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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
NSTAR
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(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
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NSTAR
800 Boylston Street
Boston, Massachusetts 02199
March 30, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
NSTAR to be held on Thursday, April 27, 2000 at 11:00 a.m. at the Boston Back
Bay Hilton, 40 Dalton Street, Boston, Massachusetts 02115.
The accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement set forth the business to come before this year's meeting.
Your vote on the business at the Annual Meeting is important, regardless of
the number of shares that you own. Whether or not you plan to attend the Annual
Meeting, please sign, date and return your proxy in the envelope provided, or
vote your proxy electronically as provided in the instructions set forth on the
proxy card, as soon as possible. Shareholders may vote their shares
electronically this year by telephone or the Internet. At the Annual Meeting,
management will report on operations and other matters affecting NSTAR and will
respond to Shareholders' questions.
Sincerely,
/s/ Thomas J. May
Thomas J. May
Chairman of the Board
and Chief Executive Officer
<PAGE>
NSTAR
800 Boylston Street
Boston, Massachusetts 02199
----------------
Notice of Annual Meeting of Shareholders
to be held on April 27, 2000
----------------
To the Holders of NSTAR's Common Shares:
The Annual Meeting of Shareholders of NSTAR will be held at the Boston Back
Bay Hilton, 40 Dalton Street, Boston, Massachusetts 02115, on Thursday, April
27, 2000 at 11:00 a.m., for the following purposes:
1. To elect five Class I trustees to serve until the Annual Meeting to
be held in the year 2003 and until the election and qualification of their
respective successors.
2. To transact any other business which may properly come before the
Annual Meeting or any adjournment thereof.
Further information as to the matters to be considered and acted on at the
Annual Meeting can be found in the accompanying Proxy Statement.
Only the holders of Common Shares of NSTAR as of the close of business on
March 10, 2000 are entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof.
Please sign, date and return the accompanying proxy in the enclosed
addressed envelope, which requires no postage if mailed in the United States,
or cast your vote by telephone or the Internet. Your proxy may be revoked at
any time before the vote is taken by delivering to the Clerk a written or oral
revocation or a proxy bearing a later date.
By Order of the Board of Trustees,
Michael P. Sullivan
Vice President, Clerk and General
Counsel
Boston, Massachusetts
March 30, 2000
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NSTAR
800 Boylston Street
Boston, Massachusetts 02199
(617) 424-2000
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PROXY STATEMENT
----------------
This Proxy Statement, together with the accompanying proxy and 1999 Annual
Report, is being furnished to Shareholders of NSTAR, a Massachusetts business
trust ("NSTAR" or "the Company") in connection with the solicitation of proxies
by the Board of Trustees of NSTAR to be voted at the Annual Meeting of
Shareholders ("Annual Meeting"). The Annual Meeting will be held on Thursday,
April 27, 2000 at the Boston Back Bay Hilton, 40 Dalton Street, Boston,
Massachusetts, 02115. Due notice of the Annual Meeting is being given in
accordance with the Company's Declaration of Trust for the purposes set forth
in the foregoing Notice. The approximate date on which this Proxy Statement and
accompanying proxy card will first be mailed to Shareholders is March 30, 2000.
The accompanying proxy, if properly executed and delivered by a Shareholder
entitled to vote (or voted electronically), will be voted at the Annual Meeting
as specified in the proxy, but may be revoked at any time before the vote is
taken by delivery to the Clerk of the Company of a written revocation, by oral
revocation in person to the Clerk at the Annual Meeting, or by a proxy bearing
a later date. If choices are not specified on the accompanying proxy, the
shares will be voted FOR the election of all of the nominees for trustee
specified below.
All the costs of preparing, assembling and mailing the enclosed material and
any additional material which may be sent in connection with the solicitation
of proxies will be paid by the Company, and no part thereof will be paid
directly or indirectly by any other person. The Company has retained D.F. King
& Co., Inc. to assist in the solicitation of proxies at a fee of $2,000, plus
actual out-of-pocket expenses. Some employees may devote a part of their time
to the solicitation of proxies or for attendance at the Annual Meeting, but no
additional compensation will be paid to them for the time so employed, and the
cost of such additional solicitation will be nominal. The Company will
reimburse brokerage firms, banks, trustees and others for their actual out-of-
pocket expenses in forwarding proxy material to the beneficial owners of its
Common Shares.
On March 10, 2000, there were issued and outstanding 56,997,041 NSTAR Common
Shares. Only holders of record of NSTAR Common Shares at the close of business
on that date shall be entitled to notice of and to vote at the Annual Meeting
or any adjournments thereof, and those entitled to vote will have one vote for
each Common Share held. The several NSTAR employees savings plans owned
beneficially 4,684,041 Common Shares, representing 8.2% of the outstanding
Common Shares as of January 31, 2000. Members of the plans are entitled to give
voting instructions with respect to their interests.
The Annual Report to Shareholders of NSTAR for the year ended December 31,
1999, which includes financial statements, is being mailed to Shareholders with
this Proxy Statement.
PROPOSAL NO. 1: ELECTION OF TRUSTEES
Information about the NSTAR Board, Nominees and Incumbent Trustees
NSTAR's Declaration of Trust provides for classification of the NSTAR Board
of Trustees into three classes serving staggered three-year terms. The five
persons named below have been nominated by the NSTAR Board for election as
Class I trustees for a term expiring at the Annual Meeting to be held in the
year 2003 and until their successors are duly elected and qualified. The
remaining trustees will continue to serve as set forth below, with the Class II
trustees having terms expiring in 2001 and the Class III trustees having terms
expiring in 2002. If any of the nominees shall by reason of death, disability
or resignation be unavailable as a candidate
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at the NSTAR Annual Meeting, votes pursuant to the proxy will be cast for a
substitute candidate as may be designated by the NSTAR Board, or in the absence
of such designation, in such other manner as the trustees may in their
discretion determine.
