SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ENERGY EAST CORPORATION
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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ENERGY EAST CORPORATION
ALBANY, NEW YORK
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 2000
------------------------
To the Holders of Common Stock of
Energy East Corporation:
You are cordially invited to attend the Annual Meeting of Stockholders of
Energy East Corporation which will be held at the Citicorp/Citibank Auditorium,
12th Floor, 399 Park Avenue, New York, New York on May 19, 2000 at 10:30 A.M.
(Eastern Daylight Saving Time). The meeting is being held for the following
purposes:
(1) To elect four directors to serve in Class II for a term expiring at the
2003 Annual Meeting;
(2) To consider and approve for adoption the 2000 Stock Option Plan;
and for the transaction of any other business properly brought before the
meeting or any adjournment thereof.
Holders of record of Common Stock at the close of business on March 20, 2000
will be entitled to notice of and to vote at the meeting.
Whether or not you expect to be present at the Annual Meeting, we request
that you mark, sign and date the accompanying form of proxy and return it in the
enclosed envelope. The proxy is revocable by you at any time before the exercise
thereof, and the giving of such proxy will not affect your right to vote in
person, if you attend the Annual Meeting.
By Order of the Board of Directors,
Daniel W. Farley
SECRETARY
Dated: March 28, 2000
Please mark, sign and date the enclosed proxy and return it in the envelope
enclosed for your convenience.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 2000
------------------------
This statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of Energy East Corporation (the "Company"),
to be used at the Company's Annual Meeting of Stockholders to be held on
May 19, 2000, at the Citicorp/Citibank Auditorium, 12th Floor, 399 Park Avenue,
New York, New York. This statement and the form of proxy were first mailed to
holders of Common Stock on or about March 28, 2000. The mailing address of the
Company's principal executive office is P.O. Box 12904, Albany, New York
12212-2904.
ANNUAL REPORT
An Annual Report to Stockholders for the year ended December 31, 1999,
including consolidated financial statements, has been mailed to all stockholders
of record. The Annual Report is not a part of this Proxy Statement.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The close of business on March 20, 2000 (the "Record Date") has been fixed
as the date for determining the holders of Common Stock entitled to vote at the
meeting. As of the Record Date, the Company had outstanding 118,410,345 shares
of Common Stock. Holders of Common Stock have cumulative voting rights for the
election of directors and one vote per share for all other purposes. Cumulative
voting means that the total number of votes which you may cast for the election
of directors of a given class shall equal the number of directors in such class
to be elected multiplied by the number of shares held, and you may cast all of
such votes for a single nominee for director or you may distribute them among
all or several nominees in such class, as you see fit.
The proxy represents the number of shares registered in your name as well as
the number of whole shares credited to your account under the Company's Dividend
Reinvestment and Stock Purchase Plan (the "Dividend Reinvestment Plan"). If you
are an employee of the Company or any subsidiary and participate in the Tax
Deferred Savings Plans of New York State Electric & Gas Corporation ("NYSEG") or
in The Southern Connecticut Gas Company Target Plan, the proxy constitutes an
instruction for the trustees of such plans to vote the whole shares in your
account in such plans in the manner specified on the proxy.
In voting for Proposal 1 (the election of directors), you may vote in favor
of all nominees or withhold your votes as to all, or as to specific, nominees.
The four nominees receiving the highest number of affirmative votes cast, in
person or by proxy, by holders of Common Stock entitled to vote shall be elected
to serve as directors. As a result, votes that are withheld will not be counted
and will have no effect on the vote in connection with the election of
directors. In voting for Proposal 2 (the adoption of the 2000 Stock Option
Plan), you may vote in favor of, or against, or may abstain from voting on such
proposal. The vote required to approve Proposal 2 is the affirmative vote of a
majority of the votes cast, in person or by proxy, by holders of Common Stock
entitled to vote, provided a majority of the outstanding Common Stock has cast a
vote. As a result, abstentions will be voted neither "for" nor "against" and
will have no effect on the vote in connection with Proposal 2.
Under the rules of the New York Stock Exchange ("NYSE"), member brokerage
firms that hold shares in street name for beneficial owners may, to the extent
that such beneficial owners do not furnish voting instructions with respect to
any or all proposals submitted for stockholder action, vote in their discretion
upon proposals which are considered "discretionary" proposals under the rules of
the NYSE. Member brokerage firms that have received no instructions from their
clients as to "non-discretionary" proposals do not have discretion to vote on
these proposals. Under the rules of the NYSE, Proposal 2 is considered a
"non-discretionary item" whereby brokerage firms may not vote in their
discretion on behalf of their clients if such clients have not furnished voting
instructions. Such "broker non-votes" will not be considered as votes cast in
determining the outcome of Proposal 2. Accordingly, such "broker non-votes" will
have no effect on the vote in connection with Proposal 2.
In determining whether a quorum is present, all duly executed proxies
(including those marked "abstain" or "withhold") will be counted. Broker
non-votes will not be counted for purposes of determining whether a quorum is
present.
PROPOSAL 1: ELECTION OF DIRECTORS (Item 1 on Proxy Card)
Your Board of Directors currently consists of ten directors divided into
three classes. One class of directors is elected at each annual meeting of
stockholders for a term expiring at the third succeeding annual meeting of
stockholders.
The nominees for election at this Annual Meeting to serve as directors in
Class II for a term expiring at the 2003 Annual Meeting of Stockholders and
thereafter until their successors shall be elected and shall qualify are: Joseph
J. Castiglia, Lois B. DeFleur, Walter G. Rich and Wesley W. von Schack.
Dr. DeFleur and Messrs. Castiglia, Rich and von Schack were elected to Class II
for a term expiring at the 2000 Annual Meeting of Stockholders.
Unless otherwise specified on the proxy, shares represented by proxies in
the accompanying form received on behalf of the Board of Directors will be voted
for the election of Joseph J. Castiglia, Lois B. DeFleur, Walter G. Rich and
Wesley W. von Schack. Proxy holders reserve the right to exercise cumulative
voting rights and to cast the votes at the meeting in such manner, and for such
lesser number of said nominees, as they may deem best, in order, so far as
possible, to secure the election of said nominees. While it is not anticipated
that any of the nominees will be unable to qualify or accept office, if one or
more should be unable to do so, the proxy holders reserve the right to vote for
any substitute nominee or nominees designated by the Board of Directors.
During 1999, there were fourteen meetings of the Board of Directors. All of
the directors attended 75% or more of the total number of meetings of the Board
of Directors and the Committees of the Board on which they served.
The following sets forth information for each nominee for election at this
Annual Meeting and for each director continuing in office.
2
CLASS II
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 2003
[PHOTO]
JOSEPH J. CASTIGLIA
FORMER VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
OF PRATT & LAMBERT UNITED, INC., BUFFALO, NY. Business
Consultant and Private Investor, JBC Enterprises, East
Aurora, NY. Chairman, Catholic Health System of Western New
York, Buffalo, NY; Chairman, Blue Cross & Blue Shield of
Western New York, Inc., Buffalo, NY. Director of: NYSEG,
Ithaca, NY; Vision Group of Funds and Vision Fiduciary
Funds, Inc., Buffalo, NY; Sevenson Environmental Services,
Inc., Niagara Falls, NY; and Community Foundation for
Greater Buffalo, Buffalo, NY. Mr. Castiglia was Vice
Chairman, President and Chief Executive Officer of Pratt &
Lambert United, Inc. from August 1994 until his retirement
in January 1996. Prior to that time, he was President and
Chief Executive Officer of Pratt & Lambert, Inc. from 1989
until July 1994, at which time the company was merged with
United Coatings, Inc. Mr. Castiglia, 65, has been a director
of Energy East Corporation since April 1998 and a director
of NYSEG since 1995.
[Photo]
LOIS B. DEFLEUR
PRESIDENT OF THE STATE UNIVERSITY OF NEW YORK AT
BINGHAMTON,(1) BINGHAMTON, NY. Director of: NYSEG, Ithaca,
NY; Broome County Chamber of Commerce, Binghamton, NY; and
WSKG Public Television and Radio, Binghamton, NY; Director's
Advisory Council, M&T Bank-Southern Division, Endicott and
Ithaca, NY. Dr. DeFleur, 63, has been President of the State
University of New York at Binghamton since 1990, and has
been a director of Energy East Corporation since its
formation and a director of NYSEG since 1995.
[Photo]
WALTER G. RICH
CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR
OF DELAWARE OTSEGO CORPORATION, COOPERSTOWN, NY, AND ITS
SUBSIDIARY, THE NEW YORK, SUSQUEHANNA & WESTERN RAILWAY
CORPORATION. Director of: NYSEG, Ithaca, NY; Security Mutual
Life Insurance Company of New York, Binghamton, NY; and New
York Business Development Corporation, Albany, NY. He is a
member of the Franklin Industrial Advisory Board of the
Syracuse University School of Management, Syracuse, NY; and
appointed by the Governor as a member of the New York State
Public Transportation Safety Board, Albany, NY. Mr. Rich,
54, has been a director of Energy East Corporation since its
formation and a director of NYSEG since 1997.
3
[Photo]
WESLEY W. VON SCHACK
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF ENERGY
EAST CORPORATION, ALBANY, NY. Chairman of the Board of
Directors of NYSEG, Ithaca, NY. Director of: Mellon Bank
Corporation and Mellon Bank, N.A., Pittsburgh, PA; RTI
International Metals, Inc., Niles, OH; AEGIS Insurance
Services, Inc., Jersey City, NJ; and Business Council of New
York State, Albany, NY. Vice Chairman of Peconic Land Trust,
Inc., Long Island, NY. Mr. von Schack was Chairman,
President and Chief Executive Officer of NYSEG from
September 1996 to April 1999. Prior to August 1996, he was
Chairman, President, Chief Executive Officer and a director
of DQE, Inc. and Duquesne Light Company. Mr. von Schack, 55,
has been Chairman, President, Chief Executive Officer and a
director of Energy East Corporation since its formation and
a director of NYSEG since September 1996.
