right to
receive stock in the future, subject to the satisfaction of certain vesting
requirements and performance targets as specified by the Nominating and
Compensation Committee. Contingent stock awards may be granted either alone or
in tandem with restricted stock awards. The Compensation Committee may establish
performance periods and maximum and minimum performance targets during the
period. The Nominating and Compensation Committee has the authority to permit an
acceleration of the expiration of the applicable restriction period with respect
to any part or all of a contingent stock award. In the event of a participant's
termination of employment (other than due to death, disability or retirement)
prior to the lapse of applicable restrictions, all shares as to which there
still remain unlapsed restrictions shall be forfeited.
Business Criteria. The Nominating and Compensation Committee can choose
among the following business criteria if the committee desires to make a
restricted stock grant performance based or if the committee desires to define
the performance targets with respect to grants of performance units or
contingent stock awards:
- Growth in gross revenue;
- Earnings per share;
- Ratios of earnings relative to shareholder's equity or to total assets;
- Dividend payments;
- Total shareholder return.
Duration Of The Plan. No award may be granted under the plan after
December 31, 2005.
Termination, Suspension Or Amendment. The board of directors or the
Nominating and Compensation Committee may terminate, suspend or amend the plan
without the authorization of shareholders to the extent allowed by law or the
rules of the New York Stock Exchange, including any rules issued by the
Securities and Exchange Commission under Section 16 of the Securities Exchange
Act, as long as shareholder approval is not required for the plan to continue to
satisfy the requirements of Rule 16b-3. No termination, suspension or amendment
of the plan shall adversely affect any right acquired by any participant under
an award granted before the date of the termination, suspension or amendment,
unless the participant consents. It shall be conclusively presumed that any
adjustment for changes in capitalization as provided in the plan does not
adversely affect any right. The plan will apply to grants made under the plan at
any time.
Tax Aspects With Respect To Grants Under The Amended And Restated Incentive
Plan. The following discussion summarizes the general principles of Federal
income tax law applicable to awards granted under the plan. A recipient of an
incentive stock option will not recognize taxable income upon either the grant
or
21
exercise of the incentive stock option. The option holder will recognize
long-term capital gain or loss on a disposition of the common stock acquired
upon exercise of an incentive stock option, provided the option holder does not
dispose of those shares of common stock within two years from the date the
incentive stock option was granted or within one year after the shares of common
stock were transferred to the option holder. If the option holder satisfies both
of the foregoing holding periods, then the Company will not be allowed a
deduction by reason of the grant or exercise of an incentive stock option.
As a general rule, if the option holder disposes of the shares of common
stock in a manner different than described above, the gain recognized will be
taxed as ordinary income to the extent of the difference between (1) the lesser
of the fair market value of the shares of common stock on the date of exercise
or the amount received for the shares of common stock, and (2) the adjusted
basis of the common stock (which adjusted basis ordinarily is the fair market
value of the common stock subject to the option on the date the option was
exercised). Under these circumstances, the Company will be entitled to a
deduction in an equal amount. Any gain in excess of the amount recognized as
ordinary income on such disposition will be long-term or short-term capital
gain, depending on the length of time the option holder held the shares of
common stock prior to the disposition.
The amount by which the fair market value of a share of common stock at the
time of exercise of any incentive stock option exceeds the exercise price will
be included in the computation of such option holder's "alternative minimum
taxable income" in the year the option holder exercises the incentive stock
option. If an option holder pays alternative minimum tax with respect to the
exercise of an incentive stock option, the amount of tax paid will be allowed as
a credit against regular tax liability in subsequent years. The option holder's
basis in the common stock for purposes of the alternative minimum tax will be
adjusted when income is included in alternative minimum taxable income.
A recipient of a nonqualified stock option will not recognize taxable
income at the time of grant, and the Company will not be allowed a deduction by
reason of the grant. The option holder will recognize ordinary income in the
taxable year in which the option holder exercises the nonqualified stock option,
in an amount equal to the excess of the fair market value of the shares of
common stock received at the time of exercise of such an option over the
exercise price of the option, and the Company will be allowed a deduction in
that amount. Upon disposition of the common stock subject to the option, an
option holder will recognize long-term or short-term capital gain or loss,
depending upon the length of time the common shares were held prior to
disposition, equal to the difference between the amount realized on disposition
and the option holder's adjusted basis of the common stock subject to the option
(which adjusted basis ordinarily is the fair market value of the common stock
subject to the option on the date the option was exercised.)
