Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 40391
Notice To Common Shareholders Of Annual Meeting
To Be Held November 19, 2009
It is our pleasure to invite you to attend our Annual Meeting of Shareholders that will be held at the principal office of the Company, 3617 Lexington Road, Winchester, Kentucky, on Thursday, November 19, 2009 at 10:00 a.m. for the purposes of:
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(1) |
Electing two directors for three year terms expiring in 2012 (The Board of Directors recommends a vote FOR each nominee);
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(2) |
Considering and acting upon a proposal to approve the Company's Incentive Compensation Plan (The Board of Directors recommends a vote FOR this proposal);
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(3) |
Acting on such other business as may properly come before the meeting.
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Holders of Common Stock of record at the close of business on October 1, 2009 will be entitled to vote at the meeting. If you plan to attend, please contact us as that will assist us in our planning. You can do this by calling Emily P. Bennett at 1-800-676-1933, extension 116, or by e-mail to ebennett@deltagas.com.
/s/Glenn R. Jennings
Glenn R. Jennings
Chairman of the Board,
President and Chief Executive Officer
Winchester, Kentucky
October 13, 2009
To ensure proper representation at the meeting at a minimum of expense, it will be very helpful if you vote the enclosed proxy promptly.
Proxy Statement
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 40391
Information Concerning Proxy
This solicitation of proxies is made by us upon the authority of our Board of Directors, and the costs associated with this solicitation will be borne by us. We intend to use the mail to solicit our shareholders and intend first to send this proxy statement and the accompanying form of proxy to our shareholders on or about October
13, 2009. We will provide copies of this proxy statement, the accompanying proxy and our fiscal 2009 Annual Report to brokers, dealers, banks and voting trustees and their nominees for mailing to beneficial owners and upon request therefor will reimburse such record holders for their reasonable expenses in forwarding solicitation materials. This proxy statement is also available on Delta's website at http://www.deltagas.com/proxy.htm. In
addition to using the mail, proxies may be solicited by our directors, officers and regular employees in person or by telephone, e-mail or other online methods. We will reimburse their expenses for doing this. Computershare Investor Services, LLC, as part of its duties as our registrar and transfer agent, mails our proxy solicitation materials to our shareholders. Fees for this service are included in the annual fee we pay to Computershare for its services as registrar and transfer
agent.
You may revoke your proxy at any time before it is exercised by giving notice to Mr. John B. Brown, Chief Financial Officer, Treasurer and Secretary of Delta.
Election of Directors
Our Board of Directors is classified into three classes, with terms expiring in either 2009, 2010 or 2011. The terms of two directors, Michael J. Kistner and Michael R. Whitley are scheduled to end in 2009. Michael J. Kistner and Michael R. Whitley are nominated to continue as directors for a three-year term ending
in 2012.
If the enclosed proxy is duly executed and received in time for the meeting, and if no contrary specification is made as provided therein, the shares represented by this proxy will be voted for Michael J. Kistner and Michael R. Whitley as directors. If any nominee should refuse or be unable to serve, the proxy will be voted for
such person as our Board of Directors shall designate. We presently have no knowledge that any of the nominees will refuse or be unable to serve.
The names of directors and nominees and certain information about them are set forth below. Our board has determined that, except for Mr. Jennings, who is an employee of Delta, all directors are “independent”, as defined in Rule 5605(a)(2) of the listing standards for the NASDAQ OMX Group.
3
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Additional Business |
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Name, Age and Position |
Experience During |
Period of Service |
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Held With Delta |
Last Five Years (1) |
As Director |
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Linda K. Breathitt (2) - 58 |
Consultant (energy) |
2007 to present |
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Director |
Lexington, Kentucky; |
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Former Senior Energy Advisor |
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Thelen Reid Brown |
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Raysman & Steiner LLP |
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(law firm) |
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Washington, D.C. |
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Lanny D. Greer (2) - 58 |
Chairman of the Board |
2000 to present |
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Director |
and President |
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First National Financial |
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Corporation and First |
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National Bank |
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(commercial banking) |
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Manchester, Kentucky |
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Billy Joe Hall (2) - 72 |
Investment Representative |
1978 to present |
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Director |
LPL Financial Services |
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(retail investments) |
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Mount Sterling, Kentucky |
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Glenn R. Jennings (3) - 60 |
Chairman of the Board, |
1984 to present |
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Chairman of the Board, |
President and Chief |
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President and Chief |
Executive Officer |
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Executive Officer |
of Delta’s Subsidiaries |
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Michael J. Kistner (4) - 66 |
Consultant |
2002 to present |
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Director |
MJK Consulting |
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(financial consulting) |
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Louisville, Kentucky |
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Lewis N. Melton (3) - 69 |
Civil Engineer |
1999 to present |
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Director |
Vaughn & Melton |
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Consulting Engineers, Inc. |
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(consulting engineering) |
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Middlesboro, Kentucky |
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4
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Additional Business |
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Name, Age and Position |
Experience During |
Period of Service | |||||||
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Held With Delta |
Last Five Years (1) |
As Director | |||||||
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Arthur E. Walker, Jr. (3) – 64 |
President |
1981 to present | |||||||
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Director |
The Walker Company |
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(general and highway |
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construction) |
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Mount Sterling, Kentucky |
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Michael R. Whitley (4) – 66 |
Retired Vice Chairman of the |
2000 to present | |||||||
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Director |
Board, President and Chief |
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Operating Officer |
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LG&E Energy Corp. |
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(diversified utility) |
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Louisville, Kentucky |
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(1) |
Except for Delta’s subsidiaries, none of the organizations or companies listed in this column is Delta’s parent, subsidiary or affiliate. |
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(2) |
Term expires on date of Annual Meeting of Shareholders in 2010. |
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(3) |
Term expires on date of Annual Meeting of Shareholders in 2011. |
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(4) |
Term expires November 19, 2009. |
5
Approval of Company's Incentive Compensation Plan
You, our shareholders, are being requested to approve an Incentive Compensation Plan (the “Plan”). The Plan was adopted by our Board of Directors and will become effective on January 1, 2010, if it is approved by our shareholders. The following summary description of the Plan is qualified in its entirety
by reference to the full text of the Plan which is attached to this proxy statement as Appendix A.
The Plan, which provides for incentive compensation payable in stock, restricted stock and stock bonus awards, was approved and recommended to our Board of Directors by our Corporate Governance and Compensation Committee (the “Committee”) of the Board of Directors and was approved by our Board of Directors. The Plan
is administered by the Committee, which has complete discretion in determining our employees and officers (the “Eligible Employees”) and outside directors who shall be eligible to participate in the Plan. The incentive compensation for the Eligible Employees is based on the performance of Delta and our success in attaining specific strategic goals. The Plan provides for equity ownership through both short-term and long-term incentives. The short-term incentives are
accomplished through potential payment of annual stock bonus awards. The long-term incentive compensation is achieved through potential awards of restricted shares and performance shares. The purpose of the Plan is to promote our interests and the interests of our shareholders through (a) the attraction and retention of participants essential to our success, and (b) the motivation of participants using performance-related incentives linked to performance goals and the interests
of us and our shareholders and (c) enabling such individuals to share in our growth and success.
The number of shares of our common stock which may be issued pursuant to the Plan may not exceed in the aggregate 500,000 shares. Shares of common stock may be available from the authorized but unissued shares, shares issued and reacquired by us or shares that we purchase in the open market for purposes of the Plan. The closing price of
our common stock on September 18, 2009 was $26.23 per share.
