Exhibit 99-1
Directors
Directors Whose Terms Expire In 2004
Kenneth M. Jasinski (55) Executive Vice President and Chief Financial Officer of Energy East, Albany, NY and Portland, ME. Mr. Jasinski was Executive Vice President, General Counsel and Secretary of Energy East from August 2000 to February 2002, Executive Vice President and General Counsel of Energy East from April 1999 to August 2000, Senior Vice President and General Counsel of Energy East from April 1998 to April 1999, Executive Vice President of the company from April 1998 to April 1999. Director since April 1999.(1)
James P. Laurito (47) President of the company, Ithaca, NY. Mr. Laurito is also President of RGS Energy Group, Inc., and Rochester Gas and Electric Corporation, both in Rochester, NY. Mr. Laurito was President and Chief Operating Officer of Connecticut Natural Gas Corporation and The Southern Connecticut Gas Company from October 2000 to May 2003, President of TEN Companies, Inc., January 1999 to October 2000, and Vice President, Business Development of TEN Companies, Inc. prior to January 1999. Director since May 2003.(1)
Wesley W. von Schack (59) Chairman, President and Chief Executive Officer of Energy East, Albany, NY and Portland, ME. Director of: Energy East, Albany, NY and Portland, ME; Mellon Financial Corporation and Mellon Bank, N.A., Pittsburgh, PA; and AEGIS Insurance Services, Inc., Jersey City, NJ. Trustee of the American Gas Foundation, Washington, DC. Mr. von Schack was Chairman, President and Chief Executive Officer of the company from September 1996 to April 1999. Director since September 1996.(1)
Denis E. Wickham (55) Executive Vice President and Chief Operating Officer of the company, Ithaca, NY. Mr. Wickham is also Executive Vice President and Chief Operating Officer of Rochester Gas and Electric Corporation, Rochester, NY. Mr. Wickham was Senior Vice President, Transmission and Energy Supply of Energy East Management Corporation from October 2000 to July 2003 and Senior Vice President, Energy Operating Services of the company from June 1998 to October 2000. Director since July 2003.(1)
____________________
(1) None of the directors receive compensation for serving as directors of the company because they are officers of Energy East or certain of its subsidiaries.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that during 2003 all filing requirements under Section 16 (a) of the Securities Exchange Act of 1934 were satisfied by its directors and executive officers.
Executive Compensation
The following sets forth certain information relating to cash and noncash compensation for each of the last three fiscal years for Mr. Laurito and the next four highest compensated officers of the company and for Mr. Tedesco who is no longer employed by the company, but served as an executive officer of the company in 2003. The following also sets forth certain information relating to benefits and to change in control arrangements for the company's officers. All amounts presented are aggregate compensation from the company and its affiliates. When an officer of the company is also an officer of one or more of the company's affiliates, the expense for such compensation is allocated based on the time that the officer devotes to the respective companies.
