ENERGY EAST CORP, S-4/A, 1998-02-24

ENERGY EAST CORP
S-4/A, 1998-02-24
ELECTRIC SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1998

REGISTRATION NO. 333-37997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

------------------------

ENERGY EAST CORPORATION

(Exact name of Registrant as specified in its charter)
(formerly known as NGE Resources, Inc.)

<TABLE>
<S> <C> <C>
NEW YORK 6719 14-1798693
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

--------------------------

ONE COMMERCE PLAZA
SUITE 2006A-20TH FLOOR
ALBANY, NEW YORK 12260
(Address of principal executive offices)
(518) 434-3014
(Registrant's telephone number including area code)
--------------------------

<TABLE>
<S> <C>
DANIEL W. FARLEY LEONARD BLUM, ESQ.
SECRETARY HUBER LAWRENCE & ABELL
ENERGY EAST CORPORATION 605 THIRD AVENUE
ONE COMMERCE PLAZA NEW YORK, NEW YORK 10158
SUITE 2006A-20TH FLOOR (212) 682-6200
ALBANY, NEW YORK 12260
(518) 434-3014
</TABLE>

(Names, addresses and telephone numbers of agents for service)

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, Par Value $.01 per share 76,000,000 $26.907 $2,044,932,000 $619,676
</TABLE>

(1) This Registration Statement covers a number of shares of Common Stock of
Energy East Corporation to be issued in the share exchange described herein
(the "Share Exchange") and to be issued in lieu of shares of common stock of
New York State Electric & Gas Corporation ("NYSEG") pursuant to NYSEG's 1997
Stock Option Plan, Employees' Stock Purchase Plan, Tax Deferred Savings Plan
for Salaried Employees, Tax Deferred Savings Plan for Hourly Paid Employees
and Dividend Reinvestment and Stock Purchase Plan.

(2) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, based
upon the per share market value of the shares of common stock of NYSEG,
which is the average of the reported high and low sales prices of a share of
common stock of NYSEG on the New York Stock Exchange, Inc. Composite Tape on
October 10, 1997.

(3) Previously paid on October 16, 1997.

------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

WESLEY W. VON SCHACK

[LOGO]
CHAIRMAN, PRESIDENT AND

CHIEF EXECUTIVE OFFICER

(607) 762-4550

March , 1998

Dear Common Stockholder:

You are cordially invited to attend NYSEG's Annual Meeting of Stockholders
on Wednesday, April 29, 1998 at 10:30 a.m. at the Ramada Inn Geneva Lakefront,
41 Lakefront Drive, Geneva, New York.

At the Annual Meeting, you will be asked to consider and vote on, among
other things, a proposed Agreement and Plan of Share Exchange under which NYSEG
will reorganize into a holding company structure. Your Board of Directors and
NYSEG management consider this proposal to be in your best interests. The
holding company structure will provide us the organizational and financial
flexibility needed to compete in a deregulated market. The new holding company
will be named Energy East Corporation.

The holding company reorganization will be implemented through a share
exchange. Your NYSEG common stock certificates will automatically become
certificates representing common stock in the new holding company when the share
exchange occurs and you will automatically cease to be a stockholder of NYSEG at
that time. Your proportionate ownership interest will not change as a result of
the share exchange.

Your Board of Directors unanimously recommends approval of the holding
company proposal and urges you to VOTE YES for the proposed plan of exchange. A
TWO-THIRDS VOTE IS REQUIRED TO APPROVE THE PROPOSAL, AND YOUR VOTE IS ESSENTIAL
TO ACHIEVING A SUCCESSFUL RESULT.

Your vote on the business at the Annual Meeting is important, regardless of
the number of shares you own. Whether or not you plan to attend the Annual
Meeting, please sign, date and return your proxy as soon as possible in the
envelope provided.

Sincerely,

Wesley W. von Schack
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

<PAGE>
NEW YORK STATE ELECTRIC & GAS CORPORATION
ITHACA, NEW YORK

-------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1998

-------------------

To the stockholders of
New York State Electric & Gas Corporation:

The holders of Common Stock of New York State Electric & Gas Corporation
("NYSEG") are cordially invited to attend the Annual Meeting of Stockholders of
NYSEG which will be held at the Ramada Inn Geneva Lakefront, 41 Lakefront Drive,
Geneva, New York, on April 29, 1998 at 10:30 A.M. (Eastern Daylight Saving
Time). The meeting is being held for the following purposes:

(1) to consider and approve an Agreement and Plan of Share Exchange
pursuant to which NYSEG will reorganize its corporate structure and
as a result Energy East Corporation, a New York corporation formed by
NYSEG, will become the parent company of NYSEG;

(2) to elect three directors to serve in Class II for a term expiring at
the 2001 Annual Meeting;

(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 NYSEG Common Stock at the close of business on March
10, 1998 will be entitled to notice of and to vote at the meeting. Holders of
record of NYSEG Preferred Stock at the close of business on March 10, 1998 will
be entitled to notice of the meeting.

The Board of Directors requests NYSEG Common Stockholders to mark, sign and
date the accompanying form of proxy and return it in the enclosed envelope,
whether or not such holders expect to be present at the Annual Meeting. The
proxy is revocable by such holders at any time before the exercise thereof, and
the giving of such proxy will not affect such holders' rights to vote in person,
if such holders attend the Annual Meeting.

IN ACCORDANCE WITH NEW YORK LAW, STOCKHOLDERS DO NOT HAVE DISSENTERS'
APPRAISAL RIGHTS IN CONNECTION WITH THE AGREEMENT AND PLAN OF SHARE EXCHANGE
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AND PROSPECTUS.

Mr. Allen E. Kintigh will retire from the Board of Directors as of April 29,
1998. The company would like to express how deeply appreciative it is of his
contributions, loyalty and guidance during his 43 years of dedicated service to
the company.

By Order of the Board of Directors,

DANIEL W. FARLEY
VICE PRESIDENT AND
SECRETARY

Dated: , 1998

Please mark, sign and date the enclosed proxy and return it in the envelope
enclosed for your convenience.
<PAGE>

SUBJECT TO COMPLETION, DATED FEBRUARY 24, 1998

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>

PROXY STATEMENT

FOR

NEW YORK STATE ELECTRIC & GAS
CORPORATION ("NYSEG")

PROSPECTUS
FOR

ENERGY EAST
CORPORATION ("HoldCo")
COMMON STOCK

This Proxy Statement and Prospectus contains both a Proxy Statement for the
Annual Meeting of Stockholders of NYSEG to be held on April 29, 1998 (the
"Annual Meeting") and a Prospectus of HoldCo relating to the issuance of up to
76,000,000 shares of common stock, par value $.01 per share, of HoldCo (the
"HoldCo Common Stock"), upon the consummation of, and subsequent to the
formation of, a holding company structure for NYSEG as described herein. NYSEG
and HoldCo are collectively referred to herein as the "Company."

We propose to reorganize NYSEG's current operations by forming a holding
company structure pursuant to an Agreement and Plan of Share Exchange (the "Plan
of Exchange"), a copy of which is attached hereto as Exhibit A. Under the Plan
of Exchange, all of the outstanding shares of NYSEG's common stock (the "NYSEG
Common Stock") will be exchanged on a share-for-share basis for HoldCo Common
Stock (the "Share Exchange"). The shares of HoldCo Common Stock held by NYSEG
immediately prior to the Share Exchange will be canceled. After the Share
Exchange, each person who owned NYSEG Common Stock immediately prior to the
Share Exchange will own a corresponding number of shares and percentage of the
outstanding HoldCo Common Stock, and HoldCo will own all of the outstanding
shares of NYSEG Common Stock. Our holding company restructuring, including the
Plan of Exchange, also includes certain additional aspects which may be
important to you. See "Proposal 1: The Plan of Exchange--Terms" and "--Present
Businesses."

IF THE SHARE EXCHANGE IS IMPLEMENTED, YOU NEED NOT SURRENDER YOUR NYSEG
STOCK CERTIFICATES FOR STOCK CERTIFICATES OF HOLDCO. SEE "PROPOSAL 1: THE PLAN
OF EXCHANGE--EXCHANGE OF STOCK CERTIFICATES."

------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

------------------------

The principal executive offices of NYSEG are located at Ithaca-Dryden Road,
Ithaca, New York, 14851, telephone number (607) 347-4131. The principal
executive offices of HoldCo are located at One Commerce Plaza, Suite 2006A-20th
Floor, Albany, New York, 12260, telephone number (518) 434-3014. This Proxy
Statement and Prospectus and the accompanying Proxy, solicited on behalf of the
Board of Directors of NYSEG, will be first released to the holders of NYSEG
Common Stock on or about , 1998.

The date of this Proxy Statement and Prospectus is , 1998.

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information...................................................................................... 3
Forward Looking Statements................................................................................. 3
Incorporation of Certain Documents by Reference............................................................ 4
Questions and Answers...................................................................................... 4
Risk Factors............................................................................................... 7
Recent Developments........................................................................................ 8
Information About the Annual Meeting....................................................................... 9
Annual Report.......................................................................................... 9
Outstanding Voting Securities and Voting Rights........................................................ 9
Proposal 1: The Plan of Exchange........................................................................... 10
Terms.................................................................................................. 10
Recommendation of the Board of Directors............................................................... 11
Present Businesses..................................................................................... 12
Reasons for Restructuring.............................................................................. 14
Plan of Exchange....................................................................................... 18
Termination or Amendment of Plan of Exchange........................................................... 19
Conditions to Restructuring............................................................................ 19
Rights of Dissenting Stockholders...................................................................... 19
Exchange of Stock Certificates......................................................................... 19
Common Stock Plans..................................................................................... 19
Listing of HoldCo Common Stock......................................................................... 19
Transfer Agent and Registrar........................................................................... 20
Market Value of NYSEG Common Stock..................................................................... 20
Regulatory Matters..................................................................................... 20
Dividend Policy........................................................................................ 21
Directors and Executive Officers....................................................................... 22
Description of NYSEG Capital Stock..................................................................... 22
Description of HoldCo Capital Stock.................................................................... 23
Possible Effect of Certain HoldCo Provisions and New York Law.......................................... 24
Comparison of NYSEG Common Stock and HoldCo Common Stock............................................... 28
Treatment of NYSEG Preferred Stock..................................................................... 30
Treatment of NYSEG Indebtedness........................................................................ 31
Accounting Treatment................................................................................... 31
Certain Income Tax Consequences........................................................................ 31
Legal Opinions......................................................................................... 32
Experts................................................................................................ 33
Proposal 2: Election of Directors.......................................................................... 33
Proposal 3: Stockholder Proposal........................................................................... 48
Independent Accountants.................................................................................... 50
Deadline for Stockholder Proposals......................................................................... 50
Other Matters.............................................................................................. 50
Cost of Solicitation....................................................................................... 50
Glossary................................................................................................... 51
Exhibit A--Agreement and Plan of Share Exchange............................................................ A-1
Exhibit B--Form of HoldCo Charter.......................................................................... B-1
Exhibit C--Form of HoldCo By-Laws.......................................................................... C-1
</TABLE>

2
<PAGE>
AVAILABLE INFORMATION

NYSEG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC" or "Commission") in accordance with the Exchange Act. Following
completion of the Share Exchange, both HoldCo and NYSEG will file such reports
and certain other information under the Exchange Act. You may read and copy any
such reports, proxy statements and other information at the SEC's public
reference facilities in Washington, D.C., Chicago, Illinois, and New York, New
York. The SEC also maintains an Internet web site at "http://www.sec.gov" that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Certain
securities of NYSEG are listed on the New York Stock Exchange (the "NYSE"). You
may read and copy any such reports, proxy statements and other information
concerning NYSEG at the office of the NYSE at 20 Broad Street, New York, New
York 10005.

HoldCo has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the SEC under the Securities Act of 1933, as amended (the
"Securities Act") to register the HoldCo Common Stock that will be issued
pursuant to the Share Exchange, as well as HoldCo Common Stock that will be
issued in lieu of NYSEG Common Stock under certain NYSEG Common Stock plans. As
permitted by the rules and regulations of the SEC, this Proxy Statement and
Prospectus does not contain all of the information set forth in the Registration
Statement. For further information, reference is made to the Registration
Statement.

Upon completion of the Share Exchange, the HoldCo Common Stock will be
listed on the NYSE. At the time of such listing, the NYSEG Common Stock will be
delisted and will no longer be registered pursuant to Section 12 of the Exchange
Act.

FORWARD LOOKING STATEMENTS

This Proxy Statement and Prospectus contains certain forward-looking
statements. These statements are based upon management's current expectations
and information currently available and are subject to risks and uncertainties
that could cause actual results to differ materially from those projected in
such statements. Whenever we use the words "anticipate," "believe," "estimate,"
"expect," "project," "objective," or similar expressions, they are intended to
identify forward-looking statements. For example, such forward-looking
statements may include, without limitation, statements in connection with the
future payment of dividends, statements or projections as to the Company's
financial results or as to the pursuit of business in new markets, statements in
connection with the regulatory approval process or future regulation of HoldCo
and its subsidiaries, statements in connection with the future businesses or
management of HoldCo and its subsidiaries, and statements in connection with the
effects or benefits of a holding company structure. In addition to the
assumptions and other factors referred to specifically in connection with such
statements, factors that could cause the Company's actual results to differ
materially from those contemplated in any forward-looking statements include,
among others, regulatory developments, the rapidly changing and increasingly
competitive electric and gas utility markets, the ability to obtain adequate and
timely rate relief, cost recovery (including the potential effect of stranded
costs), legal or administrative proceedings, business conditions, technological
developments, changes in the cost or availability of capital, labor
developments, nuclear or environmental incidents, factors affecting the utility
industry in general, such as deregulation and the unbundling of energy services,
weather conditions and changes in fuel supply or cost, and other considerations
that may be disclosed from time to time in HoldCo's or NYSEG's publicly
disseminated documents or filings. HoldCo and NYSEG undertake no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to "incorporate by reference" information into this Proxy
Statement and Prospectus, which means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement and Prospectus, except for any information superseded by information
in this Proxy Statement and Prospectus. This Proxy Statement and Prospectus
incorporates by reference the document set forth below that was previously filed
with the SEC. Such document contains important information about NYSEG, its
subsidiaries and their operations and financial condition.

1. NYSEG's Annual Report on Form 10-K for the year ended December 31, 1997.

We are also incorporating by reference additional documents that we may file
with the SEC between the date of this Proxy Statement and Prospectus and the
termination of the offering made by this Proxy Statement and Prospectus.

NYSEG WILL PROVIDE TO YOU WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST, A
COPY OF ANY DOCUMENTS THAT HAVE BEEN OR MAY BE INCORPORATED IN THIS PROXY
STATEMENT AND PROSPECTUS BY REFERENCE, OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS. WRITTEN OR TELEPHONE REQUESTS SHOULD BE DIRECTED TO MR. D. W. FARLEY,
VICE PRESIDENT AND SECRETARY, NEW YORK STATE ELECTRIC & GAS CORPORATION, P.O.
BOX 3200, ITHACA, NEW YORK 14852-3200, TELEPHONE NUMBER (607) 347-2506. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE INCORPORATED DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY APRIL 22, 1998.

------------------------

WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS. THIS
PROXY STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SHARES OF HOLDCO COMMON STOCK BY ANY PERSON IN
ANY JURISDICTION OR IN ANY CIRCUMSTANCE IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.

Neither the delivery of this Proxy Statement and Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of NYSEG since the date of this Proxy
Statement and Prospectus.

QUESTIONS AND ANSWERS

The following Questions and Answers highlight selected information regarding
the proposed Plan of Exchange, and may not contain all of the information that
is important to you. For a more complete discussion of our holding company
restructuring, including the proposed Plan of Exchange, you should read
carefully this entire document and the attached exhibits and the documents that
are incorporated by reference. For example, the Plan of Exchange (Exhibit A)
provides information regarding the Share Exchange, and HoldCo's Restated
Certificate of Incorporation and By-Laws, each in substantially the form to be
in effect at the effective time of the Share Exchange (Exhibits B and C) set
out, among other things, provisions governing certain rights of HoldCo's
stockholders. A "Glossary" setting forth the location of defined terms used in
this Proxy Statement and Prospectus is located at page 51 for your convenience.

1. WHAT IS THE PROPOSED PLAN OF EXCHANGE?
(See "Proposal 1: The Plan of Exchange--Terms" and "--Present Businesses")

The Board of Directors of NYSEG has unanimously approved a restructuring
pursuant to the Plan of Exchange whereby HoldCo will serve as the parent company
of NYSEG. Although our organizational structure will change, HoldCo will
continue to conduct NYSEG's current businesses through NYSEG and other
subsidiaries of HoldCo.

4
<PAGE>

All NYSEG Common Stock will be exchanged for HoldCo Common Stock on a
share-for-share basis. As an additional aspect of the restructuring, of which
the proposed Plan of Exchange is an integral part, NYSEG has transferred its
coal-fired generating stations to a generation subsidiary formed for that
purpose and will have transferred its subsidiaries to HoldCo and its
subsidiaries by the time the proposed restructuring is consummated.

2. WHY IS THE PLAN OF EXCHANGE BEING PROPOSED?
(See "Proposal 1: The Plan of Exchange--Reasons for Restructuring")

We believe that our proposal represents the optimal corporate structure for
operating in the evolving, restructured energy marketplace. We also believe that
our proposal will result in greater financial, managerial and organizational
flexibility. As a result, we will be in a better position to adapt to the
changing industry and to meet and take advantage of future challenges and
opportunities. Finally, it is important to know that our proposal is an integral
part of NYSEG's overall rate and restructuring plan, which resulted from the
proceeding of the Public Service Commission of the State of New York to address
the future structure of the electric utility industry in New York State. Our
proposal reflects years of careful negotiation in a multi-party collaborative
process to create a fully competitive environment for the supply of electricity
while facilitating the recovery of strandable costs associated with NYSEG's
generation plants.

3. WILL I HAVE TO EXCHANGE MY NYSEG STOCK CERTIFICATES FOR NEW HOLDCO STOCK
CERTIFICATES?
(See "Proposal 1: The Plan of Exchange--Exchange of Stock Certificates")

No. It will not be necessary for you to turn in your NYSEG stock
certificates for HoldCo stock certificates. Your certificates will automatically
represent HoldCo Common Stock.

4. WILL MY DIVIDENDS BE AFFECTED?
(See "Proposal 1: The Plan of Exchange--Dividend Policy")

We expect that quarterly dividends on the HoldCo Common Stock will be paid
on the same dates currently followed by NYSEG with respect to common stock
dividends. For a period of time following the Share Exchange, we expect that the
funds required by HoldCo to enable it to pay common stock dividends will be
derived predominantly from the dividends paid by NYSEG to HoldCo. We anticipate
that such cash dividends paid by NYSEG to HoldCo will be sufficient to enable
HoldCo to pay cash dividends on HoldCo Common Stock and to meet operating and
other expenses. However, we cannot guarantee what the amount of the initial
quarterly dividend on HoldCo Common Stock may be or the payment of future
dividends, since the declaration of such dividends will depend primarily upon
the ability of HoldCo's subsidiaries to pay dividends to HoldCo, which, in turn,
will depend upon the future earnings and financial condition of these
subsidiaries.

5. WHEN WILL THE SHARE EXCHANGE OCCUR?
(See "Proposal 1: The Plan of Exchange--Terms" and "--Conditions to
Restructuring")

If you approve the proposed Plan of Exchange and certain other conditions
are satisfied, the Share Exchange will become effective upon the filing of a
Certificate of Exchange by the Department of State of the State of New York or
as otherwise specified in the Certificate of Exchange. We intend to implement
the Share Exchange as soon as practicable after we receive your approval and all
of the required regulatory approvals.

6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES?
(See "Proposal 1: The Plan of Exchange--Certain Income Tax Consequences")

You will not recognize any gain or loss for federal income tax purposes if
you exchange your NYSEG Common Stock for HoldCo Common Stock.

5
<PAGE>

7. WILL NYSEG PREFERRED STOCK OR BONDS BE EXCHANGED?
(See "Proposal 1: The Plan of Exchange--Treatment of NYSEG Preferred Stock" and
"--Treatment of NYSEG Indebtedness")

Shares of NYSEG's Preferred Stock and NYSEG's first mortgage bonds and other
indebtedness of NYSEG will remain securities and obligations of NYSEG after the
Share Exchange. We decided to leave the NYSEG Preferred Stock and such
indebtedness of NYSEG as securities and obligations of NYSEG because we did not
want to alter, or potentially alter, the nature of the investment represented by
such securities and obligations, namely a direct investment in a regulated
utility.

8. WHERE WILL MY HOLDCO COMMON STOCK BE TRADED?
(See "Proposal 1: The Plan of Exchange--Listing of HoldCo Common Stock")

NYSEG Common Stock is currently traded on the New York Stock Exchange under
the stock symbol "NGE." We expect the HoldCo Common Stock to be listed on the
New York Stock Exchange and, after the Share Exchange, to trade under the stock
symbol "NGE." NYSEG Common Stock will be delisted.

9. WHO WILL MANAGE HOLDCO?
(See "Proposal 1: The Plan of Exchange--Directors and Executive Officers")

After the Share Exchange, the Board of Directors of HoldCo will consist of
those persons who are directors of NYSEG immediately before the Share Exchange.
We anticipate that HoldCo and its subsidiaries will have some common officers.

10. HOW WILL MY PARTICIPATION IN THE DIVIDEND REINVESTMENT AND STOCK PURCHASE
PLAN BE AFFECTED?
(See "Proposal 1: The Plan of Exchange--Common Stock Plans")

All shares of NYSEG Common Stock held under our Dividend Reinvestment and
Stock Purchase Plan will be automatically exchanged for shares of HoldCo Common
Stock. We will continue the Dividend Reinvestment and Stock Purchase Plan with
HoldCo Common Stock after the Share Exchange.

11. WHEN AND WHERE WILL THE ANNUAL MEETING TAKE PLACE?
(See "Information About the Annual Meeting")

The Annual Meeting of Stockholders of NYSEG will be held at 10:30 a.m. on
April 29, 1998 at the Ramada Inn Geneva Lakefront, 41 Lakefront Drive, Geneva,
New York.