The NSTAR Board of Trustees held three regular meetings during 1999
following NSTAR's commencement of operations on August 25, 1999. The NSTAR
Board of Trustees has an Executive Committee, an Audit, Finance and Risk
Management Committee, an Executive Personnel Committee and a Board Governance
and Nominating Committee. The Executive Committee's duties include the review
and recommendation of dividend payment and policy to the NSTAR Board of
Trustees and the exercise of those powers of the NSTAR Board of Trustees which
may be exercised between regular Board meetings. The Executive Committee met
three times in 1999. The Audit, Finance and Risk Management Committee, the
responsibilities of which include recommendations as to the selection of
independent auditors, review of the scope of the independent audit, annual
financial statements, internal audit reports, and financial and accounting
controls and procedures, together with the review of NSTAR's financial
requirements, insurance coverages, and legal compliance programs, met one time
in 1999. The Executive Personnel Committee, which is responsible for reviewing
executive officer compensation, personnel planning and performance, certain
benefit programs, and human resources policies, also met one time in 1999. The
Board Governance and Nominating Committee, which establishes guidelines and
monitors Board composition, membership, compensation and effectiveness, met two
times in 1999. All trustees attended at least 75% of the meetings of the NSTAR
Board and the committees of the NSTAR Board on which such trustees served.
The NSTAR Board has adopted the following trustee retirement policy:
trustees who are employees of NSTAR, with the exception of the Chief Executive
Officer, retire from the Board when they retire from employment with the
Company. Trustees who are not employees of NSTAR or who have served as Chief
Executive Officer retire from the Board at the Annual Meeting of Shareholders
following their seventieth birthday.
2
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The names of the nominees as Class I trustees and the incumbent Class II and
Class III trustees and certain information concerning each such trustee are
shown in the following table. Unless otherwise indicated, all nominees and
incumbent trustees have held their current or equivalent positions for the
previous five years.
Nominees as Class I Trustees--Terms Expiring in 2003
<TABLE>
<CAPTION>
Nominees Principal Occupation and Directorships
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<C> <S>
Kevin C. Bryant Age: 39 General Manager--Fleet Boston Corporation (Bank Holding Company)--
Trustee since: 1999 Europe
Member: Audit, Finance
and Risk Management
Committee
Gary L. Countryman Age: Chairman of the Board, Liberty Mutual Insurance Company and
60 Trustee since: 1999 Liberty Life Assurance Company of Boston; formerly Chief Executive
Member: Executive and Officer (1985-1998), Liberty Mutual Insurance Company and Liberty
Executive Personnel Life Assurance Company of Boston; Director, Liberty Financial
Committees Companies, Inc.; Fleet Boston Corporation; Harcourt General, Inc.;
Unisource Worldwide Inc. and Gulf Canada Resources, Inc.
Thomas G. Dignan, Jr.(1) Partner, Ropes & Gray (Law Firm).
Age: 59
Trustee since: 1999
Member: Board Governance
and Nominating
Committee
Franklin M. Hundley(1) Of Counsel, Rich, May, Bilodeau & Flaherty, P.C., Boston,
Age: 65 Massachusetts (Law Firm); Chairman of the Board and a Trustee,
Trustee since: 1999 Berkshire Energy Resources.
Member: Executive
Personnel Committee
Gerald L. Wilson Age: 60 Vannevar Bush Professor of Engineering, Massachusetts Institute of
Trustee since: 1999 Technology, Cambridge, Massachusetts; Director, Analogics Corp.
Member: Board Governance and Aseco Corp.
and Nominating Committee
</TABLE>
3
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Incumbent Class II Trustees--Terms Expiring in 2001
<TABLE>
<CAPTION>
Trustees Principal Occupation and Directorships
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<C> <S>
Sheldon A. Buckler Retired Vice Chairman of the Board, Polaroid Corporation,
Age: 68 Cambridge, Massachusetts (Manufacturer of photographic equipment
Trustee since: 1999 and supplies); Director, Aseco Corp.; Lord Corporation; Micro
Member: Executive and Component Technology Corp.; Micrologic Corp.; Nashua Corporation
Board Governance and and Parlex Corp.
Nominating
Committees
Nelson S. Gifford Principal, Fleetwing Capital (Venture Investments); formerly
Age: 69 Chairman (1986-1990) and Chief Executive Officer (1975-1990),
Trustee since: 1999 Dennison Manufacturing Company; Director, John Hancock Mutual Life
Member: Executive Insurance Company; Reed and Barton; J.M. Huber Corp. and Nypro
Personnel Committee Inc., Partners Fund.
Matina S. Horner Executive Vice President, Teachers Insurance and Annuity
Age: 60 Association/ College Retirement Equities Fund; formerly President
Trustee since: 1999 (1972-1989), Radcliffe College; Director, The Neiman-Marcus Group,
Member: Executive and Inc.
Audit, Finance and
Risk Management
Committees
Thomas J. May Age: 52 Chairman of the Board and Chief Executive Officer (since 1999),
Trustee since: 1999 NSTAR and its subsidiaries; formerly Chairman of the Board,
Member: Executive and President and Chief Executive Officer (1998 to 1999), BEC Energy,
Board Governance and and Chairman of the Board, President and Chief Executive Officer
Nominating (1995 to 1999), Boston Edison Company; Director, Fleet Boston
Committees Corporation; Liberty Financial Companies, Inc.; New England
Business Services, Inc. and RCN Corporation.