CLASS III
DIRECTORS WHOSE TERMS EXPIRE IN 2001
[PHOTO]
RICHARD AURELIO
FORMER PRESIDENT OF TIME WARNER CABLE GROUP, NYC, AND NY1
NEWS AND SENIOR ADVISOR TO THE CHAIRMAN AND CEO OF TIME
WARNER, INC., NEW YORK, NY. Director of: NYSEG, Ithaca, NY;
The Citizens Committee for New York City, Inc., New York,
NY; and the Javits Foundation, New York, NY. Mr. Aurelio was
a Time Warner executive from 1979 through 1998. Prior to
that time, he served as deputy mayor of New York City during
the Lindsay administration, as an administrative assistant
to U.S. Senator Jacob K. Javits, as news editor of Newsday
and a public relations executive. Mr. Aurelio, 71, has been
a director of Energy East Corporation since its formation
and a director of NYSEG since 1997.
[Photo]
JAMES A. CARRIGG
FORMER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
NYSEG, ITHACA, NY. Director of: NYSEG, Ithaca, NY; and
Security Mutual Life Insurance Company of New York,
Binghamton, NY. Trustee of: Dr. G. Clifford & Florence B.
Decker Foundation, Binghamton, NY; and the Public Policy
Institute of the Business Council of New York State, Albany,
NY. Mr. Carrigg was Chairman, President and Chief Executive
Officer of NYSEG from January 1991 to September 1996, and
was Chairman and Chief Executive Officer of NYSEG from May
1988 to December 1990. Prior to that time, he was President
and Chief Operating Officer of NYSEG. Mr. Carrigg, 66, has
been a director of Energy East Corporation since April 1998
and a director of NYSEG since 1983.
4
[Photo]
PAUL L. GIOIA
OF COUNSEL, LEBOEUF, LAMB, GREENE & MACRAE,(2) ALBANY, NY;
ATTORNEYS AT LAW. Director of NYSEG, Ithaca, NY; and Trustee
of Berkshire Energy Resources, Pittsfield, MA. Mr. Gioia was
a Senior Vice President of First Albany Corporation from May
1987 to October 1993. Prior to that time, he served as a
member and was Chairman of the Public Service Commission of
the State of New York and also served as a member of the New
York State Energy Research and Development Authority. Mr.
Gioia, 57, has been a director of Energy East Corporation
since April 1998 and a director of NYSEG since 1991.
[Photo]
BEN E. LYNCH
PRESIDENT OF WINCHESTER OPTICAL COMPANY, ELMIRA, NY.
Director of NYSEG, Ithaca, NY. Past Chairman of Arnot-Ogden
Medical Center, Elmira, NY; Past President of Horseheads
Board of Education, Horseheads, NY. Former Trustee of the
Pennsylvania College of Optometry, Philadelphia, PA; and of
the Optometric Center of New York Foundation, New York, NY.
Mr. Lynch, 62, has been President of Winchester Optical
Company since 1965, and has been a director of Energy East
Corporation since April 1998 and a director of NYSEG since
1987.
CLASS I
DIRECTORS WHOSE TERMS EXPIRE IN 2002
[PHOTO]
ALISON P. CASARETT
DEAN EMERITUS, CORNELL UNIVERSITY, ITHACA, NY. Emeritus
Professor of Radiation Biology, New York State College of
Veterinary Medicine, Cornell University. Director of NYSEG,
Ithaca, NY. Dr. Casarett was Special Assistant to the
President of Cornell University from August 1993 to June
1995. Prior to that time, she was the Dean of The Graduate
School at Cornell University. Dr. Casarett, 69, has been a
director of Energy East Corporation since April 1998 and a
director of NYSEG since 1979.
[Photo]
JOHN M. KEELER
OF COUNSEL, HINMAN, HOWARD & KATTELL, LLP,(2) BINGHAMTON,
NY; ATTORNEYS AT LAW. Director of: NYSEG, Ithaca, NY;
Security Mutual Life Insurance Company of New York,
Binghamton, NY; the Stuart and Willma Hoyt Foundation,
Binghamton, NY; and the Harriet L. Dickenson Foundation,
Binghamton, NY. Chairman, The Binghamton University
Foundation, Binghamton, NY; Past President of Broome County
Bar Association and of Broome County United Way, both of
Binghamton, NY. Mr. Keeler, 66, has been a director of
Energy East Corporation since April 1998 and a director of
NYSEG since 1989.
- ------------------------
(1) In 1999, NYSEG sold an office building to the State University of New York
at Binghamton, of which Dr. DeFleur is President, for $6,150,000. NYSEG had
three independent appraisals prepared and negotiated a purchase price which
fell within the range of the established appraisal values.
5
(2) The law firms of which Mr. Gioia and Mr. Keeler are of counsel provided
legal services to the Company in 1999 and are expected to provide legal
services to the Company in 2000.
6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates the amount and percentage of equity securities
of the Company beneficially owned by each person known to the Company to be the
owner of more than 5% of the Company's equity securities.
COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------ ------------------ ----------------
Harvard Management Company, Inc.*........................... 6,237,900 5.6%
600 Atlantic Avenue
Boston, MA 02210
- ------------------------
* Based on an amendment to Schedule 13G filed with the Securities and Exchange
Commission ("SEC") for the period ended December 31, 1999. The shares were
acquired in the ordinary course of business and not for the purpose of
changing or influencing the control of the Company. Harvard Management
Company, Inc., an endowment fund, has sole voting power and sole disposition
power with respect to all of the shares.
The following table indicates the number of shares of Common Stock and
Common Stock equivalent units beneficially owned as of February 11, 2000 by each
director and nominee, each of the executive officers named in the Summary
Compensation Table included elsewhere herein, and by the 15 current directors
and executive officers as a group and the percent of the outstanding securities
so owned.
COMMON STOCK TOTAL COMMON STOCK
BENEFICIALLY COMMON STOCK AND COMMON STOCK PERCENT
NAME OWNED(1) EQUIVALENT UNITS(2) EQUIVALENT UNITS(3) OF CLASS
- ---- ------------ ------------------- ------------------- --------
Richard Aurelio...................... 2,000 3,446 5,446 (4)
James A. Carrigg..................... 31,162 18,119 49,281 (4)
Alison P. Casarett................... 1,118 23,171 24,289 (4)
Joseph J. Castiglia.................. 10,000 6,541 16,541 (4)
Lois B. DeFleur...................... 600 6,541 7,141 (4)
Michael I. German.................... 230,831 28,539 259,370 (4)
Paul L. Gioia........................ 5,472 8,330 13,802 (4)
Kenneth M. Jasinski.................. 171,065 14,993 186,058 (4)
John M. Keeler....................... 2,683 14,540 17,223 (4)
Robert D. Kump....................... 71,009 3,767 74,776 (4)
Ben E. Lynch......................... 2,438 14,119 16,557 (4)
Walter G. Rich....................... 2,000 3,446 5,446 (4)
Robert E. Rude....................... 67,924 3,720 71,644 (4)
Wesley W. von Schack................. 465,678 60,451 526,129 (4)
15 current directors and executive
officers as a group................ 1,144,188 216,602 1,360,790 (4)
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(1) Includes shares of Common Stock, which may be acquired through the exercise
of stock options, which are exercisable currently. The persons who have such
options and the number of shares which
6
may be acquired are as follows: Mr. German, 207,583; Mr. Jasinski, 166,665;
Mr. Kump, 66,666; Mr. Rude, 61,666; Mr. von Schack, 433,332; and all
executive officers as a group, 1,009,189.
(2) Includes Common Stock equivalent units granted under the Long-Term Executive
Incentive Share Plan ("LTEISP") and the Director Share Plan for non-employee
directors for which the director, nominee or executive officer does not have
voting rights.
(3) Total Common Stock and Common Stock equivalent units have been adjusted to
reflect the two-for-one stock split of the Company's Common Stock on
April 1, 1999.
(4) Less than 3/4 of 2% of the outstanding Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons holding ten percent
or more of the Company's equity securities to file reports of ownership and
changes in ownership with the SEC and the NYSE. Such reporting persons are also
required to provide the Company with copies of all Section 16(a) forms they
file. Specific due dates for these reports have been established by SEC
regulations. Based solely on its review of the copies of the reports received by
it and certain written representations from certain reporting persons, the
Company believes that during 1999 all filing requirements were satisfied by its
directors and executive officers.
7
STOCK PERFORMANCE GRAPH
The yearly change in the cumulative total stockholder return on the
Company's Common Stock during the five years ending December 31, 1999, compared
with the cumulative total return on the Standard & Poor's Utilities Index and
Standard & Poor's 500 Index, assuming $100 was invested on December 31, 1994,
and assuming reinvestment of dividends, is shown by the following:
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
ENERGY EAST CORPORATION, S&P UTILITIES, AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
ENERGY EAST S&P UTILITIES S&P 500
12/31/94 $100 $100 $100
12/31/95 $145 $142 $138
12/31/96 $129 $146 $169
12/31/97 $224 $183 $226
12/31/98 $371 $210 $290
12/31/99 $282 $191 $351
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
Energy East Corporation............................ $100 $145 $129 $224 $371 $282
Standard & Poor's Utilities........................ $100 $142 $146 $183 $210 $191
Standard & Poor's 500.............................. $100 $138 $169 $226 $290 $351
8
EXECUTIVE COMPENSATION
Compensation for services to the Company and its subsidiaries for each of
the last three fiscal years of the chief executive officer and the next four
highest compensated executive officers of the Company who served in such
capacities on December 31, 1999, is shown by the following:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND --------------------- OPTIONS/ LONG-TERM ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS SARS (#)(1) INCENTIVE PLAN COMPENSATION(2)
------------------ -------- -------- ---------- ----------- -------------- ---------------
Wesley W. von Schack......... 1999 $661,218 $1,764,400 200,000 $617,616 $55,819
Chairman, President and 1998 575,000 283,475 200,000 0 47,006
Chief Executive Officer 1997 575,000 257,677 138,000 0 66,641
Kenneth M. Jasinski.......... 1999 409,487 371,875 100,000 0 0
Executive Vice President 1998(3) 252,885 111,750 100,000 0 0
and General Counsel 1997 0 0 0 0 0
Michael I. German............ 1999 409,487 256,222 100,000 245,786 6,150
Senior Vice President 1998 323,878 120,750 110,918 0 5,000
1997 237,500 74,375 60,000 0 6,075
Robert D. Kump............... 1999 151,939 78,375 40,000 0 2,460
Vice President and 1998 132,223 31,500 30,000 0 2,177
Treasurer 1997 121,100 22,706 18,000 0 3,525
Robert E. Rude............... 1999 149,551 76,000 40,000 0 2,280
Vice President and 1998 127,580 42,000 30,000 0 1,905
Controller 1997 107,833 23,000 18,000 0 3,147
- ------------------------
(1) The awards of stock options/SARs have been adjusted to reflect the
two-for-one stock split of the Company's Common Stock on April 1, 1999.