12. WHO WILL BE ELIGIBLE TO VOTE ON THE PROPOSED PLAN OF EXCHANGE?
(See "Information About the Annual Meeting--Outstanding Voting Securities
and Voting Rights")

Holders of NYSEG Common Stock at the close of business on March 10, 1998 are
entitled to vote on the proposed Plan of Exchange.

13. WHAT STOCKHOLDER VOTE IS REQUIRED FOR APPROVAL OF THE PROPOSED PLAN OF
EXCHANGE?
(See "Information About the Annual Meeting--Outstanding Voting Securities
and Voting Rights")

Approval of the proposed Plan of Exchange will require the affirmative vote,
in person or by proxy, of two-thirds of the outstanding shares of NYSEG Common
Stock entitled to vote. Pursuant to the terms of NYSEG's Certificate of
Incorporation and the applicable provisions of the New York Business Corporation
Law, each holder of NYSEG Common Stock entitled to vote is entitled to one vote
per share on the proposed Plan of Exchange. Since the requisite regulatory
order, approval or permission has been obtained, the vote of the holders of
NYSEG Preferred Stock is not required in connection with the proposed Plan of
Exchange.

6
<PAGE>
RISK FACTORS

NO ASSURANCE THAT RESTRUCTURING WILL BE BENEFICIAL TO HOLDERS OF HOLDCO
COMMON STOCK. The proposed holding company restructuring will, among other
things, establish a corporate structure that will enhance the Company's ability
to take advantage of business opportunities in the evolving energy and related
markets and outside of NYSEG's present markets. Nevertheless, there can be no
assurance that HoldCo will in fact be able to take advantage of such
opportunities or that if HoldCo does take advantage of such opportunities, that
they will be beneficial to the holders of HoldCo Common Stock.

CERTAIN BUSINESS ACTIVITIES MAY INVOLVE MORE RISK. Following consummation
of the proposed holding company restructuring, HoldCo will be able to pursue
certain business opportunities through its subsidiaries without having to obtain
the prior approval of the Public Service Commission of the State of New York
(the "PSC"). Such business opportunities might involve more risk than would be
permitted to be pursued by NYSEG as a regulated electric and gas utility, but
with the opportunity to seek higher potential returns commensurate with any
increased risk. Pursuit of such opportunities, however, while offering the
potential of greater reward, could have either a positive or an adverse effect
on the value of a stockholder's investment, depending upon the return actually
realized from such opportunities. There can be no assurance that such businesses
will be successful or, if unsuccessful, that they will not have a material
adverse effect on HoldCo. Any losses incurred by such businesses will not be
recoverable through the electric and natural gas rates of NYSEG. As HoldCo
engages in more such business activities, the market price of HoldCo's Common
Stock will be affected to a lesser extent by the performance of NYSEG.

DIVIDENDS ON HOLDCO COMMON STOCK WILL BE DEPENDENT ON DIVIDENDS PAID TO
HOLDCO BY NYSEG. For a period of time following the Share Exchange, the funds
required by HoldCo to enable it to pay dividends on HoldCo Common Stock are
expected to be derived predominantly from the dividends paid by NYSEG to HoldCo.
Accordingly, the ability of HoldCo to pay such dividends, as a practical matter,
will be governed by the ability of NYSEG to pay common stock dividends. It is
anticipated that such cash dividends paid by NYSEG to HoldCo will be sufficient
to enable HoldCo to pay cash dividends on HoldCo Common Stock and to meet
operating and other expenses. The ability of NYSEG to pay dividends on its
common stock will continue to be subject to the preferential dividend rights of
the holders of NYSEG's preferred stock and NYSEG's preference stock, if any, and
to the common stock dividend restrictions currently contained in NYSEG's
Certificate of Incorporation (the "NYSEG Charter") and in NYSEG's first mortgage
bond indenture. In addition, although it has no present intention to do so, it
is possible that NYSEG may need to issue additional preferred stock in the
future to meet its capital requirements. Such additional preferred stock will
also have preferential dividend rights. Because NYSEG will remain subject to
regulation by the PSC under the Public Service Law of the State of New York (the
"PSL"), the amount of its earnings and dividends will be affected by the manner
in which the PSC regulates NYSEG. In addition, pursuant to the terms of the
Agreement Concerning the Competitive Rate and Restructuring Plan of NYSEG, which
was approved by the PSC with minor modifications in January 1998 (as so modified
and approved, the "Restructuring Agreement"), common stock dividends paid by
NYSEG to HoldCo will generally be limited in any calendar year to 100% of net
income available for common stock. It is expected that the transfer of NYSEG's
coal-fired generation assets and the transfer of NYSEG's subsidiaries to HoldCo
and its subsidiaries will not have an adverse effect on NYSEG's ability to pay
common stock dividends to HoldCo since NYSEG will retain those assets which
account for a substantial portion of its net earnings. There can be no
guarantee, however, of the amount of the initial quarterly dividend on HoldCo
Common Stock or of the payment of future dividends, as the declaration of such
dividends will primarily be dependent upon the receipt of dividends from
subsidiaries of HoldCo which, in turn, will be dependent upon the future
earnings and financial condition of these subsidiaries. See "Proposal 1: The
Plan of Exchange--Dividend Policy."

POSSIBLE EFFECT OF CERTAIN HOLDCO PROVISIONS. Certain provisions of
HoldCo's Restated Certificate of Incorporation to be in effect at the effective
time of the Share Exchange (the "HoldCo Charter") and the

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By-Laws of HoldCo to be in effect at the effective time of the Share Exchange
(the "HoldCo By-Laws") could discourage certain types of transactions that may
involve an actual or threatened change of control of HoldCo. While these
provisions are designed to reduce the vulnerability of HoldCo to an unsolicited
proposal for a takeover that, in the Board's view, does not have the effect of
maximizing long-term stockholder value or is otherwise not in the best interests
of the stockholders of HoldCo, they may, individually or in the aggregate,
delay, discourage or prevent a tender offer or unsolicited takeover attempt that
a stockholder might believe to be in his or her best interest, including those
attempts that might result in a premium over the market price for HoldCo Common
Stock. Such provisions may also adversely affect the market price for HoldCo
Common Stock. See "Proposal 1: The Plan of Exchange--Possible Effect of Certain
HoldCo Provisions and New York Law."

RECENT DEVELOPMENTS

UNSOLICITED TENDER OFFER. On July 18, 1997, a subsidiary of Omaha,
Nebraska-based CalEnergy Company, Inc. ("CalEnergy") commenced an unsolicited
tender offer to purchase 9.9% of NYSEG Common Stock for $24.50 per share in cash
as part of a stated plan to acquire all of NYSEG's Common Stock. The Board of
Directors of NYSEG, after a comprehensive and careful review, unanimously
recommended that the holders of NYSEG Common Stock reject CalEnergy's
unsolicited tender offer. The Board also decided to reject CalEnergy's proposal
to commence merger negotiations for a transaction in which CalEnergy would
acquire all of NYSEG's Common Stock at $27.50 per share, as not being in the
best interests of NYSEG or its stockholders, customers, employees and other
constituencies. On August 15, 1997, CalEnergy announced that it was dropping its
unsolicited bid to take over NYSEG because its $24.50 tender offer failed to
attract the 9.9% of NYSEG Common Stock it sought. NYSEG expensed substantially
all costs associated with this matter in the third quarter of 1997.

LEGAL PROCEEDINGS. Ten purported class action lawsuits were commenced
against NYSEG and some or all of its directors in the New York State Supreme
Court (Broome County, New York County, Kings County and Tompkins County) on or
about July 16, 1997 and various dates thereafter through August 1997. The
lawsuits allege, among other things, that the plaintiffs are being deprived of
the opportunity to realize the full value of their investment in NYSEG as a
result of the defendants' failure to fulfill their fiduciary duties and seek to
maximize stockholder value in light of CalEnergy's offer to negotiate a
transaction by which CalEnergy would acquire all outstanding shares of NYSEG
Common Stock for $27.50 per share. The lawsuits seek generally, among other
things, injunctive and declaratory relief requiring the defendants to fulfill
their fiduciary duties to maximize stockholder value, and as to certain of the
actions, damages. On October 23, 1997, a Consolidated Amended and Supplemental
Class Action Complaint in the New York State Supreme Court (New York County) was
served on NYSEG and all of its directors. The lawsuit consolidates, amends and
supplements the ten purported class action lawsuits and incorporates claims from
the federal action described in the next paragraph.

A lawsuit was commenced on or about August 12, 1997, against NYSEG and its
directors in the United States District Court for the Southern District of New
York. The lawsuit seeks, among other things, declaratory and injunctive relief
ordering the defendants to correct alleged misleading disclosures and omissions
relating to director removal provisions in documents filed by NYSEG with the SEC
in connection with the CalEnergy tender offer.

NYSEG and counsel for the plaintiffs have agreed to settle and dismiss the
lawsuits referred to in the two immediately preceding paragraphs. See "Proposal
1: The Plan of Exchange--Comparison of NYSEG Common Stock and HoldCo Common
Stock--Removal of Directors; Cumulative Voting; Filling of Vacancies."

JOINT VENTURE WITH CENTRAL MAINE POWER COMPANY. NYSEG and Central Maine
Power Company ("CMP") have signed an agreement to form a jointly-owned company
to distribute natural gas to Maine and New Hampshire customers in areas not
currently served by a natural gas utility. Various regulatory

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<PAGE>

approvals are required before the joint venture could operate a new gas
distribution service. The opportunity for new retail distribution of natural gas
also depends on completion of either or both of two new pipeline proposals made
by separate organizations. Those proposals are currently under federal and state
regulatory review.

INFORMATION ABOUT THE ANNUAL MEETING

This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of NYSEG to be used
at NYSEG's Annual Meeting of Stockholders to be held at 10:30 a.m. on April 29,
1998, at the Ramada Inn Geneva Lakefront, 41 Lakefront Drive, Geneva, New York.
This Proxy Statement and Prospectus and the form of proxy will be first mailed
to holders of NYSEG Common Stock on or about , 1998. The
mailing address of NYSEG's principal executive office is P.O. Box 3287, Ithaca,
New York 14852-3287.

ANNUAL REPORT

An Annual Report to Stockholders for the year ended December 31, 1997,
including consolidated financial statements, has been mailed to all holders of
record of NYSEG Common Stock.

OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS

The close of business on March 10, 1998 (the "Record Date") has been fixed
as the date for determining the holders of NYSEG Common Stock entitled to vote
at the meeting (the "Stockholders"). As of the Record Date, NYSEG had
outstanding shares of Common Stock. Holders of NYSEG Serial
Preferred Stock (Cumulative, $100 Par Value) and Serial Preferred Stock
(Cumulative, $25 Par Value) (collectively, the "NYSEG Preferred Stock") are not
entitled to vote on the Plan of Exchange since the requisite regulatory order,
approval or permission has been obtained and are not entitled to vote on any
other matter at the meeting. Holders of NYSEG 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 such
Stockholder may cast all of such votes for a single nominee for director or may
distribute them among all or several nominees, as such 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 NYSEG's Dividend
Reinvestment and Stock Purchase Plan (the "Dividend Reinvestment Plan"). If you
are an employee of NYSEG 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 NYSEG and participate in the Tax Reduction Act Employee
Stock Ownership Plan (the "TRASOP"), the proxy constitutes an instruction to
vote all your shares in such plan in the manner specified on the proxy.

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.

In voting for Proposal 1 (the Plan of Exchange), Stockholders may vote in
favor of, or against, or may abstain from voting on, the proposal. The vote
required to approve Proposal 1 is the affirmative vote, in person or by proxy,
of two-thirds of the outstanding NYSEG Common Stock entitled to vote. As a
result, abstentions will have the same legal effect as a vote against Proposal
1.

In voting for Proposal 2 (the election of directors), Stockholders may vote
in favor of all nominees or withhold their votes as to all, or as to specific,
nominees. The three nominees receiving the highest number of affirmative votes
cast, in person or by proxy, by holders of NYSEG Common Stock entitled to vote
shall

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<PAGE>

be elected to serve as directors. As a result, votes that are withheld will not
be counted and will have no effect on the vote in connection with Proposal 2.

In voting for Proposal 3 (the Stockholder Proposal), Stockholders may vote
in favor of, or against, or may abstain from voting on, the proposal. The vote
required to approve the Stockholder Proposal is the affirmative vote, in person
or by proxy, of a majority of the votes cast by holders of NYSEG Common Stock
entitled to vote. As a result, abstentions will be voted neither "for" nor
"against" and will have no effect on the vote in connection with the Stockholder
Proposal.

Under the rules of the 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, Proposals 1 and 3 are considered "non-discretionary
items" 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 Proposals 1 and 3. Accordingly, such "broker non-votes" will have the
same legal effect as a vote against Proposal 1 and 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") will be counted. Broker non-votes will not be
counted for purposes of determining whether a quorum is present.

PROPOSAL 1: THE PLAN OF EXCHANGE (ITEM 1 ON PROXY CARD)

TERMS

NYSEG proposes to reorganize its operations by forming a holding company
structure pursuant to the Plan of Exchange, a copy of which is attached hereto
as Exhibit A. Under the terms of the Plan of Exchange, all of the outstanding
shares of HoldCo Common Stock, which will then be owned by NYSEG, will be
canceled and all of the outstanding shares of NYSEG Common Stock will be
exchanged by HoldCo on a share-for-share basis for HoldCo Common Stock. Upon
consummation of the Share Exchange, each owner of NYSEG Common Stock immediately
prior to the Share Exchange will own a corresponding number of shares and
percentage of the outstanding HoldCo Common Stock, and HoldCo will own all of
the outstanding shares of NYSEG Common Stock. If the Share Exchange is
implemented, it will not be necessary for Stockholders to surrender their
existing stock certificates for stock certificates of HoldCo. See "Proposal 1:
The Plan of Exchange--Exchange of Stock Certificates."

As an additional aspect of NYSEG's holding company restructuring, including
the proposed Plan of Exchange, NYSEG has transferred its coal-fired generating
stations consisting of its Kintigh, Homer City, Milliken, Goudey, Greenidge,
Hickling and Jennison generating stations and has commenced transferring certain
associated assets and liabilities (collectively, the "Generation Assets") to NGE
Generation, Inc. ("GenSub"), a New York corporation. GenSub was organized to
engage in the generation business and to own and operate all or a part of the
Generation Assets.(1) GenSub has already been transferred to HoldCo. In
addition, NYSEG intends to transfer to HoldCo, NGE Enterprises, Inc.
("Enterprises"), a Delaware corporation, and NYSEG's CMP joint venture
subsidiary. See "Recent Developments--Joint Venture With Central Maine Power
Company." Enterprises was organized to hold the stock of certain nonutility
subsidiaries of NYSEG and to conduct nonutility business activities. NYSEG also
intends to transfer Somerset Railroad Corporation ("SRC"), a New York
corporation, to GenSub. SRC was organized to own and operate a rail line which
is used primarily to transport coal and other materials to NYSEG's Kintigh

- ------------------------

(1) In addition to GenSub, NYSEG may create one or more other generation
subsidiaries.

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<PAGE>

Generating Station. The reorganization pursuant to the Plan of Exchange, the
transfer of the Generation Assets to GenSub, the transfer of Enterprises, GenSub
and NYSEG's CMP joint venture subsidiary to HoldCo and the transfer of SRC to
GenSub are herein referred to collectively as the "Restructuring." NYSEG will
retain its hydroelectric and nuclear generation assets and its electric
transmission and distribution and natural gas assets, other than its ownership
interests in the CMP joint venture subsidiary. NYSEG intends to sell its 18%
interest in the Nine Mile Point nuclear generating unit No.2 ("NMP2"). See
"Proposal 1: The Plan of Exchange--Present Businesses" and "--Reasons for
Restructuring--The Restructuring Agreement."

The Board of Directors of NYSEG believes that the Plan of Exchange is in the
best interests of the Stockholders, as further detailed below. The Plan of
Exchange has been approved by the Boards of Directors of NYSEG and of HoldCo,
and has been executed by authorized officers of each company. If the
Stockholders approve the Plan of Exchange and the other conditions described
below are satisfied, the Share Exchange will become effective upon the filing of
a Certificate of Exchange by the Department of State of the State of New York or
as otherwise specified in the Certificate of Exchange (the "Effective Time").
Stockholder approval of the Plan of Exchange will constitute approval of certain
amendments to the Common Stock Plans (as hereinafter defined) providing for the
future use of HoldCo Common Stock in lieu of NYSEG Common Stock under the Common
Stock Plans and the assumption by HoldCo of responsibility for the Common Stock
Plans. See "Proposal 1: The Plan of Exchange--Reasons for Restructuring,"
"--Conditions to Restructuring" and "--Common Stock Plans."

After the Effective Time of the Share Exchange, HoldCo Common Stockholders
will have the right to vote on corporate action concerning HoldCo in accordance
with the Business Corporation Law of the State of New York (the "BCL"), the
HoldCo Charter and the HoldCo By-Laws. NYSEG Preferred Stock will remain
securities of NYSEG after the Share Exchange. There are currently no issued and
outstanding shares of NYSEG's Preference Stock (Cumulative, $100 Par Value) (the
"NYSEG Preference Stock"). The Share Exchange will not result in any change in
the outstanding indebtedness of NYSEG, which will continue to be obligations of
NYSEG after the Share Exchange. NYSEG's first mortgage bonds will continue to be
secured by a first mortgage lien on all properties of NYSEG. See "Proposal 1:
The Plan of Exchange--Treatment of NYSEG Preferred Stock" and "--Treatment of
NYSEG Indebtedness."

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors of NYSEG recommends that Stockholders vote FOR the
Plan of Exchange. In making its decision to recommend the Plan of Exchange to
the Stockholders, the Board of Directors considered many factors. All material
factors considered by the Board of Directors in recommending approval of the
proposed Plan of Exchange are discussed below.

Spurred by state and federal regulatory developments and escalating
competitive pressures, the energy industry is evolving at an accelerated pace
and is undergoing a fundamental transformation into a competitive marketplace.
To respond effectively to the increased competition and restructured regulatory
environment, the Board of Directors of NYSEG has determined that in addition to
responding to competition in its existing markets, NYSEG must also position
itself to take advantage of potential business opportunities outside its present
markets.

In the opinion of the Board of Directors of NYSEG, it is desirable in the
long run to pursue these business opportunities through a holding company
structure. As discussed below, the Plan of Exchange will help NYSEG to separate
its utility business from its nonutility businesses, thereby increasing
operating flexibility, enhancing the ability to take advantage of new business
opportunities in a timely manner and broadening the range of available financing
techniques. Furthermore, the separation of NYSEG's businesses will provide a
better structure for regulators to assure that there is no cross-subsidization
of costs or transfer of business risk between its utility and nonutility
businesses.

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The Board of Directors of NYSEG considered the financial cost to the Company
of implementing the Plan of Exchange, the expenses associated with obtaining the
required approvals, the expenses associated with transferring the Generation
Assets, the costs of this proxy solicitation and the other expenses incurred in
connection with registering the HoldCo Common Stock with the Commission. In
addition, after the Effective Time both HoldCo and NYSEG will be required to
provide reports to public investors and file periodic reports and make certain
other filings with the Commission, thereby increasing the expense to the Company
on an ongoing basis. In the Board's view, these expenses are acceptable in light
of the benefits to the Company.

The Board of Directors of NYSEG also considered the effects on the holders
of NYSEG Common Stock and the holders of NYSEG Preferred Stock in determining
that the Share Exchange should only involve the NYSEG Common Stock. The Board's
decision to exchange NYSEG Common Stock for HoldCo Common Stock was primarily
based on the Board's desire to confer the expected benefits of the Share
Exchange on those investors who are best placed to enjoy such benefits, namely
the holders of NYSEG Common Stock. The Board's decision not to provide for the
exchange of NYSEG Preferred Stock in the Share Exchange was primarily based on
the Board's desire not to alter, or potentially alter, the nature of the
investment decision represented by the NYSEG Preferred Stock (namely, a direct
investment in a regulated utility) and the conclusion that the benefits to the
holders of NYSEG Preferred Stock of maintaining their investment as a direct
investment in a regulated entity with a priority position with respect to
dividends and assets on liquidation outweighed any detriment associated with not
having an interest in the nonutility aspects of the Company's business.

------------------------

On balance, the Board of Directors of NYSEG concluded that the benefits to
the Company and the Stockholders of a holding company structure far outweighed
the time and expense involved.

THE BOARD OF DIRECTORS OF NYSEG
RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PLAN OF EXCHANGE

---

PRESENT BUSINESSES
NYSEG

NYSEG, organized under the laws of the State of New York in 1852, is engaged
principally in the business of generating, purchasing, transmitting and
distributing electricity, and purchasing, transporting and distributing natural
gas. The service territory, 99% of which is located outside the corporate limits
of cities, is in the central, eastern and western parts of the State of New
York. The service territory has an area of approximately 19,800 square miles and
a population of 2,400,000. The larger cities in which NYSEG serves both
electricity and natural gas are Binghamton, Elmira, Auburn, Geneva, Ithaca and
Lockport. NYSEG's customer mix is sufficiently diversified so that no customer
accounts for 5% or more of either electric or natural gas revenues. For the
twelve months ended January 31, 1998, 85% of operating revenues was derived from
electric service and 15% from natural gas service. For this period, 87% of
operating income before federal income taxes was derived from electric service
and the balance from natural gas service.

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<PAGE>
CURRENT CORPORATE STRUCTURE

NYSEG's current corporate structure is as follows:

[CORPORATE STRUCTURE CHART]

NYSEG has been making investments through Enterprises in providers of
energy, financial and environmental services, including XENERGY Inc.
("XENERGY"). XENERGY is an energy services, information systems and
energy-consulting company serving utilities, governmental agencies and end-use
energy consumers. In addition, by order of the Federal Energy Regulatory
Commission (the "FERC") dated June 9, 1997, XENERGY received authorization to
sell wholesale power at market-based rates.

