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 /X/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
New York State Electric & Gas Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Merrill Corporation
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(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
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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NEW YORK STATE ELECTRIC & GAS CORPORATION
ITHACA, NEW YORK
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
-------------------
To the Holders of Common Stock of
New York State Electric & Gas Corporation:
You are cordially invited to attend the Annual Meeting of Stockholders of
New York State Electric & Gas Corporation which will be held at the STATE
UNIVERSITY OF NEW YORK, COLLEGE AT ONEONTA, CHARLES W. HUNT COLLEGE UNION,
ONEONTA, OTSEGO COUNTY, NEW YORK, ON MAY 21, 1997 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 I for a term expiring at the
2000 Annual Meeting, to elect one director to serve in Class II for a
term expiring at the 1998 Annual Meeting, and to elect two directors to
serve in Class III for a term expiring at the 1999 Annual Meeting;
(2) To consider and approve for adoption the 1997 Stock Option Plan;
(3) To consider and act upon a stockholder proposal;
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 April 1, 1997
will be entitled to notice of and to vote at the meeting.
Whether or not you expect to be present at the Annual Meeting, the Board of
Directors requests you to 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.
The Company would like to acknowledge the retirement in 1996 of David R.
Newcomb from the Board of Directors and to express how deeply appreciative it is
of his contributions, loyalty and guidance during his 17 years of dedicated
service. The Company would also like to acknowledge the passing on November 20,
1996 of Charles W. Stuart, who served on the Board of Directors for 25 years.
Their wise counsel will be missed.
By Order of the Board of Directors,
DANIEL W. FARLEY
VICE PRESIDENT AND SECRETARY
Dated: April 11, 1997
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 21, 1997
-----------------
This statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of New York State Electric & Gas Corporation
(the "Company"), to be used at the Annual Meeting of Stockholders of the Company
to be held on May 21, 1997 at the State University of New York, College at
Oneonta, Charles W. Hunt College Union, Oneonta, Otsego County, New York. This
statement and the form of proxy were first mailed to holders of Common Stock on
or about April 11, 1997. The mailing address of the Company's Ithaca executive
office is P. O. Box 3287, Ithaca, NY 14852-3287.
ANNUAL REPORT
An Annual Report to Stockholders for the year ended December 31, 1996,
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 OF THE COMPANY
The close of business on April 1, 1997 has been fixed as the date for
determining the holders of Common Stock entitled to vote at the meeting.
As of April 1, 1997, the Company had outstanding 69,337,427 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 a stockholder may cast for the election of
directors shall equal the number of directors to be elected multiplied by the
number of shares held, and the stockholder may cast all of such votes for a
single nominee for director or may distribute them among all or several
nominees, as the stockholder sees 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. If you are an employee of the Company and
participate in the Tax Deferred Savings Plans, the proxy constitutes an
instruction for the trustee of such plans to vote the whole shares in your
account in such plans in the manner specified on the proxy. If you are an
employee of the Company and participate in the Tax Reduction Act Employee Stock
Ownership Plan, the proxy constitutes an instruction to vote all your shares in
such plan in the manner specified on the proxy.
With respect to Proposal 1 (the Election of Directors), stockholders may
vote, in person or by proxy, in favor of all nominees, withhold their votes as
to all nominees or withhold their votes as to specific nominees. The seven
nominees receiving the highest number of affirmative votes cast by holders of
Common Stock entitled to vote shall be elected to serve as directors. Votes that
are withheld will not be counted and will have no effect on the vote in
connection with the election of directors. With respect to Proposals 2 and 3,
stockholders may vote in person or by proxy in favor of, or against, or abstain
from voting. Approval of Proposal 2 (the adoption of the 1997 Stock Option
Plan), requires the affirmative vote of a majority of the outstanding shares of
Common Stock entitled to vote. Abstentions will have the same
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legal effect as a vote against Proposal 2. Approval of Proposal 3 (the
Stockholder Proposal), requires the affirmative vote of a majority of the votes
cast by holders of Common Stock entitled to vote. Abstentions are voted neither
"for" nor "against" and have no effect on the vote in connection with Proposal
3.
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 3 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 any proposal. Accordingly, such "broker non-votes"
will have no effect on the vote in connection with Proposal 3.
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 the purposes of determining whether a quorum
is present.
ELECTION OF DIRECTORS (Proposal 1 on Proxy Card)
The Board of Directors of the Company currently consists of thirteen
directors divided into three classes, as nearly equal in number as possible. One
class of directors is elected at each annual meeting of stockholders for a term
expiring at the third succeeding annual meeting of stockholders. In addition to
electing four directors to serve in Class I, one director will be elected to
serve in Class II and two directors will be elected to serve in Class III.
The nominees for election at this Annual Meeting to serve as directors in
Class I for a term expiring at the 2000 Annual Meeting of Stockholders and
thereafter until their successors shall be elected and shall qualify are:
Richard Aurelio, Lois B. DeFleur, Walter G. Rich and Wesley W. von Schack.
Messrs. Aurelio and Rich were elected directors of the Company effective for the
April 1997 meeting of the Board of Directors to serve until the 1997 Annual
Meeting of Stockholders. Dr. DeFleur was elected to Class I at the 1996 Annual
Meeting of Stockholders for a term expiring at the 1997 Annual Meeting of
Stockholders. Mr. von Schack was elected a director of the Company effective for
the September 1996 meeting of the Board of Directors to serve until the 1997
Annual Meeting of Stockholders. Allen E. Kintigh is the nominee for election at
this Annual Meeting to serve as a director in Class II for a term expiring at
the 1998 Annual Meeting of Stockholders and thereafter until his successor shall
be elected and shall qualify. Everett A. Gilmour and Alton G. Marshall are the
nominees for election at this Annual Meeting to serve as directors in Class III
for a term expiring at the 1999 Annual Meeting of Stockholders and thereafter
until their successors shall be elected and shall qualify. Messrs. Kintigh,
Gilmour and Marshall were elected to Class I at the 1994 Annual Meeting of
Stockholders for a term expiring at the 1997 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 Richard Aurelio, Lois B. DeFleur, Walter G. Rich, Wesley W.
von Schack, Allen E. Kintigh, Everett A. Gilmour and
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Alton G. Marshall. 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 1996 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.