</TABLE>
4
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Incumbent Class III Trustees--Terms Expiring in 2002
<TABLE>
<CAPTION>
Trustees Principal Occupation and Directorships
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<C> <S>
Charles K. Gifford President and Chief Operating Officer (since 1999) Fleet
Age: 57 Boston Corporation (Bank Holding Company); formerly
Trustee since: 1999 Chairman and Chief Executive Officer (1997-1999), Chief
Member: Executive and Executive Officer (1996-1997) and Chairman, President
Board Governance and and Chief Executive Officer (1995-1996), BankBoston;
Nominating Director, Fleet Boston Corporation and Massachusetts
Committees Mutual Life Insurance Company.
Paul A. La Camera President and General Manager (since 1997), WCVB-TV
Age: 57 Channel 5; formerly Vice President and General Manager
Trustee since: 1999 (1994-1997).
Member: Board
Governance and
Nominating Committee
Sherry H. Penney Chancellor (1988-1995 and 1996 to present), University
Age: 62 of Massachusetts at Boston; formerly President (1995)
Trustee since: 1999 (interim), University of Massachusetts.
Member: Executive
Personnel Committee
Russell D. Wright President and Chief Operating Officer (since 1999),
Age: 53 NSTAR and its subsidiaries; formerly President and Chief
Trustee since: 1999 Executive Officer (1998 to 1999), Commonwealth Energy
Member: Executive and System and President and Chief Operating Officer
Board Governance (1993-1998), Commonwealth Energy System's operating
and Nominating subsidiaries; Director, Reed and Barton.
Committees
</TABLE>
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(1) During 1999, NSTAR and its subsidiaries paid legal fees to the firms of
Ropes & Gray and Rich, May, Bilodeau & Flaherty, P.C.
Messrs. Peter H. Cressy, Richard J. Egan, William J. O'Brien, Herbert Roth,
Jr. and Stephen J. Sweeney and Ms. Betty L. Francis will not continue to serve
on the Board of Trustees effective as of the 2000 Annual Meeting of
Shareholders, in accordance with the guidelines established by the Board
Governance and Nominating Committee and the NSTAR Board of Trustees, which
guidelines have reduced the number of Trustees from 19 to 13.
Trustee Compensation
Each trustee who is not an employee of NSTAR receives an annual Board
retainer of $20,000 in cash and $20,000 of value in NSTAR Common Shares. Non-
employee Trustees who are also members of the Executive Committee or who chair
an NSTAR Board Committee receive an additional retainer of $3,000. Trustees who
are not employees of NSTAR receive $1,000 for attendance in person at each
meeting of the Board or a committee and $500 for participating in such a
meeting by telephone. Trustees may elect to defer part or all of their fees
pursuant to NSTAR's Trustees' Deferred Fee Plan.
5
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Common Share Ownership by Trustees and Executive Officers
The following table sets forth the number of NSTAR Common Shares
beneficially owned as of January 31, 2000 by each trustee and nominee, by each
of the executive officers named in the Summary Compensation Table, and by the
trustees and executive officers of NSTAR as a group. None of the individual or
collective holdings listed below exceeds 1% of the outstanding NSTAR Common
Shares. All of the shares listed are held by the persons named with both sole
voting and investment power.
<TABLE>
<CAPTION>
Number of NSTAR Common
Name of Beneficial Owner Shares Beneficially Owned
------------------------ -------------------------
<S> <C>
Kevin C. Bryant.................................. 777
Sheldon A. Buckler............................... 7,654
Gary L. Countryman............................... 5,366
Peter H. Cressy.................................. 950
Thomas G. Dignan, Jr............................. 6,080
Richard J. Egan.................................. 2,953
Betty L. Francis................................. 1,002
Charles K. Gifford............................... 4,376
Nelson S. Gifford................................ 9,355
Matina S. Horner................................. 5,103
Franklin M. Hundley.............................. 5,926
James J. Judge................................... 48,291(1)(2)
Paul A. La Camera................................ 777
Ronald A. Ledgett................................ 72,546(1)(2)
Thomas J. May.................................... 217,519(1)(2)
Deborah A. McLaughlin............................ 15,222(1)(2)
William J. O'Brien............................... 6,344
Sherry H. Penney................................. 5,161
Herbert Roth, Jr................................. 9,506
Stephen J. Sweeney............................... 4,674
Gerald L. Wilson................................. 2,401
Russell D. Wright................................ 36,276(1)(2)
All trustees and executive officers as a group,
including those named above (28 persons)........ 672,597
</TABLE>
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(1) The totals in this column include the following number of NSTAR Common
Shares which are held in NSTAR's Deferred Compensation Trust due to
deferrals by the following participants under NSTAR's Deferred Compensation
Plan: Mr. May, 22,721 shares; Mr. Wright, 12,994 shares; Mr. Ledgett,
6,846 shares; Ms. McLaughlin, 5,138 shares; and Mr. Judge, 3,363 shares;
all executive officers as a group, 75,696 shares. Participants in the Plan
may instruct the Plan trustee to vote NSTAR Common Shares held in the trust
in accordance with their allocable share of such deferrals, but have no
dispositive power with respect to shares held in the trust.
(2) These totals include the following number of NSTAR Common Shares held in
NSTAR's employees savings plans: Mr. May, 7,948 shares; Mr. Wright, 7,764
shares; Mr. Ledgett, 3,658 shares, Ms. McLaughlin, 1,689 shares; and Mr.
Judge, 3,125 shares; all executive officers as a group, 47,978 shares.
6
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
trustees, executive officers and persons who beneficially own more than ten
percent (10%) of the Company's Common Shares to file initial reports of
ownership on Form 3 and reports of changes in ownership on Form 4 and/or Form 5
with the Securities and Exchange Commission (the "SEC") and any national
securities exchange on which NSTAR's Common Shares are traded. Trustees,
executive officers and greater than ten percent (10%) beneficial owners are
required by the SEC's regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based on a review of the forms furnished to the Company and written
representations from the trustees and executive officers, the Company believes
that all Section 16(a) filing requirements applicable to its trustees and
executive officers were complied with for 1999.