At the date of grant, the holder of a stock appreciation right will not be
deemed to receive income, and the Company will not be entitled to a deduction.
On the date of exercise, the holder of a stock appreciation right will realize
ordinary income equal to the amount of cash or the fair market value of the
shares of common stock received on exercise. The Company will be entitled to a
corresponding deduction with respect to ordinary income realized by the holder
of a stock appreciation right. Upon the vesting of restricted stock awards or
contingent stock awards, the holder will realize ordinary income in an amount
equal to the fair market value of the unrestricted shares at that time and the
Company will receive a corresponding deduction. The holder of a restricted stock
award can elect to recognize ordinary income on the date of grant equal to the
fair market value of the stock. In such event, any further appreciation in the
value of the stock will be taxed at capital gains rates when the stock is
disposed of. Upon receipt of payment of a performance unit, the recipient will
realize ordinary income equal to the amount paid and the Company will receive a
corresponding deduction.
PROPOSED AMENDMENTS
At a meeting on January 25, 2002, the board of directors of NiSource
approved certain amendments to the plan which are described more fully below.
The proposed amendments would increase the total number of shares of common
stock or other awards available for issuance under the plan and would increase
the per
22
participant limitations with respect to options, stock appreciation rights,
restricted stock awards, contingent stock awards and performance units.
Under the proposed amendments, the maximum number of the Company's shares
of common stock that may be subject to awards would increase from 11,000,000
shares of common stock to 21,000,000 shares of common stock. The proposed
amendments also provide that the maximum number of shares of common stock
subject to options and stock appreciation rights that may be granted to any
single qualifying executive officer during the term of the plan shall be
increased from 1,500,000 to 3,000,000. The maximum number of the Company's
shares of common stock subject to options and stock appreciation rights that
will be granted to a qualifying executive officer in any one year shall be
increased from 300,000 to 600,000. "Qualifying executive officer" means the
chief executive officer and any other executive officer named from time to time
in the summary compensation table in the proxy statement and who is employed on
the last day of the taxable year.
The proposed amendments also provide that the maximum number of shares of
common stock subject to restricted stock awards that may be granted to any
single qualifying executive officer during the term of the plan shall be
increased from 750,000 to 1,500,000. The proposed amendments also increase the
number of restricted stock awards that may be awarded to any qualifying
executive officer in any one year from 200,000 to 400,000, provided that no more
than 800,000 (previously, 400,000) shares of restricted stock may be awarded in
any three year period.
Under the proposed amendments, the maximum number of shares of common stock
subject to contingent stock awards that may be granted to any qualifying
executive officer shall be increased from 200,000 to 400,000 per year; provided,
however, that no more than 800,000 (previously 400,000) shares of contingent
stock may be awarded in any three year period, and that the maximum number of
shares of contingent stock granted to any qualifying executive officer during
the term of the plan shall be increased from 750,000 to 1,500,000.
The proposed amendments also provide that the maximum number of performance
units that may be granted to any qualifying executive officer shall be increased
from 200,000 to 400,000 units per year; provided, however, that no more than
800,000 (previously 400,000) performance units may be granted in any three year
period, and that the maximum number of performance units that may be granted to
any qualifying executive officer during the term of the plan shall be increased
from 750,000 to 1,500,000.
VOTES REQUIRED
Approval of the amendment to the Long-Term Incentive Plan requires the
affirmative vote of the majority of the shares present in person or represented
by proxy at the meeting and entitled to vote.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE THE AMENDMENTS TO THE LONG-TERM INCENTIVE PLAN
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 2003 ANNUAL MEETING
Any holder of common stock who wishes to bring any business before the 2003
annual meeting must file a notice of the holder's intent to do so no earlier
than January 20, 2003 and no later than February 19, 2003. The notice must
include a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made. Any holder of common stock who
wishes to submit a proposal to be included in the Company's proxy materials in
connection with the 2003 annual meeting must submit the proposal to the
Secretary of the Company by December 17, 2002. The holder submitting the
proposal must have owned common stock having a market value of at least $2,000
for at least one year prior to submitting the proposal and represent to the
Company that the holder intends to hold those shares of common stock through the
date of the 2003 annual meeting.