HOLDCO

HoldCo, a New York corporation, was organized for the purpose of carrying
out the Restructuring. HoldCo is currently a direct subsidiary of NYSEG. At the
Effective Time of the Share Exchange, HoldCo will become the parent of NYSEG.
HoldCo is not expected to be an operating company at the parent company level.
NYSEG has transferred GenSub to HoldCo and intends to transfer its other
subsidiaries to HoldCo and its subsidiaries. All the business and operations
conducted by NYSEG and its subsidiaries immediately before the Effective Time
will continue to be conducted by HoldCo and its subsidiaries immediately after
the Effective Time, and the consolidated assets and liabilities of NYSEG and its
subsidiaries immediately before the Effective Time will be the same as the
consolidated assets and liabilities of HoldCo and its subsidiaries immediately
after the Effective Time. After consummation of the Restructuring, HoldCo will
engage in nonutility business activities through certain of its subsidiaries,
including an energy services subsidiary, which will engage in activities such as
energy, financial and environmental services. As business conditions warrant,
additional subsidiaries of HoldCo, or of any HoldCo subsidiary, may be formed.

HOLDING COMPANY STRUCTURE

The reorganized corporate structure of the Company immediately after the
Restructuring is expected to be as follows:

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<PAGE>

[CORPORATE STRUCTURE CHART]

REASONS FOR RESTRUCTURING

THE REGULATORY FRAMEWORK

Increased competition is undoubtedly the most significant issue facing the
electric utility industry today. The purpose of the Restructuring is to
establish the optimal corporate structure to respond to competition. With the
passage of the Public Utility Regulatory Policies Act of 1978 and the National
Energy Policy Act of 1992, there has been a significant increase in the level of
competition in the market for the generation and sale of electricity. In 1996,
the FERC issued Order No. 888, which opened wholesale power markets to increased
competition by requiring, among other things, that public utilities owning,
controlling or operating transmission facilities file non-discriminatory open
access transmission tariffs. In early 1997, NYSEG, along with the other New York
State electric utilities, submitted a filing to FERC for approval of a
restructuring of the wholesale electric market in New York State, including the
establishment of an independent system operator ("ISO") that would control and
operate most electric transmission facilities in New York State as an integrated
system on a non-discriminatory basis, a power exchange that would establish
visible spot market prices for wholesale electricity and a New York State
Reliability Council.

The natural gas business has become increasingly competitive as a result of
federal legislative and regulatory initiatives. As a consequence, natural gas
distribution companies and larger end users can now purchase gas supply from a
wide choice of producers and brokers in an essentially unregulated market. The
federal regulatory changes in the natural gas industry culminated in 1992 when
the FERC issued Order No. 636. Among other things, Order 636 mandates the
unbundling of interstate pipeline sales service and establishes certain open
access transportation requirements. One consequence of service unbundling has
been the creation of a new environment that mixes competition and regulation.
This mixture of competition and regulation creates new opportunities for energy
service providers and their customers.

At the state level, the PSC issued an Opinion and Order in December 1994
that set forth the policy framework to guide the transition of New York's gas
distribution industry to a more competitive marketplace after the implementation
of FERC Order 636. Under NYSEG's natural gas tariffs, which were approved by a
PSC Order issued in March 1996, all of NYSEG's customers--residential, small
business, commercial, and industrial--may buy natural gas from other sources
under a small customer aggregation program, with NYSEG providing delivery
service for a separate fee.

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<PAGE>

The transition to a more competitive electric industry in New York State was
set in motion in August 1994 when the PSC instituted an investigation of issues
related to a restructuring of the electric industry in New York State (the
"Competitive Opportunities Proceeding"). The Restructuring is an integral part
of NYSEG's overall rate and restructuring plan, which resulted from the PSC's
Competitive Opportunities Proceeding and which will facilitate the recovery of
strandable costs associated with the Generation Assets. The overall objective of
the Competitive Opportunities Proceeding was to identify regulatory and
ratemaking practices that would assist in the transition to a more competitive
electric industry.

On May 20, 1996, the PSC issued its Order in the Competitive Opportunities
Proceeding (the "Competitive Opportunities Order"), which set forth the PSC's
vision and goals for the future of the electric industry in New York State. The
Competitive Opportunities Order directed NYSEG and four other New York electric
utilities each to file a rate and restructuring plan consistent with the PSC's
vision and goals for increased competition. NYSEG submitted its rate and
restructuring plan in response to the Competitive Opportunities Order, which
culminated in the Restructuring Agreement. The Restructuring Agreement
contemplates, among other things, the Restructuring, subject to certain
conditions and restrictions as more fully discussed below. These conditions or
restrictions are not expected to materially restrict HoldCo's entry into
nonutility businesses. The Restructuring Agreement reflects years of careful
negotiation in a multi-party collaborative process, fostered by the PSC itself,
to create a fully competitive environment for the supply of electricity, at both
wholesale and retail, to benefit customers throughout the State of New York. The
Restructuring is designed to implement a corporate structure that will
facilitate the Company's participation in a competitive utility marketplace and
the pursuit of nonutility business activities, which should benefit NYSEG's
Stockholders, while at the same time alleviating concerns regarding market power
in generation, which should benefit NYSEG's customers.

THE RESTRUCTURING AGREEMENT

The following discussion is intended to be a summary of certain material
provisions of the Restructuring Agreement. This discussion is qualified in its
entirety by reference to the full text of the Restructuring Agreement which is
filed as an exhibit to the Registration Statement of which this Proxy Statement
and Prospectus is a part.

TERM OF THE AGREEMENT

The electric price cap and price reduction provisions of the Restructuring
Agreement cover a five-year period referred to as the "Price Cap Period." Other
provisions continue thereafter in accordance with the terms of the Restructuring
Agreement.

RELATIONSHIP TO EXISTING SETTLEMENT AGREEMENTS

NYSEG was operating under a three-year electric settlement agreement which
was approved by the PSC in 1995 (the "1995 Electric Settlement"), and which was
to expire July 31, 1998. The Restructuring Agreement supersedes the 1995
Electric Settlement. As a result, NYSEG will forgo the revenue increases
scheduled for the second and third years of the 1995 Electric Settlement. NYSEG
is currently providing natural gas service under a three-year gas settlement
agreement approved by the PSC in 1995. NYSEG is currently negotiating with the
PSC Staff and others to set natural gas rates for the next four years.

RATE PLAN

The forgone revenue increases for the second and third years of the 1995
Electric Settlement will result in a price reduction of approximately 7% from
rates previously approved for residential and commercial customers. Prices will
be reduced 5% in each of the next five years for eligible industrial, commercial
and public authority customers who are heavy users of electricity. Overall
average electric

15
<PAGE>

prices for all other customers will be capped for four years and reduced an
additional 5% at the beginning of the fifth year. Net savings resulting from
securitization and reductions in the gross receipts tax will be returned to
customers in a manner to be determined by the PSC. NYSEG will have the ability
to accelerate depreciation and amortization of certain assets. In addition,
there will be no fuel adjustment clause, no sharing of flexible rate discounts
and a limited opportunity for uncontrollable cost recovery. During the Price Cap
Period, NYSEG will also supplement existing rate incentive programs or institute
new rate incentive programs. During each year of the Price Cap Period, NYSEG's
electric earnings will be capped at 12% of common equity, and NYSEG's electric
earnings floor will be 9.0%, exclusive of any common stock repurchases.

RETAIL ACCESS

NYSEG has already established a pilot program and will phase in direct
retail access for all eligible retail electric customers to other qualified
retail power suppliers, so that beginning August 1, 1999, NYSEG will offer
retail access to all of its remaining customers who are not receiving service
under NYSEG negotiated or incentive rates, provided that a FERC-approved ISO is
operating. Customers taking service under NYSEG negotiated or incentive rates
shall be eligible for retail access after their contracts expire unless their
contracts with NYSEG permit such customers to become eligible earlier. Customers
selecting a new supplier will have power delivered by NYSEG from their chosen
suppliers commencing no later than December 31, 1999.

COST RECOVERY

1. COMPETITIVE GENERATION PLAN. In order to promote a more fully
competitive generation marketplace, facilitate an auction sale free and clear of
NYSEG's mortgage indenture, and establish a regulatory asset to recover any
potential above market costs, NYSEG has transferred substantially all the
Generation Assets to GenSub. NYSEG will conduct an auction of the Generation
Assets in accordance with the terms of the Restructuring Agreement. A NYSEG
affiliate is permitted to participate in the auction as a bidder, but it will
not have any special rights or privileges. The auction will be completed and the
transactions resulting therefrom will close no later than August 1, 1999.

If the NYSEG affiliate submits a bid and is the successful bidder on some or
all of the Generation Assets, GenSub may continue to own some or all of the
Generation Assets. GenSub may also purchase other generation assets from third
parties and enter into power purchase agreements as part of its power marketing
and trading function. A regulatory asset of NYSEG was created for regulatory
accounting purposes for the difference between the book value of the Generation
Assets and the fair value net of tax determined in accordance with NYSEG's first
mortgage indenture. Upon the subsequent sale of the Generation Assets pursuant
to the auction process, such regulatory asset will be adjusted to reflect
auction proceeds net of tax and transaction costs.(2) If no bids for a plant
acceptable to NYSEG are received, an appraisal process will be used and
completed no later than August 1, 1999, or as soon as practicable thereafter for
purposes of adjusting the regulatory asset and in that case GenSub would
continue to own the plants so appraised.

- ------------------------

(2) Pursuant to the Restructuring Agreement, NYSEG will be allowed to recover
from customers any shortfall between the book value of the Generation Assets
less funded deferred taxes and the net after tax auction proceeds. This
allows NYSEG to record a regulatory asset in the amount of any such
difference in accordance with Financial Accounting Standards No. 71. In the
event that such auction proceeds exceed the book value of the Generation
Assets less funded deferred taxes, a regulatory credit will be created for
such difference. Such regulatory credit will be used by NYSEG to write down
its investment in NMP2, and any such credit remaining after such writedown
will be used by NYSEG as directed by the PSC.

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<PAGE>

2. NUGS, NMP2, HYDROELECTRIC AND REGULATORY ASSETS. Stranded costs will be
recovered through retail electric rates during the Price Cap Period. After the
Price Cap Period, remaining NYSEG regulatory assets, other than those resulting
from the auction process, and hydroelectric, nonutility generator and (except in
the event of the auction described below) nuclear fixed costs will be recovered
(for the life of the amortization period, contract or license) through a
non-bypassable wires charge. The regulatory asset created by the auction will
continue to be recovered through a competitive transition charge.

NYSEG, which intends to sell its 18% interest in NMP2, will propose to its
cotenants the auctioning of ownership of NMP2 and will vote for such auction.
The auction and the auction process would be subject to prior PSC approval, and
any sale or transfer of any ownership of NMP2 would be subject to approval by
the PSC, the Nuclear Regulatory Commission (the "NRC") and any other regulatory
bodies having jurisdiction. If NYSEG's 18% interest in NMP2 is duly sold or
transferred to a non-NYSEG entity, then upon completion of such sale or transfer
a regulatory asset of NYSEG will be created on NYSEG's books for any difference
between the book value of such plant, less funded deferred taxes, and the net
after-tax auction proceeds.

In the event NYSEG achieves nonutility generator ("NUG") contract cost
savings net of transaction costs during the Price Cap Period through NUG
contract termination or restructuring, but excluding securitization, 80% of any
net savings achieved through such NUG contract termination or restructuring will
be flowed through to customers as determined by the PSC subject to certain
allocations of such savings to NYSEG for certain reimbursements. The remaining
20% of any net savings achieved through such NUG contract termination or
restructuring will be retained by NYSEG. Commencing after the Price Cap Period,
all net NUG contract cost savings will be subject to flow through to customers
in a manner to be determined by the PSC.

CORPORATE STRUCTURE

In approving the Restructuring Agreement, the PSC approved NYSEG's proposed
corporate structure as contemplated by the Restructuring and as described
herein. In addition, NYSEG and the PSC Staff agreed, among other things, to
certain conditions, including but not limited to, the following conditions
regarding affiliate operations and relationships:

1. Common stock dividends paid by NYSEG to HoldCo will generally be limited
in any calendar year to 100% of net income available for common stock.

2. HoldCo and its subsidiaries, including NYSEG, may have common officers.
Transfers and loans of NYSEG employees are subject to certain restrictions.

3. NYSEG and its affiliates will be permitted to maintain one common pension
fund at HoldCo.

4. No payment or imputation of royalties or positive benefits to customers
will be made by or with respect to NYSEG or any affiliates.

5. In addition, certain standards of conduct will apply:

- NYSEG and HoldCo's other subsidiaries must operate as separate entities,
keep separate books and records, and must be in different locations,
subject to certain exceptions.

- When affiliate transactions occur, they must be at arms-length and will be
priced at tariff rates, if applicable, or at least at fully distributed
costs. All affiliate transactions in excess of $100,000, other than
tariffed transactions and certain services, will be pursuant to written
contracts filed with the PSC.

- The provision of competitive information or data by NYSEG to its
affiliates will be subject to certain restrictions. Subject to certain
restrictions, HoldCo or any affiliate may use certain intangible assets of
HoldCo or NYSEG, or identify itself as being affiliated with HoldCo or
NYSEG.

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<PAGE>

- PSC Staff will have direct access to the books and records of NYSEG and,
prior to the auction, of GenSub. In addition, PSC Staff will have direct
access to the books and records of GenSub, HoldCo, and any majority-held
affiliate for certain transactions.

- NYSEG will have its own debt rating. NYSEG will not guarantee the
securities of any affiliate, nor will it pledge any of its assets as
security for any indebtedness of HoldCo or its affiliates.

BENEFITS OF A HOLDING COMPANY STRUCTURE

NYSEG could continue to pursue nonutility business opportunities through
Enterprises and other subsidiaries. NYSEG believes, however, that it is more
desirable in the long run to conduct its business through a holding company
structure.

The holding company structure is a well-established form of organization for
companies conducting multiple lines of business. It is a common form of
organization for nonutility companies and for those regulated companies, such as
telephone utilities and water utilities, which are not subject to the Public
Utility Holding Company Act of 1935, as amended (the "Holding Company Act"). In
addition, it is utilized by many electric and gas companies which are involved
in nonutility activities.

There are many benefits of a holding company structure. The holding company
structure will enable HoldCo to engage in nonutility businesses without
obtaining the prior approval of the PSC, thereby enabling HoldCo to pursue such
business opportunities in a timely manner. The holding company structure also
will permit the use of financing techniques that are more directly suited to the
particular requirements, characteristics and risks of nonutility operations
without affecting the capital structure or creditworthiness of NYSEG, and will
increase financial flexibility by allowing the design and implementation of
capitalization ratios appropriate for the capital and business requirements of
each subsidiary.

The holding company structure separates the operations of utility and
nonutility businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk between utility and nonutility businesses. A holding company
structure also is desirable because it is easier for investors to analyze and
value individual lines of business. Moreover, the use of a holding company
structure provides legal protection against the imposition of liability on
regulated utilities for the results of nonutility business activities. In short,
the holding company structure is a highly desirable form of conducting
nonutility business activities within the same corporate group.

NYSEG's electricity purchase, transmission and distribution and natural gas
purchase, transportation and distribution businesses are expected to account for
the predominant part of HoldCo's earnings for the foreseeable future.

PLAN OF EXCHANGE

The Plan of Exchange, attached hereto as Exhibit A, has been approved by the
Boards of Directors of NYSEG and of HoldCo, and has been executed by authorized
officers of each company. The Plan of Exchange provides that (i) each share of
HoldCo Common Stock outstanding immediately prior to the Effective Time shall be
canceled and thereupon shall constitute an authorized but unissued share of
HoldCo Common Stock and (ii) each share of NYSEG Common Stock outstanding at the
Effective Time shall, by operation of law and without any further action, at
such time be exchanged for one share of HoldCo Common Stock and HoldCo shall
thereupon have acquired and be the holder of each outstanding share of NYSEG
Common Stock. The Plan of Exchange further provides that, without any further
action on the part of the Stockholders, each outstanding certificate which,
immediately before the Effective Time, represented NYSEG Common Stock, shall be
deemed and treated for all corporate purposes to represent the ownership of the
same number of shares of HoldCo Common Stock as though a surrender or transfer
and exchange had taken place.

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<PAGE>

TERMINATION OR AMENDMENT OF PLAN OF EXCHANGE

Notwithstanding Stockholder approval of the Plan of Exchange, the Plan of
Exchange may be terminated at any time prior to the Effective Time either by
HoldCo or NYSEG by resolution adopted by their respective Boards of Directors.
By mutual consent of their respective Boards of Directors, NYSEG and HoldCo may
amend the Plan of Exchange at any time prior to the Effective Time. However,
following approval of the Plan of Exchange by the Stockholders, no such
amendments may be made which either change the number or kind of shares to be
received pursuant to the Share Exchange or materially adversely affect the
rights of the stockholders of NYSEG in the judgment of the Board of Directors of
NYSEG.

CONDITIONS TO RESTRUCTURING

Consummation of the Restructuring, including the Plan of Exchange, is
subject to receipt of the required approval of the Plan of Exchange by the
Stockholders at the Annual Meeting. NYSEG received FERC approval on December 16,
1997, PSC approval on January 27, 1998, SEC approval on , 1998 and NRC
approval on , 1998. See "Proposal 1: The Plan of Exchange-- Regulatory
Matters."

RIGHTS OF DISSENTING STOCKHOLDERS

Pursuant to Section 910(a)(1)(C) of the BCL, holders of NYSEG Common Stock
and NYSEG Preferred Stock will not have dissenters' rights in connection with
the Plan of Exchange because the NYSEG Common Stock is listed on a national
securities exchange and because NYSEG Preferred Stock will not be exchanged in
the Share Exchange.

EXCHANGE OF STOCK CERTIFICATES

If the Plan of Exchange is approved and the Share Exchange is carried out,
it will not be necessary for Stockholders to surrender their existing stock
certificates for stock certificates of HoldCo. The Stockholders will
automatically become holders of HoldCo Common Stock and the present stock
certificates representing NYSEG Common Stock will automatically represent HoldCo
Common Stock on a share-for-share basis. After the Effective Time, when
presently outstanding certificates representing NYSEG Common Stock are presented
for transfer, new certificates bearing the name of HoldCo will be issued.

COMMON STOCK PLANS

NYSEG currently maintains the Dividend Reinvestment Plan and the following
stock-related employee plans: the 1997 Stock Option Plan (which was approved by
the Stockholders at the 1997 Annual Meeting of Stockholders), the Employees'
Stock Purchase Plan, the Tax Deferred Savings Plan for Salaried Employees, the
Tax Deferred Savings Plan for Hourly Paid Employees and the TRASOP
(collectively, the "Common Stock Plans"). The TRASOP will be discontinued in
1998.

From and after the Effective Time, HoldCo Common Stock will be used in lieu
of NYSEG Common Stock whenever stock is required in connection with the Common
Stock Plans and HoldCo will assume responsibility for the Common Stock Plans.
Amendments to the Common Stock Plans to provide for the foregoing will take
effect at the Effective Time. Stockholder approval of the Plan of Exchange also
will constitute Stockholder approval of such amendments to the Common Stock
Plans.

LISTING OF HOLDCO COMMON STOCK

The HoldCo Common Stock is expected to be approved for listing on the NYSE
and, after the Effective Time, expected to trade under the stock symbol "NGE."
At the time of the listing of HoldCo Common Stock, the NYSEG Common Stock will
be delisted from the NYSE.

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<PAGE>

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for HoldCo Common Stock will be ChaseMellon
Shareholder Services, L.L.C. The address for the transfer agent and registrar
is: P.O. Box 590, Ridgefield Park, New Jersey 07660.

MARKET VALUE OF NYSEG COMMON STOCK

NYSEG Common Stock is listed on the NYSE. The high and low sales prices of
the NYSEG Common Stock on were $ and $ , respectively.

REGULATORY MATTERS

The Restructuring has been approved by the PSC and is an integral part of
NYSEG's comprehensive rate and restructuring plan to satisfy electric industry
restructuring goals established by the PSC in the Competitive Opportunities
Proceeding. Upon completion of the Restructuring, NYSEG will continue to be an
electric utility engaged in the transmission and distribution of electricity,
and, in the case of its hydroelectric and nuclear generation assets, the
generation of electricity, and a natural gas utility. NYSEG intends to sell its
18% interest in NMP2. NYSEG will remain subject to regulation by the PSC and the
FERC. It is expected that GenSub will be subject to light PSC regulation, and
will be subject to FERC jurisdiction. HoldCo will not be subject to regulation
by the PSC or the FERC, except to the extent that the rules or orders of such
regulatory agencies impose restrictions on HoldCo's and its subsidiaries'
relationships with NYSEG. Also, after the Effective Time, both HoldCo and NYSEG
will be subject to the reporting requirements of the Exchange Act by virtue of
having classes of securities registered under that act.

The FERC has held that the transfer of common stock of a public utility
company, such as NYSEG, from its existing stockholders to a holding company in a
transaction such as the Share Exchange constitutes a transfer of the "ownership
and control" of the facilities of such utility, and is thus a "disposition of
facilities" subject to FERC review and approval under Section 203 of the Federal
Power Act. On December 16, 1997, NYSEG received FERC approval authorizing the
Share Exchange and the transfer of certain power sales contracts and a tariff
associated with certain of the Generation Assets.

A provision in the Atomic Energy Act requires NRC consent for the transfer
of control of NRC licenses. The NRC Staff has in the past asserted that this
provision applies to the creation of a holding company over an NRC-licensed
utility company in a transaction such as the Share Exchange. NYSEG owns an 18%
interest in NMP2 and holds an NRC owner's license. On , 1998, NYSEG
received NRC approval under the Atomic Energy Act for the transfer of control of
such license resulting from the Share Exchange.

As a result of the Restructuring, HoldCo will own 100% of the common stock
of NYSEG and GenSub and therefore will become an affiliate of both NYSEG and
GenSub. Section 9(a)(2) of the Holding Company Act requires the prior approval
of the Commission under Section 10 of the Holding Company Act for any person to
become an affiliate of more than one public utility company. On , 1998,
the Company received SEC approval authorizing the Restructuring and exempting
the Company from all provisions of the Holding Company Act, except Section
9(a)(2) thereof, pursuant to the exemption provided by Section 3(a)(1) thereof.
The basis for such exemption is that NYSEG and GenSub are predominantly
intrastate in character and carry on their business substantially in a single
state (i.e., New York State), which is the same state in which HoldCo, NYSEG and
GenSub are organized.

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<PAGE>

DIVIDEND POLICY

It is expected that quarterly dividends on the HoldCo Common Stock will be
paid on the same dates currently followed by NYSEG with respect to common stock
dividends. The most recent quarterly dividend paid on the NYSEG Common Stock was
$.35 per share payable on February 15, 1998.