EXECUTIVE COMPENSATION
Report of the Executive Personnel Committee
Under the rules established by the SEC, NSTAR is required to provide certain
data and information about the compensation and benefits provided to its
executive officers, including NSTAR's Chief Executive Officer and the four
other most highly compensated executive officers (the "Named Executive
Officers"). The disclosure requirements for the Named Executive Officers
include the use of tables summarizing total compensation and a report
explaining the rationale and considerations that led to fundamental executive
compensation decisions affecting those individuals for the prior year. In
fulfillment of this requirement, the Executive Personnel Committee, at the
direction of the NSTAR Board, has prepared the following report for inclusion
in this Proxy Statement. References to actions taken by the Committee as set
forth in this report include, as appropriate, NSTAR's Executive Personnel
Committee and the former Executive Personnel and Executive Compensation
Committees of BEC Energy and Commonwealth Energy System. Compensation related
references to NSTAR within this report and elsewhere in this proxy statement
also include, as appropriate, BEC Energy and Commonwealth Energy System and
their respective subsidiaries.
The Executive Personnel Committee
NSTAR's executive compensation program is administered by the Executive
Personnel Committee, a committee of the NSTAR Board composed of the six non-
employee trustees listed as signatories to this report. Except as discussed
below, none of these non-employee trustees has any interlocking or other
relationship with NSTAR that would require disclosure to the SEC. Generally,
all decisions of the Executive Personnel Committee regarding the compensation
of the Chief Executive Officer and the Chief Operating Officer are subject to
the approval of the non-employee trustees of NSTAR, none of whom is eligible to
participate in the incentive plans described below. The Executive Personnel
Committee also administers the 1997 Stock Incentive Plan discussed below.
Compensation Philosophy
The executive compensation philosophy of NSTAR is to provide competitive
levels of compensation that advance NSTAR's annual and long-term performance
objectives, reward corporate performance, and assist NSTAR in attracting,
retaining and motivating highly qualified executives. The framework for the
Committee's executive compensation program is to establish base salaries which
are competitive with electric and gas utility companies in general and to
provide incentives for excellent performance by affording executives the
opportunity to earn additional remuneration under the annual and long-term
incentive plans. The incentive plan goals are designed to improve the
effectiveness and enhance the efficiency of NSTAR's operations and to create
value for Shareholders. The Committee also seeks to link executive and
Shareholder interests through equity-based incentive plans. The Committee has
recommended and the Board of Trustees has approved share ownership guidelines
of five times base salary for the Chief Executive Officer, three times base
salary for senior executive officers and two times base salary for all other
executive officers. These guidelines allow the executives five years to achieve
these levels of ownership.
7
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Components of Compensation
Compensation paid to the Named Executive Officers, as reflected in the
following tables, consists of three primary elements: base salary, annual
incentive awards, and long-term incentive awards. NSTAR compares its
compensation levels against those of other growth-oriented investor-owned
electric and gas utility companies. NSTAR's strategy is to establish total
compensation (base salary and annual incentives) at the 60th percentile of the
utility industry, and to compare its long-term incentive plan to those of more
aggressive utilities and general industry companies that focus on value
creation.
During 1999, the Committee reviewed and updated data collected by nationally
recognized compensation experts, as well as data collected by NSTAR's human
resources organization, to determine whether NSTAR's compensation strategy is
being met. The review evaluated base salary and annual incentives of nearly all
electric utility companies and the long-term incentives of a blend of utilities
and general industry. The data demonstrated that NSTAR is in conformance with
its compensation strategy to the satisfaction of the Committee.
The income tax deductions of publicly traded companies may be limited to the
extent total compensation for certain executive officers exceeds one million
dollars during any year; however, the deduction limit does not apply to
payments which qualify as "performance based". The Committee has reviewed the
regulations issued by the Internal Revenue Service and will continue to review
the application of these rules to future compensation. However, the Committee
intends to continue basing its executive compensation decisions primarily upon
performance achieved, both corporate and individual, while retaining the right
to make subjective decisions and to award compensation that may or may not meet
all of the Internal Revenue Service's requirements for deductibility.
Annual Incentive Plan
Annual incentive payments for 1999 made to the Named Executive Officers,
reported in the fourth column of the Summary Compensation Table below, were
based in 1999 on corporate and business unit performance objectives for former
BEC Energy Named Executive Officers and on corporate and individual performance
goals for former Commonwealth Energy System Named Executive Officers. All such
objectives and goals were derived from the respective corporate operating plans
and approved by the Committees. Corporate performance objectives include a
comparison of target to actual earnings per share from operations. Business
unit performance objectives include predetermined levels for operating and
capital budgets, as well as key operating goals. The annual incentive plan
award for Mr. May was based solely on NSTAR achieving the earnings per share
objective. In 1999, basic earnings per share were $2.77, which exceeded the
plan target. The annual incentive plan awards for Mr. Ledgett and Mr. Judge
were based 50% on earnings per share and 50% on business unit performance
objectives to achieve certain business unit budget and operating plan targets.
Both of these officers exceeded the specified business unit performance levels.
The annual incentive plan awards for Mr. Wright and Ms. McLaughlin in 1999
under Commonwealth Energy System's Annual Incentive Plan were based two-thirds
on corporate performance goals, including earnings per share and cost-control
goals, and one-third on individual goals, including the successful closing of
the merger between BEC Energy and Commonwealth Energy System. These officers
achieved both corporate and individual goals.