(2) In 1999, the Company contributed for Messrs. von Schack, German, Kump, and
Rude, $2,400, $2,400, $2,100, and $2,100, respectively, under the Tax
Deferred Savings Plan. The Company contributed for Messrs. German, Kump and
Rude, $3,750, $360 and $180, respectively, under the Employees' Stock
Purchase Plan. For Mr. von Schack, $3,233 represents the dollar value of the
term portion, and $50,186 represents the benefit, projected on an actuarial
basis, of the whole-life portion of a premium paid for a life insurance
policy.
(3) Compensation data for Mr. Jasinski is provided only for a portion of 1998
because his employment commenced April 29, 1998.
9
LONG-TERM INCENTIVE PLAN AWARDS(1) IN LAST FISCAL YEAR (1999)
PERFORMANCE ESTIMATED FUTURE PAYOUT UNDER
OR OTHER NON-STOCK PRICE-BASED PLANS
NUMBER OF PERIOD UNTIL ------------------------------------
PERFORMANCE MATURATION OR THRESHOLD TARGET MAXIMUM
NAME SHARES PAYOUT SHARES (#) SHARES (#) SHARES (#)
- ---- ----------- ------------- ---------- ---------- ----------
Wesley W. von Schack.................. 8,616 1999-2001 2,154 8,616 12,924
Kenneth M. Jasinski................... 4,081 1999-2001 1,020 4,081 6,122
Michael I. German..................... 6,194 1999-2001 1,549 6,194 9,291
Robert D. Kump........................ 1,049 1999-2001 262 1,049 1,574
Robert E. Rude........................ 1,049 1999-2001 262 1,049 1,574
- ------------------------
(1) Pursuant to the LTEISP, participants, including executive officers of the
Company, were granted a certain number of Performance Shares in 1999
depending upon their position. Performance Shares granted earn dividend
equivalents in the form of additional Performance Shares. Payments
representing the cash value of a certain percentage of the Performance
Shares are made at the end of each three-year Performance Cycle and are
based on the Company's ranking with respect to its three-year average total
stockholder return as compared to the top 100 utilities by revenue. A new
Performance Cycle begins on January 1 of each year. Achievement of a ranking
of 65th will result in the payment of the cash value of 25% (threshold
amount) of the Performance Shares. Achievement of a ranking of 50th will
result in the payment of the cash value of 100% (target amount) of the
Performance Shares. Achievement of a ranking of 20th will result in the
payment of the cash value of 150% (maximum amount) of the Performance
Shares. There will be no payments, however, if the Company's ranking is
below 65th. The value of the Performance Shares will be measured by
reference to the average of the daily closing prices of a share of Common
Stock for the last five trading days of the Performance Cycle. The
Performance Shares have been adjusted to reflect the two-for-one stock split
of the Company's Common Stock on April 1, 1999.
10
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1999)
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO
SARS EMPLOYEES EXERCISE OR GRANT DATE
GRANTED IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME #(1) YEAR ($/SH) DATE VALUE(2)
- ---- ---------- ------------- ----------- ---------- ----------
Wesley W. von Schack................... 200,000 17.82% $26.7188 2/19/09 $982,000
Kenneth M. Jasinski.................... 100,000 8.91% 26.7188 2/19/09 491,000
Michael I. German...................... 100,000 8.91% 26.7188 2/19/09 491,000
Robert D. Kump......................... 40,000 3.56% 26.7188 2/19/09 196,400
Robert E. Rude......................... 40,000 3.56% 26.7188 2/19/09 196,400
- ------------------------
(1) Pursuant to the 1997 Stock Option Plan, participants were granted Options to
purchase a specified number of shares of Common Stock 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 a share of Common Stock 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 Common Stock 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 with the exercise of the Option are paid for by using
other common shares of the Company or by the withholding of the Company's
common 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 19, 1999 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 19, 1999; (b) in aggregate as to no more than
66 2/3% on January 1, 2000; and (c) on January 1, 2001 as to 100% of all
Options which have not been previously exercised. The Options and the tandem
Stock Appreciation Rights have been adjusted to reflect the two-for-one
stock split of the Company's Common Stock on April 1, 1999.
(2) There is no assurance the value realized will be at or near the value
estimated by the Black-Scholes option-pricing model. The current value is
zero. 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, 24.16%; risk-free interest rate, 5.43%; and an
expected term before exercise of 10 years. Should the Company's Common Stock
double in value over the ten-year option term (from $26.7188 per share to
$53.4376 per share), stockholder value would increase an estimated
$2,921,511,825, while the value of grants to individuals listed in the
Option/SAR Grants table would increase an estimated $12,825,024 or 0.44% of
the total gain realized by all stockholders.
11
AGGREGATED OPTION/SAR EXERCISES(1) IN LAST FISCAL YEAR (1999)
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
SHARES YEAR-END (#) AT FISCAL YEAR-END(3)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
Wesley W. von Schack........... 0 $ 0 233,332 266,668 $1,185,415 $383,335
Kenneth M. Jasinski............ 0 0 66,665 133,335 24,999 50,001
Michael I. German.............. 0 0 107,584 133,335 393,957 191,668
Robert D. Kump................. 5,000 86,875 23,333 46,667 28,750 57,500
Robert E. Rude................. 5,000 51,407 18,333 46,667 14,375 57,500
- ------------------------
(1) The Options/SARs have been adjusted to reflect the two-for-one stock split
of the Company's Common Stock on April 1, 1999.
(2) The "Value Realized" is equal to the difference between the Option exercise
price and the closing price of a share of Common Stock on the NYSE on the
date of exercise.
(3) 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 $20.8125 a share of Common Stock on the NYSE on December 31, 1999.
12
PENSION PLAN TABLE
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 Supplemental Executive Retirement Plan ("SERP") 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 YEARS OF SERVICE
ANNUAL --------------------------------------------------------------------------
SALARY* 10 15 20 25 30 35 40**
- ------- -------- -------- -------- -------- -------- -------- --------
$850,000.............................. 384,400 429,100 473,700 518,300 562,900 607,600 652,200
800,000.............................. 360,800 402,800 444,800 486,800 528,800 570,800 612,800
750,000.............................. 337,200 376,600 415,900 455,300 494,700 534,100 573,400
700,000.............................. 313,600 350,300 387,100 423,800 460,600 497,300 534,100
650,000.............................. 289,900 324,100 358,200 392,300 426,400 460,600 494,700
600,000.............................. 266,300 297,800 329,300 360,800 392,300 423,800 455,300
550,000.............................. 242,700 271,600 300,400 329,300 358,200 387,100 415,900
500,000.............................. 219,100 245,300 271,600 297,800 324,100 350,300 376,600
450,000.............................. 195,400 219,100 242,700 266,300 289,900 313,600 337,200
400,000.............................. 171,800 192,800 213,800 234,800 255,800 276,800 297,800
350,000.............................. 148,200 166,600 184,900 203,300 221,700 240,100 258,400
300,000.............................. 124,600 140,300 156,100 171,800 187,600 203,300 219,100
250,000.............................. 100,900 114,100 127,200 140,300 153,400 166,600 179,700
200,000.............................. 77,300 87,800 98,300 108,800 119,300 129,800 140,300
150,000.............................. 53,700 61,600 69,400 77,300 85,200 93,100 100,900
- ------------------------
* Average of the salaries (not including amounts listed under "Bonus,"
"Long-Term Compensation Awards, Options/SARs," "Long-Term Compensation
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 SERP
was assumed to be 5% higher than each salary shown.
** Maximum years of employment service for Retirement Benefit Plan and SERP
purposes.
The Retirement Benefit Plan provides retirement benefits for hourly and
salaried employees, including executive officers of the Company and certain
subsidiaries, based on length of service and the average 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 or early retirement benefits.
The SERP provides that all salaried employees, including executive officers
of the Company and certain subsidiaries, shall receive the full benefits of the
Retirement Benefit Plan without regard to any
13
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 and certain subsidiaries, 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 salary within the last ten
years of employment.
Messrs. von Schack and Jasinski each have an agreement with the Company and
Mr. German has an agreement with the Company and NYSEG which provide that, for
purposes of the Retirement Benefit Plan and the SERP, they each will be credited
with three years of service for each year actually worked, provided that they
each are employed by the Company or NYSEG for at least five years. In addition,
if Mr. von Schack retires from the Company after his sixtieth birthday, he will
be credited with the maximum years of employment service for Retirement Benefit
Plan and SERP purposes. Mr. von Schack was employed commencing September 9,
1996, Mr. Jasinski was employed commencing April 29, 1998 and Mr. German was
employed commencing December 5, 1994.
Messrs. von Schack, Jasinski, German, Kump and Rude have 3, 2, 15, 13, and
23 credited years of service, respectively, under the Retirement Benefit Plan
and SERP.
EMPLOYMENT, CHANGE IN CONTROL AND OTHER ARRANGEMENTS
The Company has entered into employment agreements with Messrs. von Schack
and Jasinski each for a term ending April 22, 2003, and the Company and NYSEG
have entered into an employment agreement with Mr. German for a term ending
February 28, 2003. Mr. von Schack's agreement provides for his employment as
Chairman, President and Chief Executive Officer of the Company, Mr. Jasinski's
agreement provides for his employment as Executive Vice President and General
Counsel of the Company and Mr. German's agreement provides for his employment as
Senior Vice President of the Company and President and Chief Operating Officer
of NYSEG. Each agreement provides for automatic one-year extensions unless
either party to an agreement gives notice that such agreement is not to be
extended. Each agreement was unanimously approved by the Board of Directors and
provides for, among other things, a base salary of $700,000 for Mr. von Schack,
$425,000 for Mr. Jasinski and $425,000 for Mr. German, subject to increase by
the Board of Directors, and in the case of Mr. von Schack, the payment of the
annual premium on a life insurance policy (the "Life Insurance Policy") on his
life and special bonuses of $1,000,000 payable in 1999 and $700,000 payable in
2000 and in 2001. The agreements also provide for eligibility for participation
in the Company's or NYSEG's other compensation and benefit plans and for certain
payments in the event of the termination of employment due to disability.