Restricted Stock
We may grant shares of restricted stock under the Plan to such participants, and in such amounts and for such duration and/or consideration as it shall determine. Each restricted stock grant under the Plan shall be evidenced by an award agreement that shall specify the restriction period, the conditions which must be satisfied prior to
removal of the restriction, the forfeiture of such shares in the event such conditions are not satisfied, the number of shares of restricted stock granted, and such other provisions as the Committee shall determine. The Committee may specify in the award agreement conditions or restrictions which the Committee may deem advisable, including without limitation, conditions for acceleration or achievement of the end of the restriction period based on any performance criteria. The shares of restricted
stock granted under the Plan may not be sold, or otherwise transferred, until termination of the applicable restriction period or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the applicable award agreement.
6
Performance Shares and Stock Bonus Awards
In addition to restricted stock, the Committee may issue performance awards or stock bonus awards to participants, either alone or in addition to other awards made under the Plan. Any such awards shall be governed by the terms of an agreement, and the Committee may impose such terms and conditions, similar to those described
above, and not inconsistent with the terms of the Plan. Performance awards may be issued in the form of performance shares. The Committee shall set performance criteria in its discretion for each participant who is granted a performance award, and the extent to which such performance criteria are met will determine the value of the performance shares to the participant. Stock bonus awards are required to be in the form of our common stock. The value of each such award
shall be based on the value of the underlying common stock on the payment date. The Committee, in its sole and complete discretion, will determine the eligible employees, terms, restrictions, conditions, vesting requirements and payment rules of any stock bonus awards.
Awards Under the Incentive Compensation Plan
Only our employees, officers and outside directors are eligible to participate in the Plan. We have approximately 155 employees, 4 of which are officers, and 7 outside directors. Because the Committee has sole and complete discretion in determining the basis for participation in benefits or amounts that will be received
by eligible participants, upon the approval of the Plan by the shareholders, such benefits or amounts are not determinable at this time. Similarly, benefits or amounts that would have been received for the last completed fiscal year if the Plan had been in effect cannot be determined at this time.
Restricted Stock. An individual who has been granted stock under the Plan will not realize taxable income at the time of grant, and we will not be entitled to a deduction at that time, assuming that the restrictions constitute a substantial risk of forfeiture for federal
income tax purposes. Upon expiration of the forfeiture restrictions (i.e., as shares become vested), the holder will realize ordinary income in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares, and, subject to the application of Section 162(m) of the Code, we will be entitled to a corresponding deduction. During the period that the forfeiture restrictions apply, the holder shall be entitled to receive all
dividends and other distributions paid with respect to the shares of restricted stock. Thus, the holder will realize taxable income on such dividends paid during the period that the forfeiture restrictions apply.
However, the recipient of restricted stock may elect to be taxed at the time of grant of the restricted stock based upon the fair market value of the shares on the date of the award. If the recipient makes this election (a) we will be entitled to a deduction at the same time and in the same amount subject to the limitations
contained in Section 162(m), (b) dividends paid to the recipient during the period the forfeiture restrictions apply will be taxable as dividends and will not be deductible by us and (c) there will be no further federal income tax consequences when the forfeiture restrictions lapse.
Performance Shares and Stock Bonus Awards. A recipient of such stock awards under the Plan will generally realize taxable income at the time of receipt of any stock, and we will be entitled to a deduction at that time. At the time awards are settled in shares
of our common stock, the recipient will have taxable compensation income and, subject to Section 162(m) as discussed below, we will receive a corresponding deduction. The measure of this income and deduction will be the fair market value of the shares at the time the stock awards are settled, plus any accrued dividend equivalents; provided, however, that, with respect to a recipient subject to Section 16 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”),
unless such recipient elects otherwise, such fair market value will be measured at the time any restrictions imposed with respect to such shares under Section 16 of the Exchange Act subsequently lapse.
7
Section 162(m) of the Internal Revenue Code. Section 162(m) precludes a public corporation from taking a deduction for compensation in excess of one million dollars paid to its chief executive officer or any of its four other highest-paid officers. However, compensation
that qualifies under Section 162(m) as “performance-based” is specifically exempt from the deduction limit. The Plan has been designed to provide flexibility with respect to whether restricted stock awards will qualify as performance-based compensation under Section 162(m). We believe that certain awards of restricted stock under the Plan will so qualify and our deductions with respect to such awards should not be limited by Section 162(m). The Plan
does provide that all awards under the Plan to employees covered by Section 162(m) are subject to other conditions, restrictions, and requirements as the Committee may determine to be necessary to avoid the loss of deduction by us under Section 162(m). However, certain awards of restricted stock may not qualify as performance-based compensation and, therefore, our compensation expense deductions relating to such awards will be subject to the Section 162(m) deduction limitation.
8
Vote Required for Adoption of the Incentive Compensation Plan Proposal
This proposal will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against the proposal.
If the proposal is approved, the Committee will have full authority, discretion and power necessary or desirable to administer and interpret the Plan. In addition, the Committee or the Board of Directors may amend, suspend, or terminate the Plan or any portion thereof at any time, provided such amendment is made with shareholder
approval if and to the extent such approval is necessary to comply with any legal requirements.
The Board of Directors unanimously recommends a vote FOR approval of the Incentive Compensation Plan.
9
Committees and Board Meetings
Audit Committee
We have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Our Audit Committee is comprised of Ms. Breathitt, Mr. Greer, Mr. Hall, and Mr. Kistner (Chairman). The committee met four times during fiscal 2009. Our Board of Directors
has adopted a written charter for the Audit Committee. A current copy of the Audit Committee's charter is attached as Appendix B to this proxy statement and is available on our website at www.deltagas.com. Under the terms of the Audit Committee charter, the committee is directly responsible for the appointment, compensation and oversight of the work of our independent auditors. The Audit Committee charter also empowers
the committee to review audit results and financial statements, review the system of internal control and make reports and recommendations to the Board. The committee is in compliance with its written charter.
The Audit Committee is composed entirely of directors who are (1) able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement, and (2) “independent” as defined by applicable listing standards of the NASDAQ OMX Group. Our Board of
Directors has determined that Michael J. Kistner is the “Audit Committee financial expert”, as defined by Securities and Exchange Commission regulations. Mr. Kistner is "independent", as defined by applicable listing standards of the NASDAQ OMX Group.
Corporate Governance and Compensation Committee
We have a standing Corporate Governance and Compensation Committee comprised of Messrs. Melton (Chairman), Walker and Whitley. The committee, which met four times during fiscal 2009, operates under a charter, a copy of which is available on our website at www.deltagas.com, that empowers the committee to make recommendations
to the Board of Directors as to the compensation of directors and executive officers and other personnel matters. See “Corporate Governance and Compensation Committee Report”.
The committee reviews directors’ compensation and recommends changes when appropriate to the full board. The committee engages the services of consultants as needed to assist in evaluating directors’ compensation. In June, 2009, the committee entered into an agreement with Mercer to study the compensation of directors
and executive officers. The committee will consider the results of this study as it contemplates changes to compensation during fiscal 2010.
Under the terms of its charter, the Corporate Governance and Compensation Committee is also charged with the responsibility to identify and recommend to the Board of Directors individuals who would make suitable directors. In identifying and recommending candidates for the Board of Directors, the committee is obliged to give
due consideration to the intelligence, integrity, education and business experience of potential directors and the amount of time such candidates can reasonably be expected to devote to board responsibilities. The committee’s recommendations are to be consistent with maintaining a high quality, diverse and actively engaged Board of Directors. The committee is to identify candidates through its own business and personal contacts and through recommendations by board members, officers
and employees. The committee may obtain advice and assistance from other advisors, as needed, to identify board candidates. No such advisor was employed during 2009.
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The committee will consider shareholder recommendations for board membership. Such recommendations must be made in writing and received at our principal executive office not less than 120 calendar days before the date in that year corresponding to the date our proxy statement was released to shareholders in connection with the previous
year’s Annual Meeting of Shareholders.
All members of the committee are independent as defined in the listing standards of the NASDAQ OMX Group.