Long-Term Compensation
Under the 1997 Stock Incentive Plan, Named Executive Officers and other key
employees are eligible to receive grants from time to time of stock-related
awards of seven general types: (i) stock options, (ii) stock appreciation
rights, (iii) restricted stock awards, (iv) deferred stock awards, (v)
performance unit awards, (vi) dividend equivalent awards, and (vii) other
stock-based awards. The long-term grants in 1999 consisted of non-qualified
stock options, deferred shares and dividend equivalents on the deferred shares,
and were based upon the Committee's evaluation of performance towards key
strategic objectives and competitive award data provided by an external
consultant. The Committee did not weight any of these factors. The options and
the
8
<PAGE>
deferred shares vest at the rate of 33% per year over a three-year period from
the date of grant, and the options may be exercised over a ten-year period. In
addition, awards were made to Mr. Wright and Ms. McLaughlin pursuant to
Commonwealth Energy System's Long-Term Incentive Plan, discontinued following
the merger, which provided for awards of restricted common shares of up to 50%
of base salary over three-year plan periods.
Other Plans
NSTAR has adopted certain broad-based employee benefit plans in which
officers, including the Named Executive Officers, are permitted to participate
on the same terms as non-executive employees who meet applicable eligibility
criteria. Such plans include pension, life, and health insurance plans, as well
as a section 401(k) savings plan which, effective January 1, 2000, includes a
company contribution equal to 50% of the first 8% of pay contributed by the
employee, up to a maximum excludable 401(k) contribution allowed by the
Internal Revenue Code. In addition, NSTAR has a deferred compensation plan in
which the Named Executive Officers may elect to participate. The Named
Executive Officers also participate in the Supplemental Executive Retirement
Plan, which provides eligible participants with supplementary retirement of up
to 60% of final average cash compensation, depending upon each participant's
years of service, reduced by 50% of the participant's social security benefit
and further reduced by benefits the participant receives under NSTAR's pension
plan. In addition, Mr. May can elect, and Mr. Ledgett receives, an alternative
supplemental retirement benefit equal to 33% of final base salary annually for
15 years. In August 1999, Mr. Wright and Ms. McLaughlin were vested with
certain supplemental retirement benefits upon the merger, which are under
review as part of NSTAR's executive supplemental benefit unification program.
Mr. May's 1999 Compensation
The Executive Personnel Committee makes decisions regarding the compensation
of the Chief Executive Officer using the same philosophy and criteria set forth
above. As with the compensation of all executive officers, NSTAR compares
compensation levels for the Chief Executive Officer to those of all other
investor-owned electric and gas utility companies.
Each year NSTAR approves the adjustment of salary ranges for the Chief
Executive Officer and other executive officers based on studies conducted by
external executive compensation consultants and internal personnel. Based upon
1999 studies, NSTAR's executive compensation levels were adjusted to be within
the approved 60th percentile position to market, and Mr. May's annual base
salary was increased to $635,000.
Mr. May's annual incentive award, shown in the fourth column of the Summary
Compensation Table below, was in conformance with the provisions of the annual
incentive plan as described above, and was based on the Company exceeding its
operating plan targets. The Committee's policy is to base individual long-term
incentive awards on information derived from an annual study by the Company's
compensation consultant comparing the value of long-term incentive grants to
salary levels for a blend of electric and gas utility and general industry
companies. The 8,500 deferred shares and 79,000 options granted Mr. May in 1999
reflect this policy.
Compensation Committee Interlocks and Insider Participation
Charles K. Gifford, who is a member of the NSTAR Board of Trustees, is
President and Chief Operating Officer of Fleet Boston Corporation. Thomas J.
May, NSTAR's Chairman of the Board and Chief Executive Officer, serves on the
board of directors of Fleet Boston Corporation and is a member of its Human
Resources and Governance Committee.
9
<PAGE>
Gary L. Countryman, who is a member of the NSTAR Board of Trustees and
Chairperson of NSTAR's Executive Personnel Committee, is Chairman of the Board
of Liberty Mutual Insurance Company and Liberty Life Assurance Company of
Boston and a Director of Liberty Financial Companies, Inc. Mr. May serves on
the boards of directors of Liberty Mutual Insurance Company and Liberty
Financial Companies, Inc.
By the Executive Personnel
Committee,
Gary L. Countryman, Chairperson
Richard J. Egan
Nelson S. Gifford
Franklin M. Hundley
William J. O'Brien
Sherry H. Penney
10
<PAGE>
EXECUTIVE COMPENSATION TABLES
The following information is provided regarding annual and long-term
compensation earned by the Chief Executive Officer and the four other most
highly compensated executive officers of NSTAR for the years 1997, 1998 and
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
------------------------------- --------
Annual Other Deferred/ Securities
Compensation Annual Restricted Underlying All Other
------------------ Compen- Stock Options/ LTIP(4) Compen-
Name and Principal Position Year Salary(1) Bonus sation(2) Awards(3) SARs(#) Payouts sation(5)
- --------------------------- ---- --------- -------- --------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. May........... 1999 $571,667 $650,000 -- $351,688 79,000 -- $ 9,600
Chairman of the Board 1998 519,583 600,000 -- 238,500 60,000 -- 9,600
and Chief Executive 1997 496,875 498,750 -- 422,300 100,000 -- 9,600
Officer
Russell D. Wright....... 1999 $416,475 $272,963 -- $208,808 43,000 $546,928 $17,547
President and Chief 1998 323,434 118,825 -- 120,000 -- -- 12,791
Operating Officer 1997 276,333 97,427 -- -- -- 100,800 10,977
Ronald A. Ledgett....... 1999 $291,167 $250,000 -- $148,950 24,500 -- $ 9,600
Executive Vice 1998 277,875 248,850 -- 99,375 27,000 -- 84,600
President--Electric 1997 232,500 216,750 -- 118,450 28,600 -- 9,600
Operations
Deborah A. McLaughlin 1999 $288,708 $163,663 -- $116,544 24,000 $216,266 $14,439
Executive Vice 1998 207,667 110,943 -- 48,000 -- -- 9,758
President--Customer 1997 142,500 52,924 -- -- -- 46,080 6,294
Care/Shared Services...