There can be no guarantee of the amount of the initial quarterly dividend on
HoldCo Common Stock or of the payment of future dividends because the rate and
timing of dividends on HoldCo Common Stock will depend upon the future earnings
and financial condition of HoldCo and its subsidiaries, including NYSEG, and
upon other relevant factors affecting HoldCo's dividend policy which are not
presently determinable. The ability of HoldCo to pay common stock dividends will
be governed by the ability of HoldCo's subsidiaries to pay dividends to HoldCo.
For a period of time following the Share Exchange, the funds required by HoldCo
to enable it to pay dividends on HoldCo Common Stock are expected to be derived
predominantly from the dividends paid by NYSEG to HoldCo. In the future,
dividends from subsidiaries other than NYSEG may also be a source of funds for
dividend payments by HoldCo.

NYSEG's ability to make dividend payments to HoldCo will be subject to the
availability of earnings and the needs of its utility business. NYSEG intends to
pay dividends to HoldCo, if available, in amounts which, to the extent not
otherwise provided by dividends and other funds from subsidiaries of HoldCo,
will be sufficient for HoldCo to pay cash dividends on HoldCo Common Stock and
to pay the operating expenses of HoldCo and for such other corporate purposes as
the Board of Directors of HoldCo may determine. Because NYSEG will remain
subject to regulation by the PSC, the amount of its earnings and dividends will
be affected by the manner in which the PSC regulates NYSEG. In addition,
pursuant to the terms of the Restructuring Agreement, common stock dividends
paid by NYSEG to HoldCo will generally be limited in any calendar year to 100%
of net income available for common stock. The ability of NYSEG to pay dividends
on its common stock will continue to be subject to the preferential dividend
rights of the holders of the NYSEG Preferred Stock and NYSEG Preference Stock,
if any. In addition, although it has no present intention to do so, it is
possible that NYSEG may need to issue additional preferred stock in the future
to meet its capital requirements. Such additional preferred stock will also have
preferential dividend rights.

The transfer of the Generation Assets and the transfer by NYSEG of its
subsidiaries to HoldCo and its subsidiaries are not expected to have an adverse
effect on NYSEG's ability to pay common stock dividends to HoldCo since NYSEG
will retain those assets which account for a substantial portion of its net
earnings.

NYSEG is subject to restrictions on the payment of dividends contained in
its Charter and in its first mortgage bond indenture. The NYSEG Charter provides
that after dividends on all outstanding NYSEG Preferred Stock and NYSEG
Preference Stock, if any, have been paid, or declared and funds set apart for
their payment, the NYSEG Common Stock is entitled to such dividends as may be
declared by the Board of Directors out of funds legally available therefor. So
long as NYSEG Preferred Stock remains outstanding, cash dividends can be paid on
NYSEG Common Stock only out of earned surplus (as determined under the NYSEG
Charter) accumulated since December 31, 1946. Such dividends are limited to 75%
of Net Income Available for Common Stock (as defined in the NYSEG Charter) if
Common Stock Equity (as defined in the NYSEG Charter) falls below 25% of Total
Capitalization (as defined in the NYSEG Charter), and to 50% if Common Stock
Equity falls below 20% of Total Capitalization. NYSEG's Common Stock Equity at
January 31, 1998, was approximately 53% of Total Capitalization. No dividends on
NYSEG Common Stock can be paid unless all sinking fund requirements of the NYSEG
Preferred Stock and NYSEG Preference Stock, if any, are met.

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<PAGE>

NYSEG's first mortgage bond indenture provides that so long as any first
mortgage bonds shall be outstanding, NYSEG will not declare or pay any dividends
on its common stock (except a dividend in NYSEG Common Stock), or make any other
distribution (by way of purchase or otherwise) to the holders of NYSEG Common
Stock (other than in an amount not greater than the proceeds of additional
common stock financings), except a payment or distribution out of earned surplus
(as determined under the NYSEG first mortgage bond indenture) accumulated since
December 31, 1946.

As of January 31, 1998, neither the NYSEG Charter nor the first mortgage
bond indenture operated to limit the amount of regular quarterly dividends that
NYSEG pays on its common stock. Dividends on the NYSEG Preferred Stock will
continue to be paid at the times, at the rates and pursuant to the terms
provided for in the various series of such stock.

DIRECTORS AND EXECUTIVE OFFICERS

Immediately after the Effective Time, the Board of Directors of HoldCo shall
consist of those persons who are directors of NYSEG immediately prior to the
Effective Time. If the Stockholders approve the Plan of Exchange, they will be
considered also to have ratified the election of such persons as the directors
of HoldCo. It is anticipated that the directors of NYSEG immediately after the
Effective Time will be those persons who are directors of NYSEG immediately
prior to the Effective Time. It is also anticipated that HoldCo and its
subsidiaries will have some common officers.

Following the Share Exchange, it is expected that the following persons,
each of whom is currently an executive officer of NYSEG, will hold, in addition,
the offices of HoldCo indicated below.

<TABLE>
<CAPTION>
NAME OFFICE
<S> <C>

</TABLE>

HoldCo and NYSEG each may have directors or executive officers who are not
directors or executive officers of the other. For information with respect to
NYSEG directors and executive officers, executive compensation, security
ownership, and certain relationships and related transactions, see "Proposal 2:
Election of Directors" in this Proxy Statement and Prospectus and NYSEG's Annual
Report on Form 10-K for the year ended December 31, 1997, which is incorporated
herein by reference.

DESCRIPTION OF NYSEG CAPITAL STOCK

NYSEG has an authorized capitalization consisting of: (i) 90,000,000 shares
of common stock having a par value of $6.66 2/3 per share, of which 67,508,281
shares were issued and outstanding as of January 31, 1998; (ii) 2,455,000 shares
of Serial Preferred Stock having a par value of $100 per share, of which 844,400
shares were issued and outstanding as of January 31, 1998; (iii) 10,800,000
shares of Serial Preferred Stock having a par value of $25 per share, of which
3,000,000 shares were issued and outstanding as of January 31, 1998; and (iv)
1,000,000 shares of Preference Stock having a par value of $100 per share, of
which none were issued and outstanding as of January 31, 1998. The outstanding
NYSEG Preferred Stock has preference over the NYSEG Common Stock, and would have
preference over shares of NYSEG Preference Stock if any such shares were
outstanding, as to dividends and assets on liquidation. If shares of NYSEG
Preference Stock were issued and outstanding, such shares would have preference
over the NYSEG Common Stock as to dividends and assets on liquidation.

The Stockholders have cumulative voting rights for the election of directors
and one vote per share for all other purposes at the Annual Meeting. Holders of
NYSEG Preferred Stock are not entitled to vote at the Annual Meeting. See
"Information About the Annual Meeting--Outstanding Securities and Voting
Rights."

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DESCRIPTION OF HOLDCO CAPITAL STOCK
GENERAL

The HoldCo Charter will provide for an authorized capitalization consisting
of (i) 150,000,000 shares of HoldCo Common Stock, par value $.01 per share, and
(ii) 10,000,000 shares of preferred stock, par value $.01 per share ("HoldCo
Preferred Stock"). As of the Record Date, 150 shares of HoldCo Common Stock were
outstanding and held by NYSEG, and no other shares of HoldCo capital stock were
issued or outstanding. The HoldCo Charter will provide that, to the extent
permitted by the BCL and the HoldCo Charter, the Board of Directors of HoldCo is
authorized, at any time or from time to time, to establish and designate one or
more series of HoldCo Preferred Stock and to fix the number of shares and the
relative rights, preferences and limitations of each such series.

DIVIDENDS

Subject to any prior rights of HoldCo Preferred Stock, if any should become
outstanding, dividends on HoldCo Common Stock will be paid if, when and as
determined by the Board of Directors of HoldCo from time to time out of funds
legally available therefor. The HoldCo Charter will not contain certain
restrictions on the declaration, payment and amount of dividends on common stock
as are contained in the NYSEG Charter. See "Proposal 1: The Plan of
Exchange--Dividend Policy."

VOTING RIGHTS

Holders of HoldCo Common Stock are entitled to one vote for each share held
by them on all matters submitted to the stockholders of HoldCo. The HoldCo
Charter will provide for the adoption of a plan of merger or consolidation by
the affirmative vote of stockholders entitled to cast a majority of the votes;
in the absence of such provision a two-thirds vote would be required. Holders of
HoldCo Common Stock will not have cumulative voting rights in the election of
directors. The HoldCo Charter and By-Laws will require the affirmative vote of
the stockholders entitled to cast three-fourths of the votes entitled to be cast
in order to alter, amend, repeal, or adopt any provision inconsistent with,
certain specified provisions of the HoldCo By-Laws. HoldCo's Board of Directors
will be divided into three classes serving staggered three year terms. See
"Proposal 1: The Plan of Exchange--Possible Effect of Certain HoldCo Provisions
and New York Law."

LIQUIDATION

In the event of any liquidation, dissolution or winding up of HoldCo, either
voluntary or involuntary, after payment or provision for payment shall have been
made of the amounts to which the holders of HoldCo Preferred Stock shall be
entitled under the provisions of any series of HoldCo Preferred Stock
established by the Board of Directors, the holders of HoldCo Common Stock will
be entitled, to the exclusion of the holders of the HoldCo Preferred Stock of
any series, to share ratably, according to the number of shares held by them, in
all remaining assets of HoldCo available for distribution.

PREEMPTIVE AND OTHER RIGHTS

The holders of HoldCo capital stock will not be entitled to any preemptive
rights to subscribe for or purchase any part of any issue, sale or offering of
any shares of HoldCo of any class or series, now or hereafter authorized, or of
any options, warrants or rights to subscribe for or purchase any such shares, or
of any securities convertible into, exchangeable for, or carrying options,
warrants or rights to subscribe for or purchase, any such shares, regardless of
whether such issue, sale or offering is for cash, property, services or
otherwise. The HoldCo Common Stock is not subject to redemption or to any
further calls or assessments and is not entitled to the benefit of any sinking
fund provisions. The shares of HoldCo Common Stock to be issued in connection
with the Share Exchange when issued will be fully paid and non-assessable.

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<PAGE>

POSSIBLE EFFECT OF CERTAIN HOLDCO PROVISIONS AND NEW YORK LAW

Certain provisions of the HoldCo Charter, the HoldCo By-Laws, the BCL and
the PSL could be deemed to have the effect of delaying, discouraging or
preventing tender offers or other unsolicited attempts to take over and acquire
the business of HoldCo on terms which some stockholders might believe to be in
their best interests. By discouraging potential takeover bids, these provisions
might diminish the opportunity for HoldCo's stockholders to sell their shares at
a premium over then prevailing market prices. It was determined to include
provisions in the HoldCo Charter and HoldCo By-Laws that might have such effects
in order to ensure that the Board of Directors have the ability to evaluate any
proposed acquisition or change in control of HoldCo in light of the interests of
the Company and all of its constituencies without being subject to undue
pressure.

Set forth below is a discussion of the possible effects of such provisions
of the HoldCo Charter, the HoldCo By-Laws, the BCL and the PSL. Reference is
hereby made, and the following discussion is qualified in its entirety by
reference, to the full texts of the HoldCo Charter and the HoldCo By-Laws, which
are attached hereto as Exhibits B and C, respectively, and to the relevant
provisions of the BCL and the PSL.

HOLDCO DIRECTORS

The HoldCo By-Laws will provide that HoldCo directors may only be removed by
holders of a majority of shares of HoldCo Common Stock for cause and only at a
meeting of stockholders. Directors may not be removed without cause by the
stockholders, except in the case of directors elected by any class or series of
stock (other than HoldCo Common Stock) voting separately as a class or series
when so entitled by the provisions of the HoldCo Charter. Holders of HoldCo
Common Stock would be unable to remove a director without cause and hence would
have more difficulty in forcing changes in the composition of the majority of
the Board of Directors. In addition, the HoldCo Charter and By-Laws will not
provide for a minimum and maximum number of directors and the HoldCo By-Laws
will not permit stockholders to increase or decrease the number of directors.
The HoldCo By-Laws will provide that a majority of the Board of Directors may
fix the number of directors, and in the case of an increase in the number of
directors, shall thereupon elect such additional directors. Such provisions
would encourage any person who may be attempting to take over HoldCo, including
those holding a majority of shares, to deal with the then current Board of
Directors. Stockholders would be required to amend the By-Laws, which would
require a supermajority vote, in order to decrease or increase the number of
directors. The HoldCo By-Laws will provide that, except as otherwise provided in
the HoldCo Charter, any vacancies on the Board of Directors of HoldCo resulting
from death, resignation, removal or disability, or any other cause may be filled
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum, and not by the stockholders. Such provisions
could have the effect of discouraging unsolicited takeover proposals for HoldCo.

ADVANCE NOTICE PROCEDURES

The HoldCo By-Laws will contain certain advance notice procedures which
stockholders must comply with in order to make nominations of candidates for
election as directors of HoldCo or to bring other business before an annual
meeting of stockholders of HoldCo (the "Advance Notice Procedures").

The Advance Notice Procedures will provide that only persons who are
nominated by, or at the direction of, the Board of Directors of HoldCo, or by a
stockholder who has given written, timely notice meeting certain requirements to
the Secretary of HoldCo, will be eligible for election as directors of HoldCo.
The Advance Notice Procedures will also provide that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Board of Directors of HoldCo, or by a stockholder who has
given written, timely notice meeting certain requirements to the Secretary of
HoldCo of such stockholder's intention to bring such business before such annual
meeting.

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<PAGE>

Under the Advance Notice Procedures, in order to be timely, notice of
stockholder nominations to be made at, or notice of business to be brought
before, an annual meeting must be received by HoldCo not less than 60 days nor
more than 90 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders (the anniversary date for HoldCo's first annual
meeting shall be deemed to be April 29, 1999); provided that, in the event that
the annual meeting is called for a date that is not within 30 calendar days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever occurs first. These by-law provisions will provide a more orderly
procedure for conducting stockholder meetings and will provide the Board of
Directors with a meaningful opportunity prior to stockholder meetings to inform
stockholders, to the extent deemed necessary or desirable by the Board of
Directors, of any business proposed to be conducted at such meetings, together
with any recommendation of the Board of Directors. Also, by requiring advance
notice of nominations by stockholders, these by-law provisions will afford the
Board of Directors a meaningful opportunity to consider the qualifications of
the proposed nominees and, to the extent deemed necessary or desirable by the
Board of Directors, to inform stockholders about such qualifications.

Although the Advance Notice Procedures will not give the HoldCo Board of
Directors any power to approve or disapprove stockholder nominations for the
election of directors or business to be brought before the annual meeting, they
may have the effect of precluding a contest for the election of directors or the
consideration of business if the proper procedures are not followed and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to HoldCo and its stockholders. The Advance Notice
Procedures may also provide sufficient time for HoldCo to institute litigation
or take other appropriate steps to prevent the nominee of a stockholder
attempting to acquire control of HoldCo or the Board of Directors from being
elected or serving, or to respond or prevent such business from being acted
upon, if such action is thought to be necessary or desirable for any reason.

SPECIAL MEETINGS OF STOCKHOLDERS AND RIGHT TO ACT BY UNANIMOUS WRITTEN
CONSENT

The HoldCo By-Laws will provide that special meetings of stockholders may be
called only by the Chairman or by the President, and shall be called by the
Chairman or the President or Secretary at the request in writing of a majority
of the Board of Directors. Stockholders will not be permitted to call, or to
require that the Board of Directors call, a special meeting of stockholders.
Moreover, the business permitted to be transacted at a special meeting of
stockholders will be limited to business that is specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
Chairman, the President or the Board of Directors or otherwise properly brought
before the special meeting by or at the direction of the Board of Directors. A
stockholder will be unable to force stockholder consideration of a proposal over
the opposition of the Board of Directors of HoldCo by calling a special meeting
of stockholders.

In addition, HoldCo's Charter will provide that the stockholders may take
action without a meeting by written consent, but only if such consent is signed
by the holders of all outstanding shares entitled to vote thereon. Such
provision of the HoldCo Charter, together with the provisions relating to the
calling of special meetings described above, may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting and would
prevent the holders of less than all of the outstanding shares entitled to vote
thereon from using the written consent procedure to take stockholder action.

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CLASSIFIED BOARD OF DIRECTORS

The BCL provides that a board of directors may be classified into three
classes, serving staggered three-year terms. The HoldCo Charter will provide
that HoldCo's Board of Directors will be classified into three classes. HoldCo's
classified Board of Directors will provide a greater likelihood of continuity,
knowledge and experience on the Board of Directors because at any one time,
one-third of the Board of Directors would be in its second year of service and
one-third would be in its third year of service. A classified Board would cause
any person who may be attempting to take over HoldCo, including those holding a
majority of shares, to deal with the then current Board of Directors. Generally,
such a person would be unable to force immediate changes in the composition of
the majority of the Board of Directors since the terms of approximately
one-third of the incumbent directors would expire each year and it would require
at least two annual meetings for such person to change a majority of the Board
of Directors, as opposed to being able to achieve control in one annual meeting.
Similarly, an attempt to amend the HoldCo Charter to eliminate the classified
board provision would require at least two annual meetings, since under New York
law, the HoldCo Charter could only be amended if authorized by the HoldCo Board
of Directors followed by a vote of the stockholders and it would require any
person attempting to so amend the HoldCo Charter to control a majority of the
votes of HoldCo's Board of Directors, which as discussed above, would require at
least two annual meetings to achieve. These provisions could have the effect of
discouraging unsolicited takeover proposals for HoldCo or impeding a business
combination between HoldCo and a significant stockholder.

NO CUMULATIVE VOTING

The HoldCo Charter will not provide for cumulative voting in the election of
directors. Under cumulative voting, it is possible for representation on a board
of directors to be obtained by an individual or group of individuals who own
less than a majority of the voting stock. Such a stockholder or group may have
interests and goals which are not consistent with, and indeed may be in conflict
with, those of a majority of stockholders. The Board of Directors of HoldCo
believes that each director should represent all of the stockholders, rather
than the interests of any special constituency, and that the presence on the
Board of Directors of HoldCo of one or more directors representing such a
constituency could disrupt or impair the efficient management of HoldCo. The
lack of cumulative voting could discourage the accumulation of blocks of HoldCo
Common Stock and therefore could tend to make temporary increases in the market
price of HoldCo Common Stock, which could result therefrom, less likely to
occur.

AUTHORIZED SHARES

HoldCo will be authorized to issue significantly more shares of common stock
than NYSEG. After the Effective Time, HoldCo will have authorized and unissued
approximately 83,000,000 shares of HoldCo Common Stock and 10,000,000 shares of
HoldCo Preferred Stock.

The Board of Directors of HoldCo will have the authority to issue the
unissued HoldCo Common Stock, or any part thereof, and, to the extent permitted
by the BCL and the HoldCo Charter, the full authority to determine the terms of
any series of the HoldCo Preferred Stock without further action by the
stockholders except as required by law or applicable stock exchange
requirements. For example, the NYSE, on which the HoldCo Common Stock will be
listed, currently specifies stockholder approval as a prerequisite for listing
shares in several instances, including acquisition transactions where the
present or potential issuance of shares could result in an increase in the
number of shares outstanding by 20% or more.

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Although HoldCo has no current plans for the issuance of any additional
HoldCo Common Stock or HoldCo Preferred Stock (other than HoldCo Common Stock in
connection with the Share Exchange and pursuant to the Common Stock Plans), such
shares could be used in connection with acquisitions of stock or assets of other
companies, to provide funds for construction of facilities and/or other
corporate purposes. Dividend requirements and any redemption, sinking fund or
conversion provision pertaining to shares of the HoldCo Preferred Stock, if
authorized and issued, may have an adverse effect on the availability of
earnings for distribution to holders of HoldCo Common Stock and for use with
respect to other corporate purposes. While there is no present intention to
issue such shares except as set forth above, the number of authorized shares of
HoldCo Common Stock and shares of HoldCo Preferred Stock will insure that shares
will be available, if needed, for issuance in connection with raising additional
capital, acquisitions, and other corporate purposes and, in the case of HoldCo
Common Stock, to support the issuance of HoldCo Preferred Stock or other
securities convertible into or exercisable for HoldCo Common Stock.

An effect of having authorized but unissued shares of HoldCo Common Stock
and HoldCo Preferred Stock may be to enable the HoldCo Board of Directors to
discourage an unsolicited takeover attempt or other transaction to obtain
control of HoldCo or to make such transaction more difficult to complete. Such
HoldCo Common Stock or HoldCo Preferred Stock might be issued by the HoldCo
Board of Directors without stockholder approval in a manner which might prevent
the completion of such takeover transaction or which might make the completion
of such takeover transaction more difficult or costly by diluting the voting or
other rights of the proposed acquiror. Although the Board of Directors of HoldCo
currently has no intention of doing so, shares of HoldCo Preferred Stock could
be issued in a manner which could have the effect of discouraging unsolicited
takeover attempts that the Board of Directors of HoldCo does not believe are in
the best interests of stockholders. Such HoldCo Preferred Stock could be issued
entitling holders to vote separately as a class or series on any proposed merger
or consolidation, to convert HoldCo Preferred Stock into a large number of
HoldCo Common Stock or other securities, to require redemption at a specified
price under prescribed circumstances related to a change of control, or to
exercise other rights designed to impede an unsolicited takeover that the Board
of Directors of HoldCo determines are not in the best interests of stockholders.
In addition, the authorized but unissued HoldCo Common Stock or HoldCo Preferred
Stock could be used in connection with the adoption of a rights plan, pursuant
to which the HoldCo Board of Directors could issue rights granting the holders
thereof, other than a person acquiring in excess of a specified percentage of
shares of HoldCo Common Stock without the consent of the HoldCo Board of
Directors, a right to purchase from HoldCo additional shares of HoldCo Common
Stock (or their equivalent) at a price below the then current market price for
such shares. The effect of such a plan would be to discourage any person from
acquiring shares in excess of such specified percentage without the approval of
the HoldCo Board of Directors.