Executive Committee
We have a standing Executive Committee comprised of Messrs. Jennings (Chairman), Kistner, Melton and Whitley. The committee, which did not meet during fiscal 2009, is empowered to act for and on behalf of our Board of Directors during the interval between the meetings of the Board of Directors, in the management and direction
of our business.
Meetings and Board Compensation
During fiscal 2009, our Board of Directors held four meetings. All directors attended 75% or more of the aggregate number of meetings of the Board of Directors and applicable committee meetings. Our stated policy encourages members of the Board of Directors to attend our Annual Meeting of Shareholders. All of our directors attended
our 2008 Annual Meeting of Shareholders.
During fiscal 2009, each director other than Mr. Jennings received monthly compensation of $2,200 and an additional retainer of $700, $600 and $300 per month for service as the Chairman of the Audit Committee, Chairman of the Corporate Governance and Compensation Committee and Lead Director, respectively. Mr. Jennings is
not paid any directors’ fees as Chairman of the Board of Directors since he is employed as one of our executive officers.
See the proposal on page 6 for the approval of the Company's Incentive Compensation Plan which if approved by the shareholders, as recommended by the Board of Directors, will allow the Corporate Governance and Compensation Committee, if it so chooses, to provide equity-based compensation to the members of our Board of Directors.
11
Director Compensation
The following table summarizes the compensation to our directors for the year ended June 30, 2009.
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Name |
Cash Fees |
All Other Compensation |
Total |
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Linda K. Breathitt |
$ |
26,400 |
$ |
– |
$ |
26,400 |
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Lanny D. Greer |
26,400 |
– |
26,400 |
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Billy Joe Hall |
26,400 |
– |
26,400 |
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Glenn R. Jennings |
– |
– |
– |
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Michael J. Kistner |
34,800 |
– |
34,800 |
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Lewis N. Melton |
33,600 |
– |
33,600 |
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Arthur E. Walker, Jr. |
26,400 |
– |
26,400 |
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Michael R. Whitley |
30,000 |
– |
30,000 |
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Executive Officers | ||||||||
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Date Began In This Position (2) | ||||||||
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Name |
Age |
Date Employed by Delta |
Position (1) |
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John B. Brown |
42 |
4/1/95 |
Chief Financial Officer, Treasurer and Secretary |
5/25/07 (3) | ||||
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Johnny L. Caudill |
60 |
10/15/72 |
Vice President – Distribution |
11/20/08 (4) | ||||
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Glenn R. Jennings |
60 |
1/8/79 |
Chairman of the Board, President and Chief Executive Officer |
11/17/05 (5) | ||||
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Brian S. Ramsey |
46 |
8/17/84 |
Vice President – Transmission and Gas Supply |
11/20/08 (6) | ||||
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(1) |
Each executive officer is normally elected to serve a one year term. Each executive officer’s current term is scheduled to end on November 19, 2009, the date of the Board of Directors’ meeting following the 2009 Annual Meeting of Shareholders, except Mr. Jennings has an employment contract in his present capacity through November 30, 2013 (see “Potential Payments Upon Termination Or Change
In Control”). |
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(2) |
All current executive officers except Mr. Ramsey have functioned as executive officers for at least five years. |
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(3) |
Mr. Brown held the position of Vice President – Controller from September 1, 2005 to May 25, 2007. Prior to that, Mr. Brown held the position of Controller. |
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(4) |
Mr. Caudill previously held the position of Vice President – Administration and Customer Service. |
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(5) |
Mr. Jennings previously held the position of Vice Chairman of the Board, President and Chief Executive Officer. |
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(6) |
Mr. Ramsey was elected an executive officer on November 30, 2008. Mr. Ramsey held the position of Manager – Gas Supply from September 1, 2005 to November 30, 2008. Prior to that, Mr. Ramsey held the position of Director – Gas Supply and Transportation. |
12
Audit Committee Report
The Audit Committee is made up entirely of directors who are independent, as defined in the NASDAQ OMX Group listing standards. Consistent with the terms of its charter, the committee meets periodically with our independent auditors and our internal auditor, with and without management present, to discuss the auditors’ findings and
other financial and accounting matters.
The firm of Deloitte & Touche LLP served as our independent auditors for the fiscal years ended June 30, 2009 and June 30, 2008. The committee met with Deloitte & Touche LLP and discussed Deloitte & Touche LLP’s independence and other matters required to be discussed by applicable standards including statement
on Auditing Standards No. 61. Deloitte & Touche LLP has provided the Audit Committee with written assurance of its independence as required by Public Company Accounting Oversight Board Ethics and Independence Rule 3526.
The Audit Committee charter governs the provision of audit and non-audit services by our independent auditors. The committee considers annually and, if appropriate, approves the provision of audit services, including audit review and attest services, by our independent auditors, and considers, and, if appropriate, pre-approves
the provision of certain defined permitted non-audit services within a specified dollar limit. It also considers on a case-by-case basis and, if appropriate, approves specific engagements that do not fit within the definition of the annually pre-approved services or established fee limits. Any proposed engagement that does not fit within the definition of an annually pre-approved service or is not within the fee limits must be presented to the committee for consideration (a) at its next regular meeting,
(b) at a special meeting called to consider the proposed engagement, or (c) pursuant to a unanimous written consent by the committee, in time-sensitive cases. The committee regularly reviews summary reports detailing all services and related fees and expense being provided to us by our independent auditors. All of the services provided by Deloitte & Touche LLP are approved by our Audit Committee.
The following table sets forth the aggregate fees billed to us for the fiscal years ended June 30, 2009 and June 30, 2008 by the independent auditors:
13
|
2009 |
2008 |
||||||
|
Audit Fees (1) |
$ |
224,215 |
$ |
225,178 |
|||
|
Audit-Related Fees (2) |
25,684 |
24,035 |
|||||
|
Tax Fees (3) |
21,985 |
15,481 |
|||||
|
All Other Fees (4) |
4,065 |
4,770 |
|||||
|
Total Fees |
$ |
275,949 |
$ |
269,464 |
|||
|
(1) |
Includes fees of $190,000 and $185,000 for auditing and reporting on our annual financial statements for the fiscal years ended 2009 and 2008, respectively, prepared for submission to the SEC on Form 10-K, and for reviews of our interim financial information for each of the quarters in the fiscal years ending June 30, 2009 and 2008 prepared
for submission to the SEC on Form 10-Q. Also includes out of pocket expenses billed in fiscal 2009 and 2008 of $19,965 and $17,890, respectively, $14,250 in fiscal 2009 for accounting consultations related to a computer system conversion, a SEC comment letter and other matters and $22,288 in fiscal 2008 for accounting consultations related to the adoption of a new accounting standard. |
|
(2) |
Includes fees for professional services rendered in fiscal 2009 and 2008 in connection with audits of our employee benefit plans. |
|
(3) |
Includes fees for professional services rendered in fiscal 2009 and 2008 in connection with tax return reviews and consultations. |
|
(4) |
Includes fees for training and accounting resources in fiscal 2009 and 2008. |
The committee has considered and evaluated the provision of non-audit services by Deloitte & Touche LLP and has determined that the provision of such services was not incompatible with maintaining Deloitte & Touche LLP’s independence.
The committee has reviewed and discussed with management the results of the audit and the audited financial statements for 2009, and the committee recommended to our Board of Directors that the financial statements for 2009 be included in the Annual Report on Form 10-K for filing with the Securities and Exchange Commission. Representatives
of Deloitte & Touche LLP will be present at our 2009 Annual Meeting of Shareholders to respond to appropriate questions and will have an opportunity to make a statement if they so desire.