CLASS I
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 2000
RICHARD AURELIO
[PHOTO] SENIOR ADVISOR TO THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TIME
WARNER INC., NEW YORK, NY. President of NY1 News, New York, NY.
Director of: Better Business Bureau of Metropolitan New York, New
York, NY; and The Citizens Committee for New York City, Inc., New
York, NY. From 1989 to 1996, Mr. Aurelio was President of Time Warner
New York City Cable Group, New York, NY. Prior to that time, he
served as deputy mayor of New York City, as an administrative
assistant to Senator Jacob K. Javits, and as news editor of Newsday.
Mr. Aurelio, 68, has been a director of NYSEG since April 1997.
LOIS B. DEFLEUR
[PHOTO] PRESIDENT OF THE STATE UNIVERSITY OF NEW YORK AT BINGHAMTON,
BINGHAMTON, NY. Vice Chairperson of the American Council on
Education, Washington, DC. Director of: University-Industry Public
Partnership for Economic Growth (UnIPEG), Binghamton, NY; Roberson
Museum and Science Center, Binghamton, NY; WSKG Public Television and
Radio, Binghamton, NY; Director's Advisory Council, M&T Bank-Southern
Division, Endicott and Ithaca, NY; and Trustee, United Health
Services Foundation, Binghamton, NY. Dr. DeFleur, 60, has been
President of the State University of New York at Binghamton since
1990, and has been a director of NYSEG since 1995.
3
WALTER G. RICH
[PHOTO] 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: Norwich Aero
Products, Inc., Norwich, 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 a member of the New York
State Public Transportation Safety Board, Albany, NY. Mr. Rich, 51,
has been a director of NYSEG since April 1997.
WESLEY W. VON SCHACK
[PHOTO] CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF NYSEG, BINGHAMTON,
NY. Director of: Mellon Bank Corporation and Mellon Bank, N.A.,
Pittsburgh, PA; RMI Titanium Company, Niles, OH; Business Council of
New York State, Albany, NY; and a life trustee and Vice Chairman of
the Board of Trustees of Carnegie Mellon University, Pittsburgh, PA.
Mr. von Schack was Chairman, President, Chief Executive Officer and a
Director of DQE, Inc. and Duquesne Light Company prior to August
1996. Mr. von Schack, 52, has been Chairman, President and Chief
Executive Officer of NYSEG since September 1996.
CLASS II
DIRECTOR NOMINATED FOR TERM EXPIRING IN 1998
ALLEN E. KINTIGH
[PHOTO] FORMER PRESIDENT AND CHIEF OPERATING OFFICER OF NYSEG, BINGHAMTON,
NY. President, Royal Equipment, Inc., Houston, TX. Former President
and Director of Somerset Railroad Corporation, a wholly-owned
subsidiary of NYSEG. Mr. Kintigh was President and Chief Operating
Officer of NYSEG from May 1988 to December 1990 and was Executive
Vice President of NYSEG from December 1987 to May 1988. Prior to that
time, he was Senior Vice President- Generation of NYSEG. Mr. Kintigh,
72, has been a director of NYSEG since 1987.
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CLASS III
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 1999
EVERETT A. GILMOUR
[PHOTO] CHAIRMAN OF THE BOARD, THE NATIONAL BANK AND TRUST COMPANY OF
NORWICH, NORWICH, NY AND N.B.T. BANCORP. INC., NORWICH, NY. Director
of: Preferred Mutual Insurance Company, New Berlin, NY; Norwich Aero
Products, Inc., Norwich, NY; and Delaware Otsego Corporation,
Cooperstown, NY. Mr. Gilmour, 75, has been a director of NYSEG since
1980.
ALTON G. MARSHALL
[PHOTO] PRESIDENT OF ALTON G. MARSHALL ASSOCIATES, INC., NEW YORK, NY, A REAL
ESTATE INVESTMENT CORPORATION. Director of EQK Partners, Atlanta, GA.
Independent General Partner of Equitable Capital Partners and
Equitable Capital Partners (Retirement Fund), New York, NY; Trustee
of Hudson River Trust, New York, NY; and Governor of The Real Estate
Board of New York, Inc., New York, NY. From March 1984 to December
1990, Mr. Marshall was Chairman and Chief Executive Officer of
Lincoln Savings Bank, FSB, Brooklyn, NY. Mr. Marshall, 75, has been a
director of NYSEG since 1971.
CLASS II
DIRECTORS WHOSE TERMS EXPIRE IN 1998
JAMES A. CARRIGG
[PHOTO] FORMER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF NYSEG,
BINGHAMTON, NY. Chairman, Board of Trustees of Broome Community
College, Binghamton, NY. Director of: Security Mutual Life Insurance
Company of New York, Binghamton, NY; and First Empire State
Corporation, Buffalo, 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, 63, has been a director of
NYSEG since 1983.
5
PAUL L. GIOIA
[PHOTO] OF COUNSEL, LEBOEUF, LAMB, GREENE & MACRAE, ALBANY, NY; ATTORNEYS AT
LAW. Director of Berkshire Gas Company, 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, 54, has been a director of NYSEG
since 1991.
BEN E. LYNCH
[PHOTO] PRESIDENT OF WINCHESTER OPTICAL COMPANY, ELMIRA, NY. Past Chairman of
Arnot-Ogden Medical Center, Elmira, NY; Past President of Horseheads
Board of Education, Horseheads, NY. Mr. Lynch, 59, has been President
of Winchester Optical Company since 1965, and has been a director of
NYSEG since 1987.
CLASS III
DIRECTORS WHOSE TERMS EXPIRE IN 1999
ALISON P. CASARETT
[PHOTO] DEAN EMERITUS, CORNELL UNIVERSITY, ITHACA, NY. Emeritus Professor of
Radiation Biology, New York State College of Veterinary Medicine,
Cornell University. 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, 66, has been a director of NYSEG since
1979.