James J. Judge.......... 1999 $238,000 $200,000 -- $ 86,888 12,000 -- $ 9,600
Senior Vice President, 1998 205,417 196,750 -- 59,625 14,000 -- 59,600
Treasurer and Chief 1997 183,667 136,400 -- 97,850 23,400 -- 9,600
Financial Officer
</TABLE>
- --------
(1) The amounts in this column represent the aggregate total of cash
compensation received and compensation deferred by the above-named
individuals. Compensation was deferred in 1999 pursuant to the provisions
of the deferred compensation plans of NSTAR, Boston Edison Company and
Commonwealth Energy System.
(2) The dollar value of perquisites and other personal benefits, securities or
properties totaling either $50,000 or 10% of total annual salary and bonus,
together with various other earnings, amounts reimbursed for the payment of
taxes and the dollar value of any stock discounts not generally available
are required to be disclosed in this column. In 1999, there were no such
perquisites, earnings, reimbursements or discounts paid or made in excess
of such limits.
(3) Deferred Common Share awards are valued at the closing market price as of
the date of the grant. The awards vest one-third on each of the first,
second and third anniversaries of the date of the grant. Dividends will
accrue on the awards from the date of grant and are payable in the form of
additional shares, which vest at the same time the awards vest. Aggregate
deferred Common Share holdings and the value thereof based on the closing
price of the Common Shares on December 31, 1999 are as follows: Mr. May,
17,966 shares ($727,623); Mr. Ledgett, 6,800 shares ($275,400); and Mr.
Judge 4,367 shares ($176,864).
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<PAGE>
(4) The amounts in this column represent for 1999 the value (as of August 25,
1999) of restricted common shares of Commonwealth Energy System awarded to
Mr. Wright and Ms. McLaughlin under Commonwealth Energy System's Long-Term
Incentive Plan, which shares vested and were exchanged for 1.05 NSTAR
Common Shares for each Commonwealth Energy System share upon the merger of
Commonwealth Energy System and BEC Energy. Such amounts represent for 1997
payments made under Commonwealth Energy System's 1996-1997 Strategic Plan
Compensation Program.
(5) The amounts in this column represent the aggregate contributions or account
credits made by NSTAR, Commonwealth Energy System and BEC Energy and their
respective subsidiary companies during 1999 on behalf of the above-named
individuals to the NSTAR Savings Plan, the Boston Edison Savings Plan, the
Employees Savings Plan of Commonwealth Energy System and Subsidiary
Companies and the Executive Salary Continuation and Excess Benefit Plan for
Employees of Commonwealth Energy System and Subsidiary Companies. The NSTAR
Savings Plan, the Boston Edison Savings Plan and the Employees Savings Plan
of Commonwealth Energy System and Subsidiary Companies (the last two-named
plans having been effectively merged into the NSTAR Savings Plan) are
defined contribution plans. The Plans incorporate salary deferral
provisions pursuant to Section 401(k) of the Internal Revenue Code for all
employees who have elected to participate on that basis. The Executive
Salary Continuation and Excess Benefit Plan for Employees of Commonwealth
Energy System and Subsidiary Companies is a defined contribution/defined
benefit plan. Unlike the Employee Savings Plan, this Plan is not a
qualified plan under Section 401(a) of the Internal Revenue Code. The Plan
was established to provide an additional benefit to eligible participants
in the Employees Savings Plan whose benefit under that Plan would be
curtailed by limits in effect under the Internal Revenue Code for qualified
plans. Of the amounts set forth in the "All Other Compensation" column,
$2,501 and $3,126 represent the contributions made on behalf of Mr. Wright
and Ms. McLaughlin, respectively, by the Employees Savings Plan. Amounts
credited to the accounts of Mr. Wright and Ms. McLaughlin by the Executive
Salary Continuation and Excess Benefit Plan in 1999 equaled $15,046 and
$11,313, respectively. In addition, Messrs. Ledgett and Judge received
payments in 1998 in the amounts of $75,000 and $50,000 respectively under
retention agreements entered into in 1996.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
------------------------------
Number of % of Total Grant
Securities Options Exercise Date
Underlying Granted to or Base Present
Options Employees Price Expiration Value
Name Granted(1) In 1999 ($/sh.) Date ($)(2)
---- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Thomas J. May................ 79,000 31.9% $41.375 4/21/09 $383,624
Russell D. Wright............ 43,000 17.3% 40.625 9/23/09 208,808
Ronald A. Ledgett............ 24,500 9.9% 41.375 4/21/09 118,972
Deborah A. McLaughlin........ 24,000 9.7% 40.625 9/23/09 116,544
James J. Judge............... 12,000 4.8% 41.375 4/21/09 58,272
</TABLE>
- --------
(1) Options vest one-third annually beginning April 21, 2000 for Messrs. May,
Ledgett and Judge and beginning September 23, 2000 for Mr. Wright and Ms.
McLaughlin.
(2) Based on the closing price of $41.375 and $40.625 respectively on April 21
and September 23, 1999. The grant date present values were determined using
the Black-Scholes option pricing model. There is no assurance that the
value realized will be at or near the value estimated by the Black-Scholes
model. Assumptions used for the model are as follows: stock volatility,
17%; risk-free rate of return, 5.31%; dividend yield, 4.86%; and time to
exercise, four years.