The agreements also provide that, if, generally, the officer's employment is
terminated either by the Company without cause or, within two years following a
change in control of the Company, by the officer for good reason, he will
receive a lump-sum payment equal to three times the sum of (i) his then-annual
base salary and (ii) an award under the Annual Executive Incentive Plan ("AEIP")
for the year in which the termination occurs. In the event of such termination,
the officer's life (other than the Life Insurance Policy), disability, accident
and health insurance benefits will continue for a period of thirty-six months,
and, in the case of Mr. von Schack, the Company will make a lump-sum premium
payment so that no
14
future premiums are due on the Life Insurance Policy. In addition, the executive
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 will be no duplication of
payments made pursuant to the agreements and the AEIP. Also, in the event of
such termination, the officer will be given additional age credit and maximum
service credit under the SERP and the present value of any SERP benefits will be
paid in a lump sum to the officer, unless the officer elects to receive such
SERP benefits in the manner provided in the SERP. In the event that any payments
made under the agreement or otherwise would subject the officer 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. Kump and Rude each have a severance agreement in order to provide
for certain payments if, generally, within two years following a change in
control of the Company, the individual's employment is terminated either by
NYSEG without cause or by the individual for good reason. The severance
agreements have terms ending on December 31, 2001 with automatic one-year
extensions unless either party to an agreement gives notice that the agreement
is not to be extended. The agreements were unanimously approved by the Board of
Directors of NYSEG. The benefits consist of a lump-sum severance payment equal
to two times the sum of (i) the individual's then-annual base salary, and
(ii) any award under the AEIP with respect to the year immediately preceding the
year in which the termination occurs. In the event of such termination, the
individual's life, disability, accident and health insurance benefits will
continue for a period of twenty-four months and the individual 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, the individual will be given additional age and service credit
under the SERP. In the event that any payments made on account of a change in
control of the Company, whether under the agreement or otherwise, would subject
the individual to federal excise tax or interest or penalties with respect to
such federal excise tax, the individual will be entitled to be made whole for
the payment of any such taxes, interest or penalties.
Certain employees, including senior management of the Company and of NYSEG,
have entered into Employee Invention and Confidentiality Agreements. The
agreements provide for, among other things, payments (up to one year's salary)
and certain health insurance premiums to the individual in the event that the
individual's employment is terminated whether voluntarily or involuntarily, and
the noncompetition and nonsolicitation provisions of the agreement prevent the
individual from obtaining other appropriate employment, so long as he or she is
not entitled to receive payments under a change in control severance agreement.
In the event of a change in control of the Company, 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 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. In addition,
participants in the LTEISP will be paid an amount which includes (i) the payment
of awards for all cycles in progress at the time of such change in control,
computed and paid out in full (rather than pro rata) and based on the assumption
that the Company's
15
performance was at the 50(th) percentile; and (ii) any amounts earned under the
normal terms of the LTEISP through the end of each performance cycle, to the
extent those amounts exceed the amounts paid at the time of such change in
control. All change in control payments under the LTEISP are to be valued based
on the change in control price of the Company's Common Stock. After a change in
control of the Company, officers and certain key employees of the Company and
certain subsidiaries 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 SERP.
The Executive Compensation and Succession Committee of the Board of
Directors in its discretion may take certain actions in order to preserve, in
the event of a change in control of the Company, a participant's rights under an
award issued pursuant to the 1997 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 the Company.
DIRECTORS' COMPENSATION
Directors of the Company, other than officers of the Company or officers of
any subsidiary of the Company, receive an annual retainer of $22,000, plus
$1,000 for each directors' and committee meeting attended; provided that a
director who is also a director of NYSEG shall receive the annual retainer from
NYSEG rather than the Company. The Chairperson of each standing committee
receives additional compensation of $1,000 for serving as Chairperson of such
committee. Under the terms of the Deferred Compensation Plan for Directors,
directors can elect to defer a portion or all of their compensation. Such
deferred compensation, together with interest thereon, is payable in a lump sum
or over a period of years following retirement as a director.
Pursuant to the Director Share Plan for Directors, persons who are
non-employee directors are eligible for certain benefits to be paid upon their
ceasing to serve as directors of the Company. On each January 1, April 1,
July 1, and October 1, all non-employee directors receive 300 Phantom Shares
pursuant to the Director Share Plan. Phantom Shares granted earn dividend
equivalents in the form of additional Phantom Shares. Upon a director ceasing to
serve as a director of the Company, cash payments representing the value of the
Phantom Shares held by the director are to be made to the director. The value of
the Phantom Shares is to be determined by multiplying the number of Phantom
Shares by the average of the daily closing prices of the Company's Common Stock
for the five trading days preceding the date the director ceases to serve as a
director. Under the terms of the Deferred Compensation Plan for the Director
Share Plan, a director may defer a portion or all of the cash payment to be made
under the Director Share Plan over a period of years following the director's
ceasing to serve as a director.
COMMITTEES
The Company's Board of Directors has an Audit Committee, a Nominating
Committee, and an Executive Compensation and Succession Committee.
16
The Audit Committee, which consists of Ben E. Lynch, Chairman, Lois B.
DeFleur, Paul L. Gioia, and Walter G. Rich, had three meetings in 1999. The
Audit Committee recommends the appointment of the independent accountants and
reviews with them the audit plan and results of the audit. It also meets with
the independent accountants, internal auditor and management to discuss the
adequacy of the Company's system of internal controls and financial reporting,
meets with the internal auditor to discuss the results of completed internal
audits and meets with management to discuss the Company's Corporate Compliance
Program, including the adequacy of management's compliance and enforcement
efforts.
The Nominating Committee, which consists of Richard Aurelio, Chairman, Lois
B. DeFleur, and John M. Keeler, had no meetings in 1999. The Nominating
Committee is responsible for recommending candidates to fill vacancies on the
Board of Directors. The Committee makes recommendations to the Board of
Directors regarding criteria for nomination as a candidate to the Board of
Directors. Stockholders wishing to recommend candidates for consideration by the
Nominating Committee should submit to the Secretary of the Company the name, a
statement of qualifications and the written consent of any candidate.
Recommendations will be brought to the attention of the Nominating Committee.
The Executive Compensation and Succession Committee, which consists of
Joseph J. Castiglia, Chairman, Richard Aurelio, and Ben E. Lynch, had four
meetings in 1999. That Committee, among other things, recommends compensation
for officers, awards under the AEIP and the LTEISP, and candidates for election
as officers.
REPORT OF EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE
The Executive Compensation and Succession Committee (the "Committee") is
composed entirely of independent outside directors. Under the guidance of the
Committee, the Company's general compensation policies are designed to manage
the Company toward overall enhanced profitability and increased stockholder
value. Accordingly, two principles underlying the Company's compensation policy
for all senior managers, including Mr. von Schack and the other named executive
officers, are (i) aligning the financial interests of senior managers with those
of the Company's stockholders, and (ii) rewarding senior management for
corporate and individual performance. These principles are reflected in the
structure of the Company's compensation program for senior managers, which
consists of three basic components: base salary, short-term incentive
compensation awards and long-term incentive compensation awards. In creating and
further refining this structure, the Committee has deliberately placed an
increased emphasis on the at risk elements of compensation. The Committee
believes that placing compensation at risk and linking such compensation to
performance better aligns senior management's financial interests with those of
the stockholders, which in turn supports the Company's overall objective of
enhancing stockholder value.
In general, base salaries are targeted at competitive levels, subject to
adjustment by the Committee depending on the individual's performance, based on
the Committee's general policy that senior management compensation should be
competitive so as to attract and retain talented executives. In 1999 the
Committee retained an independent consultant to review executive compensation
data from certain utility and general industry companies. The Committee has in
the past also reviewed certain salary surveys to assist in its decision-making.
The Committee has also considered a number of quantitative and qualitative
factors, including the Company's financial and operational achievements, the
individual's experience,
17
responsibilities and effectiveness in performing those responsibilities and in
leading or helping the Company respond to the rapidly changing utility industry
by developing and implementing effective short and long-term strategies.
In 1999, earnings improved, the Company declared a two-for-one stock split
and the dividend was increased by 5% in 1999 and by 5% again in early 2000.
Despite the Company's generally strong financial results, however, the Company's
Common Stock price declined in 1999. The Committee notes that generally, utility
stocks performed poorly in 1999 as a result of rising interest rates and the
market's focus on other industry sectors, such as high tech companies. Company
performance was below industry performance in 1999. However, total five-year
shareholder return exceeded the S&P Utilities Index by a wide margin. The
Company continued to make excellent progress in restructuring and repositioning
itself as a competitive energy industry continues to evolve. The Company
successfully completed the sale of its coal-fired generation assets which
eliminated the risk and uncertainty of stranded coal generation costs. The
Company also entered into an agreement to sell its 18% interest in a nuclear
generating facility which is intended to eliminate the risk of operating a
nuclear generating facility. The Company continued to seek relief for its
customers from onerous Non Utility Generator (NUG) contracts. The Company was
forced to sign these contracts by state and federal governmental authorities. If
these contracts were at competitive prices, customer prices on average would be
significantly lower. In August 1999, the Company became the first company in New
York State to offer full retail electricity access to its customers, thereby
providing one of the most progressive retail access programs in the country. The
Company also announced mergers with three gas companies and one electric
company. Upon completion of the mergers, the Company will serve two million
customers in upstate New York and New England, doubling its customer base. This
expansion into neighboring states will allow the Company to promote competition
and increase customer choice in the Northeast market and continue its
transformation from a vertically integrated upstate New York utility into a
super regional energy services and delivery company in the Northeast.