Any holder of common stock who wishes to nominate a director at the 2003
annual meeting must file a notice of the nomination no earlier than January 20,
2003 and no later than February 19, 2003. The Company's by-laws require that a
notice to nominate an individual as a director must include the name of each
nominee proposed, the number and class of shares of each class of stock of the
Company beneficially owned by the nominee, such other information concerning the
nominee as would be required under the rules of the Securities and Exchange
Commission in a proxy statement soliciting proxies for the election of the
nominee, the nominee's signed consent to serve as a director of the Company if
elected, the nominating
23
stockholder's name and address, and the number and class of shares of each class
of stock beneficially owned by the nominating stockholder.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of the Forms 3, 4 and 5 furnished to the
Company pursuant to Section 16(a) of the Securities Exchange Act of 1934, the
Company believes that all of its directors, officers and beneficial owners of
more than 10% of its common stock filed all such reports on a timely basis
during 2001, except as follows. Catherine Abbott filed one late Form 4 reporting
a phantom stock unit award in connection with her Columbia Energy Group change
in control agreement. Joseph Turner, who retired as an executive officer in
2001, filed one late Form 4 reporting one open market sale of common stock.
Messrs. Rolland, Thompson, Foster, Decio and Welsh and Drs. Woo and Beering each
filed one incomplete Form 3 omitting the issuance of restricted stock units
under the Company's Nonemployee Director Restricted Stock Unit Plan and one late
Form 5 reporting one grant of restricted stock units issued as a dividend
equivalent under the Plan. These grants have been fully disclosed in this proxy
statement and prior proxy statements under the caption "Compensation of the
Company's Directors." The restricted stock units settle in cash only. Mr. Neale
filed one late Form 4 for a sale of 800 shares of common stock beneficially
owned by his mother and sold for the benefit of his mother's estate, which had
been inadvertently registered in his name as joint tenant. Mr. Rolland filed one
late Form 4 for the purchase of 500 shares of common stock; the stock was
purchased in violation of Mr. Rolland's instructions by an investment banker
with discretionary authority over an account.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Attention is directed to the financial statements contained in the
Company's Annual Report for the year ended December 31, 2001. A copy of the
Annual Report has been sent, or is concurrently being sent, to all stockholders
of record as of April 2, 2002.
AVAILABILITY OF FORM 10-K
A copy of the Company's Annual Report on Form 10-K for its fiscal year
ended December 31, 2001, including the financial statements and the financial
statement schedules, but without exhibits, is contained within the Company's
Annual Report which has been sent, or is concurrently being sent, to you and
will be provided without charge to any stockholder or beneficial owner of the
Company's shares upon written request to Gary W. Pottorff, Secretary, NiSource
Inc., 801 E. 86th Avenue, Merrillville, Indiana 46410 and is also available at
the Company's website at www.nisource.com.
OTHER BUSINESS
The board of directors does not intend to bring any other matters before
the Annual Meeting and does not know of any matters which will be brought before
the meeting by others. If any matters properly come before the meeting it is the
intention of the persons named in the enclosed form of proxy to vote the proxy
in accordance with their judgment on such matters.
Please vote your shares by telephone, through the internet or by promptly
marking, dating, signing and returning the enclosed proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary W. Pottorff
Gary W. Pottorff
Secretary
Dated: April 16, 2002
24
NISOURCE INC.
801 E. 86th Avenue
Merrillville, Indiana 46410 [NISOURCE LOGO]
OFFICERS
Gary L. Neale
Chairman, President and Chief Executive Officer
Stephen P. Adik
Vice Chairman
Catherine G. Abbott
Group President, Pipeline and Production
Patrick J. Mulchay
Group President, Merchant Energy
Jeffrey W. Yundt
Group President, Energy Distribution
Stephen P. Smith
President, Business Services
Mark D. Wyckoff
President, Energy Technologies
Michael W. O'Donnell
Executive Vice President and Chief Financial Officer
S. LaNette Zimmerman
Executive Vice President, Human Resources and Communications
Peter V. Fazio, Jr.
Executive Vice President and General Counsel
James M. Clarke.
Senior Vice President, Enterprise Risk Management
Arthur E. Smith, Jr.