The appointment of auditors is a matter for determination by the Audit Committee for which no shareholder approval or ratification is necessary. The committee has selected Deloitte & Touche LLP to audit our consolidated financial statements for fiscal year 2010. During fiscal 2010, Deloitte & Touche LLP will
also provide us certain legally permissible, non-audit services.
|
Michael J. Kistner, Committee Chairman | |
|
Linda K. Breathitt | |
|
Lanny D. Greer | |
|
Billy Joe Hall |
14
Corporate Governance and Compensation Committee
Interlocks and Insider Participation
All members of the Corporate Governance and Compensation Committee are non-employee directors and no member other than Mr. Walker has any direct or indirect material interest in or a relationship with us other than stockholdings as discussed herein and as related to their position as director. Mr. Walker has an indirect material
relationship with us by virtue of his ownership interest in certain of our vendors. This relationship is disclosed in “Certain Relationships and Related Transactions”. During 2009, none of our executive officers served on any Board of Directors or Compensation Committee of any other company for which any of our directors served as an executive officer.
Compensation Discussion and Analysis
The Corporate Governance and Compensation Committee of our Board of Directors is comprised of independent directors and operates under a written charter approved by our Board of Directors.
The Corporate Governance and Compensation Committee of our Board of Directors is responsible for developing and making recommendations to our board with respect to Delta’s executive compensation. See “Committees and Board Meetings”. All decisions by the committee relating to the compensation of
our executive officers, including the Chief Executive Officer, are reviewed and given final approval by our Board of Directors. During 2009, no decisions of the committee were modified in any material way or rejected by our Board of Directors.
The goal of the committee in establishing the compensation for our executive officers is to provide fair and appropriate levels of compensation that will ensure our ability to attract and retain a competent and energetic management team. Our compensation program is designed to reward our executive officers for a high level of
management that advances the interests of our shareholders and provides dependable and economically priced natural gas service for our customers.
The elements of compensation for our executive officers consist of their base salaries, bonuses, changes in retirement values and other forms of compensation, including perquisites as set forth in the “Summary Compensation Table”. Our non-contributory, defined benefit retirement plan provides benefits to our employees,
including executive officers. We also contribute to an irrevocable trust that will make payments to Mr. Jennings upon his retirement. See “Retirement Benefits”.
We chose these forms of compensation for our executive officers because we believe that they provide appropriate incentives for the high quality and responsible management that we desire from our executive officers. We are a comparatively smaller natural gas distribution company relative to most other publicly traded natural
gas companies. We have historically paid cash salaries, and we have paid cash bonuses when financial results warranted, but we have not had long-term incentive compensation or significant equity-based compensation for our executive officers. See the proposal on page 6 for the approval of the Company's Incentive Compensation Plan, which, if approved by the shareholders as recommended by the Board of Directors, will allow the Corporate Governance and Compensation Committee, if it so chooses,
to provide equity-based compensation to our executive officers.
15
Salaries for our executive officers, including our Chief Executive Officer, are determined in a manner similar to that for all of our employees. Our salary compensation system was established with the assistance of compensation consultants. Salary ranges were developed for all positions in our company through the
use of external comparisons with other companies. The salary range for each position has a minimum and maximum compensation level. The salary ranges for positions in our company are periodically adjusted with assistance from compensation consultants who provide market information including salary ranges for similar positions in other companies.
Salary increases for all executive officers are determined by our Board of Directors upon recommendation of our Corporate Governance and Compensation Committee. Each year the committee receives employment market information regarding changes in the salary ranges, and the committee recommends revised salary ranges for our executive
officers. As a part of the committee’s process in determining salaries, our Chief Executive Officer makes recommendations to the committee related to salary adjustments for all executive officers, including himself.
There is no specific, quantified relationship between corporate performance and individual salaries. In determining salaries for our executive officers, the committee considers each executive officer's performance over the last year. The committee also considers any employment market information provided by compensation
consultants, recommendations from our Chief Executive Officer, as well as the committee’s own experience and understanding of the employment market.
Salaries are the major component in our executive compensation. As a result, the committee attempts to establish salary levels that will promote the overall compensation philosophy of our company, which is to reward our executive officers for superior management, to provide incentives for high quality and socially responsible
management and to maintain our competitive position in the employment market.
We have no formal bonus plan for executive officers or the Chief Executive Officer. In 2009 and in other recent years, our Board of Directors elected to award bonuses to our executive officers, including our Chief Executive Officer.
The decision to pay bonuses to our executive officers and the amount of any such bonuses are determined by our Board of Directors upon recommendation of our Corporate Governance and Compensation Committee. As a part of the committee’s process, our Chief Executive Officer makes recommendations on the amount of cash bonuses
to be paid to himself and the other executive officers. The committee did not employ compensation consultants in connection with its consideration of the 2009 bonus awards.
There has been no specific, quantified relationship between corporate performance and individual bonuses. Each year the committee considers the award of bonuses and the amount of bonuses based upon its assessment of our overall performance and the contributions and performances of the individual executive officers. The
committee attempts to award bonuses in a manner that recognizes and rewards superior performance by our executive officers, that provides incentive for high quality management and that establishes competitive levels of compensation for our executive officers.
16
Based on this process and these criteria, the committee recommended to our Board of Directors that we award bonuses to our executive officers in each of the last five years. Our board accepted the committee’s recommendation in each case.
As described in the “Summary Compensation Table”, we provide additional forms of compensation, including some perquisites, to our executive officers. We select those forms of compensation or benefits for our executive officers because they are consistent with our executive and employee compensation philosophy described
above. We believe that these forms of compensation or benefits enhance our competitive position in the labor and management markets and generally are consistent with the types of non-cash compensation and perquisites paid by our competitors.
A summary of the compensation awarded to John B. Brown, Chief Financial Officer, Treasurer and Secretary, Johnny L. Caudill, Vice President – Distribution, John F. Hall, Vice President – Finance, Secretary and Treasurer (deceased), Alan L. Heath, Vice President – Operations and Engineering (retired), Glenn
R. Jennings, Chairman of the Board, President and Chief Executive Officer and Brian S. Ramsey, Vice President – Transmission and Gas Supply of the Company, is set forth in the “Summary Compensation Table”. The components of Mr. Brown’s, Mr. Caudill’s, Mr. Jennings’ and Mr. Ramsey's 2009 compensation are generally consistent with prior years.
Corporate Governance and Compensation
Committee Report
The Corporate Governance and Compensation Committee has reviewed and discussed with management the section entitled “Compensation Discussion and Analysis” in this Proxy Statement. Based on its review and discussion with management, the Corporate Governance and Compensation Committee has recommended to our Board
of Directors that the section entitled “Compensation Discussion and Analysis” be included in our Annual Report on Form 10-K for the year ended June 30, 2009 and our 2009 Proxy Statement.
|
Lewis N. Melton, Committee Chairman | |
|
Arthur E. Walker, Jr. | |
|
Michael R. Whitley |
17
Summary Compensation Table
The following table sets forth information concerning the compensation of our executive officers.