In determining each officer's performance, including Mr. von Schack's, the
Committee evaluated them within the context of the year experienced by the
Company in terms of achieving the objectives of its 1999 operating plan, as well
as their leadership in planning and implementing strategic and operating
initiatives designed to increase the long-term value of the Company. NYSEG
continues to provide superior service and has been applauded by customers and
community leaders for its quick, efficient restoration of power following
storms. The customer complaint rate continues to be the lowest of any
electricity and natural gas company in New York State and the customer call
center is among the best in the industry. The customer driven culture of the
Company was illustrated when the American Gas Association and Edison Electric
Institute presented NYSEG with a "best practices" award in recognition of the
call center customer representatives' excellence in resolving customer
inquiries. These results and individual performances are reflected in the at
risk portion of senior management compensation for 1999. Since joining the
Company in September 1996, Mr. von Schack has provided strong leadership,
sharpened its strategic focus, successfully repelled a hostile takeover attempt
which would have harmed customers, employees and stockholders, strengthened the
long-term earnings potential of the Company and presided over a dramatic
increase in the market value of the Company's Common Stock. In recognition of
his extraordinary efforts and accomplishments, in 1999 the Committee approved a
special cash bonus, payable over three years. His total compensation reflects
the Committee's evaluation of his effective leadership and the Company's strong
performance with him at the helm.
18
The Company's executive officers participate in the AEIP, which provides for
short-term cash performance incentive awards if certain annual goals are
achieved. For 1999, annual performance incentive awards were based on earnings
targets and individual performance objectives. Awards ranged from approximately
27% to 109% of the participant's base salary, depending upon the participant's
position, and the performance levels achieved. See the Bonus column in the
Summary Compensation Table, which includes performance incentive awards earned
for 1999. The LTEISP, in which the Company's executive officers participate,
provides for cash incentive awards based on the Company's long-term financial
performance relative to the long-term financial performance of companies in the
same industry. See the Long-Term Incentive Plan Awards table for a description
of the LTEISP and performance share grants made in 1999 under the LTEISP. See
the Long-Term Compensation Payouts Long-Term Incentive Plan column in the
Summary Compensation Table for cash incentive payouts under the LTEISP in 1999.
Awards under the 1997 Stock Option Plan and the Restricted Stock Plan are
intended to more closely align the long-term financial interests of management
with those of the Company's stockholders by providing long-term incentives to
those individuals who can significantly affect the future growth and success of
the Company. For example, should the Company's Common Stock double in value over
the ten-year option term (from $26.7188 per share to $53.4376 per share),
stockholder value would increase an estimated $2,921,511,825, while the value of
the grants to the individuals listed in the Option/SAR Grants Table would
increase an estimated $12,825,024 or 0.44% of the total gain realized by all
stockholders. See the Option/SAR Grants Table for a description of the 1997
Stock Option Plan and awards made under the 1997 Stock Option Plan. No awards
were made under the Restricted Stock Plan in 1999.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a company for compensation in excess of $1 million paid to a
company's chief executive officer and each of the next four most highly
compensated executive officers, except that qualifying performance-based
compensation that meets certain specified criteria is not subject to
Section 162(m). The Committee believes, based on information currently
available, that Section 162(m) limitations do not apply to awards made under the
1997 Stock Option Plan because the 1997 Stock Option Plan satisfies the
requirements of Section 162(m) and was approved by Common Stockholders. The
Committee has reviewed and will continue to review tax consequences as well as
other relevant considerations when making compensation decisions within the
context of the overall operation of the Company's compensation program and will
consider what actions should be taken, if any, to continue to operate the
compensation program in a tax effective manner.
EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE
Joseph J. Castiglia, Chairman Richard Aurelio Ben E. Lynch
19
PROPOSAL 2: ADOPTION OF 2000 STOCK OPTION PLAN (Item 2 on Proxy Card)
On February 11, 2000, the Executive Compensation and Succession Committee
adopted the Company's 2000 Stock Option Plan (the "Plan"), effective May 19,
2000, subject to the approval of the Company's Common Stockholders. Approval of
the Plan requires the affirmative vote of a majority of the votes cast by the
holders of the Company's Common Stock at this Annual Meeting, provided a
majority of the outstanding Common Stock has cast a vote. The 2000 Stock Option
Plan serves as the successor to the Company's 1997 Stock Option Plan. After the
effective date of the 2000 Stock Option Plan there will be no new grants of
awards under the 1997 Stock Option Plan other than replacement awards, if any,
related to options outstanding under the 1997 Stock Option Plan as of the
effective date of the 2000 Stock Option Plan.
The objective of the Plan is to provide senior management and certain other
key employees of the Company and its affiliates with options to purchase shares
of the Company's Common Stock. The Plan also provides for the granting by the
Company of stock appreciation rights. These options and stock appreciation
rights are intended to more closely align the financial interests of management
with those of the Company's stockholders by providing long-term incentives to
those individuals who can significantly affect the future growth and success of
the Company. In addition, the Plan will enhance the Company's ability to attract
and retain key individuals of superior ability.
ADMINISTRATION
The Plan will be administered by the Executive Compensation and Succession
Committee or such successor committee as may be appointed by the Board of
Directors to administer the Plan (the "Committee"). The Committee will be
composed of at least two non-employee members of the Board who shall be
qualified to administer the Plan as contemplated by both Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Committee will have the authority to interpret the Plan, to establish and
revise rules and regulations relating to the Plan, and to make any other
determinations that it believes necessary or advisable for the administration of
the Plan. Decisions and determinations by the Committee will be final and
binding upon all parties.
AWARDS
Awards granted under the Plan may consist of any combination of incentive
stock options within the meaning of Section 422 of the Code ("ISOs");
non-statutory stock options, which are not ISOs under Section 422 of the Code
("NSOs") (ISOs and NSOs are collectively referred to as "Options"); stock
appreciation rights ("Stock Appreciation Rights"); and any other awards
established by the Committee which are consistent with the purposes of the Plan
(collectively, "Awards").
ELIGIBILITY AND PARTICIPATION
The Committee will have the authority to grant Awards to such senior
management and other key employees of the Company and its affiliates as the
Committee may from time to time select. In determining the persons to whom
Awards are to be granted and the number of such Awards, the
20
Committee will take into consideration the individual's present and potential
contribution to the growth and success of the Company and such other factors as
the Committee may deem proper and relevant. The Committee may request
recommendations for individual awards from the Chairman. The Committee may
delegate to the Chairman the authority to make Awards to any employees of the
Company and its affiliates who are not executive officers covered by Section 16
of the Exchange Act, subject to a fixed maximum Award amount for such a group
and a fixed maximum Award amount for any one participant, as determined by the
Committee. Any employee of the Company and its affiliates is eligible to be
selected for Awards. While no participants have yet been selected, it is
anticipated that only a small fraction of the Company's and its affiliates'
approximately 3,838 employees will be selected to receive Awards.
SHARES AVAILABLE FOR AWARDS
The aggregate number of shares of the Company's Common Stock with respect to
which Awards may be granted is 10,000,000 shares, less the total number of
shares related to i) options and stock appreciation rights (including
replacement awards) which have been granted under the Company's 1997 Stock
Option Plan on or before the Effective Date (as defined in Article XI) and which
have not been forfeited, and ii) replacement awards granted under the 1997 Stock
Option Plan after the Effective Date. Any shares which relate to awards under
the 1997 Stock Option Plan which after the Effective Date terminate by
expiration, forfeiture, cancellation or otherwise without the delivery of
shares, or are settled in cash in lieu of the Company Common Stock, will no
longer be available for distribution under the 1997 Stock Option Plan, but will
be available for distribution under the Plan. The aggregate number of shares is
subject to adjustment by the Committee in the event of a stock dividend or
split, recapitalization, merger, consolidation, spin-off, reorganization,
combination, exchange of shares or other similar corporate change. In the event
of such a change, provision may be made by the Committee for cash payments to a
participant who has an outstanding Option or other Award. For purposes of the
calculation of the aggregate number of shares, shares of the Company's Common
Stock that relate to (i) a Stock Appreciation Right which is exercised, or
(ii) any Award which terminates by expiration, forfeiture, cancellation or
otherwise without the delivery of shares, or is settled in cash in lieu of the
Company's Common Stock, shall again be available for grant under the Plan.
No individual may be granted, during any one calendar year of the Plan,
Awards, other than replacement awards, that relate in total to more than 400,000
shares of the Company's Common Stock, subject to adjustment by the Committee in
the event of a stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination, exchange of shares or other similar
corporate change. The number of shares to be covered by Awards granted to any
individual or class of persons under the Plan is not determinable as of the date
of this Proxy Statement because at this date no participants have been selected
to receive Awards under the Plan.
Shares of the Company's Common Stock delivered pursuant to the Plan may be
either authorized but unissued Common Stock or previously issued shares of
Common Stock reacquired by the Company, including shares purchased by the
Company in the open market and held as treasury shares, or both. The closing
market price per share of the Company's Common Stock on March 20, 2000 was
$20 3/8.
21
OPTIONS
Options issued under the Plan will entitle participants to purchase
specified numbers of shares of the Company's Common Stock at specified exercise
prices per share. The Committee will have the authority to determine the number
of shares of Common Stock to be covered by each Option, the terms of each
Option, the time or times when Options will be granted, and the exercise price
per share of the Company's Common Stock subject to the Option.
The exercise price of an Option may not be less than 100% of the fair market
value of a share of the Company's Common Stock determined on the date such
Option is granted. The exercise price may be payable in cash or its equivalent,
or, to the extent permitted by the Committee, by tendering previously acquired
shares of Common Stock or by a third party exercise procedure. In lieu of
delivering shares covered by an exercised Option, the Committee, at its sole
discretion, may settle the exercise of an Option by making a cash payment equal
to the difference between the fair market value of the Company's Common Stock
determined on the exercise date and the exercise price.
Each Option shall be exercisable at such time or times, upon such events,
and subject to such terms and conditions as the Committee may specify; provided,
however, that no Option may be exercisable after the expiration of ten years
from the date such Option is granted.
Unless otherwise provided by the Committee, to the extent that all or any
portion of the Option exercise price or taxes incurred in connection with the
exercise of Options granted under the Plan is paid for by using other common
shares of the Company or by the withholding by the Company of shares, and
subject to the provisions of the Plan, participants will be granted replacement
Options as additional awards.
The Company, with the consent of the Committee and in compliance with
applicable laws and regulations, may lend money to a participant, guarantee a
loan to a participant or otherwise assist a participant to obtain the cash
necessary to exercise all or any portion of an Option granted under the Plan,
including the payment by a participant of any or all applicable taxes due in
connection with the exercise of an Option under the Plan.