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JOSEPH J. CASTIGLIA
[PHOTO] 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, Center for
Competitiveness, Buffalo, NY; Vice Chairman, AAA Western and Central
New York, Buffalo, NY. Director of: Blue Cross & Blue Shield of
Western New York, Inc., Buffalo, NY; Vision Group of Funds and Vision
Fiduciary Funds, Inc., Buffalo, NY; Sevenson Environmental Services,
Inc., Niagara Falls, NY; Buffalo Alliance for Education, Buffalo, NY;
and Trustee, Sisters of Charity Hospital, Buffalo, NY. Former
Chairman, Buffalo Branch of the Federal Reserve Bank of New York,
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, 62, has been a director of NYSEG
since 1995.
JOHN M. KEELER
[PHOTO] MANAGING PARTNER, HINMAN, HOWARD & KATTELL, BINGHAMTON, NY; ATTORNEYS
AT LAW. Chairman, The Stuart and Willma Hoyt Foundation, Binghamton,
NY. Director of Security Mutual Life Insurance Company of New York,
Binghamton, NY; and the Harriet L. Dickenson Foundation, Binghamton,
NY. Past Chairman, The Harpur Forum of Binghamton University
Foundation, Binghamton, NY; Past President of Broome County Bar
Association and of Broome County United Way, both of Binghamton, NY.
Mr. Keeler, 63, has been a director of NYSEG since 1989.
7
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of equity securities of
the Company and Common Stock equivalent units beneficially owned as of February
14, 1997 by each director and nominee, each of the executive officers named in
the Summary Compensation Table included elsewhere herein, and by the 23 current
executive officers and directors 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 EQUIVALENT UNITS(3) EQUIVALENT UNITS OF CLASS
- - ------------------------------------------- ----------------- ------------------- ------------------- -----------
Richard Aurelio (1)........................ 1,000 0 1,000 (4)
James A. Carrigg........................... 13,767 15,694 29,461 (4)
Alison P. Casarett......................... 494 8,559 9,053 (4)
Joseph J. Castiglia........................ 5,000 1,219 6,219 (4)
Lois B. DeFleur............................ 300 1,219 1,519 (4)
Michael I. German.......................... 2,845 5,774 8,619 (4)
Everett A. Gilmour......................... 2,783 0 2,783 (4)
Paul L. Gioia.............................. 2,415 2,008 4,423 (4)
John M. Keeler............................. 1,103 4,749 5,852 (4)
Allen E. Kintigh........................... 1,042 0 1,042 (4)
Ben E. Lynch............................... 1,219 4,563 5,782 (4)
Alton G. Marshall.......................... 200 0 200 (4)
Gerald E. Putman........................... 3,899 5,197 9,096 (4)
Sherwood J. Rafferty....................... 3,830 5,173 9,003 (4)
Walter G. Rich (1)......................... 1,000 0 1,000 (4)
Jack H. Roskoz............................. 6,321 7,702 14,023 (4)
Wesley W. von Schack (1)................... 12,000 17,813 29,813 (4)
23 current executive officers and directors
as a group............................... 74,160(2) 91,235 165,395 (4)
- - ------------------------
(1) Includes the number of shares of equity securities of the Company and Common
Stock equivalent units beneficially owned by Messrs. Aurelio, Rich and von
Schack as of April 11, 1997.
(2) Includes 407 shares held by an officer as nominee for the Company's
Employees' Stock Purchase Plan.
(3) Includes Common Stock equivalent units granted under the Company's Long-Term
Executive Incentive Share Plan and the Director Share Plan for non-employee
directors for which the director, nominee or executive officer does not have
voting rights.
(4) Less than 1/4 of 1% 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 Securities and Exchange Commission ("SEC") and the
NYSE. Such reporting persons are also required to provide the Company with
copies of all Section
8
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 1996 all filing requirements
were satisfied by its directors and executive officers.
EXECUTIVE COMPENSATION
Compensation for services to the Company 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,
1996, is shown by the following:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION (1)
- - ------------------------------------------------- --------- ---------- --------- ------------- ----------------
Wesley W. von Schack (2)......................... 1996 $ 178,766 $ 72,033 0 $ 75,381
Chairman, President and 1995 0 0 0 0
Chief Executive Officer 1994 0 0 0 0
James A. Carrigg (3)............................. 1996 394,519 99,700 0 51,039
Chairman, President and 1995 472,048 46,147 0 2,490
Chief Executive Officer 1994 438,000 0 3,040 2,490
Jack H. Roskoz................................... 1996 308,250 67,440 0 2,250
Executive Vice President 1995 298,000 27,864 0 2,310
1994 259,250 0 1,392 2,310
Michael I. German................................ 1996 217,500 50,563 0 2,250
Senior Vice President 1995 207,500 20,891 53,076 0
1994 15,256 0 0 0
Gerald E. Putman................................. 1996 199,850 45,504 0 2,610
Senior Vice President 1995 173,300 18,801 0 2,670
1994 134,875 0 0 2,310
Sherwood J. Rafferty............................. 1996 174,414 41,998 0 2,145
Senior Vice President and 1995 141,725 10,108 0 1,799
Chief Financial Officer 1994 136,675 0 0 1,725
- - ------------------------
(1) In 1996, the Company contributed for Messrs. Carrigg, Roskoz, German,
Putman, and Rafferty $2,250, $2,250, $2,250, $2,250, and $2,145,
respectively, under the Tax Deferred Savings Plan. The Company contributed
for Messrs. Carrigg and Putman, $135 and $360, respectively, under the
Employees' Stock Purchase Plan. For Mr. von Schack, $2,610 represents the
dollar value of the term portion, and $72,771 represents the benefit,
projected on an actuarial basis, of the whole-life portion of a premium paid
for a life insurance policy. In addition, Mr. Carrigg received a payment of
$48,654 in lieu of vacation.
(2) Compensation data for Mr. von Schack is provided only for a portion of 1996
because he was employed by the Company commencing September 9, 1996.
(3) Mr. Carrigg retired effective October 1, 1996.