12
<PAGE>
Aggregated Option/SAR Exercises and Fiscal Year-End
Option Value Table
<TABLE>
<CAPTION>
Value of Securities
Number of Securities Underlying Unexercised
Underlying Unexercised In-the-Money Options At
Shares/SARs Options At Fiscal Year-End(#) Fiscal Year-End($)(1)
Acquired on Value ----------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas J. May........... 0 $ 0 86,667 /152,333 $981,672 / $513,329
Russell D. Wright....... 0 $ 0 0 / 43,000 $ 0 / $ 0
Ronald A. Ledgett....... 0 $ 0 28,067 / 52,033 $287,988 / $154,112
Deborah A. McLaughlin... 0 $ 0 0 / 24,000 $ 0 / $ 0
James J. Judge.......... 0 $ 0 20,267 / 29,133 $233,600 / $122,050
</TABLE>
- --------
(1) Based on the closing price of NSTAR Common Shares on December 31, 1999 of
$40.50.
Pension Plan Table
The following table shows the estimated annual retirement benefits payable
to executive officers under NSTAR's qualified pension plan and Supplemental
Executive Retirement Plan, assuming retirement at age 65. The NSTAR Pension
Plan is a non-contributory defined benefit plan which covers substantially all
of the employees of the Company, including the Named Executive Officers. The
Pension Plan provides benefits which vary according to pay, subject to a
$160,000 limitation (as indexed) on eligible compensation. The benefit is
payable following termination of employment either as a lump sum or in one of
several annuity options. The Supplemental Executive Retirement Plan is a non-
qualified pension plan providing a maximum benefit of 60% of compensation after
attainment of 20 years of credited service and age 60. The Supplemental
Executive Retirement Plan provides the incremental benefits in excess of the
benefits paid under the qualified plan necessary to reach the benefit shown in
the table. The benefits presented are based on a straight life annuity and do
not take into account a reduction in benefits of up to 50% of the participant's
primary Social Security benefit.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Credited Service
Average Annual ----------------------------------------------------------------
Compensation 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
- -------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 60,000 $ 90,000 $120,000 $120,000 $120,000 $120,000
400,000 120,000 180,000 240,000 240,000 240,000 240,000
600,000 180,000 270,000 360,000 360,000 360,000 360,000
800,000 240,000 360,000 480,000 480,000 480,000 480,000
1,000,000 300,000 450,000 600,000 600,000 600,000 600,000
1,200,000 360,000 540,000 720,000 720,000 720,000 720,000
1,400,000 420,000 630,000 840,000 840,000 840,000 840,000
</TABLE>
For purposes of computing retirement benefits, Mr. May, Mr. Wright, Mr.
Ledgett, Ms. McLaughlin and Mr. Judge currently have 24, 32, 20, 19 and 22
years of credited service, respectively.
Final average compensation for purposes of calculating the benefits under
the Supplemental Executive Retirement Plan is the highest average annual
compensation of the participant during any consecutive 36-month period.
Compensation taken into account in calculating the benefits described above
includes salary and annual bonus, including any amounts deferred under the
terms of the Deferred Compensation Plan.
13
<PAGE>
Change in Control/Employment Agreements
Change in Control Agreements
NSTAR has entered into Change in Control Agreements (the "CIC Agreements")
with certain key employees, including the Named Executive Officers, which
provide severance benefits in the event of certain terminations of employment
following a "Change in Control" (as defined below). If, following a Change in
Control, a Named Executive Officer's employment were to be terminated other
than for cause (as defined) or for reasons specified in the CIC Agreements, the
employee would receive severance pay in an amount equal to two times (three
times in the case of Mr. May and Mr. Wright) the sum of his or her annual base
salary, at the rate in effect immediately prior to the date of termination or
immediately before the Change in Control, whichever is higher, plus his or her
actual bonus paid in respect of the most recently completed fiscal year or his
or her target bonus for the fiscal year in which the termination occurs,
whichever is higher. In addition, the CIC Agreements provide for a pro rated
bonus payment for the year in which the termination occurs, the immediate
vesting of bonus awards, immediate payment of deferred compensation amounts
upon such termination and payments equal to the benefit the executive would
have received under NSTAR's retirement plan, assuming the executive was vested
and remained employed for an additional two years (three years in the case of
Mr. May and Mr. Wright). For two years (three years in the case of Mr. May and
Mr. Wright) following any such termination of employment, the executive would
be entitled to participate in all welfare plans provided by NSTAR. The CIC
Agreements further provide for a gross-up payment under which, if amounts paid
under such agreements would be subject to a federal excise tax on excess
parachute payments, NSTAR would pay the executive an additional amount of cash,
so that, after payment of all such taxes by the executive, he or she will have
received the amount otherwise payable in the absence of any such tax. A Change
in Control under the agreement generally includes the following events: (i) a
person or group becomes the beneficial owner of more than 30% of the voting
power of NSTAR's Common Shares; (ii) continuing trustees cease to be a majority
of the NSTAR Board; (iii) a consolidation, merger or other reorganization or
sale or other disposition of all or substantially all of the assets of NSTAR
(other than certain defined transactions); or (iv) approval by Common
Shareholders of a complete liquidation or dissolution of NSTAR.
Employment Agreements
NSTAR has entered into employment agreements with Messrs. May and Wright.
The term of each agreement is five years from August 25, 1999, the completion
date of the merger. Under the terms of his employment agreement, Mr. May will
serve as the Chairman of the Board and Chief Executive Officer of NSTAR. In
addition to base pay, Mr. May will also be entitled to participate in NSTAR's
incentive compensation, retirement and welfare programs available to executives
of NSTAR as determined by the NSTAR Board of Trustees.
Under the terms of his employment agreement, Mr. Wright will serve as
President and Chief Operating Officer of NSTAR. He will receive base salary in
a range of 75% to 80% of Mr. May's base salary and will also be entitled to
participate in NSTAR's incentive compensation, retirement and welfare programs
available to executives of NSTAR as determined by the NSTAR Board.