STOCK APPRECIATION RIGHTS
The Committee may, in its sole discretion, grant Stock Appreciation Rights
which are in tandem with Options or which are freestanding and unrelated to
Options. Stock Appreciation Rights granted in tandem with Options will entitle a
participant to receive from the Company, upon the exercise of the right, an
amount equal to the excess of the fair market value of a share of the Company's
Common Stock, determined on the date of the exercise of the right, over the
exercise price of the related Option. The exercise of a Stock Appreciation Right
issued in tandem with an Option will result in a corresponding cancellation of
the related Option. In such case, the number of shares subject to the exercised
Stock Appreciation Right and related cancelled Option shall again be available
for purposes of calculating the number of shares in the aggregate available for
grant under the Plan. The exercise of an Option in tandem with a Stock
Appreciation Right will result in a cancellation of the related Stock
Appreciation Right. In such case, the number of shares subject to such exercised
Option and related cancelled Stock Appreciation
22
Right will not become available for purposes of calculating the number of shares
in the aggregate available for grant under the Plan.
A freestanding Stock Appreciation Right will entitle a participant, upon
exercise of the right, to receive an amount equal to the excess of the fair
market value of a share of the Company's Common Stock, determined on the date of
the exercise of the right, over the fair market value of a share of the
Company's Common Stock determined on the date of the grant of the Stock
Appreciation Right.
Stock Appreciation Rights will not be exercisable after the expiration of
ten years from the date of grant. Upon their exercise, Stock Appreciation Rights
will be settled in cash.
NONENFORCEABILITY AND OTHER TERMS AND CONDITIONS
No Awards granted to an individual under the Plan will be assignable or
transferable by the individual other than by will or the laws of descent and
distribution, except that the Committee may provide for the transferability of
Awards to certain parties. The Committee will provide in the agreements
embodying the Awards the terms and conditions applicable to the Awards in the
event of the participant's termination of employment due to retirement, death,
disability or for any other reason and the effect, if any, of a Change in
Control (as determined by the Committee) of the Company. The Plan does not allow
for the repricing of Options by any method, including by cancellation and
reissuance.
CHANGE IN CONTROL
In order to preserve a participant's rights under an Award in the event of a
Change in Control (as determined by the Committee) of the Company, the
Committee, in its sole discretion, may, at the time an Award is made or at any
time thereafter take one or more of the following actions: (i) provide for the
acceleration of any time period relating to the exercise of an Award,
(ii) provide for the purchase of the Award upon the participant's request for an
amount of cash or other property that could have been received upon the exercise
or realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the Change in Control, or (iv) make such other provisions as the
Committee may consider equitable and in the best interests of the Company.
AMENDMENT AND TERMINATION OF PLAN
The Committee may, in its sole discretion, terminate the Plan and, from time
to time modify or amend the Plan for any reason; provided, however (i) the Plan
shall not be amended or modified without shareholder approval if and to the
extent shareholder approval is required under the applicable regulations under
Sections 162(m) or 422 of the Code: (ii) the Plan shall not be amended or
modified without shareholder approval so as to increase the number of shares
which may be issued under the Plan; and (iii) the termination, modification or
amendment of the Plan, shall not, without consent of a participant, adversely
affect any rights under any Award previously granted to such participant. No
awards will be granted pursuant to the Plan after May 18, 2010.
23
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal federal income tax consequences
under present law generally applicable to the grant and exercise of Options and
Stock Appreciation Rights under the Plan. This summary is not intended to be
complete and, among other things, does not describe state or local tax
consequences.
STOCK OPTIONS. The grant of an ISO or an NSO will not result in income for
the grantee or in a deduction for the Company.
The exercise of an NSO, whether payment is in cash or Common Stock, will
result in ordinary income to the grantee and a deduction for the Company
measured by the difference between the Option exercise price and the fair market
value of the shares of Common Stock received (or which would have been received
had the Company not elected to settle the NSO in cash) at the time of exercise.
Income tax withholding will be required.
If the exercise price of an NSO is paid in whole or in part in shares of
Common Stock, no income, gain or loss is recognized on the exchange of the
shares for new shares of Common Stock equal in value on the date of exercise to
the shares delivered in payment of the exercise price, and, to the extent the
new shares are equal in number to the shares surrendered, such new shares will
take the basis and holding period of the shares delivered in payment. If the
number of shares received exceeds the number of shares surrendered, the excess
shares will take a basis equal to (i) the amount of cash, if any, paid upon
exercise, plus (ii) the amount treated as compensation income received on the
date of exercise, resulting in such shares having a basis equal to their fair
market value and a holding period that begins on the date of the exercise of the
NSO.
The exercise of an ISO will not result in income to the grantee, nor will
the Company be allowed a deduction. If (i) the grantee does not dispose of the
shares of Common Stock within two years after the date of grant and holds such
shares for more than one year after the receipt of the shares upon exercise and
(ii) the grantee is an employee of the Company during the period beginning on
the date of grant and ending three months before the exercise date, the basis of
the shares of Common Stock upon later disposition will be the Option exercise
price, and any gain will be taxed to the employee as a long-term capital gain.
At the same time, the Company will not be entitled to a deduction. The excess of
the fair market value of the shares of Common Stock received, determined on the
exercise date, over the Option exercise price (the "Excess Amount") is an item
of tax preference for alternative minimum tax purposes.
If the grantee disposes of the shares of Common Stock prior to the
expiration of either of the two holding periods described in (i) in the
preceding paragraph, the grantee will recognize ordinary income, and the Company
will be entitled to a deduction equal to the lesser of the Excess Amount or the
amount realized on the disposition minus the Option exercise price. Income tax
withholding will not be required. Any gain in excess of the ordinary income
portion will be taxable as a long-term or short-term capital gain, as the case
may be.
In general, if the exercise price of an ISO is paid in whole or in part in
shares of Common Stock, rules analogous to those set forth for NSOs are
applicable, with appropriate adjustment being made to the basis of the shares in
order to reflect the Excess Amount upon which ordinary income tax has not been
paid. If,
24
however, the grantee uses Common Stock acquired pursuant to the exercise of an
ISO and the required ISO holding periods with respect to that Common Stock have
not been satisfied, then the usual nonrecognition provisions will not apply.
STOCK APPRECIATION RIGHTS. The grant of a Stock Appreciation Right will not
result in income to the grantee or a deduction for the Company. Upon the
exercise of a Stock Appreciation Right, the grantee will recognize ordinary
income, and the Company will be entitled to a deduction, measured by the cash
received. Income tax withholding will be required.
OTHER. Any payment, or acceleration of payment, of Awards under the Plan
because of a change in control of the Company may cause part or all of the
amount paid to be treated as an "excess parachute payment" under the Code which
will not be deductible by the Company and which will subject the employee to a
20% federal excise tax.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
ADOPTION OF THE 2000 STOCK OPTION PLAN.
INDEPENDENT ACCOUNTANTS
The Company has appointed PricewaterhouseCoopers LLP, a firm of independent
certified public accountants, as auditors for the year 2000. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the meeting and will
have an opportunity to make a statement if they desire to do so. They will also
be available to answer questions that you may have. From time to time
PricewaterhouseCoopers LLP performs certain management advisory services for the
Company.
DEADLINE FOR STOCKHOLDER PROPOSALS
For a stockholder proposal to be considered for inclusion in our proxy
statement and form of proxy for the 2001 Annual Meeting, it must be received by
the Company's Secretary at P.O. Box 12904, Albany, New York, 12212-2904 by
November 28, 2000. Under our By-Laws, if you wish to nominate candidates for
election to the Board of Directors or if you wish to bring any matter before the
2001 Annual Meeting (other than those matters included in our proxy material),
you must notify the Company's Secretary in writing by February 18, 2001. The
notice must also meet certain other requirements.
OTHER MATTERS
We do not know of any other matters of business to be presented for action
at the meeting. However, the enclosed form of proxy will confer discretionary
authority for the transacting of any such other and further business if properly
brought before the meeting or any adjournment thereof. If any such business is
so brought before the meeting, the persons named in the enclosed form of proxy,
or their substitutes, will vote according to their discretion.
The proxy is revocable by you at any time before the exercise thereof, and
the giving of such proxy will not affect your right to vote in person, should
you later find it convenient to attend the meeting.
State law requires the Company to inform stockholders of the initiation or
renewal of insurance indemnifying itself and its officers and directors. This
insurance, which is carried with Associated
25
Electric & Gas Insurance Services Limited, Energy Insurance Mutual Limited, and
CNA Insurance Company, has been renewed for one year beginning October 28, 1999,
at a premium of $184,348. In addition, the Pension Trust Liability Insurance,
which is carried with Federal Insurance Company, covering the Company, its
subsidiaries, and its directors and those officers considered fiduciaries under
the Employee Retirement Income Security Act of 1974, has been renewed for one
year beginning November 1, 1999 at a premium of $68,495.
COST OF SOLICITATION
The accompanying proxy is solicited on behalf of the Board of Directors. The
costs of this solicitation, including reimbursement of charges of brokerage
houses and others for their expenses in forwarding proxy materials to beneficial
owners of stock, will be paid by the Company. In addition, directors, officers,
and employees of the Company or of NYSEG may solicit proxies by telephone,
telegram or in person, without additional compensation. In addition, the Company
has retained Georgeson Shareholder Communications Inc. to aid in the
solicitation of proxies at an anticipated fee of approximately $14,500, plus
reimbursement of out-of-pocket expenses incurred by that firm on behalf of the
Company.
By Order of the Board of Directors
DANIEL W. FARLEY,
SECRETARY
Dated: March 28, 2000
26
EXHIBIT A
ENERGY EAST CORPORATION
2000 STOCK OPTION PLAN
I. PLAN OBJECTIVE
The objective of the 2000 Stock Option Plan (the "Plan") is to provide
executives and certain other key employees of Energy East Corporation
(hereinafter referred to as the "Company") and its Affiliates with options to
purchase shares of the Company's Common Stock. The Plan also provides for the
granting by the Company of stock appreciation rights to these employees. These
options and stock appreciation rights are intended to more closely align the
financial interests of management with those of the Company's stockholders by
providing long-term incentives to those individuals who can significantly affect
the future growth and success of the Company. In addition, the Plan will enhance
the Company's ability to attract and retain executives and other key individuals
of superior ability.
II. DEFINITIONS
"Affiliate" shall mean any company which qualifies as a "subsidiary
corporation" or "parent corporation" of the Company under Section 424 of the
Code, or any successor provision, or any other entity in which the Company owns,
directly or indirectly, fifty percent (50%) or more of the equity.