9
LONG-TERM INCENTIVE PLAN AWARDS(1) IN LAST FISCAL YEAR (1996)
PERFORMANCE ESTIMATED FUTURE PAYOUT UNDER
OR OTHER NON-STOCK PRICE-BASED PLANS(2)
NUMBER OF PERIOD UNTIL -----------------------------------------
PERFORMANCE MATURATION OR THRESHOLD TARGET MAXIMUM
NAME AND PRINCIPAL POSITION SHARES PAYOUT SHARES (#) SHARES (#) SHARES (#)
- - ----------------------------------------------- ------------- ------------- ------------- ------------- -----------
Wesley W. von Schack........................... 6,809 1996-1998 1,702 6,809 10,214
Chairman, President and
Chief Executive Officer
James A. Carrigg............................... 9,365 1996-1998 781 3,122 4,683
Chairman, President and
Chief Executive Officer
Jack H. Roskoz................................. 3,614 1996-1998 904 3,614 5,421
Executive Vice President
Michael I. German.............................. 2,710 1996-1998 678 2,710 4,065
Senior Vice President
Gerald E. Putman............................... 2,438 1996-1998 610 2,438 3,657
Senior Vice President
Sherwood J. Rafferty........................... 2,414 1996-1998 604 2,414 3,621
Senior Vice President and
Chief Financial Officer
- - ------------------------
(1) Pursuant to the Company's Long-Term Executive Incentive Share Plan,
participants were granted a certain number of Performance Shares in 1996
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 the
Company's Common Stock for the last five trading days of the Performance
Cycle.
(2) Amounts included in these columns for Mr. Carrigg represent a prorated
estimated future payout under the Company's Long-Term Executive Incentive
Share Plan based on his retirement effective October 1, 1996.
10
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 Company's Retirement Benefit
Plan and the Company's 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.
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE
ANNUAL ----------------------------------------------------------------------------------
SALARY* 10 15 20 25 30 35 40**
- - ---------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$700,000.................... $ 314,800 $ 351,600 $ 388,300 $ 425,100 $ 461,800 $ 498,600 $ 535,300
650,000.................... 291,200 325,300 359,500 393,600 427,700 461,800 496,000
600,000.................... 267,600 299,100 330,600 362,100 393,600 425,100 456,600
550,000.................... 244,000 272,800 301,700 330,600 359,500 388,300 417,200
500,000.................... 220,300 246,600 272,800 299,100 325,300 351,600 377,800
450,000.................... 196,700 220,300 244,000 267,600 291,200 314,800 338,500
400,000.................... 173,100 194,100 215,100 236,100 257,100 278,100 299,100
350,000.................... 149,500 167,800 186,200 204,600 223,000 241,300 259,700
300,000.................... 125,800 141,600 157,300 173,100 188,800 204,600 220,300
250,000.................... 102,200 115,300 128,500 141,600 154,700 167,800 181,000
200,000.................... 78,600 89,100 99,600 110,100 120,600 131,100 141,600
150,000.................... 55,000 62,800 70,700 78,600 86,500 94,300 102,200
- - ---------
* Average of the salaries (not including amounts listed under "Bonus," "Other
Annual Compensation," 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 Company's Retirement Benefit Plan provides retirement benefits for its
hourly and salaried employees, including executive officers, 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 Company's SERP provides that all salaried employees, including executive
officers, shall receive the full benefits of the Company's Retirement Benefit
Plan without regard to any limitations imposed by the federal tax law and by
including certain amounts deferred under the Company's Deferred Compensation
Plan for Salaried Employees. In addition, it provides that officers and certain
other key employees, 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
11
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 with the Company.
Mr. von Schack and Mr. German each have an agreement with the Company which
provides that, for the purposes of the Retirement Benefit Plan and the SERP,
they each will be credited with two years of service for each year actually
worked at the Company for the first five years of employment, provided that they
each are employed by the Company for at least five years. Mr. von Schack was
employed by the Company commencing September 9, 1996 and Mr. German was employed
by the Company commencing December 5, 1994.
Messrs. von Schack, Carrigg, Roskoz, German, Putman and Rafferty have 1, 38,
34, 4, 26, and 16 credited years of service, respectively, under the Retirement
Benefit Plan and SERP.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an agreement with Mr. von Schack which provides
for his employment as Chairman, President and Chief Executive Officer for a term
ending on September 8, 1999, with automatic one-year extensions unless either
party gives notice that the agreement is not to be extended. The agreement was
unanimously approved by the Board of Directors and provides for, among other
things, a base salary, currently $575,000 subject to increase by the Board of
Directors, the payment of the annual premium on a life insurance policy (the
"Life Insurance Policy") on Mr. von Schack's life, and his eligibility for
participation in the Company's other compensation and benefit plans. The
agreement also provides for certain payments in the event of the termination of
his employment for cause due to disability or termination by the Company without
cause prior to a change in control.
The agreement also provides that, if within two years following a change in
control, or, if longer, within the two-year period following consummation of a
merger or consolidation, Mr. von Schack's employment is terminated either by the
Company without cause or by Mr. von Schack for good reason he will receive a
lump-sum payment equal to three times the sum of (i) his then-annual base
salary, (ii) an award under the Annual Executive Incentive Plan ("AEIP") for the
year in which the termination occurs, and (iii) the premium the Company agreed
to pay on the Life Insurance Policy. In the event of such termination, his life
(other than the Life Insurance Policy), disability, accident and health
insurance benefits will continue for a period of thirty-six months and he will
receive an amount equal to all earned but unpaid awards under the AEIP and a pro
rata portion of any award under the AEIP with respect to the year in which the
termination occurs, provided, however, that there will be no duplication of
payments made pursuant to the agreement and the AEIP. Also, in the event of such
termination, he 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, whether
under the agreement or otherwise, would subject him to federal excise tax or
interest or penalties with respect to such federal excise tax, he will be
entitled to be made whole for the payment of any such taxes, interest or
penalties.
The Company has entered into severance agreements with Messrs. Roskoz,
German, Putman, and Rafferty in order to provide for certain payments if within
two years following a change in control or, if longer, within the two-year
period following consummation of a merger or consolidation, the individual's
employment is terminated either by the Company without cause or by the
individual for good reason. The severance agreements have terms ending on
December 31, 1998, with automatic one-year extensions unless
12
either the individual or the Company gives notice that the agreement is not to
be extended. The agreements were unanimously approved by the Board of Directors.
The benefits consist of a lump-sum severance payment equal to one and one-half
times the sum of (i) the individual's then-annual base salary, and (ii) an award
under the AEIP for 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 eighteen 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 the agreement and the AEIP. Also, in
the event of such termination, the individual will receive outplacement
counseling and will be given additional age and service credit under the SERP.