SUPERMAJORITY APPROVAL REQUIRED FOR CERTAIN AMENDMENTS TO HOLDCO BY-LAWS

In general, approval of amendments to the HoldCo By-Laws will require the
affirmative vote of a majority of the Board of Directors or the affirmative vote
of the stockholders entitled to cast a majority of the votes entitled to be
cast. The HoldCo Charter and the HoldCo By-Laws will require supermajority
stockholder approval for the alteration, amendment, repeal of, or the adoption
by the stockholders of any provision inconsistent with, certain specified
provisions of the HoldCo By-Laws. Such by-law amendments will require the
affirmative vote of the stockholders entitled to cast at least three-fourths of
the votes entitled to be cast.

The HoldCo By-Law provisions which will not be able to be amended without a
supermajority vote relate generally to the Advance Notice Procedures, special
meetings of stockholders, the structure of the HoldCo Board of Directors, and
the amendment of the supermajority requirements. Since the supermajority
requirements will make it more difficult for the stockholders to amend such
provisions, the supermajority requirements could have the effect of discouraging
unsolicited takeover proposals for HoldCo that the Board of Directors of HoldCo
determines are not in the best interests of stockholders.

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BCL SECTION 912

Section 912 of the BCL prohibits a resident domestic corporation (a New York
corporation which has certain additional connections with New York) from
engaging in a business combination (as defined in Section 912) with an
interested stockholder (generally, the beneficial owner of 20% or more of a
corporation's voting stock) for five years following the time such stockholder
became an interested stockholder unless prior to the time that the stockholder
became an interested stockholder, the corporation's board of directors approved
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder. After the expiration of the five-year
period, such business combinations may occur only if approved by a majority vote
of disinterested stockholders, or if specific requirements as to consideration
paid to holders of common stock and preferred stock are met.

REGULATORY APPROVAL OF A MERGER OR TAKEOVER INVOLVING HOLDCO

Under Section 70 of the PSL, no gas corporation or electric corporation may
directly or indirectly acquire the stock or bonds of any other corporation
incorporated for, or engaged in, the same or a similar business unless
authorized by the PSC. That statute also provides that, in general, no stock
corporation of any description, domestic or foreign, other than a gas
corporation or electric corporation, may purchase or acquire, take or hold, more
than ten percent (10%) of the voting capital stock of any gas corporation or
electric corporation organized or existing under or by virtue of the laws of New
York State unless with the consent of, and subject to the terms and conditions
set by, the PSC. No consent may be given by the PSC to any such acquisition
under Section 70 of the PSL unless it has been shown that such acquisition is in
the public interest. An "electric corporation" is defined to generally include
any corporation, company, partnership and person owning, operating or managing
any electric plant. A "gas corporation" is defined to generally include any
corporation, company, partnership and person owning, operating or managing any
gas plant. In the event of a merger, consolidation or takeover transaction
involving HoldCo, any regulatory approvals required for such a transaction would
depend on the structure and other details of the transaction. The necessary
approvals could include approval of the PSC under Section 70 of the PSL.

COMPARISON OF NYSEG COMMON STOCK AND HOLDCO COMMON STOCK

As New York corporations, both NYSEG and HoldCo are governed primarily by
the BCL. Holders of NYSEG Common Stock, whose rights as Stockholders are
currently governed by the NYSEG Charter and the By-Laws of NYSEG (the "NYSEG
By-Laws"), will become as a result of the Share Exchange holders of HoldCo
Common Stock, whose rights as stockholders will be governed by the HoldCo
Charter and the HoldCo By-Laws. Certain differences arise due to this change in
governing charters and by-laws. With the exception of these differences, the
rights of the holders of HoldCo Common Stock will not be materially different
from the rights of the holders of NYSEG Common Stock. The following discussion
is not intended to be a complete statement of all differences affecting the
rights of stockholders, but summarizes the principal differences between the
rights of the holders of HoldCo Common Stock and the rights of Stockholders.
This discussion is qualified in its entirety by reference to the full texts of
the HoldCo Charter, HoldCo By-Laws, the NYSEG Charter, and the NYSEG By-Laws.
The HoldCo Charter and the HoldCo By-Laws are attached hereto as Exhibits B and
C, respectively. The NYSEG Charter and the NYSEG By-Laws in effect on the date
hereof are included as exhibits to NYSEG's Annual Report on Form 10-K for the
year ended December 31, 1997, which is incorporated herein by reference.

RESTRICTIONS ON DIVIDENDS

The NYSEG Charter contains certain restrictions which limit the declaration,
payment and amount of dividends on NYSEG Common Stock and the HoldCo Charter
will not contain any such restrictions on HoldCo Common Stock dividends. See
"Proposal 1: The Plan of Exchange--Dividend Policy" and
"--Description of HoldCo Capital Stock."

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REMOVAL OF DIRECTORS; CUMULATIVE VOTING; FILLING OF VACANCIES

The HoldCo By-Laws will permit holders of a majority of the shares of HoldCo
Common Stock to remove directors of HoldCo only for cause and only at a meeting
of stockholders. If the Plan of Exchange is consummated, holders of HoldCo
Common Stock will not have the ability to remove directors without cause under
any circumstances. However, when so entitled by the provisions of the HoldCo
Charter, directors of HoldCo elected by any class or series of stock (other than
HoldCo Common Stock) may be removed without cause by such class or series,
voting separately as a class or series.

The NYSEG Charter and By-Laws by their terms permit Stockholders holding a
majority of the shares of NYSEG Common Stock to remove directors of NYSEG with
or without cause and at a meeting of Stockholders or by written consent.
However, NYSEG's Charter and By-Laws (unlike HoldCo's) also provide for
cumulative voting, and Section 706(c)(1) of the BCL provides that, in the case
of a corporation having cumulative voting, no director may be removed when the
votes cast against his removal would be sufficient to elect him if voted
cumulatively in an election at which the same total number of votes were cast
and the entire board, or the entire class of directors of which he is a member,
were then being elected.

Section 402(c) of the BCL provides that a certificate of incorporation may
set forth any provision that is not inconsistent with the BCL, and Section
601(c) of the BCL provides that the by-laws may contain any provision not
inconsistent with the BCL. Because NYSEG's Charter and By-Law provisions
authorizing a majority of the shares of NYSEG Common Stock to remove directors
of NYSEG with or without cause are (in NYSEG's view) inconsistent with Section
706(c)(1), NYSEG believes that such NYSEG Charter and By-Law provisions are
invalid and inoperative.

NYSEG has been involved in certain lawsuits in state and federal court (the
"Lawsuits") in which an issue has arisen involving the nature of NYSEG's
Stockholders' ability to remove NYSEG directors. See "Recent Developments--Legal
Proceedings." The Lawsuits, which arose out of NYSEG's response to the plan
disclosed by CalEnergy in July 1997 to acquire NYSEG (which plan was abandoned
in August 1997), contend, among other things, that NYSEG's position as stated
above is incorrect. The Consolidated Amended and Supplemental Class Action
Complaint consolidating the state court actions alleges:

. . . The majority removal provision of the Charter and By-Laws of NYSEG
. . . is not inconsistent with the BCL, but is only limited by the
provisions of Section 706(c)(1), and a majority of shareholders may
remove a director without cause at a vote where the number voting
against removal would be insufficient to elect the removed director at a
normal election. Insofar as the majority removal provisions of the NYSEG
Charter and By-laws permit removal by a majority written consent, either
(1) Section 706(c)(1) does not apply because it applies only to actual
shareholder votes at meetings, and not to majority written consents, or
(2) the majority written consent provision itself may be invalid or
inoperable, when the number of shareholders not signing the written
consent would be sufficient to elect the director in question at a
regular election because of the difficulty of ascertaining the wishes of
the non-signers. In either case, the remainder of the majority removal
provision remains valid.

NYSEG and counsel for the plaintiffs in the Lawsuits have agreed to settle
and dismiss the Lawsuits on terms that include, among other things, the above
disclosure, but do not include the payment of any money to the purported class
plaintiffs. NYSEG has agreed not to oppose a petition for fees and expenses by
counsel for the purported class in an amount not to exceed $275,000, and to pay
up to that amount as awarded by the court. If the settlement is approved, the
issue raised in the Lawsuits will not be decided by a court, but in any event,
since the HoldCo Charter will not provide for cumulative voting, Stockholder
approval of the Plan of Exchange would obviate the issue going forward, and a
majority of shares of HoldCo Common Stock could remove a director only for cause
and only at a stockholders' meeting.

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HoldCo's By-Laws will provide that, except as otherwise provided in the
HoldCo Charter, any vacancies on the Board of Directors of HoldCo resulting from
removal may be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum, and not by the
stockholders, while the NYSEG By-Laws provide that a vacancy caused by the
removal by Stockholders of a director with or without cause may be filled by the
Stockholders. See "Proposal 1: The Plan of Exchange--Possible Effect of Certain
HoldCo Provisions and New York Law."

NUMBER OF DIRECTORS

The NYSEG Charter and By-Laws provide for a minimum and maximum number of
directors and the HoldCo Charter and By-Laws will contain no such provision. The
HoldCo By-Laws, unlike those of NYSEG, will not permit stockholders to increase
or decrease the number of directors. See "Proposal 1: The Plan of
Exchange--Possible Effect of Certain HoldCo Provisions and New York Law."

ADOPTION OF PLAN OF MERGER BY MAJORITY VOTE

The HoldCo Charter will provide for the adoption of a plan of merger or
consolidation by affirmative vote of stockholders entitled to cast a majority of
the votes; in the absence of such provision a two-thirds vote would be required.
The NYSEG Charter contains no such provision. See "Proposal 1: The Plan of
Exchange-- Description of HoldCo Capital Stock."

AUTHORIZED SHARES

HoldCo will be authorized to issue significantly more shares of common stock
than NYSEG and the Board of Directors of HoldCo will have, to the extent
permitted by the BCL and the HoldCo Charter, full authority to determine the
terms of any series of HoldCo Preferred Stock. See "Proposal 1: The Plan of
Exchange--Possible Effect of Certain HoldCo Provisions and New York Law."

AMENDMENTS TO CERTAIN HOLDCO BY-LAW PROVISIONS

HoldCo's Charter and By-Laws will require supermajority stockholder approval
for amendments by stockholders to certain specified provisions of the HoldCo
By-Laws. See "Proposal 1: The Plan of Exchange-- Possible Effect of Certain
HoldCo Provisions and New York Law."

TREATMENT OF NYSEG PREFERRED STOCK

The Share Exchange will not result in any change in the outstanding NYSEG
Preferred Stock, several series of which are listed on the NYSE. The shares of
NYSEG Preferred Stock issued and outstanding immediately prior to the Share
Exchange will not be converted or otherwise affected by the Share Exchange and
will continue as equity securities of NYSEG with the same preferences,
designations, relative rights, privileges and powers, and subject to the same
restrictions, limitations and qualifications, as were applicable to such
securities prior to the Share Exchange. The decision to have the NYSEG Preferred
Stock continue as securities of NYSEG is based upon a desire not to alter, or
potentially alter, the nature of the investment represented by such fixed income
securities, namely a direct investment in a regulated utility. It is anticipated
that the current listings of some of NYSEG's Preferred Stock on the NYSE will
continue after the Share Exchange. It is currently anticipated that NYSEG will
continue to file reports pursuant to the Exchange Act.

As to holders of NYSEG Preferred Stock, the benefits of continuing as
investors in NYSEG's regulated utility business outweigh any loss of access to
the return on the Generation Assets or NYSEG's subsidiaries. In that regard,
investors in priority position securities, such as the holders of NYSEG
Preferred Stock, benefit to the extent that such securities have been issued by
the corporate entity that holds directly or has unrestricted access to the
assets which generate a substantial portion of the net earnings of the
enterprise. As discussed above, the funds required to pay dividends on HoldCo
Common

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Stock for a period of time following the Share Exchange are expected to be
derived predominantly from dividends paid by NYSEG. If the NYSEG Preferred Stock
also were to be exchanged pursuant to the Share Exchange and become preferred
stock of HoldCo, the funds required to pay dividends on that preferred stock
would also be derived predominantly from dividends paid by NYSEG.

Although it has no present intention to do so, it is possible that NYSEG may
need to issue preferred stock in the future to meet its capital requirements.
The preferred stock that would be issued by NYSEG would have preference over the
NYSEG Common Stock and NYSEG Preference Stock, if any, as to the payment of
dividends and, therefore, would reduce the amount of funds available to NYSEG
for the payment of dividends to HoldCo. As a result, the conversion of the NYSEG
Preferred Stock to HoldCo Preferred Stock would result in the dividend payments
and distributions upon liquidation with respect to those shares being
subordinated to the dividend and distribution rights of the newly created
preferred stock of NYSEG.

TREATMENT OF NYSEG INDEBTEDNESS

The Share Exchange will not result in any change in the outstanding
indebtedness of NYSEG which will continue to be obligations of NYSEG after the
Share Exchange. NYSEG's first mortgage bonds will continue to be secured by a
first mortgage lien on all of the properties of NYSEG that are currently subject
to such lien. Such indebtedness will be neither assumed nor guaranteed by HoldCo
in connection with the Share Exchange. The decision to have such indebtedness of
NYSEG continue as obligations of NYSEG is based upon a desire not to alter, or
potentially alter, the nature of the investment represented by such fixed income
obligations, namely a direct investment in a regulated utility.

ACCOUNTING TREATMENT

The consolidated assets and liabilities of HoldCo and its subsidiaries
immediately after the Effective Time will be the same as the consolidated assets
and liabilities of NYSEG and its subsidiaries immediately before the Effective
Time. HoldCo, on an unconsolidated basis, will record its investment in NYSEG
and in the subsidiaries transferred by NYSEG to HoldCo at their net book value.
The Share Exchange will result in HoldCo becoming the owner of the NYSEG Common
Stock. This change in ownership has no accounting effect on NYSEG. The transfers
of subsidiaries by NYSEG to HoldCo and its subsidiaries will reduce NYSEG's
retained earnings by an amount equal to the net book value of such subsidiaries.

CERTAIN INCOME TAX CONSEQUENCES

GENERAL

The following general discussion summarizes certain income tax
considerations relating to the Restructuring. This discussion is included for
general information only. It does not discuss all aspects of income taxation
that may be relevant to a particular Stockholder in light of the personal tax
circumstances of the Stockholder or to certain types of Stockholders subject to
special treatment under the income tax laws.

Statements of legal conclusion regarding federal tax treatments, effects or
consequences reflect the opinion of Huber Lawrence & Abell, General Counsel for
the Company. No rulings have been requested from the Internal Revenue Service.
Accordingly, each Stockholder should consult his or her own tax advisor as to
the specific tax consequences to him or her, including the application and
effect of state or local income and other tax laws.

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The following discussion is based on existing statutory provisions, existing
and proposed regulations and existing administrative interpretations and court
decisions. Future legislation, regulations, administrative interpretations or
court decisions could significantly change such authorities either prospectively
or retroactively.

For federal income tax purposes, the Share Exchange is intended to qualify
as a tax free exchange pursuant to Section 351 of the Internal Revenue Code of
1986, as amended.

TAX IMPLICATIONS TO THE STOCKHOLDERS

For federal income tax purposes, no gain or loss will be recognized by the
Stockholders from the Share Exchange. The tax basis of the HoldCo Common Stock
received by each Stockholder will be the same as the Stockholder's basis in the
NYSEG Common Stock surrendered in the Share Exchange. The holding period of the
HoldCo Common Stock held by each Stockholder for determining long-term capital
gains for federal income tax purposes will include the period during which such
Stockholder held the NYSEG Common Stock, provided that the NYSEG Common Stock
was held as a capital asset on the date of the Share Exchange.

TAX IMPLICATIONS TO HOLDCO

No gain or loss will be recognized by HoldCo for federal income tax purposes
upon receipt of the NYSEG Common Stock. For federal income tax purposes, the
basis of the NYSEG Common Stock received by HoldCo will be the same as NYSEG's
net asset basis immediately after the Share Exchange, subject to certain
adjustments under Treasury Regulations relating to consolidated groups, and
HoldCo's holding period in the NYSEG Common Stock received in the Share Exchange
includes the period during which such stock was held by Stockholders.

TAX IMPLICATIONS TO NYSEG IN CONNECTION WITH THE TRANSFER OF THE GENERATION
ASSETS TO GENSUB

The transfer of the Generation Assets to GenSub will result in no adverse
federal income tax consequences to NYSEG. In general, it will have no net impact
on the determination of the enterprise's taxable income for federal income tax
purposes.

OTHER TAX ASPECTS

Apart from federal income tax aspects, no attempt has been made to determine
any tax that may be imposed on a Stockholder by the country, state or
jurisdiction in which such Stockholder resides or is a citizen. Stockholders may
be subject to other taxes, such as state or local income taxes that may be
imposed by various jurisdictions. Such Stockholders may also be subject to
intangible property, estate and inheritance taxes in their state of domicile.
Such Stockholders should consult their own tax advisors with regard to state and
local income, inheritance and estate taxes.

THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED TO PROVIDE
ONLY A GENERAL SUMMARY, AND DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY
WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION
DOES NOT ADDRESS ANY FOREIGN, FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF THE
DISPOSITION OF STOCK IN NYSEG OR HOLDCO EITHER BEFORE OR AFTER THE SHARE
EXCHANGE. ACCORDINGLY, EACH STOCKHOLDER IS STRONGLY URGED TO CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF
THE SHARE EXCHANGE OR SUCH DISPOSITION OF STOCK.

LEGAL OPINIONS

The validity of the HoldCo Common Stock will be passed upon for the Company
by Huber Lawrence & Abell, General Counsel for the Company.

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EXPERTS

The consolidated financial statements and related financial statement
schedule of NYSEG incorporated in this Proxy Statement and Prospectus by
reference from NYSEG's Annual Report on Form 10-K have been audited by Coopers &
Lybrand L.L.P., independent public accountants, as stated in their report which
is incorporated herein by reference, and has been so incorporated in reliance
upon such report given upon the authority of that firm as experts in accounting
and auditing.

Statements made herein and in the documents incorporated by reference in
this Proxy Statement and Prospectus as to matters of law and legal conclusions
have been reviewed by Huber Lawrence & Abell, General Counsel for the Company,
and have been made in reliance upon their authority as experts. As of January
31, 1998, members of the firm of Huber Lawrence & Abell who participated in the
preparation of this Proxy Statement and Prospectus owned 2,084 shares of NYSEG
Common Stock.

PROPOSAL 2: ELECTION OF DIRECTORS (ITEM 2 ON PROXY CARD)

The Board of Directors of NYSEG currently consists of thirteen directors
divided into three classes. One class of directors is elected at each annual
meeting of stockholders for a term expiring at the third succeeding annual
meeting of stockholders.

The nominees for election at this Annual Meeting to serve as directors in
Class II for a term expiring at the 2001 Annual Meeting of Stockholders and
thereafter until their successors shall be elected and shall qualify are: James
A. Carrigg, Paul L. Gioia and Ben E. Lynch. Messrs. Carrigg, Gioia and Lynch
were elected to Class II at the 1995 Annual Meeting of Stockholders for a term
expiring at the 1998 Annual Meeting of Stockholders. Allen E. Kintigh is not
standing for re-election to the Board of Directors because he is retiring as a
director of NYSEG effective April 29, 1998.

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 James A. Carrigg, Paul L. Gioia and Ben E. Lynch. 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 1997 there were eight 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.

<TABLE>
<S> <C>
CLASS II
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 2001
[PHOTO]

JAMES A. CARRIGG
FORMER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF NYSEG,
BINGHAMTON, NY. Director of Security Mutual Life Insurance Company of New
York, Binghamton, NY. Trustee of: Dr. G. Clifford & Florence B. Decker
Foundation, Binghamton, NY; and the Public Policy Institute of the
Business Council of New York State, Albany, NY. Mr. Carrigg was Chairman,
President and Chief Executive Officer of NYSEG from January 1991 to
September 1996, and was Chairman and Chief Executive Officer of NYSEG from
May 1988 to December 1990. Prior to that time, he was President and Chief
Operating Officer of NYSEG. Mr. Carrigg, 64, has been a director of NYSEG
since 1983.
</TABLE>

33
<PAGE>

<TABLE>
<S> <C>
[Photo]

PAUL L. GIOIA
OF COUNSEL, LEBOEUF, LAMB, GREENE & MACRAE,(1) 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, 55, has been a director of NYSEG since 1991.
[Photo]

BEN E. LYNCH
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. Former Trustee of the Pennsylvania College
of Optometry, Philadelphia, PA; and of the Optometric Center of New York
Foundation, New York, NY. Mr. Lynch, 60, 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
[PHOTO]

ALISON P. CASARETT
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, 67, has
been a director of NYSEG since 1979.
[Photo]

JOSEPH J. CASTIGLIA
FORMER VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF PRATT &
LAMBERT UNITED, INC., BUFFALO, NY. Business Consultant and Private
Investor, JBC Enterprises, East Aurora, NY. Chairman, AAA Western and
Central New York, Buffalo, NY; Chairman, Catholic Health System of Western
New York, Buffalo, NY; Chairman, Blue Cross & Blue Shield of Western New
York, Inc., Buffalo, NY. Director of: 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
Community Foundation for Greater Buffalo, Buffalo, NY. Mr. Castiglia was
Vice Chairman, President and Chief Executive Officer of Pratt & Lambert
United, Inc. from August 1994 until his retirement in January 1996. Prior
to that time, he was President and Chief Executive Officer of Pratt &
Lambert, Inc. from 1989 until July 1994, at which time the company was
merged with United Coatings, Inc. Mr. Castiglia, 63, has been a director
of NYSEG since 1995.
</TABLE>

34
<PAGE>

<TABLE>
<S> <C>
[Photo]

EVERETT A. GILMOUR
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, 76, has been a director of NYSEG since 1980.
[Photo]

JOHN M. KEELER
MANAGING PARTNER, HINMAN, HOWARD & KATTELL,(2) 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, 64, has been
a director of NYSEG since 1989.
[Photo]

ALTON G. MARSHALL
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; 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, 76, has been a director of
NYSEG since 1971.