Summary Compensation Table
|
| | | Annual Compensation | Long-Term Compensation | |
| | | | Awards | Payouts | |
Name and
Principal Position |
Year
|
Salary
|
Bonus
| Restricted Stock | Options/
SARs (#) | Long-Term
Incentive Plan | All Other
Compensation(1) |
| | | | | | | |
James P. Laurito
President | 2003
2002
2001 | $316,669
243,500
250,000 | $211,502
727,868
0 | $115,200
0
0 | 20,000
50,000
50,000 | $ 0
0
0 | $110,675
11,000
10,500 |
Denis E. Wickham
Executive Vice President
and Chief Operating
Officer | 2003
2002
2001 | 275,000
250,000
250,000 | 181,286
275,000
97,698 | 115,200
0
0 | 20,000
70,000
70,000 | 0
0
65,117 | 2,745
2,745
2,745 |
Michael H. Conroy
Vice President | 2003
2002
2001 | 155,004
120,000
114,375 | 70,250
63,800
17,053 | 63,360
0
0
| 0
28,500
20,000 | 0
0
0
| 21,399
7,339
4,575 |
Michael D. Eastman
Vice President | 2003
2002
2001 | 152,500
140,000
140,000 | 67,656
98,000
39,789 | 63,360
0
0 | 0
46,000
40,000 | 0
0
0 | 2,580
2,580
2,100 |
Teresa M. Turner
Vice President | 2003
2002
2001 | 160,417
155,000
150,000 | 53,734
85,800
50,447 | 63,360
0
0 | 0
40,000
40,000 | 0
0
35,323 | 2,250
2,250
2,250 |
Ralph R. Tedesco(2)
President and Chief
Operating Officer | 2003
2002
2001
| 100,000
300,000
300,000
| 0
210,000
175,984
| 115,200
0
0
| 20,000
65,000
83,000
| 0
0
78,840
| 1,496,310
2,930
2,730 |
____________
(1) In 2003, the company contributed for Messrs. Laurito, Wickham, Conroy, Eastman, Ms. Turner and Mr. Tedesco $8,917, $2,505, $4,263, $2,100, $2,250 and $1,250, respectively, under a tax deferred savings plan (401(k) Plan). The company contributed $240 for Mr. Wickham, $480 for Mr. Eastman and $60 for Mr. Tedesco under the Employees' Stock Purchase Plan. The company made a payment for Mr. Laurito of $27,287 for financial planning services. Messrs. Laurito and Conroy received payments of $74,471 and $17,136, respectively,as part of the services under the company's relocation program. Mr. Tedesco received a payment of $1,495,000 pertaining to an agreement he had with the company regarding his termination of employment with the company.
(2) Effective May 1, 2003, Mr. Tedesco was no longer employed by the company.
Options/SAR Grants in Last Fiscal Year (2003)
|
Individual Grants |
| | |
Name
|
Number of
Securities
Underlying
Options/SARs
Granted(#)(1)
| Percentage
of Total
Options/SARs
Granted to
Employees
In Fiscal
Year |
Exercise
or Base
Price($/Sh)
|
Expiration
Date
|
Grant
Date
Present
Value(2)
|
| | | | | |
James P. Laurito
|
20,000
|
3.13%
|
$19.1000
|
02/12/13
|
$60,200
|
Denis E. Wickham | 20,000 | 3.13% | $19.1000 | 02/12/13 | 60,200 |
Ralph R. Tedesco | 20,000 | 3.13% | $19.1000 | 02/12/13 | 60,200 |
____________
(1) Pursuant to the Energy East 2000 Stock Option Plan, participants were granted options to purchase a specified number of Energy East shares at specified exercise prices. These options were granted in tandem with stock appreciation rights and are for a term of ten years from the date of grant. The exercise price of an option or tandem stock appreciation right may not be less than 100% of the closing price of an Energy East share determined on the last trading date before such option and tandem stock appreciation right are granted. The exercise of an option or a tandem stock appreciation right will result in a corresponding cancellation of the related stock appreciation right or option to the extent of the number of shares of Energy East as to which the option or the stock appreciation right was exercised. Replacement options are granted to participants at the time of an exercise of an option to the extent that all or any portion of the option exercise price or taxes incurred in connection wit h the exercise of the option are paid for by using other Energy East shares or by the withholding of Energy East shares. The replacement option is granted for the number of shares the participant tenders to pay the exercise price or taxes incurred. Replacement options will first be exercisable no earlier than six months from the date of their grant and will have an expiration date equal to the expiration date of the original option. The options are transferable to family members and certain entities under certain circumstances. The options and tandem stock appreciation rights were granted on February 12, 2003 and are exercisable in three installments regarding the original number of options granted as follows: (a) in aggregate as to no more than 33 1/3% on their grant date, February 12, 2003; (b) in aggregate as to no more than 66 2/3% on January 1, 2004; and (c) on January 1, 2005 as to 100% of all options which have not been previously exercised.