"Award" shall mean an Option granted to a Participant pursuant to
Article VI hereof, a Stock Appreciation Right granted to a Participant pursuant
to Article VII hereof or any other award established by the Committee which is
consistent with the purposes of the Plan.
"Award Agreement" shall mean a written agreement (including any amendment or
supplement thereto) between the Company and a Participant which specifies the
terms and conditions of an Award granted to such Participant.
"Board" shall mean the Board of Directors of Energy East Corporation.
"Cashless Exercise" shall mean the exercise of an Option by a Participant
through the use of a brokerage firm to make payment to the Company of the
exercise price either from the proceeds of a loan to the Participant from the
brokerage firm or from the proceeds of the sale of the Company's Common Stock
issued pursuant to the exercise of the Option, and whereby, upon receipt of such
payment, the Company delivers the exercised shares to the brokerage firm.
"Chairman" shall mean the Chairman of Energy East Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" shall mean, with respect to any given date, the closing
price of the Company's Common Stock on the New York Stock Exchange on the last
trading day prior to that date, as reported by such responsible reporting
service as the Committee may select.
"Incentive Stock Option" shall mean a stock option granted under Article VI
hereof which is intended to qualify as an incentive stock option under
Section 422 of the Code.
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"Key Employee" shall mean an officer or other employee whose efforts and
initiative have significantly contributed or are expected to significantly
contribute to the future growth and success of the Company or its Affiliates.
"Non-Statutory Stock Option" shall mean a stock option granted under
Article VI hereof which is not intended to qualify as an incentive stock option
under Section 422 of the Code.
"Option" shall mean an Incentive Stock Option or a Non-Statutory Stock
Option.
"Participant" shall mean an individual who is selected pursuant to
Article IV hereof to receive an Award under the Plan.
"Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the Exchange Act,
or any successor provision, as amended from time to time.
"Section 162(m)" shall mean Section 162(m) of the Code, or any successor
provision, as amended from time to time, and any regulations thereunder.
"Section 422" shall mean Section 422 of the Code, or any successor
provision, as amended from time to time, and any regulations thereunder.
"Stock Appreciation Right" shall mean (i) in the case of a Stock
Appreciation Right issued in tandem with an Option pursuant to Article VII
hereof, the right to receive an amount equal to the excess of the Fair Market
Value of a share of the Company's Common Stock (determined on the date of the
exercise of the Stock Appreciation Right) over the exercise price of the related
Option or (ii) in the case of a freestanding Stock Appreciation Right issued
pursuant to Article VII hereof, the right to receive an amount equal to the
excess of the Fair Market Value of a share of the Company's Common Stock
(determined on the date of the exercise of the Stock Appreciation Right) over
the Fair Market Value of a share of the Company's Common Stock determined on the
date of the grant of the Stock Appreciation Right.
III. ADMINISTRATION
The Plan shall be administered by the Executive Compensation and Succession
Committee of the Board or such successor committee as may be appointed by the
Board to administer the Plan (the "Committee"). The Committee shall be composed
of at least two non-employee members of the Board who shall be qualified to
administer the Plan as contemplated by both Rule 16b-3 and Section 162(m). The
Committee shall have the authority to exercise all of the powers and authorities
specifically granted to it under the Plan or necessary or desirable in the
administration of the Plan, including, without limitation, the authority to
select the employees to be granted Awards, the authority to determine the size
and terms of the Awards to be granted to each employee and the authority to
prescribe the form of Award Agreement embodying the Awards granted under the
Plan. The Committee shall have the authority to interpret the Plan, to establish
and revise rules and regulations relating to the Plan, and to make any other
determinations that it believes necessary or advisable for the administration of
the Plan. Decisions and determinations by the Committee shall be final and
binding upon all parties.
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IV. ELIGIBILITY AND PARTICIPATION
Awards may be granted to such Key Employees of the Company as the Committee
may from time to time select. In determining the individuals to whom Awards are
to be granted and the number of such Awards, the Committee shall take into
consideration the individual's present and potential contribution to the growth
and success of the Company and such other factors as the Committee may deem
proper and relevant. The Committee may request recommendations for individual
Awards from the Chairman. The Committee may delegate to the Chairman the
authority to make Awards to any employees of the Company who are not executive
officers subject to Section 16 of the Exchange Act, subject to a fixed maximum
Award amount for such a group and a fixed maximum Award amount for any one
Participant, as determined by the Committee. Determinations as to Awards made to
executive officers who are subject to Section 16 of the Exchange Act shall be
made solely by the Committee. For purposes of participation in the Plan, the
term "Company" includes the Company and its Affiliates.
V. SHARES AVAILABLE FOR AWARDS
A. AMOUNT OF STOCK
Subject to adjustment as provided in Section C. of this Article V., the
aggregate number of shares of the Company's Common Stock with respect to which
Awards may be granted is 10,000,000 shares, less the total number of shares
related to i) options and stock appreciation rights (including replacement
awards) which have been granted under the Company's 1997 Stock Option Plan on or
before the Effective Date (as defined in Article XI.) and which have not been
forfeited, and ii) replacement awards granted under the 1997 Stock Option Plan
after the Effective Date. Any shares which relate to awards under the 1997 Stock
Option Plan which after the Effective Date terminate by expiration, forfeiture,
cancellation or otherwise without the delivery of shares, or are settled in cash
in lieu of the Company's Common Stock, will no longer be available for
distribution under the 1997 Stock Option Plan, but will be available for
distribution under the Plan. Shares of Common Stock delivered by the Company
pursuant to the Plan may be either authorized but unissued Common Stock or
previously issued shares of Common Stock reacquired by the Company, including
shares purchased by the Company in the open market and held as treasury shares,
or both. Awards may be made under the Plan in any combination of Incentive Stock
Options, Non-Statutory Stock Options, Stock Appreciation Rights, or any other
awards established by the Committee which are consistent with the purposes of
the Plan.
For purposes of this Section A., shares of the Company's Common Stock that
relate to (i) a Stock Appreciation Right which is exercised, or (ii) any Award
which terminates by expiration, forfeiture, cancellation or otherwise without
the delivery of shares, or is settled in cash in lieu of the Company's Common
Stock, shall thereafter again be available for grant pursuant to the Plan.
B. INDIVIDUAL LIMITATIONS
Subject to adjustment as provided in Section C. of this Article V., no
individual may be granted, during any one calendar year of the Plan, Awards,
other than replacement awards, that relate in total to more than 400,000 shares
of the Company's Common Stock.
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C. DILUTION AND OTHER ADJUSTMENTS
In the event of any change in the number of outstanding shares of the
Company's Common Stock or the Common Stock price by reason of any stock dividend
or split, recapitalization, merger, consolidation, spin-off, reorganization,
combination, exchange of shares or other similar corporate change, if the
Committee shall determine, in its sole discretion, that such change requires an
adjustment in the number and kind of shares that may be issued under the Plan,
or to any individual under the Plan, including the number and kind of shares
which are subject to outstanding Options, or any other Award established by the
Committee, or in the exercise price with respect to any of the foregoing, such
adjustments shall be made by the Committee and shall be conclusive and binding
for all purposes of the Plan. If deemed appropriate by the Committee, provision
may be made for the cash payment to a Participant who has an outstanding Option
or other Award; provided, however, that the number of shares subject to any
Option or other Award shall always be a whole number.
VI. TERMS AND CONDITIONS OF OPTIONS
A. GRANT OF OPTIONS
Subject to the other provisions of the Plan, the Committee shall have sole
authority to determine the employees to whom Options shall be granted, the time
or times when Options shall be granted, the number of shares to be covered by
each Option, the terms of each Option, the Option Price (as defined in
Section B. of this Article VI.) therefor, and the conditions and limitations
applicable to the exercise of each Option. The Committee shall have the
authority to grant Incentive Stock Options, or to grant Non-Statutory Stock
Options, or to grant both types of Options. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and comply
with such rules as may be prescribed by Section 422.
B. OPTION PRICE
The Committee shall, in its sole discretion, establish the exercise price
per share of the Company's Common Stock covered by an Option ("Option Price") at
the time each Option is granted, which exercise price shall not be less than
100% of the Fair Market Value of the Company's Common Stock determined on the
date of grant.
C. EXERCISE OF OPTIONS AND GRANT OF REPLACEMENT OPTIONS
Each Option shall be exercisable at such time or times, upon such events,
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement; provided, however, that
in no event may any Option granted hereunder be exercisable after the expiration
of ten years from the date of such grant. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any conditions relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
Unless otherwise provided by the Committee, Options shall be exercised by
the delivery of a written notice from the Participant to the Secretary of the
Company in the form prescribed by the Committee which sets forth the number of
shares with respect to which the Option is exercised and which is accompanied by
full payment for the shares. Unless otherwise provided by the Committee, no
shares shall
A-4
be delivered pursuant to any exercise of an Option until payment in full of the
Option Price therefor is received by the Company. Such payment may be made in
cash, or its equivalent, or, if and to the extent permitted by the Committee, by
tendering (either actually or by attestation) shares of the Company's Common
Stock owned by the holder of the Option (which are not subject to any pledge or
other security interest), or by combination of the foregoing, provided that the
combined value of all cash and cash equivalents and the Fair Market Value of any
such Common Stock so tendered to the Company, valued as of the date of such
tender, is at least equal to the Option Price times the number of shares with
respect to which the Option is being exercised. In addition, at the request of
the Participant, and subject to applicable laws and regulations, the Company may
(but shall not be required to) cooperate in a "Cashless Exercise" of the Option.
As soon as practicable after receipt of the written notice and payment, the
Company shall deliver to the Participant stock certificates based upon the
number of shares with respect to which the Option is exercised and which are
issued in the Participant's name. A Participant shall have the rights of a
stockholder only with respect to shares for which such stock certificates have
been issued to such Participant.