|
Name and |
Fiscal |
Change in |
All Other |
||||||||||||||||
|
Principal Position |
Year |
Salary |
Bonus |
Pension Value (1) |
Compensation (2) |
Total |
|||||||||||||
|
John B. Brown |
2009 |
$ |
160,700 |
$ |
30,000 |
$ |
16,179 |
$ |
24,508 |
$ |
231,387 |
||||||||
|
Chief Financial |
2008 |
155,000 |
45,000 |
14,964 |
21,578 |
236,542 |
|||||||||||||
|
Officer, Treasurer and Secretary |
2007 |
144,000 |
40,000 |
14,862 |
21,900 |
220,762 |
|||||||||||||
|
Johnny L. Caudill |
2009 |
169,167 |
30,000 |
66,100 |
26,381 |
291,648 |
|||||||||||||
|
Vice President – |
2008 |
155,300 |
45,000 |
66,569 |
22,965 |
289,834 |
|||||||||||||
|
Distribution |
2007 |
150,000 |
40,000 |
71,919 |
21,847 |
283,766 |
|||||||||||||
|
John F. Hall (3) |
2007 |
128,333 |
— |
73,706 |
57,061 |
259,100 |
|||||||||||||
|
Vice President – |
|||||||||||||||||||
|
Finance, Secretary and Treasurer |
|
||||||||||||||||||
|
Alan L. Heath (4) |
2009 |
90,700 |
— |
98,777 |
35,744 |
225,221 |
|||||||||||||
|
Vice President – |
2008 |
174,900 |
70,000 |
62,747 |
14,097 |
321,744 |
|||||||||||||
|
Operations and Engineering |
2007 |
169,000 |
65,000 |
64,901 |
17,986 |
316,887 |
|||||||||||||
|
Glenn R. Jennings |
2009 |
333,000 |
110,000 |
124,509 |
(5) |
34,002 |
601,511 |
||||||||||||
|
Chairman of the Board, |
2008 |
324,000 |
130,000 |
139,560 |
(5) |
32,487 |
626,047 |
||||||||||||
|
President and Chief Executive Officer |
2007 |
313,000 |
120,000 |
188,804 |
(5) |
92,816 |
714,620 |
||||||||||||
|
Brian S. Ramsey (6) |
2009 |
110,500 |
40,000 |
14,554 |
5,336 |
170,390 |
|||||||||||||
|
Vice President – |
|||||||||||||||||||
|
Transmission and Gas Supply |
|||||||||||||||||||
|
(1) |
Represents the actuarial increase from March 31, 2008 to June 30, 2009 (15 month period due to a change in the measurement date from March 31 to June 30, as was required by SFAS No. 158). The actuarial increase is the change in the present value of the executive’s retirement benefits under the qualified defined benefit
pension plan established by the Company, determined using interest rate, mortality rate and other assumptions consistent with those used in the Company’s financial statements. |
|
(2) |
All Other Compensation column includes the following for fiscal 2009: |
|
Brown |
Caudill |
Heath(4) |
Jennings |
Ramsey(6) | |||||||||||||||||
|
Consulting (a) |
$ |
— |
$ |
— |
$ |
24,000 |
$ |
— |
$ |
— |
|||||||||||
|
Premium for personal portion of life insurance (a) |
— |
— |
— |
422 |
— |
||||||||||||||||
|
Club dues |
— |
— |
— |
640 |
— |
||||||||||||||||
|
Vehicle provided (a) |
10,674 |
11,875 |
4,610 |
10,662 |
— |
||||||||||||||||
|
Tax gross-up on vehicle (a) |
5,862 |
6,522 |
3,132 |
7,865 |
— |
||||||||||||||||
|
Communications (phone, internet) (b) |
1,544 |
1,544 |
676 |
2,203 |
1,728 |
||||||||||||||||
|
Employee savings plan matching company contributions |
6,428 |
6,440 |
3,326 |
12,210 |
3,608 |
||||||||||||||||
|
Total |
$ |
24,508 |
$ |
26,381 |
$ |
35,744 |
$ |
34,002 |
$ |
5,336 |
|||||||||||
|
(a) |
Amounts reported as taxable to individuals during fiscal 2009. | ||
|
(b) |
Reflects total for fiscal 2009, although perquisite value is an indeterminate amount. | ||
18
|
(3) |
Mr. Hall died on April 30, 2007. The $73,706 increase in pension value disclosed above does not include $630,504 of payments made in the form of a lump sum distribution upon death. In total, Mr. Hall's pension value decreased $556,798 during fiscal 2007. | ||
|
(4) |
Mr. Heath retired effective December 31, 2008. The $98,777 increase in pension value disclosed above does not include $412,742 of payments made to him since his retirement. In total, Mr. Heath's pension value decreased $313,965 during fiscal 2009. | ||
|
(5) |
Includes change in value of supplemental retirement plan of $31,240, $47,197 and $79,125 for 2009, 2008 and 2007, respectively (see “Retirement Benefits” for a discussion of this retirement benefit). | ||
|
(6) |
Mr. Ramsey was elected an executive officer on November 20, 2008. |
Retirement Benefits
We have a trusteed, non-contributory, defined benefit retirement plan. Also, we have a nonqualified defined contribution supplemental retirement agreement for Mr. Jennings under which we contribute into an irrevocable trust until Mr. Jennings’ retirement.
The following table shows the present value of accumulated plan benefits under these plans as of June 30, 2009 for each individual in the “Summary Compensation Table” receiving compensation during 2009.
|
Name |
Plan Name |
Number Of Years Credited Service |
Present Value Of Accumulated Benefits (1) |
Payments During Last Fiscal Year | |||||||||
|
John B. Brown |
Defined Benefit Retirement Plan |
14 |
$ |
77,564 |
$ |
— | |||||||
|
Johnny L. Caudill |
Defined Benefit Retirement Plan |
37 |
583,867 |
— | |||||||||
|
Alan L. Heath (2) |
Defined Benefit Retirement Plan |
25 |
141,967 |
412,742 | |||||||||
|
Glenn R. Jennings |
Defined Benefit Retirement Plan |
30 |
863,642 |
— | |||||||||
|
Supplemental Retirement Agreement |
— |
281,313 |
— | ||||||||||
|
Brian S. Ramsey |
Defined Benefit Retirement Plan |
25 |
80,820 |
— | |||||||||
|
(1) |
The amounts were computed using the following significant assumptions: |
||||||||||||
|
Mortality – The RP-2000 Mortality Table for males and females |
|||||||||||||
|
Discount Rate – 6.25% |
|||||||||||||
|
Assumed Retirement Age – Retirement rates for ages 55-65 |
|||||||||||||
|
(2) |
Mr. Heath retired effective December 31, 2008. He received a lump sum distribution of $406,412 for the portion of his benefits earned prior to December 1, 2002. He is also receiving a monthly annuity of $1,055 for the portion of his benefits earned after December 1, 2002, payable as a 10-year certain and life annuity
with a present value of accumulated benefits of $141,967, as shown above. The total of monthly annuity payments received by Mr. Heath during fiscal 2009 was $6,330. |
||||||||||||
The defined benefit retirement plan is available to all employees hired prior to May 9, 2008 as they become eligible. The basic retirement benefit is payable for 120 months certain and life thereafter, based upon a formula of 1.6% of the highest five years average monthly salary for each year of service on or after November 1, 2002 plus
the frozen accrued benefit as of October 31, 2002. The frozen accrued benefit is based upon a formula of 1.8% of the highest five years average monthly salary for each year of service plus .55% of the highest five years average monthly salary in excess of covered compensation for each year of service, not to exceed 35 years. The average monthly salary and years of service used in calculating the frozen accrued benefit is determined as of October 31, 2002. The compensation used
to determine the average monthly salary under the plan includes only base salary of employees, excluding overtime or bonus amounts, (see “Salary” in the “Summary Compensation Table”) and is limited to a maximum of $245,000. The amounts received under the Plan are not subject to any deduction for Social Security benefits received.
19
In the event of death, disability, normal retirement age or early retirement age, single sums are available at the employee’s option for benefits accrued under the defined benefit retirement plan prior to December 1, 2002. For all benefits accrued under the defined benefit retirement plan after December 1, 2002, single
sum distributions are available up to $5,000.
Normal retirement age is 65 under the defined benefit retirement plan. Early retirement is available beginning at age 55, with a reduction of benefits calculated at 5% per year for each year less than 65. Mr. Caudill and Mr. Jennings are currently eligible for early retirement.
In the event of death, our executive officers are entitled to benefits under our defined benefit retirement plan. The payments would be made as lump sum settlements. See “Termination Table”.
In the event of disability, our executive officers are entitled to disability benefits under our defined benefit retirement plan. Payments would be made as monthly annuities. See “Termination Table”.