In the event of a change in control, participants in the AEIP will be paid
an amount which includes all earned but unpaid awards, and a pro rata portion of
any award with respect to the year in which the change in control occurs.
In the event of a change in control, participants in the Long-Term Executive
Incentive Share Plan will be paid an amount which includes all earned but unpaid
awards and awards with respect to all then existing three-year performance
cycles.
After a change in control, officers and certain other key employees, who
have at least ten years of service, who have served in key capacities for at
least five years, and whose employment is terminated at age 55 or later, other
than for cause, 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
during the last ten years of employment with the Company. However, in the case
of termination prior to age 60, such total retirement benefit will be determined
by applying the same reduction in benefits as is applied to benefits upon
retirement prior to age 60 under the Retirement Benefit Plan.
DIRECTORS' COMPENSATION
Directors of the Company, other than officers, receive an annual retainer of
$22,000, plus $1,000 for each directors' meeting attended. Members of the
Executive Committee, other than officers, receive compensation of $1,500
annually. Members of committees, including the Executive Committee, other than
officers, receive $1,000 for each committee meeting attended. If a directors'
meeting or committee meeting is held by means of a conference telephone, the fee
is $500. The Chairperson of each standing committee receives additional
compensation of $1,000 for serving as Chairperson of such committee. Under the
terms of the Company's 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.
During 1996, with the assistance of outside consultants, the Company
reviewed its policy regarding director compensation. The overriding policy goal
remains to enhance stockholder value by attracting and retaining the most highly
qualified individuals as directors. The Company recognizes that aligning
directors' and stockholders' interests, as a principle of corporate governance,
is a goal that would serve to further stockholders' interests and enhance the
Company's flexibility in attracting and retaining the most highly qualified
individuals as directors of the Company. In addition, it is becoming more common
to tie
13
directors' compensation to a corporation's performance by compensating directors
in stock or stock-based awards. Thus, effective January 1, 1997, the Company
adopted a Director Share Plan for Directors ("Director Share Plan") pursuant to
which persons who are non-employee directors on January 1, 1997 or thereafter
are eligible for certain benefits to be paid upon their ceasing to serve as
directors of the Company. Eligible directors first elected directors prior to
January 1, 1996, were given a one time irrevocable option to either remain in
the Retirement Plan for Directors ("Retirement Plan") and receive retirement
benefits pursuant to that plan or to cease participation in the Retirement Plan
and instead participate in the Director Share Plan as of January 1, 1997. An
eligible director who chose to remain in the Retirement Plan has no rights under
the Director Share Plan while an eligible director who chose to participate in
the Director Share Plan waived all rights under the Retirement Plan. An eligible
director who first becomes a non-employee director on or after January 1, 1997
automatically participates in the Director Share Plan upon becoming a
non-employee director.
An eligible director who chose to cease participation in the Retirement Plan
and to participate in the Director Share Plan received an initial grant of
phantom shares (the "Phantom Shares") based on the actuarial present value of
the vested accrued benefit earned by the director under the Retirement Plan
("Present Value"). The number of Phantom Shares granted was determined by
dividing the participant's Present Value by the average of the daily closing
prices of the Company's Common Stock for the five trading days preceding January
1, 1997. Commencing January 1, 1997 and on each April 1, July 1, October 1 and
January 1 thereafter, 150 Phantom Shares were and will be granted to each
director who participates in the Director Share Plan as of that date. 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. With the adoption of the
Director Share Plan, a major portion of directors' compensation is tied to the
performance of the Company's Common Stock. The Company has also adopted a
Deferred Compensation Plan for the Director Share Plan pursuant to which 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.
Pursuant to the Retirement Plan, eligible directors who opted to continue
participating in the Retirement Plan qualify for annual retirement benefits. The
Company amended the Retirement Plan in January 1996 to provide that any director
elected after December 31, 1995 will not participate in the Retirement Plan. An
eligible director who serves on the Board for at least five years qualifies for
annual retirement benefits equal to 50% of the highest annual retainer in effect
during such service. An eligible director who serves on the Board for ten years
or more qualifies for annual retirement benefits equal to 100% of the highest
annual retainer in effect during such service, while an eligible director with
between five and ten years of service qualifies for prorated amounts. Payments
of Retirement Plan benefits generally commence upon the later of the eligible
director's attaining age 65 or retirement from the Board and continue for a
period equal to the greater of the eligible director's life or ten years.
Eligible directors elected prior to the effective date of the Retirement Plan
will have such prior service included in establishing their eligibility and the
amount of their retirement benefits. An eligible director who was also an
officer of the Company would qualify for retirement benefits only if the
director served as a director after the director ceased to be an officer or
served as a director before election as an officer. In either case,
14
the director's service as a director while also an officer will be included in
establishing the amount of the director's retirement benefits.
COMMITTEES
The Company's Board of Directors has an Audit Committee, a Nominating
Committee, and an Executive Compensation and Succession Committee.
The Audit Committee, which consists of Ben E. Lynch, Chairman, Alison P.
Casarett, Joseph J. Castiglia, and John M. Keeler, had four meetings in 1996.
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 Alton G. Marshall, Chairman,
Alison P. Casarett, Lois B. DeFleur, and Everett A. Gilmour had one meeting in
1996. 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 the
candidate. Recommendations will be brought to the attention of the Nominating
Committee.
The Executive Compensation and Succession Committee, which consists of
Everett A. Gilmour, Chairman, Alison P. Casarett, Ben E. Lynch, and Alton G.
Marshall, had twelve meetings in 1996. That Committee, among other things,
recommends compensation for officers, awards under the Annual Executive
Incentive Plan, and candidates for election as officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John M. Keeler served on the Executive Compensation and Succession Committee
from May 10, 1996 until his resignation from that Committee effective as of
January 10, 1997. The law firm of which Mr. Keeler is a member provided legal
services to the Company in 1996 and is expected to provide legal services to the
Company in 1997.
REPORT OF EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE
The Executive Compensation and Succession Committee (the "Committee") is
composed entirely of independent outside directors. The Committee has the
responsibility for establishing and reviewing the compensation of senior
management of the Company, including the compensation of the Chairman and the
other named executive officers. The Committee actively advises the Board of
Directors on implementing policies designed to assure the selection, development
and retention of key personnel.