(2) There is no assurance the value realized will be at or near the value based on the Black-Scholes option-pricing model. The actual value, if any, will depend on the excess of the stock price over the exercise price on the date the option is exercised. In determining the "Grant Date Present Value," the following common assumptions were used: stock price volatility, 23.62%; risk-free interest rate, 3.71%; dividend yield, 4.58%; and an expected term before exercise of 6.75 years.
Aggregated Option/SAR Exercises in Last Fiscal Year (2003)
and Fiscal Year-end Option/SAR Values
|
| | | Number of Shares
Underlying Unexercised
Options/SARs at
Fiscal Year-End(#) |
| | | |
Name
| Shares
Acquired on
Exercise(#) |
Value
Realized(1)
|
Exercisable
|
Unexercisable
|
| | | | |
James P. Laurito
|
0
|
$0
|
89,999
|
30,001
|
Denis E. Wickham | 0 | 0 | 287,332 | 36,668 |
Michael H. Conroy | 0 | 0 | 36,499 | 12,001 |
Michael D. Eastman | 0 | 0 | 68,998 | 17,002 |
Teresa M. Turner | 0 | 0 | 210,998 | 17,002 |
Ralph R. Tedesco | 141,000 | 308,800 | 0 | 0 |
| | Value of Unexercised
In-the-Money Options/SARs
at Fiscal Year-End(2) |
| |
Name | Exercisable | Unexercisable |
| | |
James P. Laurito
|
$266,414
|
$ 90,336
|
Denis E. Wickham | 586,866 | 108,871 |
Michael H. Conroy | 117,107 | 24,368 |
Michael D. Eastman | 230,214 | 40,986 |
Teresa M. Turner | 690,347 | 40,903 |
Ralph R. Tedesco | 0 | 0 |
_______________
(1) The "Value Realized" is equal to the difference between the option exercise price and the closing price of an Energy East share on the New York Stock Exchange on the date of exercise.
(2) The "Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End" is equal to the difference between the option exercise price and the closing price of $22.40 per Energy East share on the New York Stock Exchange on December 31, 2003.
Pension Plan
Certain officers of NYSEG also serve in the same positions with RG&E. NYSEG and RG&E are both subsidiaries of Energy East. When an officer of the company is also an officer of one or more of the company's affiliates, the expense for benefits is allocated based on the time that the officer devotes to the respective companies.
The following table sets forth the maximum retirement benefits payable to officers who retire at age 60 or later, in specified compensation and years of service classifications, pursuant to the Retirement Benefit Plan and the Supplemental Executive Retirement Plan ("SERP") of the company, as they presently exist, and assuming no optional payment form is elected. The amounts listed below reflect the deduction for Social Security benefits. There are no other offset amounts.
Average
Annual
Salary* | |
Years of Service |
| | | |
10 | 20 | 30 | 40** |
| | | | |
$400,000 | $171,900 | $213,900 | $255,900 | $297,900 |
350,000 | 148,300 | 185,100 | 221,800 | 258,600 |
300,000 | 124,700 | 156,200 | 187,700 | 219,200 |
250,000 | 101,100 | 127,300 | 153,600 | 179,800 |
200,000 | 77,400 | 98,400 | 119,400 | 140,400 |
150,000 | 53,800 | 69,600 | 85,300 | 101,100 |
________________
* Average of the salaries (including amounts listed under "Bonus" in the Summary Compensation Table, and not including other amounts listed under "Long-Term Compensation Awards, Restricted Stock and Options/SARS," "Payouts Long-Term Incentive Plan," and "All Other Compensation" in the Summary Compensation Table) for the five highest paid consecutive years during the last ten years of employment service. The average of the highest three years of salary within the last ten years of employment for the company's SERP was assumed to be 5% higher than each salary shown.
** Maximum years of employment service for the Retirement Benefit Plan and for the company's SERP purposes.
The Retirement Benefit Plan provides retirement benefits for hourly and salaried employees, including officers of the company, based on length of service and the average of salary for the five highest paid consecutive years during the last ten years of employment service. The Retirement Benefit Plan is non-contributory and is funded under a trust arrangement and an insurance contract. Amounts paid into the Retirement Benefit Plan are computed on an actuarial basis. The Retirement Benefit Plan provides for normal and early retirement benefits.