Senior Vice President and Environmental Counsel
Jeffrey W. Grossman
Vice President and Controller
David A. Kelly
Vice President, Real Estate
Dennis W. McFarland
Vice President and Treasurer
Barbara S. McKay
Vice President, Communications
Arthur A. Paquin
Vice President, Audit
Dennis E. Senchak
Vice President, Investor Relations, Assistant Treasurer &
Assistant Secretary
Gary W. Pottorff
Secretary
PROXY PROXY
[NISOURCE LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS, MAY 21, 2002
The undersigned hereby appoints Gary L. Neale and Stephen P. Adik, or
either of them, the attorneys and proxies of the undersigned, with
full power of substitution, for and in the name of the undersigned to
represent and vote the shares of common stock of the undersigned at
the Annual Meeting of Stockholders of the Company, to be held at the
Le Meridien Boston, 250 Franklin Street, Boston, Massachusetts, on
Tuesday, May 21, 2002, at 10:00 a.m., local time, and at any
adjournment or adjournments thereof.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES
LISTED IN PROPOSAL 1 AND "FOR" APPROVAL OF THE AMENDMENT TO THE 1994
LONG-TERM INCENTIVE PLAN IN PROPOSAL 2.
The undersigned stockholder hereby acknowledges receipt of the Notice
of Annual Meeting of Stockholders and Proxy Statement relating to the
Annual Meeting and hereby revokes any proxy or proxies previously
given. The undersigned stockholder may revoke this proxy at any time
before it is voted by filing with the Secretary of the Company a
written notice of revocation or a duly executed proxy bearing a later
date, by voting by telephone or through the Internet, or by attending
the Annual Meeting and voting in person.
PLEASE VOTE YOUR SHARES BY TELEPHONE, THROUGH THE INTERNET, OR BY
MARKING, SIGNING, DATING AND MAILING THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(IMPORTANT - Continued and to be signed on reverse side.)
--------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[NISOURCE LOGO]
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 21, 2002
10:00 A.M., LOCAL TIME
LE MERIDIEN BOSTON
250 FRANKLIN STREET
BOSTON, MASSACHUSETTS
PLEASE MARK [X]
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE
FOR WITHHELD FOR ALL (INSTRUCTION: To withhold authority to vote for any
Proposal 1. To elect four directors to EXCEPT nominee, write that nominee's name on the line below.)
serve on the Board of Directors, each [ ] [ ] [ ]
for a three-year term and until their -------------------------------------------------------
respective successors are elected and
qualified. By checking the box to the right, I consent to view the [ ]
Annual Reports and Proxy Statements electronically via
Nominees: 01 Stephen P. Adik, 02 Ian M. Rolland, the Internet. I understand that the Company may no
03 John W. Thompson, 04 Roger A. Young longer distribute printed materials to me for any
future shareowner meetings until my consent is revoked.
FOR AGAINST ABSTAIN I understand that I may revoke my consent at any time
Proposal 2. To approve the amendment [ ] [ ] [ ] by contacting the Company's transfer agent, Mellon
to the 1994 Long-Term Incentive Plan. Investor Services LLC, Ridgefield Park, NJ and that
costs normally associated with electronic delivery,
In their discretion, the proxies are authorized to vote upon such such as usage and telephone charges as well as any
other business as may properly come before the meeting or any costs I may incur in printing documents, will be my
adjournment thereof. responsibility.
PLEASE RETURN THIS PROXY CARD PROMPTLY. MARK HERE IF YOU PLAN [ ]
TO ATTEND THE MEETING
-----
|
|
Signature ____________________________________________ Signature ____________________________________________ Date ________________
(Please sign this proxy as your name appears on the Company's corporate records. Joint owners should each sign personally. Trustees
and others signing in a representative capacity should indicate the capacity in which they sign.)
------------------------------------------------------------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 4PM EASTERN TIME
THE BUSINESS DAY PRIOR TO THE DAY OF THE ANNUAL MEETING.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
------------------------ ----------------------- ---------------------
INTERNET TELEPHONE MAIL
HTTP://WWW.EPROXY.COM/NI 1-800-435-6710
Use the Internet to vote Use any touch-tone
your proxy. Have your telephone to vote your Mark, sign and date
proxy card in hand when proxy. Have your proxy your proxy card
you access the web site. OR card in hand when you OR and
You will be prompted to call. You will be return it in the
enter your control prompted to enter your enclosed postage-paid
number, located in the control number, located envelope.
box below, to create and in the box below, and
submit an electronic then follow the
ballot. directions given.
------------------------ ----------------------- ---------------------
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.