15
Under the guidance of the Committee, the Company's general compensation
policies are designed to manage the Company towards overall enhanced
profitability and increased stockholder value. Accordingly, two principles
underlying the Company's compensation policy for all senior managers, including
the Chairman 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, awards under the Annual Executive Incentive Plan, and awards under the
Long-Term Executive Incentive Share Plan. In creating this structure, the
Committee has consciously placed an increasing emphasis on the at risk elements
of compensation. The Committee believes that placing a portion of total
compensation at risk, by linking such compensation to performance, aligns senior
management's financial interests with those of the stockholders, which in turn
will support the Company's overall objective of enhancing stockholder value.
The Annual Executive Incentive Plan allows participants to qualify for cash
performance incentive awards if certain annual goals, which will create benefits
for stockholders and customers, are achieved. For 1996, annual performance
incentive awards were based on earnings targets and excellent customer service.
Performance goals were set for threshold, target and maximum performance levels
with respect to each performance measure. Awards ranged from approximately 14%
to 28% of the participant's salary grade midpoint, depending upon the
participant's position, and the performance levels achieved. See the Bonus
column in the Summary Compensation Table for performance incentive awards earned
for 1996.
The Committee believes that senior management compensation should also be
based on the Company's long-term financial performance. The Long-Term Executive
Incentive Share Plan permits key officers to qualify for cash incentive awards
if certain long-term performance goals are met. Awards are 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
plan and performance share grants made under the plan.
In determining senior management base salaries for 1996, the Committee
considered its general policy that senior management compensation should be
competitive so as to attract and retain talented executives. To that end, the
Committee reviewed compensation data from certain utility and general industry
companies, as well as certain salary surveys to assist in its decision-making.
The Committee also subjectively considered the Company's financial and
operational achievements in 1995, the depth of the individual's experience and
responsibilities, the individual's effectiveness in performing those
responsibilities and in leading or helping the Company respond to changes in the
competitive, rapidly changing utility industry. The Committee noted the
Company's continued commitment to cost-effective improvements in customer
service and excellent reliability. The Committee also noted that the Company's
gas business provided natural gas to residential heating customers at among the
lowest prices in the Northeast region in 1995 and that steps were taken to
develop the Seneca Lake natural gas storage project, which represents a major
milestone in the Company's efforts to become a superior regional natural gas
company. The Committee also reviewed the Company's performance with respect to
the Annual Executive Incentive Compensation Plan for 1995 and the Performance
Share Plan for 1995. With respect to Mr. Carrigg's base salary for 1996, the
Committee also considered his employment agreement with the Company. Taking
these factors into consideration, and considering the general policy of the
Committee that senior management, including the Chief Executive Officer, should
be compensated at competitive levels, the
16
Committee targeted base salary at a competitive level, subject to adjustment
depending on the individual's performance.
Mr. von Schack became Chairman, President and Chief Executive Officer of the
Company on September 9, 1996. In structuring Mr. von Schack's employment
agreement and base salary the Committee, with the assistance of an outside
consultant, considered his performance and compensation as Chief Executive
Officer of another company and the Company's policy of structuring competitive
compensation to support the Company's overall objective of enhancing stockholder
value by attracting and retaining talented executives.
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 unless certain criteria are met. This was not a
consideration for the Committee in 1996. The Committee will examine the issue of
deductibility of senior management compensation within the context of the
overall operation of the Company's compensation program and will consider what
actions should be taken, if any, to operate the compensation program in a tax
effective manner.
Executive Compensation and Succession Committee
EVERETT A. GILMOUR, CHAIRMAN BEN E. LYNCH
ALISON P. CASARETT ALTON G. MARSHALL
17
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, 1996, 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, 1991,
and assuming reinvestment of dividends, is shown by the following:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
NEW YORK STATE ELECTRIC & GAS CORPORATION, S&P UTILITIES, AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NYSEG S & P UTILITIES S & P 500
12/31/91 $100.00 $100.00 $100.00
12/31/92 120.46 108.09 107.59
12/31/93 121.51 123.70 118.43
12/31/94 81.27 113.87 119.99
12/31/95 117.65 160.71 165.03
12/31/96 104.56 165.73 202.89
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
----------- ----------- ----------- ----------- ----------- -----------
New York State Electric & Gas Corporation ............ $ 100.00 $ 120.46 $ 121.51 $ 81.27 $ 117.65 $ 104.56
Standard & Poor's Utilities .......................... $ 100.00 $ 108.09 $ 123.70 $ 113.87 $ 160.71 $ 165.73
Standard & Poor's 500................................. $ 100.00 $ 107.59 $ 118.43 $ 119.99 $ 165.03 $ 202.89
ADOPTION OF THE 1997 STOCK OPTION PLAN (Proposal 2 on Proxy Card)
On March 14, 1997, the Executive Compensation and Succession Committee
adopted the Company's 1997 Stock Option Plan (the "Plan"), effective May 21,
1997, subject to the approval of the Company's common stockholders. Approval of
the Plan requires the affirmative vote of a majority of the outstanding shares
of the Company's Common Stock entitled to vote at this Annual Meeting.
18
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 ($6.66 2/3 Par Value). 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.
Accordingly, the Board recommends that the stockholders approve adoption of
the Plan, the complete text of which is attached as Exhibit A to this Proxy
Statement. The following is a summary of the material features of the Plan and
is qualified in its entirety by reference to the complete text of the Plan.
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 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 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. 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 4,300
employees will be selected to receive Awards.
19
SHARES AVAILABLE FOR AWARDS
The aggregate number of shares of the Company's Common Stock with respect to
which Awards may be granted is 3,300,000 shares, 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 this calculation, shares of the Company's
Common Stock that relate to an 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 that relate in total to more than 100,000 shares of the Company's Common
Stock. 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 24, 1997 was
$22.375.
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.
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 are
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,
20
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. The exercise of an Option issued in tandem with a Stock
Appreciation Right will result in a cancellation of the related Stock
Appreciation Right.
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 earlier than six months
after grant, and 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.
NONTRANSFERABILITY 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.
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 provision 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
21
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 20, 2007.
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 will result in ordinary income for 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.