The company's SERP provides that all salaried employees, including officers of the company, shall receive the full benefits of the Retirement Benefit Plan without regard to any limitations imposed by the federal tax law and by including certain amounts deferred under the Deferred Compensation Plan for Salaried Employees. In addition, it provides that officers and certain other key employees of the company, who have at least ten years of service, who have served in key capacities for at least five years and who retire at age 60 or later, shall receive a total retirement benefit (including benefits under the Retirement Benefit Plan and Social Security), based on years of service, of up to 75% of the average of their highest three years of eligible compensation within the last ten years of employment.
Messrs. Laurito and Conroy participate in a non-contributory, tax qualified, defined benefit pension plan known as the RG&E Retirement Plan and they do not participate in the NYSEG Retirement Benefit Plan and in the NYSEG SERP discussed above. The benefit provided by the RG&E Retirement Plan is based upon one of the two following formulas depending on age and service at retirement:
> a pension equity plan formula; or
> final average pay (highest 36 month average of the last 120 months prior to retirement).
The pension equity plan formula was introduced effective July 1, 1999. Employees whose age and service equaled 75 or who were age 55 with 10 years of service on December 31, 1999 receive the most valuable of these two formulas. All other employees' benefits will be based on the pension equity plan formula only. The pension equity plan provides a lump sum payment option as well as monthly annuity options.
The table below may be used to calculate the approximate annual benefits payable as a straight-life annuity to executive officers at normal retirement age (65) under these plans in specified remuneration and years-of-service classifications.
Average
Annual
Salary* | |
Years of Service |
| | | |
10 | 20 | 30 | 40 |
| | | | |
$550,000 | $91,000 | $182,000 | $347,000 | $402,000 |
500,000 | 83,000 | 165,000 | 315,000 | 365,000 |
450,000 | 74,000 | 148,000 | 283,000 | 327,000 |
400,000 | 65,000 | 131,000 | 252,000 | 288,000 |
350,000 | 57,000 | 114,000 | 220,000 | 249,000 |
300,000 | 48,000 | 97,000 | 188,000 | 211,000 |
250,000 | 40,000 | 79,000 | 156,000 | 172,000 |
200,000 | 31,000 | 62,000 | 123,000 | 133,000 |
150,000 | 23,000 | 45,000 | 87,000 | 94,000 |
_______________
* Average annual salary includes base pay (three highest consecutive years) during the last ten years before retirement. The amounts shown in the salary column in the Summary Compensation Table constitute qualifying compensation under the plans.
Messrs. Laurito and Wickham participate in the Energy East SERP. The following table sets forth the maximum retirement benefits payable to executive officers who retire at age 60 or later, in specified compensation and years of service classifications, pursuant to the Retirement Benefit Plan and the SERP of Energy East as they presently exist, and assuming no optional payment form is selected. The amounts listed below reflect the deduction for Social Security benefits. There are no other offset amounts.
Average
Annual
Salary* | | | | |
Years of Service |
|
10 | 20 | 30 | 40 |
| | | | |
$800,000 | $222,900 | $390,900 | $486,900 | $582,900 |
700,000 | 192,900 | 339,900 | 423,900 | 507,900 |
600,000 | 162,900 | 288,900 | 360,900 | 432,900 |
_______________
* Average of the salaries (including amounts listed under "Bonus" in the Summary Compensation Table, and not including other amounts listed under "Long-Term Compensation Awards, Restricted Stock and Options/SARs," "Payouts Long-Term Incentive Plan," and "All Other Compensation" in the Summary Compensation Table) for the highest three consecutive years of salary within the last five years of employment for the Energy East SERP was assumed to be 5% higher than each salary shown.