CLASS I
DIRECTORS WHOSE TERMS EXPIRE IN 2000
[PHOTO]

RICHARD AURELIO
SENIOR ADVISOR TO THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TIME WARNER
INC., NEW YORK, NY. President of NY1 News, New York, NY. Director of 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, 69, has been a director of NYSEG
since April 1997.
</TABLE>

35
<PAGE>

<TABLE>
<S> <C>
[Photo]

LOIS B. DEFLEUR
PRESIDENT OF THE STATE UNIVERSITY OF NEW YORK AT BINGHAMTON, BINGHAMTON,
NY. Chairperson of the American Council on Education, Washington, DC.
Director of 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,
61, has been President of the State University of New York at Binghamton
since 1990, and has been a director of NYSEG since 1995.>
[Photo]

WALTER G. RICH
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, 52, has been a director of NYSEG since
April 1997.
[Photo]

WESLEY W. VON SCHACK
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; AEGIS Insurance Services, Inc.,
Jersey City, NJ; Business Council of New York State, Albany, NY; and
Peconic Land Trust, Inc., Long Island, N.Y. 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, 53, has been
Chairman, President and Chief Executive Officer of NYSEG since September
1996.
</TABLE>

- ------------------------

(1) The law firm of which Mr. Gioia is of counsel provided legal services to
NYSEG in 1997 and is expected to provide legal services to NYSEG in 1998.

(2) The law firm of which Mr. Keeler is a member provided legal services to
NYSEG in 1997 and is expected to provide legal services to NYSEG in 1998.

36
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates the number of shares of equity securities of
NYSEG and NYSEG Common Stock equivalent units beneficially owned as of February
13, 1998 by each director and nominee, each of the executive officers named in
the Summary Compensation Table on page 38, and by the 23 current executive
officers and directors as a group and the percent of the outstanding securities
so owned.

<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK TOTAL COMMON STOCK
BENEFICIALLY EQUIVALENT AND COMMON STOCK PERCENT
NAME OWNED(1) UNITS(4) EQUIVALENT UNITS OF CLASS
- ----------------------------------------- ------------------- ------------------ ------------------- -------------
<S> <C> <C> <C> <C>
Richard Aurelio.......................... 1,000 456 1,456 (5)
James A. Carrigg......................... 14,564 17,223 31,787 (5)
Alison P. Casarett....................... 522 9,671 10,193 (5)
Joseph J. Castiglia...................... 5,000 1,902 6,902 (5)
Lois B. DeFleur.......................... 300 1,902 2,202 (5)
Michael I. German........................ 35,176 9,507 44,683 (5)
Everett A. Gilmour....................... 2,946 0 2,946 (5)
Paul L. Gioia............................ 2,556 2,738 5,294 (5)
John M. Keeler........................... 1,257 5,639 6,896 (5)
Allen E. Kintigh......................... 1,103 0 1,103 (5)
Ben E. Lynch............................. 1,219 5,442 6,661 (5)
Alton G. Marshall........................ 200 0 200 (5)
Gerald E. Putman......................... 9,296 7,192 16,488 (5)
Sherwood J. Rafferty..................... 7,159 7,167 14,326 (5)
Walter G. Rich........................... 1,000 456 1,456 (5)
Jack H. Roskoz (2)....................... 6,796 8,152 14,948 (5)
Wesley W. von Schack..................... 84,546 25,164 109,710 (5)
23 current executive officers and
directors as a group................... 250,180(3) 125,004 375,184 (5)
</TABLE>

- ------------------------

(1) Includes shares of NYSEG Common Stock which may be acquired through the
exercise of stock options which are exercisable currently. The persons who
have such options and the number of shares which may be acquired are as
follows: Mr. German, 30,000; Mr Putman, 2,445; Mr. von Schack, 69,000; and
all executive officers as a group, 151,977.

(2) Mr. Roskoz's stock ownership is reported as of January 1, 1998, the
effective date of his retirement.

(3) Includes 2,297 shares held by an officer as nominee for NYSEG's Employees'
Stock Purchase Plan.

(4) Includes NYSEG Common Stock equivalent units granted under NYSEG'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.

(5) Less than 2/3 of 1% of the outstanding NYSEG Common Stock.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires NYSEG's directors and executive
officers, and persons holding ten percent or more of NYSEG's equity securities
to file reports of ownership and changes in ownership with the SEC and the NYSE.
Such reporting persons are also required to provide NYSEG with copies of all
Section 16(a) forms they file. Specific due dates for these reports have been
established by SEC regulations. Based solely on its review of the copies of the
reports received by it and certain written representations from certain
reporting persons, NYSEG believes that during 1997 all filing requirements were
satisfied by its directors and executive officers.

37
<PAGE>

EXECUTIVE COMPENSATION

Compensation for services to NYSEG for each of the last three fiscal years
of the chief executive officer and the next four highest compensated executive
officers of NYSEG who served in such capacities on December 31, 1997, is shown
by the following:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- AWARDS
NAME AND OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS (#) COMPENSATION(1)
- ------------------------------ ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Wesley W. von Schack (2)...... 1997 $ $ $ 0 69,000 $66,641
Chairman, President and 1996 178,766 72,033 0 0 75,381
Chief Executive Officer 1995 -- -- -- -- --

Jack H. Roskoz (3)............ 1997 0 30,000 36,171
Executive Vice President 1996 308,250 67,440 0 0 2,250
1995 298,000 27,864 0 0 2,310

Michael I. German............. 1997 0 30,000 6,075
Executive Vice President 1996 217,500 50,563 0 0 2,250
1995 207,500 20,891 53,076 0 0

Gerald E. Putman.............. 1997 0 21,708 4,235
Senior Vice President 1996 199,850 45,504 0 0 2,610
1995 173,300 18,801 0 0 2,670

Sherwood J. Rafferty.......... 1997 0 25,000 3,875
Senior Vice President and 1996 174,414 41,998 0 0 2,145
Chief Financial Officer 1995 141,725 10,108 0 0 1,799
</TABLE>

- ------------------------

(1) In 1997, NYSEG contributed $2,375 for each of the named executive officers
under the Tax Deferred Savings Plan. Also includes a one-time cash payment
of $1,500 to each of the named executive officers, other than Mr. von
Schack, in connection with their respective Employee Invention and
Confidentiality Agreements. NYSEG contributed for Messrs. German and Putman,
$2,200 and $360, respectively, under the Employees' Stock Purchase Plan. For
Mr. von Schack, $2,809 represents the dollar value of the term portion, and
$61,457 represents the benefit, projected on an actuarial basis, of the
whole-life portion of a premium paid for a life insurance policy. Mr. Roskoz
received a payment of $32,296 in lieu of vacation.

(2) Compensation data for Mr. von Schack is provided only for 1997 and a portion
of 1996 because he was employed by NYSEG commencing September 9, 1996.

(3) Mr. Roskoz retired effective January 1, 1998.

38
<PAGE>

LONG-TERM INCENTIVE PLAN AWARDS(1) IN LAST FISCAL YEAR (1997)

<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUT UNDER
OR OTHER NON-STOCK PRICE-BASED PLANS
NUMBER OF PERIOD UNTIL ---------------------------------------
PERFORMANCE MATURATION OR THRESHOLD TARGET MAXIMUM
NAME AND PRINCIPAL POSITION SHARES PAYOUT SHARES (#) SHARES (#) SHARES(#)
- ------------------------------------------------ ------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Wesley W. von Schack............................ 11,369 1997-1999 2,842 11,369 17,054
Chairman, President and Chief Executive
Officer

Jack H. Roskoz.................................. 4,327 1997-1999 1,082 4,327 6,491
Executive Vice President

Michael I. German............................... 4,132 1997-1999 1,033 4,132 6,198
Executive Vice President

Gerald E. Putman................................ 2,919 1997-1999 730 2,919 4,379
Senior Vice President

Sherwood J. Rafferty............................ 2,919 1997-1999 730 2,919 4,379
Senior Vice President and Chief Financial
Officer
</TABLE>

- ------------------------

(1) Pursuant to NYSEG's Long-Term Executive Incentive Share Plan, participants
were granted a certain number of Performance Shares in 1997 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 NYSEG'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 NYSEG'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 NYSEG's Common Stock for the last five trading days of
the Performance Cycle.

39
<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR (1997)

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO
SARS EMPLOYEES EXERCISE OR GRANT DATE
GRANTED IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME #(1) YEAR ($/SH) DATE VALUE(3)
- ------------------------------------------------- ----------- ------------- ----------- ----------- -----------

<S> <C> <C> <C> <C> <C>
Wesley W. von Schack............................. 69,000 16.41% $21.750 5/21/07 $ 258,060

Jack H. Roskoz................................... 30,000 7.13% 21.750 5/21/07 $ 112,200

Michael I. German................................ 30,000 7.13% 21.750 5/21/07 $ 112,200

Sherwood J. Rafferty............................. 25,000 5.95% 21.750 5/21/07 $ 93,500

Gerald E. Putman................................. 20,000 4.76% 21.750 5/21/07 $ 74,800

Gerald E. Putman................................. 1,708(2) .41% 21.750 5/21/07 $ 11,307(4)
</TABLE>

- ------------------------

(1) Pursuant to NYSEG's 1997 Stock Option Plan, participant's were granted
Options to purchase a specified number of shares of NYSEG Common Stock at
specified exercise prices. These Options were granted in tandem with Stock
Appreciation Rights and are for a term of ten years from the date of grant.
The exercise price of an Option or tandem Stock Appreciation Right is not
less than 100% of the closing price of a share of NYSEG Common Stock
determined on the last trading date before such Option and tandem Stock
Appreciation Right were granted. The exercise of an Option or a tandem Stock
Appreciation Right will result in a corresponding cancellation of the
related Stock Appreciation Right or Option to the extent of the number of
shares of NYSEG Common Stock as to which the Option or the Stock
Appreciation Right was exercised. Replacement Options are granted to
participants at the time of an exercise of an Option to the extent that all
or any portion of the Option exercise price or taxes incurred in connection
with the exercise of the Option are paid for by using other shares of NYSEG
Common Stock or by the withholding of NYSEG Common Stock. The Replacement
Option is granted for the number of shares the participant tenders to pay
the exercise price or taxes incurred. Replacement Options are first
exercisable no earlier than six months from the date of their grant and have
an expiration date equal to the expiration date of the original Option. The
Options are transferable to family members and certain entities under
certain circumstances. Except where noted, the Options and tandem Stock
Appreciation Rights were granted on May 21, 1997. The Options became first
exercisable on May 21, 1997 and the tandem Stock Appreciation Rights became
first exercisable on November 21, 1997, six months after their grant.

(2) Represents the grant of a Replacement Option. The Replacement Option was
granted on December 18, 1997 and will be first exercisable on June 18, 1998.

(3) Based on the binomial option pricing model which is a modification of the
Black-Scholes option pricing model. There is no assurance the value realized
will be at or near the value estimated by the binomial option pricing model.
The actual value, if any, will depend on the excess of the stock price over
the exercise price on the date the option is exercised. In determining the
"Grant Date Present Value," the following common assumptions were used:
stock price volatility, 20.75%; dividend yield, 6.63%; risk-free interest
rate, 6.50%; and an expected term before exercise of 10 years.

(4) In determining the "Grant Date Present Value," the following common
assumptions were used: stock price volatility, 21.89%; dividend yield,
6.12%; risk-free interest rate, 6.50%; and an expected term before exercise
of 10 years.

40
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (1997)
AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON FISCAL YEAR-END(#) AT FISCAL YEAR-END(2)
EXERCISE VALUE ------------------------ --------------------------
NAME (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ----------- ----------- ----------- ----------- -------------
Wesley W. von Schack..... 0 $ 0 69,000 0 $ 948,750 $ 0
<S> <C> <C> <C> <C> <C> <C>
Jack H. Roskoz........... 30,000 236,250 0 0 0 0
Michael I. German........ 0 0 30,000 0 412,500 0
Sherwood J. Rafferty..... 25,000 235,938 0 0 0 0
Gerald E. Putman......... 17,555 217,243 2,445 1,708 33,619 2,349
</TABLE>

- ------------------------

(1) The "Value Realized" is equal to the difference between the Option exercise
price and the closing price of a share of NYSEG Common Stock on the NYSE on
the date of exercise.

(2) The "Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End" is
equal to the difference between the Option exercise price and the closing
price of $35.50 a share of NYSEG Common Stock on the NYSE on December 31,
1997.

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 NYSEG's Retirement Benefit Plan
and NYSEG'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

<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
ANNUAL ----------------------------------------------------------------------------------
SALARY* 10 15 20 25 30 35 40**
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$700,000.............................. $ 314,600 $ 351,400 $ 388,100 $ 424,900 $ 461,600 $ 498,400 $ 535,100
650,000.............................. 291,000 325,100 359,300 393,400 427,500 461,600 495,800
600,000.............................. 267,400 298,900 330,400 361,900 393,400 424,900 456,400
550,000.............................. 243,800 272,600 301,500 330,400 359,300 388,100 417,000
500,000.............................. 220,100 246,400 272,600 298,900 325,100 351,400 377,600
450,000.............................. 196,500 220,100 243,800 267,400 291,000 314,600 338,300
400,000.............................. 172,900 193,900 214,900 235,900 256,900 277,900 298,900
350,000.............................. 149,300 167,600 186,000 204,400 222,800 241,100 259,500
300,000.............................. 125,600 141,400 157,100 172,900 188,600 204,400 220,100
250,000.............................. 102,000 115,100 128,300 141,400 154,500 167,600 180,800
200,000.............................. 78,400 88,900 99,400 109,900 120,400 130,900 141,400
150,000.............................. 54,800 62,600 70,500 78,400 86,300 94,100 102,000
</TABLE>

- ------------------------

* Average of the salaries (not including amounts listed under "Bonus," "Other
Annual Compensation," "Long-Term Compensation Awards Options/SARs," 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.

41
<PAGE>

NYSEG'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.

NYSEG's SERP provides that all salaried employees, including executive
officers, shall receive the full benefits of NYSEG's Retirement Benefit Plan
without regard to any limitations imposed by the federal tax law and by
including certain amounts deferred under NYSEG'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
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 NYSEG.

Mr. von Schack and Mr. German each have an agreement with NYSEG 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 NYSEG for the first five years of employment, provided that they each
are employed by NYSEG for at least five years. Mr. von Schack was employed by
NYSEG commencing September 9, 1996 and Mr. German was employed by NYSEG
commencing December 5, 1994.

Messrs. von Schack, Roskoz, German, Putman and Rafferty have 2, 35, 6, 27,
and 17 credited years of service, respectively, under the Retirement Benefit
Plan and SERP.

EMPLOYMENT, CHANGE IN CONTROL AND OTHER ARRANGEMENTS

NYSEG 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, 2000, 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 NYSEG'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 NYSEG without cause
prior to a change in control.

The agreement also provides that, if, generally, within two years following
a change in control, Mr. von Schack's employment is terminated either by NYSEG
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 NYSEG 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.

42
<PAGE>

NYSEG has entered into severance agreements with Messrs. German, Putman, and
Rafferty in order to provide for certain payments if, generally, within two
years following a change in control the individual's employment is terminated
either by NYSEG without cause or by the individual for good reason. The
severance agreements have terms ending on December 31, 1999, with automatic
one-year extensions unless either the individual or NYSEG 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 two 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 thirty
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 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 the individual to federal excise tax or interest or
penalties with respect to such federal excise tax, the individual will be
entitled to be made whole for the payment of any such taxes, interest or
penalties.

NYSEG has entered into Employee Invention and Confidentiality Agreements
with certain employees, including senior management, of NYSEG. The agreements
provide for, among other things, payments (up to one year's salary) and certain
health insurance premiums to the individual in the event their employment is
terminated whether voluntarily or involuntarily, and the noncompetition and
nonsolicitation provisions of the agreement prevent the individual from
obtaining other appropriate employment, so long as he or she is not entitled to
receive payments under a change in control severance agreement.

In the event of a change in control, participants in the AEIP will be paid
an amount which includes all earned but unpaid awards, a pro rata portion of any
award with respect to the year in which the change in control occurs and an
additional payment at the end of the year in which a change in control occurs,
to the extent that the award earned under the normal terms of the AEIP exceeds
the amount paid upon a change in control.

In the event of a change in control, participants in the Long-Term Executive
Incentive Share Plan (the "LTEISP") will be paid an amount which includes (i)
the payment of awards for all cycles in progress at the time of a change in
control computed and paid out in full (rather than pro rata) and based on the
assumption that NYSEG's performance was at the 50th percentile; and (ii) any
amounts earned under the normal terms of the LTEISP through the end of each
performance cycle, to the extent those amounts exceed the amounts paid at the
time of a change in control. All change in control payments under the LTEISP are
to be valued based on the change in control price of NYSEG's Common Stock.

The Executive Compensation and Succession Committee of the Board of
Directors in its discretion may take certain actions in order to preserve, in
the event of a change in control, a participant's rights under an option or
stock appreciation right issued pursuant to NYSEG's 1997 Stock Option Plan.

After a change in control, officers and certain other key employees who
qualify, 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 NYSEG. 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.

NYSEG has grantor trusts to provide for the payment of certain employee and
director benefits, including any severance benefits that might become payable
after a change in control under Mr. von Schack's employment agreement and the
other severance agreements.

43
<PAGE>

Pursuant to the terms of a separation agreement between Mr. Roskoz and NYSEG
(the "Separation Agreement") Mr. Roskoz retired as an executive officer of NYSEG
effective January 1, 1998. The Separation Agreement provides for a payment of
$33,000 payable in 1998 and for payment of benefits under NYSEG's SERP. The
Separation Agreement also provides that Mr. Roskoz will be entitled to receive
benefits provided under the Employee Invention and Confidentiality Agreement, as
amended, between NYSEG and Mr. Roskoz (the "Employee Invention Agreement").
Pursuant to the terms of the Employee Invention Agreement, Mr. Roskoz will be
paid $451,000 payable in installments over the two year period following his
retirement.

DIRECTORS' COMPENSATION

Directors of NYSEG, 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 NYSEG'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.

NYSEG has a Director Share Plan for Directors pursuant to which persons who
are non-employee directors are eligible for certain benefits to be paid upon
their ceasing to serve as directors of NYSEG. 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 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 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 based on the actuarial present value of the vested accrued
benefit earned by the director under the Retirement Plan. On each January 1,
April 1, July 1, and October 1, 150 Phantom Shares 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 NYSEG, 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 NYSEG's Common Stock for the five trading days preceding the date the
director ceases to serve as a director. NYSEG 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.
NYSEG 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

<PAGE>

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.

COMMITTEES

NYSEG'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, Joseph J.
Castiglia, Lois B. DeFleur, and John M. Keeler, had four meetings in 1997. 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 NYSEG'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 NYSEG'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
1997. 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
NYSEG 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 three meetings in 1997. That Committee, among other things,
recommends compensation for officers, awards under the AEIP, and candidates for
election as officers.

REPORT OF EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE

The Executive Compensation and Succession Committee (the "Committee") is
composed entirely of independent outside directors. Under the guidance of the
Committee, NYSEG's general compensation policies are designed to manage NYSEG
towards overall enhanced profitability and increased stockholder value.
Accordingly, two principles underlying NYSEG'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
NYSEG's stockholders and (ii) rewarding senior management for corporate and
individual performance. These principles are reflected in the structure of
NYSEG's compensation program for senior managers which consists of four basic
components: base salary, awards under the AEIP, awards under the LTEISP, and
awards under the 1997 Stock Option 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 compensation at risk and
linking such compensation to performance better aligns senior management's
financial interests with those of the stockholders, which in turn supports
NYSEG's overall objective of enhancing stockholder value. In furtherance of
these principles, the base salary portions of executive officer compensation,
including the Chairman's compensation, was left at 1996 levels so that any gains
in compensation for 1997 would be made in the at risk portions of executive
officer compensation.

45
<PAGE>

In general, base salaries are targeted at competitive levels, subject to
adjustment by the Committee depending on the individual's performance, based on
the Committee's general policy that senior management compensation should be
competitive so as to attract and retain talented executives. To that end, the
Committee has in the past reviewed compensation data from certain utility and
general industry companies, as well as certain salary surveys to assist in its
decision-making. The Committee has also considered a number of qualitative
factors, including NYSEG's financial and operational achievements, the
individual's experience, responsibilities, effectiveness in performing those
responsibilities and in leading or helping NYSEG respond to changes in the
competitive, rapidly changing utility industry. With respect to Mr. von Schack's
base salary for 1997, the Committee also considered his employment agreement.
Since the Committee has placed greater emphasis on the at risk portions of
senior management compensation, including Mr. von Schack's compensation, his
base salary has not been increased from 1996 levels.

Earnings per share improved and stockholder value was enhanced
substantially. The market value of NYSEG increased significantly. NYSEG made
excellent progress towards improving its competitive position. The results of
customer satisfaction surveys demonstrate that NYSEG is providing superior
service and is consistently receiving high marks for service reliability.
NYSEG's customer complaint rate to the PSC is the lowest of all energy utilities
in New York State and NYSEG has continued its commitment to act in an
environmentally responsible manner while providing service cost effectively.
These results are reflected in the at risk portion of senior management
compensation for 1997.

The AEIP provides for cash performance incentive awards if certain annual
goals are achieved. For 1997, annual performance incentive awards were based on
earnings targets and individual performance objectives. Awards ranged from
approximately 9% to 45% of the participant's base salary, depending upon the
participant's position, and the performance levels achieved. See the Bonus
column in the Summary Compensation Table for performance incentive awards earned
for 1997. The LTEISP provides for cash incentive awards based on NYSEG's
long-term financial performance relative to the long-term financial performance
of companies in the same industry. No cash incentive awards were made under the
LTEISP in 1997. See the Long-Term Incentive Plan Awards table for a description
of the LTEISP and performance share grants made under the LTEISP. NYSEG's 1997
Stock Option Plan was approved by NYSEG Common Stockholders at the 1997 Annual
Meeting of Stockholders. The awards under the 1997 Stock Option Plan are
intended to more closely align the financial interests of management with those
of NYSEG's stockholders by providing long-term incentives to those individuals
who can significantly affect the future growth and success of NYSEG. For
example, should NYSEG Common Stock double in value over the ten-year option term
(from $21.75 per share to $43.50 per share), stockholder value would increase an
estimated $1,488,305,112, while the value of the grants to the individuals
listed in the Option/ SAR Grants Table would increase an estimated 0.26%
($3,821,649) of the total gain realized by all stockholders. See the Option/SAR
Grants Table for a description of the 1997 Stock Option Plan and awards made
under the 1997 Stock Option Plan.

Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a company for compensation in excess of $1 million paid to a
company's chief executive officer and each of the next four most highly
compensated executive officers except that qualifying performance-based
compensation that meets certain specified criteria is not subject to Section
162(m). The Committee believes, based on information currently available, that
Section 162(m) does not apply to awards made under the 1997 Stock Option Plan to
NYSEG's executive officers because it satisfies the requirements of Section
162(m) and was approved by NYSEG Stockholders at the 1997 Annual Meeting of
Stockholders. The Committee has reviewed and will continue to review tax
consequences as well as other relevant considerations when making compensation
decisions within the context of the overall operation of NYSEG's compensation
program and will consider what actions should be taken, if any, to continue to
operate the compensation program in a tax effective manner.

EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE

<TABLE>
<S> <C>
Everett A. Gilmour, Ben E. Lynch
Chairman
Alison P. Casarett Alton G. Marshall
</TABLE>

46
<PAGE>

STOCK PERFORMANCE GRAPH

The yearly change in the cumulative total stockholder return on NYSEG's
Common Stock during the five years ending December 31, 1997, 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, 1992, 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

<TABLE>
<CAPTION>
NY STATE ELECTRIC & GAS STANDARD & POORS
CORP UTILITIES STANDARD & POORS 500
<S> <C> <C> <C>
12/31/92 100 100 100
12/31/93 100.88 114.44 110.08
12/31/94 67.53 105.35 111.53
12/31/95 97.86 149.62 153.45
12/31/96 86.99 154.29 188.68
12/31/97 151.37 192.33 251.64
</TABLE>

<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
--------- --------- --------- --------- --------- ---------

<S> <C> <C> <C> <C> <C> <C>
New York State Electric & Gas Corp. ..................... $ 100.00 $ 100.88 $ 67.53 $ 97.88 $ 86.99 $ 151.37

Standard & Poor's Utilities.............................. $ 100.00 $ 114.44 $ 105.35 $ 149.62 $ 154.29 $ 192.33

Standard & Poor's 500.................................... $ 100.00 $ 110.08 $ 111.53 $ 153.45 $ 188.68 $ 251.64
</TABLE>

47
<PAGE>

PROPOSAL 3: STOCKHOLDER PROPOSAL (ITEM 3 ON PROXY CARD)

Mr. and Mrs. Edward Rudy, Box 7077, Yorkville Station, New York, New York,
10128, who are the beneficial owners of approximately 6,600 shares of NYSEG
Common Stock have advised NYSEG that they intend to present the following
proposal at the 1998 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 by
Chairman Wesley W. Von Schack and/or other members of the NYSEG Board of
Directors, 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 originally presented at the 1995, 1996 and 1997 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.

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 previous NYSEG
management and the Board of Directors, at that time, determined was necessary.
We do not believe that shareholder dividends which are relied upon as retirement
income by many retired NYSEG employees and other investors, should be slashed .
. . while the salaries, concurrent pensions and other payments to the current
NYSEG Board of Directors remain intact . . . and, in some cases, have been
substantially 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 ARE HAPPY THAT WESLEY W. VON
SCHACK HAS ACCEPTED THE POSITION AS OUR NEW CHAIRMAN, PRESIDENT AND CEO, . . .
AND WE ARE EVEN HAPPIER THAT HE HAS AGREED THAT THE DIVIDEND SLASHES SHOULD BE
RESTORED TO THE NYSEG SHAREHOLDER OWNERS. We believe that the members of the
Board of Directors will look favorably upon restoring the dividend rate because
CHAIRMAN WES VON SCHACK has openly stated that he agrees with the need for this
restoration; It would negate the possibility of raiders (such as the recent
aborted attempt by Calenergy) taking over our corporation because of the
'bargain' artificially depressed price at which NYSEG shares have been selling
(directly due to the dividend cuts), and, with the approval of this resolution,
the directors will benefit equally with the shareholder owners.

If you agree, please mark your ballot in favor of this resolution; if you
disagree, mark against. 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."

48
<PAGE>

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, 1996 and 1997 Annual
Meetings of the Stockholders by Mr. and Mrs. Rudy. Each year, the proposal has
been soundly defeated by successively higher numbers of votes of NYSEG
Stockholders, who recognized that furthering both the long-term and short-term
interest of stockholders and NYSEG requires more than a superficially appealing,
narrow gesture such as tying the level of dividends to director compensation.
The Board of Directors believes that neither the stockholders' nor NYSEG's
interests are well served by squandering corporate resources on repeated
consideration of a proposal which garners less and less stockholder support each
year it is submitted.

As discussed at length under the caption "Proposal 1: The Plan of Exchange,"
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, in addition to proposing the Plan
of Exchange, has taken steps which it felt were necessary and appropriate to
further both the long-term and short-term interests of the stockholders and
NYSEG, including reducing the dividend level, which has helped to strengthen
NYSEG's financial position. This financial strength has placed NYSEG 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, NYSEG 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 NYSEG 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.

In the face of tremendous uncertainty in the rapidly changing utility
industry, it is essential that NYSEG 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 NYSEG be
able to pay directors' fees which are competitive with fees paid by these other
companies. With the assistance of outside consultants, NYSEG reviewed its policy
regarding director compensation, which resulted in the adoption of the Director
Share Plan effective January 1, 1997. The Board of Directors believes that by
tying directors' compensation to corporate performance, stockholders' and
directors' interests will become more closely aligned. 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 NYSEG 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 NYSEG RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST
THE STOCKHOLDER PROPOSAL.

49
<PAGE>

INDEPENDENT ACCOUNTANTS

NYSEG has appointed Coopers & Lybrand L.L.P., a firm of independent
certified public accountants, as auditors for the year 1998. 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
NYSEG.

DEADLINE FOR STOCKHOLDER PROPOSALS

The date by which proposals of Stockholders intended to be presented at
NYSEG's 1999 Annual Meeting must be received by NYSEG for inclusion in the proxy
statement and form of proxy relating to that meeting (or in HoldCo's 1999 Annual
Meeting proxy statement and proxy if the Stockholders approve the Plan of
Exchange and the Share Exchange occurs) is , 1998. Such proposals
should be sent to the Secretary of NYSEG, or to the Secretary of HoldCo, as the
case may be, 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.

State law requires NYSEG 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, 1997 at a premium of $392,248. In addition, NYSEG's Pension Trust Liability
Insurance, which is carried with Federal Insurance Company, covering NYSEG 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, 1997 at a premium of $68,495.

COST OF SOLICITATION

The accompanying proxy is solicited on behalf of the Board of Directors. The
costs of this solicitation, including reimbursement of charges of brokerage
houses and others for their expenses in forwarding proxy materials to beneficial
owners of stock, will be paid by NYSEG. Directors, officers, and employees of
NYSEG may solicit proxies by telephone, telegram or in person, without
additional compensation. In addition, NYSEG has retained Georgeson & Company
Inc. to aid in the solicitation of proxies at an anticipated fee of
approximately $25,000, plus reimbursement for out-of-pocket expenses incurred by
that firm on behalf of NYSEG.

By Order of the Board of Directors

DANIEL W. FARLEY,

VICE PRESIDENT AND SECRETARY

Dated: , 1998

50
<PAGE>
GLOSSARY

<TABLE>
<CAPTION>
TERM PAGE
- ----------------------------------------------------------------------------------------------------------- -----
<S> <C>
1995 Electric Settlement................................................................................... 15
AEIP....................................................................................................... 42
Advance Notice Procedures.................................................................................. 24
Annual Meeting............................................................................................. 1
BCL........................................................................................................ 11
CalEnergy.................................................................................................. 8
CMP........................................................................................................ 8
Commission................................................................................................. 3
Committee.................................................................................................. 45
Common Stock Plans......................................................................................... 19
Company.................................................................................................... 1
Competitive Opportunities Order............................................................................ 15
Competitive Opportunities Proceeding....................................................................... 15
Dividend Reinvestment Plan................................................................................. 9
Effective Time............................................................................................. 11
Employee Invention Agreement............................................................................... 44
Enterprises................................................................................................ 10
Exchange Act............................................................................................... 3
FERC....................................................................................................... 13
Generation Assets.......................................................................................... 10
GenSub..................................................................................................... 10
HoldCo..................................................................................................... 1
HoldCo By-Laws............................................................................................. 8
HoldCo Charter............................................................................................. 7
HoldCo Common Stock........................................................................................ 1
HoldCo Preferred Stock..................................................................................... 23
Holding Company Act........................................................................................ 18
ISO........................................................................................................ 14
LTEISP..................................................................................................... 43
Lawsuits................................................................................................... 29
Life Insurance Policy...................................................................................... 42
NMP2....................................................................................................... 11
NRC........................................................................................................ 17
NUG........................................................................................................ 17
NYSE....................................................................................................... 3
NYSEG...................................................................................................... 1
NYSEG By-Laws.............................................................................................. 28
NYSEG Charter.............................................................................................. 7
NYSEG Common Stock......................................................................................... 1
NYSEG Preference Stock..................................................................................... 11
NYSEG Preferred Stock...................................................................................... 9
Plan of Exchange........................................................................................... 1
Price Cap Period........................................................................................... 15
PSC........................................................................................................ 7
PSL........................................................................................................ 7
Record Date................................................................................................ 9
Registration Statement..................................................................................... 3
Restructuring.............................................................................................. 11
Restructuring Agreement.................................................................................... 7
SEC........................................................................................................ 3
Securities Act............................................................................................. 3
Separation Agreement....................................................................................... 44
SERP....................................................................................................... 41
Share Exchange............................................................................................. 1
SRC........................................................................................................ 10
Stockholders............................................................................................... 9
TRASOP..................................................................................................... 9
XENERGY.................................................................................................... 13
</TABLE>

51
<PAGE>

AGREEMENT AND PLAN OF SHARE EXCHANGE
OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
AND
ENERGY EAST CORPORATION

This Agreement and Plan of Share Exchange (the "Plan of Exchange") is dated
and executed as of the day of , 1998 by and between New York
State Electric & Gas Corporation, a New York corporation and Energy East
Corporation, a New York corporation.

1. The name of the acquiring corporation is Energy East Corporation, (the
"Acquiring Corporation"). The name under which the Acquiring Corporation was
originally formed was NGE Resources, Inc. The name of the subject corporation is
New York State Electric & Gas Corporation (the "Subject Corporation"). The name
under which the Subject Corporation was originally formed was the Ithaca Gas
Light Company.

2. The designation and number of outstanding shares of capital stock of the
Subject Corporation are as follows: Common Stock, $6.66 2/3 par value per share,
each of which is entitled to one vote and of which 67,508,281 shares are
outstanding ("Subject Corporation Common Stock"); 3.75% Serial Preferred Stock,
$100.00 par value per share, of which 150,000 shares are outstanding; 4 1/2%
Serial Preferred Stock (Series 1949), $100.00 par value per share, of which
40,000 shares are outstanding; 4.15% Serial Preferred Stock, $100.00 par value
per share, of which 14,000 shares are outstanding; 4.40% Serial Preferred Stock,
$100.00 par value per share, of which 55,200 shares are outstanding; 4.15%
Serial Preferred Stock (Series 1954), $100.00 par value per share, of which
35,200 shares are outstanding; 6.48% Serial Preferred Stock, $100.00 par value
per share, of which 300,000 shares are outstanding; 6.30% Serial Preferred
Stock, $100.00 par value per share, of which 250,000 shares are outstanding;
Adjustable Rate Serial Preferred Stock, Series B, $25.00 par value per share, of
which 2,000,000 shares are outstanding; and 7.40% Serial Preferred Stock, $25.00
par value per share, of which 1,000,000 are outstanding (said series of
preferred stock are collectively referred to herein as "Subject Corporation
Preferred Stock"). The Subject Corporation is also authorized by its Restated
Certificate of Incorporation to issue Preference Stock (Cumulative, $100 Par
Value) ("Subject Corporation Preference Stock"), none of which is outstanding.
Holders of Subject Corporation Preferred Stock and Subject Corporation
Preference Stock are not entitled to vote except as provided in the Restated
Certificate of Incorporation of the Subject Corporation and as otherwise
provided by law. The number of shares set forth in this paragraph is subject to
change prior to the Effective Time (as defined below) insofar as the Subject
Corporation may during said period issue Subject Corporation Preference Stock,
issue additional Subject Corporation Common Stock and Subject Corporation
Preferred Stock and may reacquire Subject Corporation Preferred Stock and may
repurchase Subject Corporation Common Stock.

The designation and number of outstanding shares of the Acquiring
Corporation are: Common Stock, $.01 par value per share (the "Acquiring
Corporation Common Stock"), each of which is entitled to one vote and of which
150 shares are outstanding; and Preferred Stock, $.01 par value per share (the
"Acquiring Corporation Preferred Stock"), none of which is outstanding. Holders
of Acquiring Corporation Preferred Stock are not entitled to vote except as may
be fixed in the Restated Certificate of Incorporation of the Acquiring
Corporation and as otherwise provided by law. The number of shares set forth in
this paragraph is subject to change prior to the Effective Time insofar as the
Acquiring Corporation may during said period issue Acquiring Corporation
Preferred Stock and additional Acquiring Corporation Common Stock. The Acquiring
Corporation is authorized to issue 150,000,000 shares of Acquiring Corporation
Common Stock and 10,000,000 shares of Acquiring Corporation Preferred Stock.

A-1
<PAGE>

In accordance with the provisions of Section 913(c) of the New York Business
Corporation Law ("BCL"), this Plan of Exchange shall be submitted to the holders
of the Subject Corporation Common Stock for their approval and adoption. The
affirmative vote of the holders of at least two-thirds of the votes of all
outstanding shares of Subject Corporation Common Stock entitled to vote thereon
shall be necessary to approve and adopt this Plan of Exchange.

3. Upon the time of filing of a Certificate of Exchange in connection with
the share exchange contemplated hereby (the "Share Exchange") by the Department
of State of the State of New York or as otherwise specified in the Certificate
of Exchange (the "Effective Time"):

(a) Each share of Subject Corporation Common Stock outstanding at the
Effective Time shall, by operation of law and without further action, be
exchanged for one share of Acquiring Corporation Common Stock;

(b) Each share of Acquiring Corporation Common Stock outstanding
immediately prior to the Effective Time shall be canceled and shall be
restored to the status of an authorized but unissued share of Acquiring
Corporation Common Stock;

(c) Each share of Subject Corporation Common Stock held in the treasury
of the Subject Corporation immediately prior to the Effective Time shall be
canceled and shall be restored to the status of an authorized but unissued
share of Subject Corporation Common Stock; and

(d) Immediately after the Effective Time, all of the outstanding shares
of Subject Corporation Common Stock will be held by the Acquiring
Corporation, and all of the outstanding shares of Acquiring Corporation
Common Stock will be held by the holders of shares of Subject Corporation
Common Stock that were outstanding immediately prior to the Effective Time.

4. Shares of Subject Corporation Preferred Stock shall not be exchanged or
otherwise affected by this Plan of Exchange. Each share of Subject Corporation
Preferred Stock outstanding immediately prior to the Effective Time shall
continue to be outstanding following the Effective Time.

5. Each outstanding certificate which immediately prior to the Effective
Time represents Subject Corporation Common Stock shall, without any further
action on the part of the holder thereof, be deemed and treated for all
corporate purposes to represent the ownership of the same number of shares of
Acquiring Corporation Common Stock as though a surrender or transfer and
exchange had taken place.

6. At the Effective Time, the Acquiring Corporation will, as appropriate,
succeed to and assume responsibility for the Subject Corporation's Tax Deferred
Savings Plan for Salaried Employees, Tax Deferred Savings Plan for Hourly Paid
Employees, Employees' Stock Purchase Plan, Tax Reduction Act Employee Stock
Ownership Plan, Dividend Reinvestment and Stock Purchase Plan and 1997 Stock
Option Plan (collectively referred to as the "Plans"); and, by virtue of the
Share Exchange and without any action on the part of the holder thereof, each
right or option under the Plans to purchase shares of Subject Corporation Common
Stock granted and outstanding immediately prior to the Effective Time shall be
converted into and become a right or option to purchase an equivalent number of
shares of Acquiring Corporation Common Stock at the same price per share, and
upon the same terms and subject to the same conditions, as applicable
immediately prior to the Effective Time under the relevant right or option.

The Acquiring Corporation will reserve, for purposes of the Plans, a number
of shares of Acquiring Corporation Common Stock equivalent to the number of
shares of Subject Corporation Common Stock reserved by the Subject Corporation
for such purposes immediately prior to the Effective Time.

7. The Plan of Exchange shall be conditioned upon:

(a) Receipt of the requisite vote of shareholders of the Subject
Corporation pursuant to Section 913(c)(2) of the BCL;

(b) Effectiveness of a registration statement under the Securities Act
of 1933 relating to Acquiring Corporation Common Stock to be issued or
reserved for issuance in connection with the Share Exchange;

A-2
<PAGE>
(c) Approval for listing, on official notice of issuance, of such shares
of Acquiring Corporation Common Stock on the New York Stock Exchange;

(d) Receipt of an opinion of counsel covering certain United States
federal income tax matters;

(e) Receipt of an opinion of counsel as to the legality of Acquiring
Corporation Common Stock issuable in connection with the Share Exchange;

(f) Receipt of all consents and approvals of federal or state regulatory
authorities that are necessary and appropriate for the consummation of the
Share Exchange, in form and substance satisfactory to the Subject
Corporation and the Acquiring Corporation; and

(g) The Restated Certificate of Incorporation of the Acquiring
Corporation shall have been filed with the Department of State of the State
of New York.

8. At any time prior to the Effective Time, this Plan of Exchange may be
amended or modified by mutual consent of the respective Boards of Directors of
the Subject Corporation and the Acquiring Corporation; provided, however, once
the Plan of Exchange is approved by the common shareholders of the Subject
Corporation, no amendment or modification may be made that either changes the
number or kind of shares to be received by the Subject Corporation Common
Shareholders pursuant to the Plan of Exchange or affects the rights of any
shareholder of the Subject Corporation in any manner that is materially adverse
to such shareholder in the judgment of the Board of Directors of the Subject
Corporation. The Plan of Exchange may be abandoned by resolution approved by the
Board of Directors of either the Subject Corporation or the Acquiring
Corporation, at any time before the Effective Time, whether or not the
shareholders of the Subject Corporation have cast their votes with regard to the
Plan of Exchange.

9. The Subject Corporation and the Acquiring Corporation, respectively,
shall take all such action as may be necessary or appropriate in order to
effectuate the Share Exchange and the other transactions contemplated by this
Plan of Exchange. If at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Plan of Exchange, the
officers and directors of each of the Acquiring Corporation and the Subject
Corporation shall take such further action.

10. The Plan of Exchange was duly adopted by the Board of Directors of the
Subject Corporation on October 10, 1997.

11. The Plan of Exchange was duly adopted by the Board of Directors of the
Acquiring Corporation on September 25, 1997.

IN WITNESS WHEREOF, the parties hereto have caused this Plan of Exchange to
be duly executed by their respective duly authorized representatives as of the
date first above written.

<TABLE>
<S> <C> <C>
ENERGY EAST CORPORATION

By:
-----------------------------------------
Wesley W. von Schack
CHAIRMAN

NEW YORK STATE ELECTRIC &
GAS CORPORATION

By:
-----------------------------------------
Sherwood J. Rafferty
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>

A-3
<PAGE>
EXHIBIT B

DRAFT

RESTATED CERTIFICATE OF INCORPORATION
OF
ENERGY EAST CORPORATION

UNDER SECTION 807 OF THE

BUSINESS CORPORATION LAW

The undersigned, being the Chairman and the Secretary, respectively, of
Energy East Corporation, a New York corporation, hereby certify:

FIRST. The name under which the corporation was originally incorporated was
NGE Resources, Inc.

SECOND. The Certificate of Incorporation of the corporation was filed by
the Department of State on September 23, 1997.

THIRD. The Certificate of Incorporation, as heretofore amended, is amended
to effect one or more amendments authorized by the Business Corporation Law of
the State of New York, namely: Article 7 is amended to delete the provision
setting the minimum and maximum number of directors and to provide for the Board
of Directors to be classified into three classes. The text of the Certificate of
Incorporation is hereby restated as so amended to read in its entirety as
follows:

1. The name of the corporation is Energy East Corporation (the
"Corporation").

2. The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the
Business Corporation Law of the State of New York, provided that any act or
activity requiring the consent or approval of any state official, department,
board, agency or other body shall not be engaged in without such consent or
approval first being obtained.

3. The office of the Corporation in the State of New York is located in the
County of Albany.

4. (A) The aggregate number of shares of stock which the Corporation shall
have authority to issue is One Hundred Sixty Million (160,000,000) consisting
of:

(1) One Hundred Fifty Million (150,000,000) shares of Common Stock, with
a par value of One Cent ($.01) per share; and

(2) Ten Million (10,000,000) shares of Preferred Stock, with a par value
of One Cent ($.01) per share.

(B) The designations, relative rights, preferences and limitations of the
shares of each class of stock are as follows:

(1) COMMON STOCK

Each share of Common Stock shall have one vote. Subject to any voting rights
which may vest in holders of Preferred Stock under the provisions of any series
of Preferred Stock established by the Board of Directors pursuant to authority
herein provided and except as otherwise provided by law, the exclusive voting
power for all purposes shall be vested in the holders of Common Stock. Subject
to the rights of the holders of Preferred Stock under the provisions of any
series of Preferred Stock established by the Board of Directors pursuant to
authority herein provided, the holders of Common Stock shall be entitled to
receive such dividends, in cash, securities, or property, as may from time to
time be declared by the Board of Directors. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
after payment or provision for payment shall have been made of the amounts to
which the holders of Preferred Stock shall be entitled under the provisions of
any series of Preferred Stock established by the Board of Directors pursuant to
authority herein provided, the holders of Common Stock

B-1
<PAGE>
shall be entitled, to the exclusion of the holders of the Preferred Stock of any
series, to share ratably, according to the number of shares held by them, in all
remaining assets of the Corporation available for distribution.