Generally, 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 receipt of
new shares of Common Stock equal in value on the date of exercise to the shares
delivered in payment of the exercise price, and such new shares will take over
the tax attributes (e.g., basis and holding period) of the shares delivered in
payment. Generally, the fair market value of the remainder of the shares
received by the Participant upon exercise, determined as of the date of
exercise, less the amount of cash, if any, paid upon exercise, is 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 for the grantee. Generally,
if the grantee (i) does not dispose of the shares within two years after the
date of grant or one year after the transfer of shares of Common Stock upon
exercise and (ii) is an employee of the Company from the date of grant until
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 and 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, potentially subject to
the alternative minimum tax.
Generally, if the grantee disposes of the shares of Common Stock prior to
the expiration of either of the two above holding periods, 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. 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.
Generally, 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 above 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.
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STOCK APPRECIATION RIGHTS. The grant of a Stock Appreciation Right will not
result in income for the grantee or in 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 1997 STOCK OPTION PLAN
STOCKHOLDER PROPOSAL (Proposal 3 on Proxy Card)
Mr. and Mrs. Edward Rudy, Box 7077, Yorkville Station, New York, New York,
10128, who are the beneficial owners of 2,176 shares of the Company's Common
Stock have advised the Company that they intend to present the following
proposal at the 1997 Annual Meeting of Stockholders:
"RESOLVED: That the stockholders of New York State Electric & Gas
Corporation, assembled in annual meeting in person and by proxy, hereby
request that the Board of Directors take the steps necessary to provide for
an immediate reduction in stipends, fees, salaries, stock options, and/or
other remuneration being paid to members of the Board of Directors,
including NYSEG officers and executives who also serve as directors, to the
exact percentage reduction which has been approved by the Board of Directors
for dividends payable to shareholders of the corporation and, furthermore,
said reduction shall not be restored nor payments to all NYSEG directors
increased except in the exact same percentages as are approved for future
increases in shareholder common stock dividends. Included are any new
dividend restorations or increases proposed and approved by the Board of
Directors prior to the approval of this shareholders' proposal by the
shareholder-owners of NYSEG."
The following statement was submitted by the proponents in support of the
proposal:
"The shareholder-voters of NYSEG showed very strong support for this
proposal when it was presented at the 1995 and 1996 annual meetings.
Shareholders who are the owners of New York State Electric & Gas Corporation
are the only investors in a major utility who have been subjected to two
large dividend reductions in less than a decade.
We welcome Wesley W. Von Schack as the newly elected chairman, president and
CEO of NYSEG. Mr. Von Schack was formerly CEO of DQE, INC. and never caused
a dividend cut to be implemented on their shareholders. We have good reason
to hope that he will implement the restoration of the substantial income
cuts that NYSEG shareholders have suffered.
The most recent dividend reduction, of 36.37%, carried the explanation, by
the former NYSEG Chairman, on behalf of the NYSEG Board of Directors, that
'we understand the importance of the dividend. While difficult this action
is a crucial step in positioning NYSEG for a competitive environment.'
We believe that the Board of Directors should fully participate with the
non-director shareholder owners in this 'crucial step' which the NYSEG Board
of Directors determined was necessary. We do
23
not believe that shareholder dividends which are relied upon as investment
income by investors should be slashed . . . while the salaries, concurrent
pensions and other payments to the current NYSEG Board of Directors remain
intact . . . and may be increased.
It will require a 57.14% increase in the dividend rate for restoration only
to the level prior to the last dividend cut. We believe that our new
chairman and the members of the Board of Directors may look more favorably
upon restoring the dividend rate. With the approval of this resolution, the
directors will benefit equally with the shareholder owners when dividends
are increased.
If you agree, please mark your ballot in favor of this resolution. NOTE:
PROXY OR PROXIES NOT MARKED WILL BE VOTED AGAINST THIS RESOLUTION, unless
you have indicated that you wish to abstain from voting on this proposal."
BOARD OF DIRECTORS' POSITION
The Board of Directors recommends a vote AGAINST adoption of the Stockholder
Proposal for the following reasons:
A nearly identical proposal was presented at the 1995 and 1996 Annual
Meetings of Stockholders by Mr. and Mrs. Rudy. Each time, the proposal was
soundly defeated by the votes of the Company's stockholders, who recognized that
furthering both the long-term and short-term interests of stockholders and the
Company requires more than a superficially appealing, narrow gesture such as
tying the level of dividends to director compensation. The utility industry is
evolving at an accelerated pace and is undergoing a fundamental transformation
into a competitive marketplace. In order to be in position to respond
effectively to the increased competition and uncertain regulatory policies, the
Board of Directors has taken the steps which it felt were necessary and
appropriate to further both the long-term and short-term interests of the
stockholders and the Company, including reducing the dividend level in order to
help strengthen the Company's financial position. This financial flexibility has
placed the Company in a better position today to respond effectively to the
increased competition and uncertain regulatory policies.
The proposal calls for the immediate reduction of all forms of compensation
paid to directors by the same percentage as the Common Stock dividend was
reduced and would tie director compensation to the level of the Common Stock
dividend. The intent, as stated in the supporting statement, is to ensure that
the directors "fully participate with the non-director shareholder owners" in
the decision to reduce the dividend. Although the proponents are attempting to
link director compensation to the level of the Common Stock dividend, and thus,
tie director compensation to stockholder interests, the use of only the dividend
level as the linking factor would not ensure that director compensation is
properly tied to stockholder interests. Linking director compensation to the
level of dividends implies that the latter is the most important measure in
establishing director compensation whereas, to the contrary, the Company
considers many factors in establishing director compensation. The Board of
Directors continues to believe that no single short-term result, whether it be
stock price or dividend level or whether favorable or unfavorable, should
determine the level of director compensation, because in making decisions it
considers the best interests of the Company and its stockholders over both the
long-term and the short-term. Under the proposal, all factors other than
dividends would be irrelevant in determining compensation paid to directors. The
long-term achievement of increased stockholder value requires more than merely
tying director compensation to a single short-term factor such as the level of
dividends, particularly in the face of increased competition in the utility
industry.