14
<PAGE>
STOCK PERFORMANCE GRAPH
The line-graph presentation set forth below compares cumulative five-year
stockholder returns with the S&P 500 Stock index and an index of peer companies
selected by NSTAR. NSTAR has approved the use of the Edison Electric Industry
Index (EEI Index), a recognized industry index of 83 investor-owned utility
companies. Consistent with the stock price and stock/cash election terms which
were approved by Shareholders in the 1999 merger, the graph describes
performance of BEC Energy over the term preceding the BEC Energy/Commonwealth
Energy System merger and of NSTAR from August 25, 1999 to year-end. Pursuant to
the SEC's regulations, the graph below depicts the investment of $100 at the
commencement of the measurement period, with dividends reinvested.
[GRAPHS APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
NSTAR $100 $132 $129 $195 $222 $229
S&P 500 Index $100 $138 $169 $225 $290 $351
EEI Index $100 $131 $133 $169 $192 $157
</TABLE>
15
<PAGE>
OTHER MATTERS
Voting Procedures
Pursuant to Massachusetts law and the terms of the NSTAR Declaration of
Trust, a majority of the shares entitled to be cast on a particular matter,
present in person or represented by proxy, constitutes a quorum as to such
matter. Votes cast by proxy or in person at the Annual Meeting will be counted
by persons appointed by the Company to act as election inspectors for the
meeting.
Trustees will be elected by a plurality of the votes properly cast at the
meeting. As stated, votes may be cast by mail or electronically either by
telephone or the Internet. Instructions with respect to electronic voting are
enclosed on the proxy card. The election inspectors will count shares
represented by proxies that withhold authority to vote for a nominee for
election as a trustee or that reflect abstentions and "broker non-votes"
(i.e., shares represented at the meeting held by brokers or nominees as to
which (i) instructions have not been received from the beneficial owners or
persons entitled to vote and (ii) the broker or nominee does not have the
discretionary voting power on a particular matter) only as shares that are
present and entitled to vote on the matter for purposes of determining the
presence of a quorum. Neither abstentions nor broker non-votes have any effect
on the outcome of voting on the election of trustees.
Adjournment of Meeting
If sufficient votes in favor of any of the proposals set forth in the Notice
of Annual Meeting are not received by the time scheduled for the meeting, the
persons named as proxies may propose one or more adjournments of the meeting to
permit further solicitation of proxies with respect to any such proposals. Any
adjournment will require the affirmative vote of a majority of the votes cast
on the question in person or by proxy at the session of the meeting to be
adjourned. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of such proposals. They
will vote against any such adjournment those proxies required to be voted
against any of such proposals. NSTAR will pay the costs of any additional
solicitation and of any adjourned session.
Independent Accountants
Representatives of PricewaterhouseCoopers, L.L.P., NSTAR's independent
accountants, will be present at the Annual Meeting and will have the
opportunity to make a statement if they desire to do so. The representatives
will be available to respond to appropriate questions by Shareholders.
Other Business
Except as discussed in this section, the Board of Trustees of NSTAR has no
reason to believe that any other business will be presented at the Annual
Meeting. NSTAR has received notice from Mr. John Jennings Crapo, the holder of
472 Common Shares, that he intends to present a proposal at the Annual Meeting
to "cancel the approval of the proposal adopted at the Special Meeting of
Shareholders of Commonwealth Energy System held June 24, 1999 which provides
for the merger of Commonwealth Energy System with BEC Energy." If the proposal
is presented by Mr. Crapo at the Annual Meeting, it may be ruled out of order
by the Company as not a proper matter for the Shareholders of NSTAR to vote
upon. If Mr. Crapo's proposal is presented in a manner appropriate for the
Shareholders of NSTAR to vote upon, or if any other business shall be
presented, votes pursuant to the proxy will be cast thereon in accordance with
the discretion of the persons named in the accompanying proxy. Such persons
intend to vote against Mr. Crapo's proposal if it is deemed to be in order and
if it is properly presented at the Annual Meeting.
Shareholder Proposals
Shareholders of NSTAR who wish to make a proposal at the 2001 Annual Meeting
and have such proposal be eligible for inclusion in the NSTAR proxy statement
should submit the proposal to NSTAR at its principal office at 800 Boylston
Street, Boston, Massachusetts, 02199, Attention: Michael P. Sullivan, Clerk, on
16
<PAGE>
or before November 21, 2000. NSTAR Shareholders who wish to make a proposal at
the 2001 Annual Meeting without regard to whether it will be included in
NSTAR's proxy material should notify NSTAR no later than November 21, 2000. If
a Shareholder who wishes to present a proposal fails to notify NSTAR by the due
date, the proxies that management solicits for the meeting will accord them
discretionary authority to vote on the Shareholder's proposal if it is properly
brought before the meeting.
Shareholder Nominations of Trustees
The NSTAR Board will consider nominations of candidates for election as
trustees from Shareholders which are submitted in accordance with the
procedures set forth in Section 2.1 of NSTAR's Bylaws. In general, these
procedures require that Shareholder nominations must be submitted to the Clerk
of NSTAR in writing not less than 45 days prior to April 27, 2001, the
anniversary of the date of the immediately preceding Annual Meeting, and must
contain certain specified information concerning the person to be nominated and
the Shareholder submitting the nomination, together with the consent of the
nominee to serve as trustee if so elected.
If a Shareholder who wishes to make a trustee nomination fails to notify
NSTAR by the due date, the proxies that management solicits for the Annual
Meeting will accord them discretionary authority to vote on the trustee
nomination, if it is properly brought before the meeting.
The greater part of the holdings of NSTAR's Common Shares are widely
distributed in small lots. It is important, therefore, in order to secure
representation at the Annual Meeting of the number of shares necessary to take
action, that all Shareholders who cannot be present in person, however small
their holdings, fill in, sign and return the enclosed proxy or cast their vote
electronically without delay. A postage-paid envelope is enclosed for written
proxies.
17