** Maximum years of employment service for Energy East SERP purposes.
The Energy East SERP provides that key employees, including certain executive officers of Energy East and certain subsidiaries, who have completed five years of service and who terminate employment prior to becoming eligible for the SERP benefit described in the next sentence, shall receive the full benefits of the Retirement Benefit Plan without regard to any limitations imposed by the federal tax law. Participants who have at least five years of service, and who retire at age 55 or later, shall receive a total retirement benefit (including benefits under the Retirement Benefit Plan and Social Security), based on years of service, of up to 75% of the average of their highest three consecutive years of eligible compensation within the last five years of employment. Benefits payable prior to age 60 are reduced for early retirement.
Messrs. Laurito, Wickham, Conroy, Eastman, and Ms. Turner have 6, 32, 24, 23, and 28 credited years of service, respectively, under the applicable Retirement Benefit Plan and applicable SERP. For purposes of the company's Retirement Benefit Plan and the company's SERP, Mr. Eastman is credited with his years of service for his employment with the company prior to November 1999 and from November 2000 through the present.
Employment, Change In Control and Other Arrangements
Mr. Wickham has a severance agreement in order to provide for certain payments if, generally, within two years following a change in control of Energy East, his employment is terminated either by the company without cause or by him for good reason. The severance agreement has a term ending on December 31, 2005, with automatic one-year extensions unless either party to the agreement gives notice that the agreement is not to be extended. The agreement was unanimously approved by the Board of Directors. The benefits consist of a lump-sum severance payment equal to two and one-half times the sum of (i) his then-annual base salary, and (ii) the higher of any award paid to the him under the Annual Executive Incentive Plan ("AEIP") with respect to the year immediately preceding the year in which the termination occurs or the average of the AEIP awards paid to him in the three years preceding the year in which the change in control occurs. In the event of such termination, his l ife, disability, accident and health insurance benefits will continue for a period of 30 months and he will receive an amount equal to all earned but unpaid awards under the AEIP and a pro rata portion of any award under the AEIP with respect to the year in which the termination occurs, provided, however, that there shall be no duplication of payments made pursuant to his agreement and the AEIP. Also, in the event of such termination, he will be given additional age and service credit under the Energy East SERP. In the event that any payments made on account of a change in control of Energy East, whether under the agreement or otherwise, would subject him to federal excise tax or interest or penalties with respect to such federal excise tax, he will be entitled to be made whole for the payment of any such taxes, interest or penalties. Messrs. Laurito, Wickham, and Eastman and Ms. Turner each have entered into an Employee Invention and Confidentiality Agreement. The agreement provides for, among other things , payments (up to one year's salary) and certain health insurance premiums in the event that their employment is terminated whether voluntarily or involuntarily, and the noncompetition provisions of the agreement prevent them from obtaining other appropriate employment, so long as they are not entitled to receive payments under a severance agreement.
Mr. Eastman and Ms. Turner have severance agreements which provide the same benefits as the severance agreement described in the immediately preceding paragraph, except that the lump-sum severance payment described therein for them shall be calculated by using a multiple of two times. The insurance benefits shall continue for a period of 24 months and they will be given additional age and service credit under the company's SERP.
In the event of a change in control of Energy East, participants in the AEIP will be paid an amount which includes all earned but unpaid awards, a pro rata portion of any award with respect to the year in which such change in control occurs and, if the Plan continues in effect for the remainder of the performance period, an additional payment at the end of the year in which such change in control occurs to the extent that the award earned under the normal terms of the AEIP exceeds the amount paid upon such change in control.
After a change in control of Energy East, officers and certain key employees of Energy East and certain subsidiaries with 5 or more years of service who qualify, and whose employment is terminated at age 55 or later, other than for cause, shall receive a total retirement benefit as determined under the applicable SERP. The Energy East SERP provides that, in the case of a change in control, a participant with 5 or more years of service may receive the present value of any SERP benefits in a lump sum, if the participant has so elected upon commencement of participation.