Unless otherwise provided by the Committee, to the extent that all or any
portion of the Option Price, or taxes incurred in connection with the exercise
of an Option, are paid by delivery of the common shares of the Company (or, in
the case of the payment of taxes, by the withholding of shares) then,
concurrently with such delivery or withholding, the Participant shall be
granted, as additional Awards, replacement Options, subject to the other
provisions of the Plan. The replacement Options, to the extent permissible,
shall cover the number of common shares surrendered to pay the Option Price plus
the number of shares surrendered or withheld to satisfy the Participant's tax
liability, shall have an exercise price equal to 100% of the Fair Market Value
of such common shares determined on the date such replacement Option is granted,
shall first be exercisable no earlier than six months from the date of the grant
of the replacement Option, shall have an expiration date equal to the expiration
date of the original Option and shall contain such other terms and conditions as
determined by the Committee. A replacement Option shall be granted in connection
with the exercise of an Option which is itself a replacement Option.
The Committee, in its sole discretion, may, in lieu of delivering shares
covered by an exercised Option, settle the exercise of the Option by means of a
cash payment to the Participant equal to the difference between the Fair Market
Value of the Company's Common Stock determined on the exercise date and the
Option Price. At the same time, the Committee shall return to the Participant
the Participant's payment, if any, for the shares covered by the Option.
With the consent of the Committee, and subject to compliance with applicable
laws and regulations, the Company, in its sole discretion, may lend money to a
Participant, guarantee a loan to a Participant or otherwise assist a Participant
to obtain the cash necessary to exercise all or any portion of an Option granted
under the Plan, including the payment by a Participant of any or all applicable
taxes due in connection with the exercise of an Option granted under the Plan.
VII. STOCK APPRECIATION RIGHTS
The Committee may, with sole and complete authority, grant Stock
Appreciation Rights which are in tandem with an Option or which are freestanding
and unrelated to an Option. A Stock Appreciation Right granted in tandem with an
Option shall be granted at the same time as the Option is granted. Stock
A-5
Appreciation Rights shall be exercisable, in whole or in part, at such time or
times, and subject to such other terms and conditions, as shall be prescribed by
the Committee, provided that Stock Appreciation Rights shall not be exercisable
after the expiration of ten years from the date of grant.
Stock Appreciation Rights granted in tandem with Options shall entitle a
Participant to receive from the Company, upon exercise of the right, an amount
equal to the excess of the Fair Market Value of a share of the Company's Common
Stock, determined on the date of the exercise of the right, over the exercise
price of the related Option. A freestanding Stock Appreciation Right shall
entitle a Participant to receive from the Company, upon exercise of the right,
an amount equal to the excess of the Fair Market Value of a share of the
Company's Common Stock, determined on the date of the exercise of the right,
over the Fair Market Value of a share of the Company's Common Stock, determined
on the date of the grant of the Stock Appreciation Right.
The exercise of a Stock Appreciation Right granted in tandem with an Option
shall result in a corresponding cancellation of the related Option to the extent
of the number of shares of the Company's Common Stock as to which the Stock
Appreciation Right is exercised. In such case, the number of shares subject to
such exercised Stock Appreciation Right and related cancelled Option shall
become available for grant under Article V. Section A. hereof. The exercise of
an Option associated with a tandem Stock Appreciation Right shall result in a
cancellation of the related Stock Appreciation Right to the extent of the number
of shares of the Company's Common Stock as to which the Option is exercised.
Notwithstanding such cancellation, the number of shares subject to any such
exercised Option and related Stock Appreciation Right shall not become available
for grant under Article V. Section A. hereof.
VIII. AMENDMENTS AND TERMINATION
The Committee may, in its sole discretion, at any time terminate the Plan
and from time to time modify or amend the Plan, or any part hereof, for any
reason; provided, however: (i) the Plan shall not be amended or modified without
shareholder approval if and to the extent shareholder approval is required under
the applicable regulations under Section 162(m) or Section 422; (ii) the Plan
shall not be amended or modified without shareholder approval so as to increase
the number of shares which may be issued under the Plan or to amend the
provisions of Article X. Section D. hereof; and (iii) the termination,
modification or amendment of the Plan shall not, without the consent of a
Participant, adversely affect any rights under any Award previously granted to
such Participant. No Awards shall be granted pursuant to this Plan after
May 18, 2010.
IX. WITHHOLDING TAXES
A. Whenever the Company is to issue or transfer shares of Common Stock under
the Plan, the Company shall have the right to require the Participant to remit
to the Company an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any certificates for such
shares.
B. Whenever payments under the Plan are to be made in cash, such payments
shall be net of an amount sufficient to satisfy any federal, state and local
withholding tax requirements.
A-6
C. The Committee, in its sole discretion, may provide that a Participant may
satisfy, totally or in part, the Participant's obligations pursuant to
Section A. hereof by electing to have shares withheld, to redeliver shares
acquired under an Award, or to deliver previously owned shares having a Fair
Market Value equal to the amount required to be withheld, provided that the
election is made in writing on or prior to the date of exercise of the Option.
The Fair Market Value of any shares of Common Stock to be withheld or delivered
shall be determined as of the date that the taxes are required to be withheld.
X. MISCELLANEOUS PROVISIONS
A. Each Award hereunder shall be evidenced in writing by an Award Agreement.
The Committee shall provide in the Award Agreement the terms and conditions
applicable to an Award in the event of the Participant's termination of
employment by reason of retirement, death, disability or any other reason and
the effect thereon, if any, of a change in control (as determined by the
Committee) of the Company.
B. Nothing in the Plan or in any Award Agreement entered into pursuant to
the Plan shall confer upon any Participant the right to continue in the
employment of the Company or affect any right which the Company may have to
terminate the employment of such Participant.
C. No Award shall be assignable or transferable otherwise than by will or
the laws of descent and distribution, except that the Committee may provide in
an Award Agreement for the transferability of an Award:
(a) by gift to (i) a spouse or other family member, or (ii) a trust or an
estate in which the original Participant or the Participant's spouse or
other family member has a substantial interest; and
(b) pursuant to a domestic relations order as defined in Section 414 of the
Code, or any successor provision;
provided, however, that any Award so transferred shall continue to be subject to
all terms and conditions contained in the Award Agreement. If so permitted by
the Committee, a Participant may designate a beneficiary or beneficiaries to
exercise the rights of the Participant under the Plan upon the death of the
Participant.
No right or interest of any Participant shall be subject to any lien,
obligation or liability of the Participant.
D. Except for adjustments as provided in Section C. of Article V., hereof,
the Option Price for any outstanding Option granted hereunder may not be
decreased after its date of grant, nor may an outstanding Option granted under
the Plan be surrendered to the Company as consideration for the grant of a new
Option with a lower Option Price.
E. The Plan shall be submitted to the common stockholders of the Company for
approval. Options may not be granted, and Shares may not be delivered, under the
Plan unless and until such time as such approval and authorization has been
received. The common stockholders of the Company shall be deemed to have
approved the Plan only if it is approved at a meeting of the common stockholders
duly held by vote taken in the manner required by law.
A-7
F. Notwithstanding anything to the contrary contained in the Plan or any
Award Agreement, the Company shall not be required to issue shares of Common
Stock until all applicable legal, listing, registration and regulatory
requirements or approvals relating to the issuance have been satisfied or
obtained.
G. The Plan and all Award Agreements entered into pursuant to Award grants
shall be governed by the laws of the State of New York, other than its conflicts
of laws provisions. In the event of an inconsistency between any term of the
Plan and any term of any Award Agreement, the terms of the Plan shall govern.
H. It is the intent of the Company that this Plan comply in all respects
with Rule 16b-3 in connection with any Award granted to a person who is subject
to Section 16 of the Exchange Act. Accordingly, if any provision of this Plan or
any Award Agreement does not comply with the requirements of Rule 16b-3 as then
applicable to any such person, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements with respect to
such person.
XI. EFFECTIVE DATE
Subject to the approval of the common stockholders, the Plan shall be
effective as of May 19, 2000 ("Effective Date").
XII. CHANGE IN CONTROL
In order to preserve a Participant's rights under an Award in the event of a
change in control (as determined by the Committee) of the Company, the Committee
in its discretion may, at the time an Award is made or any time thereafter, take
one or more of the following actions: (i) provide for the acceleration of any
time period relating to the exercise of the Award, (ii) provide for the purchase
of the Award upon the Participant's request for an amount of cash or other
property that could have been received upon the exercise or realization of the
Award had the Award been currently exercisable or payable, (iii) adjust the
terms of the Award in a manner determined by the Committee to reflect the change
in control, or (iv) make such other provision as the Committee may consider
equitable and in the best interests of the Company.
A-8
[LOGO]
ENERGYEAST
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ENERGY EAST CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
P R O X Y
The undersigned appoints D.W. Farley, K.M. Jasinski, R.E. Rude or any one or
more of them, with power of substitution, proxies of the undersigned, to vote,
as specified, and in their discretion with respect to any other business
properly brought before the meeting, all shares of stock of Energy East
Corporation which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of said Corporation to be held on May 19, 2000, and at any
adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY
DIRECTION IS INDICATED, WILL BE VOTED FOR ALL THE NOMINEES, FOR THE APPROVAL OF
THE 2000 STOCK OPTION PLAN AND AS SAID PROXIES SHALL DEEM ADVISABLE ON SUCH
OTHER BUSINESS AS MAY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
------------------
SEE REVERSE SIDE
------------------
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
- --------------------------------------------------------------------------------
1. Election of Directors, as provided in FOR ALL WITHHOLD AUTHORITY
the Company's Proxy Statement. NOMINEES TO VOTE FOR ALL
(Instructions: TO WITHHOLD AUTHORITY LISTED BELOW NOMINEES LISTED BELOW
to vote for any individual nominee, |_| |_|
print that nominee's name on the line
provided below.) J.J. Castiglia, L.B.
DeFleur, W.G. Rich, W.W. von Schack
-------------------------------------
2. Approval of the 2000 Stock Option Plan. FOR AGAINST ABSTAIN
|_| |_| |_|
The undersigned hereby revokes any other proxy to vote at such Annual Meeting,
and hereby ratifies and confirms all that said attorneys and proxies, and each
of them, may lawfully do by virtue hereof. With respect to matters not known at
the time of the solicitation hereof, said proxies are authorized to vote in
accordance with their best judgement.
DATE:_____________________________________________________________________, 2000
________________________________________________________________________________
________________________________________________________________________________
SIGNATURE(S)
NOTE: This proxy should be marked, dated and signed by the stockholder(s)
exactly as his name appears hereon, and returned promptly in the enclosed
envelope. Persons signing as a fiduciary should so indicate. If shares are held
by joint tenants or as community property, both must sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.