Beginning in 2005, we began contributing $60,000 annually into an irrevocable trust under a nonqualified defined contribution supplemental retirement agreement with Mr. Jennings. Mr. Jennings has made no contributions to the trust. The trust experienced $28,760 of net investment losses during fiscal 2009. The
assets of the trust consist of exchange traded mutual funds and are recorded at fair value based on observable market prices from active markets. Net realized and unrealized gains and losses are included in earnings each period. No withdrawals have been made from the trust during the fiscal year. Our contributions and the trust's earnings are reported under Change in Pension Value in the Summary Compensation Table for Mr. Jennings for each year presented. At retirement,
the trustee will make annual payments of $100,000 to Mr. Jennings until the trust is depleted. The Board of Directors, upon the recommendation of the Corporate Governance and Compensation Committee, established the supplemental retirement agreement with Mr. Jennings to restore benefits that executives lose due to qualified employee benefit plan limitations. The committee provided the benefit to Mr. Jennings in consideration of services currently rendered by him on behalf of the Company,
as well as providing an inducement for Mr. Jennings to provide future valuable services until retirement. The Committee believes that the supplemental retirement agreement, together with the other elements of Mr. Jennings' compensation achieves the goal to provide fair and appropriate levels of compensation that will ensure our ability to attract and retain a competent and engaged management team. The supplemental retirement agreement did not impact our other compensation elements for him
or other executive officers.
20
Potential Payments Upon
Termination Or Change in Control
Recognizing that our executives' contributions to our growth and success have been significant, our Board of Directors desires to provide for the continued employment of the executives in order to encourage and reinforce the continued attention and dedication of the executives as members of our management. In order to formalize
our Board's wishes for continued employment of the executives, we have entered into agreements with each of our officers. All of the agreements provide for payments to the officer in the event that his employment terminates after a change in control. Our Board believes that we are at risk of losing our executives in the event of a change in control. The payments, as structured, provide incentive to the officer to continue his employment throughout such a transition period and
provide an incentive to the successor company to retain the present executives. The agreements also all include a non-compete provision which protects us from certain business risks such as threats from competitors, loss of confidentiality or trade secrets and solicitation of customers and employees. Our Board believes that the importance of the benefits provided by such agreements increases with position and level of responsibility; therefore, in addition to the material terms previously
discussed, our agreement with Mr. Jennings also defines our right to terminate the employment relationship with him and provides for payments to be made to him if he is terminated in violation of the terms of the agreement at any time during the employment agreement period. As previously discussed, the intent of our compensation program is to help us attract and retain the appropriate executive talent. Our Board believes, in addition to protecting us from certain business risks, the employment
agreement helps retain Mr. Jennings by providing a competitive employment arrangement with respect to a change in control or termination without cause.
Our agreement with Mr. Jennings provides for his employment in his present capacity through November 30, 2013. The agreement automatically extends one additional year on each November 30, unless either we or Mr. Jennings delivers to the other notice that such automatic extension shall not occur.
Under the provisions of his employment agreement, Mr. Jennings will receive payments if we terminate his employment in violation of the terms of the agreement. Termination by us without cause is a violation of the employment agreement. Mr. Jennings may also receive payments if he terminates his employment
following a change in control. Mr. Jennings receives no payments under the employment agreement in the event he dies or becomes disabled or if we terminate him for cause.
If we terminate Mr. Jennings’ employment in violation of his agreement, including a termination without cause, we are required to continue to pay Mr. Jennings his salary for the number of years remaining under the agreement, but in no event for less than three years. In addition, during the same period Mr. Jennings
will continue to participate in all employee benefits and programs for which he otherwise would have been eligible and may at his option elect to receive title to the automobile then being provided to him by us. We also will pay Mr. Jennings an amount equal to any excise taxes he is required to pay as a result of payments made to him under his employment agreement. See Column I in “Termination Table”.
21
Mr. Jennings also may terminate his employment following a change in control if he determines in good faith that, due to the change in control, either his continued employment is not in our best interests or he is unable to carry out his duties effectively. A change in control is defined generally to include: (i)
the acquisition of 20% of our voting stock by any entity, group or person; (ii) a change in the majority of our Board of Directors; or (iii) certain organic changes involving us (e.g., reorganizations, mergers, share exchanges, consolidations, liquidations, sale of substantially all of our assets, or similar transactions) that result in significant shifts in the ownership or control of us. If Mr. Jennings terminates his employment in good faith following a change in control, as described in the
preceding paragraph, we are required to pay him in a lump sum at the time of his termination an amount equal to the total of his salary for the number of years remaining under his employment agreement. If the total number of years left on his employment agreement is less than three, we are required to pay him an amount equal to three years of his salary.
If Mr. Jennings terminates his employment in good faith following a change in control, then for the number of years remaining under his employment agreement, but in no event for less than three years, he will also continue to participate in all employee benefits and programs for which he otherwise would have been eligible. He
also may at his option elect to receive title to the automobile then being provided to him by us. We will pay Mr. Jennings an amount equal to any excise taxes he is required to pay as a result of payments made to him under the agreement. See Column II in “Termination Table”.
In the event Mr. Jennings is terminated by us in violation of his employment agreement or if he terminates his employment in good faith following a change in control, we agree to pay any losses or damages he suffers as a result of such termination, including legal expenses. We also agree to pay Mr. Jennings’ legal
expenses generated by any actions regarding the validity or enforceability of the employment agreement or liability under the agreement.
Mr. Jennings’ employment agreement contains a non-compete provision. Under the terms of the non-compete, Mr. Jennings’ right to payments under his employment agreement ceases if he becomes an employee, owner or manager of a retail natural gas distribution business that has operations in any county where
we have pipeline facilities.
Our other executive officers, Mr. Brown, Mr. Caudill and Mr. Ramsey, do not have an employment agreement. Each of these executive officers is appointed for a one year term by our Board of Directors.
We do, however, have an agreement with each of these executive officers, which becomes operative in the event of a change in control. For the purpose of these change in control agreements, a change in control is defined generally to include: (i) the acquisition of 20% of our voting stock by any entity, group or person;
(ii) a change in the majority of our Board of Directors; or (iii) certain organic changes involving us (e.g., reorganizations, mergers, share exchanges, consolidations, liquidations, sale of substantially all of our assets, or similar transactions) that result in significant shifts in the ownership or control of us.
These change in control agreements with these executive officers provide that, following a change in control, each of the three officers may continue in our employment in their customary positions for a period of three years. During this time they will receive compensation consisting of (i) a base salary that is not less than
the annual rate in effect on the day before the change in control, with such increase as may thereafter be awarded in accordance with our regular compensation practices; and (ii) incentive and bonus awards that is not less than the annualized amount of any such awards paid to them for the twelve months ending on the date of a change in control. In addition, their change in control agreements provide for the continuance, at not less than the levels immediately before the change in control, of their
employee benefit plans and practices. See Column II in “Termination Table”.
22
The change in control agreements also provide that if we terminate Mr. Brown, Mr. Caudill or Mr. Ramsey without cause during the three year period following a change in control, their compensation and benefits and service credits under the employee benefit plans will continue for the remainder of the period, but in no event
for less than two years following termination of employment. If Mr. Brown, Mr. Caudill or Mr. Ramsey terminates his employment under the change in control agreement because he determines in good faith that, due to the change in control, his continued employment is not in our best interests or he is unable to carry out his duties effectively, then that termination is considered a termination by us without cause. Under the change in control agreement, an officer receives no
payments if we terminate him for cause or if he is terminated due to his death or retirement.
If terminated without cause, Mr. Brown, Mr. Caudill and Mr. Ramsey may elect to receive their total base salary due as a lump sum payment and may elect to receive title to the automobile then currently being furnished to them. We also agree to pay the three officers an amount equal to any excise taxes they are
required to pay as a result of payments made to them under the change in control agreement.