The Compensation and Management Succession Committee of the Board of Directors of Energy East in its discretion may take certain actions in order to preserve, in the event of a change in control of Energy East, a participant's rights under an award issued pursuant to the 1997 Stock Option Plan, the 2000 Stock Option Plan or the Restricted Stock Plan.
Grantor trusts have been established to provide for the payment of certain employee and director benefits, including severance benefits that might become payable after a change in control of Energy East.
Security Ownership of Management
The following table indicates the number of shares of Energy East common stock, and Energy East common stock equivalent units beneficially owned as of February 13, 2004, by each director, each of the officers named in the Summary Compensation Table included elsewhere herein, and by the 11 current directors and officers as a group and the percent of the outstanding securities so owned.
Name
|
Energy East
Common Stock
Beneficially
Owned(1)
|
Energy East
Common Stock
Equivalent
Units
| Total Energy East
Common Stock
and Energy East
Common Stock
Equivalent Units |
Percent
of Class
|
| | | | |
Michael H. Conroy | 39,382 | 0 | 39,382 | (3) |
Michael D. Eastman | 93,849 | 0 | 93,849 | (3) |
Kenneth M. Jasinski | 426,900 | 0 | 426,900 | (3) |
James P. Laurito | 58,185 | 1,130 | 59,315 | (3) |
Teresa M. Turner | 237,938 | 0 | 237,938 | (3) |
Wesley W. von Schack | 1,619,574 | 0 | 1,619,574 | 1.1% |
Denis E. Wickham | 208,380 | 0 | 208,380 | (3) |
11 current directors and
officers as a group |
2,732,945(2)
|
1,130
|
2,734,076
|
1.9%
|
_______________
(1) Includes shares of Energy East common stock that may be acquired through the exercise of stock options, which are exercisable currently. The number of shares that may be acquired and by whom are as follows: Mr. Conroy, 31,000; Mr. Eastman, 84,333; Mr. Jasinski, 376,500; Mr. Laurito, 49,999; Ms. Turner, 226,333; Mr. von Schack, 1,420,000; Mr. Wickham, 183,999; and all current directors and officers as a group, 2,732,497.
(2) Includes 665 shares of Energy East common stock held by an officer as nominee for the Employees' Stock Purchase Plan.
(3) Less than 1% of the outstanding Energy East common stock.
Code of Ethics
All of the company's directors and employees, including its principal executive, financial and accounting officers are subject to the Energy East Code of Conduct. The Energy East Code of Conduct is available on Energy East's website: www.energyeast.com.
Audit Fees
Aggregate fees billed to or allocated to the company by Energy East as part of its consolidated audits for each of the last two fiscal years for professional services rendered for the audit of the company's annual financial statements and the reviews of the financial statements included in the company's Forms 10-Q for the year 2003 were $329,905 and for the year 2002 were $275,705.
Audit-Related Fees
Aggregate fees billed to or allocated to the company by Energy East for each of the last two fiscal years for assurance and related services related to the performance of the audit of the company's annual financial statements and the reviews of the financial statements included in the company's Forms 10-Q for the year 2003 were $11,856 and for the year 2002 were $24,000, consisting of the following:
| | 2003 Fees | 2002 Fees |
| | |
| | Benefit Plan Audits | $11,856 | $24,000 |
Tax Fees
Aggregate fees billed to or allocated to the company by Energy East for each of the last two fiscal years for professional tax services rendered for the year 2003 were $3,500 and for the year 2002 were $54,148, consisting of the following:
| | 2003 Fees | 2002 Fees |
| | |
| | Tax Compliance and Refunds | $3,500 | $ - |
| | Tax Planning and Advice | - | 54,148 |
All Other Fees
The company did not engage PricewaterhouseCoopers to provide any other services during 2003.
Audit Committee
The Audit Committee of Energy East, which serves as the Audit Committee for the Company, has not adopted preapproval policies or procedures. In addition, none of the services described above were approved under the "de minimis" service exception. Further information regarding Energy East's Audit Committee will be set forth in Energy East's proxy statement to be filed with the Securities and Exchange Commission on or before April 29, 2004.