24
In the face of tremendous uncertainty in the rapidly changing utility
industry, it is essential that the Company have the same capability to attract
and retain the most highly qualified individuals as directors as other utility
and general industry companies have. Accordingly, the Board of Directors
continues to believe that it is in the best interests of the stockholders that
the Company be able to pay directors' fees which are competitive with fees paid
by these other companies. During 1996, with the assistance of outside
consultants, the Company reviewed its policy regarding director compensation.
This review resulted in recommendations to the Board of Directors which enhance
the competitiveness of the Company's director compensation policy by more
closely aligning directors' and stockholders' interests through tying directors'
compensation to corporate performance. To that end, the Board of Directors
adopted the Director Share Plan effective January 1, 1997, which is discussed in
greater detail in this Proxy Statement under the caption "Directors'
Compensation." The proponents' resolution, if adopted, would restrict the Board
of Directors' flexibility in consistently attracting and retaining individuals
with valuable perspectives and relevant experience to serve as directors. Such a
restriction on flexibility would place the Company at a competitive disadvantage
and do a great disservice to its stockholders, particularly when other companies
have no such restriction. For the foregoing reasons, the Board of Directors
believes that the Stockholder Proposal is not in the best interests of
stockholders.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST
THE STOCKHOLDER PROPOSAL.
INDEPENDENT ACCOUNTANTS
The Company has appointed Coopers & Lybrand L.L.P., a firm of independent
certified public accountants, as auditors for the year 1997. Representatives of
Coopers & Lybrand L.L.P. 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 may be asked by stockholders. From time to
time Coopers & Lybrand L.L.P. performs certain management advisory services for
the Company.
DEADLINE FOR STOCKHOLDER PROPOSALS
The date by which proposals of stockholders intended to be presented at the
1998 Annual Meeting must be received by the Company for inclusion in the proxy
statement and form of proxy relating to that meeting is December 12, 1997. Such
proposals should be sent to the Secretary of the Company at P.O. Box 3200,
Ithaca, NY 14852-3200.
OTHER MATTERS
The Board of Directors does 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.
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The Company recognizes that, during this period of uncertainty and rapid
change in the utility industry, it is essential that it have the ability to
retain the continued service of directors who can provide a continuity in
knowledge and experience necessary to contribute to the stability and overall
success of the Company. Therefore, in 1997 the Company amended By-Law No. 12 to
provide that the 70-year age limitation does not apply in connection with the
election of directors at the 1997 Annual Meeting of Stockholders. The third
paragraph of By-Law No. 12 was amended to read as follows: "No director who
shall have attained the age of 70 shall stand for re-election as a director;
provided, however, that such age limitation shall not apply in connection with
the election of directors at the 1997 annual meeting of stockholders."
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 Electric & Gas Insurance Services
Limited and Energy Insurance Mutual Limited, has been renewed for one year
beginning October 28, 1996 at a premium of $415,849. In addition, the Company's
Pension Trust Liability Insurance, which is carried with Federal Insurance
Company, covering the Company 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, 1996 at a premium of $68,495.
COST OF SOLICITATION
The accompanying proxy is solicited on behalf of the Board of Directors. The
cost 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 may solicit proxies by telephone, telegram or in
person, without additional compensation.
By Order of the Board of Directors,
DANIEL W. FARLEY
VICE PRESIDENT AND SECRETARY
Dated: April 11, 1997
26
EXHIBIT A
NEW YORK STATE ELECTRIC & GAS CORPORATION
1997 STOCK OPTION PLAN
I. PLAN OBJECTIVE
The objective of the 1997 Stock Option Plan (the "Plan") is to provide executives and
certain other key employees of New York State Electric & Gas 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 New York State Electric & Gas 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 New York State Electric & Gas 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 last trading day prior to that date, as reported by
such responsible reporting service as the Committee may select.
27
"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.
"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 3,300,000 shares. 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 an
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
No individual may be granted, during any one calendar year of the Plan, Awards that
relate in total to more than 100,000 shares of the Company's Common Stock.
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, 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
29
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 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
30
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.
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 the delivery of 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,
including, but not limited to Article V. 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 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 earlier than six months after grant and 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
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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. 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 any such cancellations, the number of shares subject to any
such cancelled Option or 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; 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 20, 2007.
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.
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
32
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 immediate relative, or (ii) a trust or an estate
in which the original Participant or the Participant's spouse or other immediate
relative 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
the 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. 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.
E. 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.
F. 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.
G. 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.
33
XI. EFFECTIVE DATE
Subject to the approval of the common stockholders, the Plan shall be effective as of
May 21, 1997.
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.
34
[MAP]
NEW YORK STATE ELECTRIC & GAS CORPORATION
PO BOX 3200, ITHACA, NY 14852-3200
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P The undersigned appoints D. W. Farley, S. J. Rafferty, and G. J. Turton 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
R of New York State Electric & Gas Corporation which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of said Corporation to
be held on May 21, 1997, and at any adjournment thereof.
O THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1
(1) ELECTION OF DIRECTORS / / FOR ALL NOMINEES LISTED BELOW (EXCEPT AS WRITTEN / / WITHHOLD AUTHORITY
TO THE CONTRARY ON THE LINE PROVIDED BELOW) TO VOTE FOR ALL NOMINEES
X R. Aurelio, L. B. DeFleur, E. A. Gilmour, A. E. Kintigh,
A. G. Marshall, W. G. Rich, W. W. von Schack
Y INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.
---------------------------------------------------------------------------------------------------------------
(THIS PROXY IS CONTINUED ON THE REVERSE SIDE)
(PLEASE SIGN AND DATE ON THE REVERSE SIDE)
/ /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2
(2) APPROVAL OF 1997 STOCK OPTION PLAN. / / FOR / / AGAINST / /ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 3
(3) THE STOCKHOLDER PROPOSAL RELATING TO A PERCENTAGE REDUCTION IN / / FOR / / AGAINST / /ABSTAIN
DIRECTOR REMUNERATION BASED ON A DIVIDEND REDUCTION.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL THE NOMINEES, FOR PROPOSAL (2) AND AGAINST PROPOSAL (3).
Dated _______________________________, 1997
___________________________________________
___________________________________________
(Signature/s)
(Joint owners each must sign. When signing as attorney, trustee,
administrator, executor or guardian, please give your full title
as such.)