In addition, we also agree to pay the legal expenses of the executive officers that may be generated by any actions regarding the validity or enforceability of the change in control agreement or liability under the agreement.
The executive officers’ change in control agreements contain a non-compete provision. Under the terms of the non-compete, an executive officer’s right to payments under the change in control agreement ceases if the executive officer becomes an employee, owner or manager of a retail natural gas distribution business
that has operations in any county where we have pipeline facilities.
In addition, all executive officers have accumulated retirement benefits under our defined benefit retirement plan, which would be available to them if they terminated their employment with us as of June 30, 2009. Their monthly benefits are available whether their employment is terminated with or without cause either before or
after a change in control. The amounts are not available in the event of death or disability. See Column I in “Termination Table”.
In the event of death, all executive officers are entitled to benefits under our defined benefit retirement plan. The payments would be made as lump sum settlements. See Column III in “Termination Table”.
23
In the event of disability, all executive officers are entitled to benefits under our defined benefit retirement plan. In addition, all executive officers are entitled to benefits under our insured disability plan that we maintain for our employees. Disability payments are made monthly. See Column IV in “Termination
Table”.
The following “Termination Table” sets forth potential payments payable to the individuals in the “Summary Compensation Table” in the event they terminate their employment under varying circumstances. The “Termination Table” assumes that the termination occurred as of June 30, 2009.
Termination Table (1)
|
Column I |
Column II |
Column III |
Column IV |
||||||||||
|
Name |
Termination Payments Before A Change In Control (2) |
Termination Payments Following A Change In Control (3) |
Payments In The Event Of Death (4) |
Payments In The Event Of Disability (5) |
|||||||||
|
John B. Brown |
$ |
— |
(6) |
$ |
852,872 |
(7) |
$ |
692,568 |
$ |
249 |
(a) | ||
|
9,375 |
(b) | ||||||||||||
|
Johnny L. Caudill |
5,762 |
(6) |
1,043,655 |
(7) |
687,522 |
4,442 |
(a) | ||||||
|
9,400 |
(b) | ||||||||||||
|
Glenn R. Jennings (8) |
8,525 |
(6) |
3,193,665 |
(9) |
1,242,511 |
(10) |
6,358 |
(a) | |||||
|
51,201 |
(11) |
18,900 |
(b) | ||||||||||
|
Brian S. Ramsey |
— |
(6) |
649,881 |
(7) |
409,891 |
307 |
(a) | ||||||
|
5,000 |
(b) | ||||||||||||
|
(1) |
In addition to the amounts in this Table, in the event of termination for any reason, accrued personal time and vacation benefits would be paid to Mr. Brown ($18,386), Mr. Caudill ($23,538), Mr. Jennings ($45,115) and Mr. Ramsey ($3,110). |
|
(2) |
Monthly payments that are to be paid to the executive officer in the event of voluntary termination by the executive officer or involuntary termination by us. |
|
(3) |
Included in these amounts are estimated excise tax amounts that would be required to be reimbursed to the executive officers (see “Potential Payments Upon Termination Or Change In Control”). In addition to the amounts reported in this Column II, each executive officer would be entitled to monthly payments under our defined
benefit retirement plan, as reflected in Column I and explained in footnote (6) to this Table. |
|
(4) |
Amounts payable as lump sum death benefits under the terms of our defined benefit retirement plan. See “Retirement Benefits”. |
|
(5) |
The amounts reflect the monthly payments in the event of disability to be made under (i) our defined benefit retirement plan, denoted as (a) in Column IV of this Table, and (ii) our insured disability plan that we maintain for our employees, denoted as (b) in Column IV of this Table. Payments under our defined benefit
retirement plan will be made monthly as 10-year certain and life annuities. Payments under our insured disability plan will be made monthly until the executive officer reaches the age of 65. |
|
(6) |
Monthly amounts payable under our defined benefit retirement plan. The amounts are payable as a result of any termination of employment, including, for example, the termination of the executive officer’s employment by us for cause. These monthly payments would begin immediately for Mr. Caudill and Mr. Jennings. Payments
to Mr. Brown would begin when he reaches the age of 65 in the amount of $1,936 per month, or at age 55 in the amount of $968 per month. Payments to Mr. Ramsey would begin when he reaches the age of 65 in the amount of $1,693 per month, or at age 55 in the amount of $847 per month. Payments assume monthly payments as a 10-year certain and life annuity option. Under our retirement plan, all four of the executive officers may, at their discretion, select other annuity and lump sum
payment options. See “Retirement Benefits”. For example, Mr. Brown could receive an immediate lump sum of $30,032 along with an annuity of $1,220 per month beginning at age 65 (or $610 per month beginning at age 55), Mr. Caudill could receive an immediate lump sum of $502,013 along with an immediate annuity of $1,003 per month, Mr. Jennings could receive an immediate lump sum of $720,100 along with an immediate annuity of $1,445 per month, and Mr. Ramsey could receive
an immediate lump sum of $55,809 along with an annuity of $622 per month beginning at age 65 (or $311 per month beginning at age 55). |
24
|
(7) |
The amounts reflect estimated lump sum payments under the executive officer’s change in control agreement if the executive officer is terminated following a change in control (i) by us, without cause, or (ii) by the executive officer in good faith. |
|
(8) |
In addition to the amounts in this Table, a supplemental retirement trust amount of $281,313 would be due to Mr. Jennings upon his death or disability; or $100,000 per year upon his retirement until the trust balance is extinguished. |
|
(9) |
Lump sum payment to Mr. Jennings under his employment agreement if he is terminated following a change in control (i) by us, in violation of his employment agreement, or (ii) by Mr. Jennings in good faith. |
|
(10) |
In addition to the amount payable as a lump sum under the terms of our defined benefit retirement plan, the amount reflected in Mr. Jennings’ death benefit includes $200,000 of life insurance proceeds from a split-dollar policy maintained by the company. |
|
(11) |
This amount reflects estimated monthly payments and benefits that we must make to Mr. Jennings if, before any change in control, we terminate his employment in violation of his employment agreement. The monthly payments and benefits continue for the term remaining on his employment agreement, but in no event for less
than three years. Estimated payments include perquisites, changes in pension value, salary and bonus amounts based on 2009 amounts. See “Potential Payments Upon Termination Or Change In Control”. |
25
|
Security Ownership Of Certain | ||||
|
Beneficial Owners and Management (1) | ||||
|
Name Of Owner |
Amount and Nature of Beneficial Ownership (2)(3) |
Percent
Of Stock | ||
|
Linda K. Breathitt (4) |
1,230 |
* | ||
|
John B. Brown (5) |
1,099 |
* | ||
|
Johnny L. Caudill (5) |
5,031 |
* | ||
|
Lanny D. Greer (4) |
2,400 |
* | ||
|
Billy Joe Hall (4) |
7,899 |
* | ||
|
Alan L. Heath (6) |
4,633 |
* | ||
|
Glenn R. Jennings (4)(5) |
13,944 |
* | ||
|
Michael J. Kistner (4) |
2,100 |
* | ||
|
Lewis N. Melton (4) |
15,673 |
* | ||
|
Brian S. Ramsey (5) |
73 |
* | ||
|
Arthur E. Walker, Jr. (4)(7) |
17,919 |
* | ||
|
Michael R. Whitley (4)(8) |
16,000 |
* | ||
|
All directors and officers as a group (11 persons) |
88,001 |
2.7% | ||
|
* |
Less than 1%. |
|
(1) |
The only class of stock issued and outstanding is common stock. |
|
(2) |
The persons listed, unless otherwise indicated in this column, are the sole beneficial owners of the reported securities and accordingly exercise both sole voting and sole investment power over the securities. |
|
(3) |
The figures, which are as of June 30, 2009, are based on information supplied to us by our executive officers and directors. |
|
(4) |
Director. |
|
(5) |
Executive Officer. |
|
(6) |
Mr. Heath served as an executive officer until November 20, 2008 and retired effective December 31, 2008. |
|
(7) |
The listed shares include 1,360 shares registered in the name of Mr. Walker’s wife. |
|
(8) |
The listed shares include 1,000 shares registered in the name of Mr. Whitley’s wife. |
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Certain Relationships and Related Transactions
Transactions between us and related persons or parties are approved, similar to all our transactions, by our properly authorized officers or agents or, if required, by our Board of Directors. We additionally review all such related party transactions pursuant to the following policies and procedures.
Quarterly, we report a summary of all known related party transactions to management and our internal auditor for review. Each year in anticipation of our Annual Meeting of Shareholders, we request from each of our Officers and Directors information about transactions that they or parties related to them may have had with us. The
information we request is designed to enable us to comply with our obligation to report related party transactions.
Each year our Audit Committee reviews the summary report to management of known related party transactions for the year and the information that is supplied to us by each Officer and Director. Neither we nor the Audit Committee has written standards for review of this information, although in reviewing the propriety of any reported
related party transactions, the Audit Committee considers the provisions of our Business Code of Conduct and Ethics, which our Directors and Officers also commit to observe. The Audit Committee is authorized under its charter to retain legal counsel as necessary in connection with its fulfilling of its duties and obligations. Our written Audit Committee Charter states expressly that the Committee’s “oversight responsibilities” includes “reviewing and considering related
party transactions”.
The Audit Committee concluded from its review in 2009 that transactions with Directors and Officers were appropriate and on an arms-length basis. Two of our Directors, Lanny Greer and Arthur Walker, entered into transactions described below.
Mr. Greer owns approximately 15.6% of Elmo Greer & Sons, LLC and he and his immediate family together own 100% of Elmo Greer & Sons, LLC. Delta Resources supplied Elmo Greer & Sons, LLC with approximately $777,000 of natural gas during fiscal 2009. The price charged Elmo Greer & Sons, LLC by Delta Resources
contains a gas transportation component, which is based on our regulated tariffs, and also includes a negotiated, market-based component for the natural gas commodity. We paid Elmo Greer & Sons, LLC approximately $2,000 for materials that we purchased in fiscal 2009 at market prices. In addition, we sold natural gas at tariff rates to Elmo Greer & Sons, LLC and other companies related to Mr. Greer totaling approximately $61,000 during fiscal 2009.
Mr. Walker owns 100% of The Walker Company which owns a 50% interest in The Rock Group, LLC. The Rock Group, LLC operates in our service territory and sold approximately $25,000 of rock to us at market prices during fiscal 2009. Mr. Walker also owns a 10% interest in Dutch Ishmael Chevrolet, Inc. and Dutch Ishmael Ford-Mercury,
LLC. We paid these companies a total of approximately $230,000 for vehicles that we purchased in fiscal 2009 at market competitive prices. In addition, we sold natural gas at tariff rates to The Walker Company totaling approximately $21,000 during fiscal 2009.
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Under the listing standards for the NASDAQ OMX Group, none of the series of transactions with Mr. Greer or Mr. Walker are of the magnitude which would impair their status as independent members of the Board of Directors or the committees on which they serve.
Shareholders’ Communications with Board
The Board of Directors provides a process for our shareholders to send communications to our Board of Directors or any member of the board. The board policy encourages a shareholder to communicate in any manner convenient to the shareholder. As one such method of communication, the board adopted a policy whereby any
shareholder may communicate with the board or any member of the board by a written communication sent to our principal corporate offices. Our Corporate Secretary will forward such written communication to the Chairman of our Board of Directors or to the particular director, as indicated by the shareholder.
Submission of Shareholders’ Proposals
Our Bylaws do not contain any requirement for shareholders to provide advance notice of proposals or nominations they intend to present at our Annual Meeting of Shareholders.
Any proposal by a shareholder to be submitted for possible inclusion in our proxy soliciting materials for our 2010 Annual Meeting of Shareholders must be received by us no later than June 15, 2010.
Voting
General
As of the close of business on October 1, 2009, the record date fixed for determination of voting rights, we had outstanding 3,323,385 shares of common stock, each share having one vote.
Once a share is represented for any purpose at the meeting, it will be deemed present for quorum purposes for the remainder of the meeting and any adjournment of the meeting unless a new record date is set.
Shares represented by a limited proxy, such as where a broker may not vote on a particular matter without instructions from the beneficial owner and no instructions have been received (i.e., “broker non-vote”), will be counted to determine the presence of a quorum but will not be deemed present for other purposes and will not
be the equivalent of a “no” vote on a proposition. Shares represented by a proxy with instructions to abstain on a matter will be counted in determining whether a quorum is in attendance. An abstention is not the equivalent of a “no” vote on a proposition.
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Election of Directors
Our directors are elected by a plurality of votes cast at a meeting at which a quorum is present. Under plurality voting, the nominees with the largest number of votes are elected as directors, up to the maximum number of directors to be chosen at the election.
Discretionary Voting Authority
We are not aware of any other matters to be presented at the Annual Meeting of Shareholders to be held on November 19, 2009. However, if any other matters come before the meeting, it is intended that the holders of proxies solicited hereby will vote such shares in their discretion to the full extent permitted by Rule 14a-4 of
the SEC's proxy rules.
Rule 14a-4 of the SEC’s proxy rules allows us to use discretionary authority to vote on a matter coming before our Annual Meeting of Shareholders and not included in our proxy statement. This discretionary voting authority is limited to matters about which we do not have notice at least 45 days before the date in that year
corresponding to the date on which our prior year’s proxy materials were first mailed to shareholders in connection with the prior year’s Annual Meeting of Shareholders. Accordingly, for our 2010 Annual Meeting of Shareholders, any such notice must be submitted to our Corporate Secretary on or before August 31, 2010.
In addition we may also use discretionary voting authority if we received timely notice of such matters as described in the preceding sentence and if, in the proxy statement, we describe the nature of such matter and how we intend to exercise our discretion to vote on the matter.
This requirement is separate from the SEC’s requirements that a shareholder must meet in order to have a shareholder proposal included in our proxy statement, as described above in the section entitled “Submission of Shareholders’ Proposals”.
Financial Statements
Our 2009 Annual Report to Shareholders containing financial statements will precede or accompany the mailing of this proxy to our common shareholders.
Section 16(a) Beneficial Ownership Reporting Compliance
In accordance with Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission regulations, persons who own greater than 10 percent of the Company’s equity securities, our directors and executive officers are required to file reports of ownership and changes in ownership of such equity securities with
the Securities and Exchange Commission and to furnish us with copies of all such reports they file.
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Based solely on our review of copies of such reports received or written representations from certain reporting persons, we believe that during fiscal 2009 all filing requirements applicable to directors and officers, and 10 percent shareholders, were satisfied, with the exception of Mr. Brian S. Ramsey, who filed on January 14, 2009,
a Form 3 following his appointment on November 20, 2008 as an executive officer (Vice President – Transmission and Gas Supply). The filing of the Form 3 was inadvertently not timely.
Other Matters
Under Kentucky law, there are no appraisal or similar rights of dissenters with respect to any matter to be acted upon at the 2009 Annual Meeting of Shareholders.
Any stockholder may obtain without charge a copy of our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission for the year ended June 30, 2009, by submitting a request in writing to: John B. Brown, Chief Financial Officer, Treasurer and Secretary, Delta Natural Gas Company, Inc.,
3617 Lexington Road, Winchester, KY 40391. Our 2009 Form 10-K and our 2009 Notice and Proxy Statement may also be viewed on our website at www.deltagas.com.
The above Notice and Proxy Statement are sent by order of the Board of Directors.
/s/John B. Brown
John B. Brown
Chief Financial Officer, Treasurer
and Secretary
October 13, 2009
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