(2) PREFERRED STOCK

The Preferred Stock may be issued from time to time in one or more series.
Each share of Preferred Stock of any particular series shall be identical in all
respects with every other share of Preferred Stock of the same series. The Board
of Directors is authorized, at any time or from time to time, to establish and
designate one or more series of Preferred Stock and to fix the number of shares
and the relative rights, preferences and limitations of each such series,
subject to such limitations as may be prescribed by law and the provisions of
this Article. The authority of the Board of Directors with respect to each
series of Preferred Stock shall include, but not be limited to, determination of
the following:

(a) The distinctive serial designation of the shares of the series by
number, letter, title or other means which shall distinguish these shares
from the shares of all other series;

(b) The number of shares included in the series, which number (except
where otherwise provided by the Board of Directors in creating the series)
may be increased (but not above the total number of authorized shares of
Preferred Stock) or decreased (but not below the number of the outstanding
shares of such series) from time to time by the Board of Directors; provided
that if the number of shares is decreased, the shares constituting such
decrease shall be restored to the status of authorized but unissued shares
of Preferred Stock;

(c) The dividend rate for the shares of the series, which may be
expressed in terms of a formula or other method by which such rate shall be
calculated from time to time, and the dividend periods, including the dates
on which such dividends shall be payable;

(d) Whether dividends on the shares of the series shall be cumulative
and, with respect to the shares of any series having cumulative dividend
rights, the date or dates or method of determining the date or dates from
which dividends on the shares of the series shall be cumulative;

(e) The amount or amounts per share (plus all dividends accrued and in
arrears thereon) which shall be paid out of the assets of the Corporation to
the holders of the shares of the series upon the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation;

(f) The redemption price or prices, if any, for the series and the
procedure or procedures for redemption of shares of such series;

(g) The obligation, if any, of the Corporation to acquire shares of the
series pursuant to a sinking fund and the terms and conditions upon which
the shares of the series shall be acquired pursuant to such sinking fund;

(h) The period or periods within which and the terms and conditions, if
any, including the price or prices or the rate or rates of conversion or
exchange and terms and conditions of any adjustments thereof, upon which the
shares of the series shall be convertible into, or exchangeable for, shares
of any other class or classes of stock or shares of any other series of any
class or any other securities or assets;

(i) The voting rights, if any, of the shares of the series in addition
to those provided by law; and

(j) Any other relative rights, preferences, or limitations of the shares
of the series not inconsistent herewith or with applicable law.

5. No holders of shares of the Corporation of any class or series, now or
hereafter authorized, shall have any preemptive rights to subscribe for or
purchase any part of any issue, sale or offering of any shares of the
Corporation of any class or series, now or hereafter authorized, or of any
options, warrants or rights to subscribe for or purchase any such shares, or of
any securities convertible into, exchangeable for, or carrying options, warrants
or rights to subscribe for or purchase, any such shares, regardless of whether
such issue, sale or offering is for cash, property, services or otherwise.

B-2
<PAGE>
6. To the fullest extent that New York law from time to time permits the
elimination or limitation of the personal liability of directors, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for damages for any breach of duty as a director. No amendment or
repeal of this Article 6 shall adversely affect any right of a director of the
Corporation or the protection of a director of the Corporation from liability
for acts or omissions that occur prior to the time of such amendment or repeal.

7. The directors shall be divided, with respect to the terms for which they
severally hold office, into three classes, hereby designated Class I, Class II
and Class III. The three classes shall be as nearly equal in number as possible.
The initial terms of office of the Class I, Class II and Class III directors
shall expire at the next succeeding annual meeting of stockholders, the second
succeeding annual meeting of stockholders and the third succeeding annual
meeting of stockholders, respectively. At each annual meeting of stockholders,
the successors of the class of directors whose term expires at that annual
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders to be held in the third year following the year of their
election. Any newly created directorships or any decrease in directorships shall
be so apportioned among the classes as to make all classes as nearly equal in
number as possible. If the number of directors is increased by the Board and any
newly created directorships are filled by the Board, there shall be no
classification of the additional directors until the next annual meeting of
stockholders.

8. Actions by the stockholders may be taken without a meeting on written
consent, setting forth the action so taken, but only if such consent is signed
by the holders of all outstanding shares entitled to vote thereon.

9. By-Laws of the Corporation may be altered, amended, repealed or adopted
by the affirmative vote of the stockholders entitled to cast a majority of the
votes entitled to be cast, or by the affirmative vote of a majority of the Board
of Directors at any meeting duly held as provided in the By-Laws of the
Corporation; provided that any alteration, amendment or repeal of, or the
adoption of any provision inconsistent with, By-Laws 6, 7, 8, 10 or 43, if by
action of the stockholders, shall be only upon the affirmative vote of the
stockholders entitled to cast three-fourths of the votes entitled to be cast.

10. The affirmative vote of the stockholders entitled to cast a majority of
the votes entitled to be cast shall be required to adopt a plan of merger or
consolidation.

11. The Secretary of State of the State of New York is designated as the
agent of the Corporation upon whom any process in any action or proceeding
against it may be served. The post office address to which the Secretary of
State shall mail a copy of any such process served upon him is One Commerce
Plaza, Suite 2006A-20th Floor, Albany, New York 12260, Attention: Secretary.

FOURTH. The foregoing Restated Certificate of Incorporation was authorized
by the Board of Directors of the Corporation at a meeting of the Board of
Directors held on , 1998 , followed by the written consent of the sole
stockholder of the Corporation dated , 1998.

IN WITNESS WHEREOF, the undersigned have signed, and Daniel W. Farley has
verified, this Restated Certificate of Incorporation this day of ,
1998.

--------------------------------------

[Name]

[Title]

[Address]

--------------------------------------

[Name]

[Title]

[Address]

B-3
<PAGE>
STATE OF NEW YORK)

:ss.:

COUNTY OF BROOME)

I, Daniel W. Farley, being duly sworn, depose and state that I am the
Secretary of Energy East Corporation, the corporation named in and described in
the foregoing Restated Certificate of Incorporation and that I have read the
foregoing document and know the contents thereof to be true, except as to
matters therein stated to be alleged upon information and belief, and as to
those matters, I believe them to be true.

--------------------------------------

Sworn to before me this th
day of , 1998.

- ---------------------------------------------

NOTARY PUBLIC

B-4
<PAGE>
EXHIBIT C

DRAFT

ENERGY EAST CORPORATION

------------------------

BY-LAWS

------------------------

STOCKHOLDERS' MEETINGS

1. All meetings of the stockholders shall be held at the principal office of
the Corporation, or at such other location as shall be stated in the notice of
the meeting, except when otherwise expressly provided by statute. All meetings
of stockholders shall be presided over by the Chairman or by the President or a
Vice President except when by statute the election of a presiding officer is
required.

2. The annual meeting of stockholders shall be held at such date and time as
shall be stated in the notice of the meeting, at which the stockholders entitled
to vote shall elect directors, and transact such other business as may properly
be brought before the meeting.

3. The holders of a majority of the votes of shares entitled to vote
thereat, without regard to class or series, present in person or by proxy, shall
be requisite for, and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise expressly
provided by statute, by the Certificate of Incorporation or by these By-Laws.
If, however, the holders of a majority of such votes shall not be present or
represented by proxy at any such meeting, the stockholders entitled to vote
thereat, present in person or by proxy, shall have power, by a majority vote of
those votes present or represented, to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the holders of the
amount of votes requisite to constitute a quorum shall be present in person or
by proxy. At any adjourned meeting at which a quorum shall be present, in person
or by proxy, any business may be transacted which might have been transacted at
the meeting as originally noticed.

4. At each meeting of stockholders each holder of record of shares of
capital stock then entitled to vote shall be entitled to vote in person, or by
proxy appointed by such stockholder or by his duly authorized attorney; but no
proxy shall be valid after the expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Except as otherwise provided by statute
or by the Certificate of Incorporation each holder of record of shares of
capital stock entitled to vote at any meeting of stockholders shall be entitled
to one vote for every share of capital stock standing in his name on the books
of the Corporation. All elections shall be determined by a plurality vote. The
vote for directors shall be by ballot.

5. A list of stockholders as of the record date, certified by the corporate
officer responsible for its preparation or by a transfer agent, shall be
produced at any meeting of stockholders upon the request thereat or prior
thereto of any stockholder. If the right to vote at any meeting is challenged,
the inspectors of election, or person presiding thereat, shall require such list
of stockholders to be produced as evidence of the right of the persons
challenged to vote at such meeting, and all persons who appear from such list to
be stockholders entitled to vote thereat may vote at such meeting.

6. Except as may be otherwise provided in the Certificate of Incorporation,
only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of

C-1
<PAGE>
the notice provided for in this By-Law and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this By-Law.

In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.

To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth (10th) day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.

To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the person(s) named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.

No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this By-Law. If
the chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.

7. No business may be transacted at an annual meeting of stockholders, other
than business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this By-Law and
on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this By-Law.

C-2
<PAGE>
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.

To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.

To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.

No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this By-Law. If the chairman of the annual meeting determines that
business was not properly brought before the annual meeting in accordance with
the foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business shall not
be transacted.

8. Special meetings of the stockholders for any purpose or purposes, unless
otherwise prescribed by statute or by the Certificate of Incorporation may be
called by the Chairman or by the President, and shall be called by the Chairman
or the President or Secretary at the request in writing of a majority of the
Board of Directors. Such request shall state the purpose or purposes of the
proposed meetings. No other person or persons may call or request special
meetings of the stockholders.

No business may be transacted at a special meeting of the stockholders,
other than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Chairman, the
President or the Board of Directors or (b) otherwise properly brought before the
special meeting by or at the direction of the Board of Directors.

9. Notice of every meeting of stockholders, setting forth the time, place
and purpose or purposes thereof, shall be mailed, not less than ten nor more
than sixty days prior to such meetings to all stockholders (at their respective
addresses appearing on the books of the Corporation unless the stockholder shall
have filed with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address, in which case the notice shall
be mailed to the address designated in such request) entitled to vote at such
meeting, of record as of a date fixed by the Board of Directors, not more than
sixty days in advance of such meeting, for determining the stockholders entitled
to notice of and to vote at such meeting, unless and except to the extent that
such notice shall have been waived in writing either before or after the holding
of such meeting by stockholders entitled to notice thereof and to vote thereat.

C-3
<PAGE>
DIRECTORS

10. The property and business of the Corporation shall be managed under the
direction of its Board of Directors. Directors need not be stockholders.
Directors shall be elected at the annual meeting of the stockholders, or, if no
such election shall be held, at a meeting called and held in accordance with the
statutes of the State of New York. Each director shall be elected to hold office
until the expiration of the term for which he is elected, and thereafter until a
successor shall be elected and shall qualify.

A majority of the entire Board of Directors, at any regular or special
meeting, may fix the number of directors and, in the case of an increase in such
number, shall thereupon elect the additional directors. No decrease in the
number of directors shall shorten the term of any incumbent director. Except as
otherwise provided by statute, at any meeting of the stockholders, the holders
of a majority of the votes of shares of common stock issued and outstanding,
voting separately as a class, may remove at any time, for cause only, any
director. Directors shall not be removed without cause by the stockholders,
except in the case of a director elected by the holders of any class or series
of stock (other than the common stock), now or hereafter authorized, voting
separately as a class or series, when so entitled by the provisions of the
Certificate of Incorporation applicable thereto.

No director who shall have attained the age of 70 shall stand for
re-election as a director.

MEETINGS OF THE BOARD

11. The first meeting of the Board of Directors held after the annual
meeting of stockholders at which directors shall have been elected shall be held
for the purpose of organization, the election of officers, and the transaction
of any other business which may come before the meeting.

12. Regular meetings of the Board may be held without notice, except as
otherwise provided by these By-Laws, at such time and place as shall from time
to time be designated by the Board.

13. Special meetings of the Board may be called by the Chairman or by the
President or a Vice President or any two directors and may be held at the time
and place designated in the call and notice of the meeting. The Secretary or
other officer performing his duties shall give notice either personally or by
mail or telegram at least twenty-four hours before the meeting. Meetings may be
held at any time and place without notice if all the directors are present or if
those not present waive notice in writing either before or after the meeting.

14. At all meetings of the Board one-third of the total number of directors
shall be requisite for and shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation or by these By-Laws.

15. Any regular or special meeting may be adjourned to any other time at the
same or any other place by a majority of the directors present at the meeting,
whether or not a quorum shall be present at such meeting, and no notice of the
adjourned meeting shall be required other than announcement at the meeting.

COMPENSATION OF DIRECTORS

16. Directors, other than salaried officers or employees of the Corporation
or of any affiliated company, shall receive compensation for their services as
directors in such form and amounts and at such times as may be prescribed from
time to time by the Board of Directors. All directors shall be reimbursed for
their reasonable expenses, if any, for attendance at each regular or special
meeting of the Board of Directors. Nothing herein contained shall be construed
to preclude any director from receiving non-cash compensation for serving as a
director or from serving the Corporation in any other capacity and receiving
compensation therefor.

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17. Members of the Executive Committee other than salaried officers or
employees of the Corporation or of any affiliated company, shall receive
compensation for their services on that committee in such form and amounts and
at such times as may be prescribed from time to time by the Board of Directors.

Members of special or standing committees, including the Executive
Committee, shall be allowed such additional compensation and reimbursement for
expenses as may be fixed by the Board of Directors.

EXECUTIVE COMMITTEE AND OTHER COMMITTEES

18. The Board of Directors may by vote of a majority of the whole Board
designate three or more of their number to constitute an Executive Committee to
hold office for such period as the Board shall determine. The Chairman and the
President shall each be a member of the Executive Committee. The Board of
Directors may likewise designate one or more alternate members who shall serve
on the Executive Committee in the absence or disqualification of any regular
member or members of such Committee. When a regular or alternate member of the
Executive Committee ceases to be a director he shall automatically cease to be
such regular or alternate member of the Executive Committee. Such Executive
Committee shall, between meetings of the Board, have all the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
except that no such committee shall have authority as to: the submission to
stockholders of any action that needs stockholders' authorization under the
Business Corporation Law; the filling of vacancies in the Board of Directors or
in any committee; the fixing of compensation of the directors for serving on the
Board or on any committee; the amendment or repeal of the By-Laws, or the
adoption of new By-Laws; or the amendment or repeal of any resolution of the
Board which by its terms shall not be so amendable or repealable.

The Executive Committee shall cause to be kept regular minutes of its
proceedings, which may be transcribed in the regular minute book of the
Corporation, and all such proceedings shall be reported to the Board of
Directors at its next succeeding meeting, and shall be subject to revision or
alteration by the Board, provided that no rights of third persons shall be
affected by such revision or alteration. A majority of the Executive Committee
shall constitute a quorum at any meeting. The act of a majority of the Executive
Committee present at any meeting at which there is a quorum shall be the act of
the Executive Committee. The Board of Directors may by vote of a majority
thereof fill any vacancies in the Executive Committee. The Executive Committee
may, from time to time, subject to the approval of the Board of Directors,
prescribe rules and regulations for the calling and conduct of meetings of the
Committee, and other matters relating to its procedure and the exercise of its
powers.

19. In addition to having the power to designate an Executive Committee, the
Board of Directors may by vote of a majority of the whole Board designate other
committees, whether special or standing, each to consist of three or more of
their number, to hold office for such period as the Board shall determine. With
respect to each such other committee, the Board of Directors may likewise
designate one or more alternate members who shall serve in the absence or
disqualification of any regular member or members of such other committee. When
a regular or alternate member of such other committee ceases to be a director he
shall automatically cease to be a regular or alternate member of such other
committee. Each such other committee shall have authority only to the extent
provided by the Board of Directors, except that no such other committee shall
have authority as to: the submission to stockholders of any action that needs
stockholders' authorization under the Business Corporation Law; the filling of
vacancies in the Board of Directors or in any committee; the fixing of
compensation of the directors for serving on the Board or on any committee; the
amendment or repeal of the By-Laws, or the adoption of new By-Laws; or the
amendment or repeal of any resolution of the Board which by its terms shall not
be so amendable or repealable. A majority of each such other committee shall
constitute a quorum at any meeting thereof. The act of a majority of each such
other committee present at any meeting thereof at which there is a quorum shall
be the act of such other committee. The Board of Directors may by vote of a
majority thereof fill any vacancies in each such other committee.

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OFFICERS

20. The officers of the Corporation shall be chosen by the Board of
Directors. The officers shall be a Chairman, one or more Assistants to the
Chairman, a President, one or more Assistants to the President, one or more Vice
Presidents, one or more Assistant Vice Presidents, a Secretary, one or more
Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a
Controller, one or more Assistant Controllers, and such other officers as the
Board may from time to time choose and appoint.

21. The Board of Directors, at its first meeting after the election of
directors by the stockholders, shall choose a Chairman and a President from
among their own number, and a Secretary, and may choose a Treasurer and a
Controller, and such Assistants to the Chairman, Assistants to the President,
Vice Presidents, Assistant Vice Presidents, Assistant Secretaries, Assistant
Treasurers and Assistant Controllers, as it shall deem necessary, none of whom
need be members of the Board.

22. The Board may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms, and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.

23. The salary or other compensation of the officers of the Corporation
shall be fixed by the Board of Directors. The salary or other compensation of
all other employees shall, in the absence of any action by the Board be fixed by
the Chairman or the President or by such other officers or executives as shall
be designated by the Chairman or the President.

24. The officers of the Corporation shall hold office until the first
meeting of the Board of Directors after the next succeeding annual meeting of
stockholders and until their successors are chosen and qualify in their stead.
Any officer or agent elected or appointed by the Board of Directors may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors. Any other employee or agent of the
Corporation may be removed at any time, with or without cause, by the
affirmative vote of a majority of the whole Board of Directors or, in the
absence of any action by the Board, by the Chairman or the President or by such
other officers or executives as shall have been designated by the Chairman or
the President.

CHAIRMAN

25. The Chairman shall be the chief executive officer of the Corporation and
shall, when present, preside at all meetings of the Board of Directors and of
the stockholders, except as otherwise by law provided. He may sign in the name
of and on behalf of the Corporation, certificates of stock, notes, and any and
all contracts, agreements and other instruments of a contractual nature
pertaining to matters which arise in the normal conduct and ordinary course of
business of the Corporation. He shall be a member of the Executive Committee and
of all standing committees except the Executive Compensation and Succession
Committee, the Audit Committee and the Nominating Committee. He shall also
generally have the powers and perform the duties which appertain to the office.

The Assistants to the Chairman shall assist the Chairman in the performance
of his duties and exercise and perform such other powers and duties as may be
conferred or required by the Board.

PRESIDENT

26. The President shall, when present in the absence of the Chairman,
preside at all meetings of the Board of Directors and of the stockholders,
except as otherwise by law provided. He may sign in the name of and on behalf of
the Corporation, certificates of stock, notes, and any and all contracts,
agreements and other instruments of a contractual nature pertaining to matters
which arise in the normal conduct and ordinary course of business of the
Corporation. He shall be a member of the Executive Committee and of all standing
committees except the Executive Compensation and Succession Committee, the Audit
Committee and the Nominating Committee. He shall also generally have the powers
and perform the duties which appertain to the office.

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The Assistants to the President shall assist the President in the
performance of his duties and exercise and perform such other powers and duties
as may be conferred or required by the Board.

VICE PRESIDENT

27. A Vice President may sign, in the name of and on behalf of the
Corporation, certificates of stock, notes and any and all contracts, agreements
and other instruments of a contractual nature pertaining to matters which arise
in the normal conduct and ordinary course of business, and shall perform such
other duties as the Board of Directors may prescribe.

If there be more than one Vice President, the Board of Directors may
designate one or more Vice Presidents as Executive Vice Presidents who shall
have general supervision, direction and control of the business and affairs of
the Corporation in the absence or disability of the Chairman and the President,
and may designate one or more Vice Presidents as Senior Vice Presidents who
shall have general supervision, direction and control of the business and
affairs of the Corporation in the absence or disability of the Chairman and the
President and the Executive Vice Presidents. A Vice President who has not been
designated as Executive Vice President or as Senior Vice President shall have
general supervision, direction and control of the business and affairs of the
Corporation in the absence or disability of the Chairman and the President, and
the Executive Vice Presidents and the Senior Vice Presidents.

The Assistant Vice Presidents shall assist the Vice Presidents in the
performance of their duties and exercise and perform such other powers and
duties as may be conferred or required by the Board.

SECRETARY

28. The Secretary shall attend all sessions of the Board and all meetings of
the stockholders and record all votes and the minutes of all proceedings in a
book to be kept for that purpose; and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors. He shall be
sworn to the faithful discharge of his duty. Any records kept by him shall be
the property of the Corporation and shall be restored to the Corporation in case
of his death, resignation, retirement or removal from office.

He shall be the custodian of the seal of the Corporation and, when
authorized by the Board of Directors or by the Chairman, the President or a Vice
President, shall affix the seal to all instruments requiring it and shall attest
the seal and/or the execution of such instruments, as required. He shall have
control of the stock ledger, stock certificate book and minute books of the
Corporation and its committees, and other formal records and documents relating
to the corporate affairs of the Corporation.

The Assistant Secretary or Assistant Secretaries shall assist the Secretary
in the performance of his duties, exercise and perform his powers and duties in
his absence or disability, and such powers and duties as may be conferred or
required by the Board.

TREASURER

29. (a) The Treasurer shall have the custody of the corporate funds and
securities and shall deposit all moneys, and other valuable effects in the name
and to the credit of the Corporation, in such depositories as may be designated
by the Board of Directors.

(b) He shall disburse the funds of the Corporation in such manner as may be
ordered by the Board, taking proper vouchers for such disbursements, and shall
render to the Chairman, the President and directors, at the regular meetings of
the Board, or whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.

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(c) He shall give the Corporation a bond if required by the Board of
Directors in a sum, and with one or more sureties satisfactory to the Board, for
the faithful performance of the duties of his office, and for the restoration of
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.

The Assistant Treasurer or Assistant Treasurers shall assist the Treasurer
in the performance of his duties, exercise and perform his powers and duties in
his absence or disability, and such powers and duties as may be conferred or
required by the Board.

CONTROLLER

30. The Controller of the Corporation shall have full control of all the
books of account of the Corporation and keep a true and accurate record of all
property owned by it, of its debts and of its revenues and expenses and shall
keep all accounting records of the Corporation.

The Assistant Controller or Assistant Controllers shall assist the
Controller in the performance of his duties, exercise and perform his powers and
duties in his absence or disability, and such powers and duties as may be
conferred or required by the Board.

VACANCIES

31. If the office of any director becomes vacant by reason of death,
resignation, removal or disability, or any other cause, the directors then in
office, except as otherwise provided in the Certificate of Incorporation,
although less than a quorum, by a majority vote, may choose a successor or
successors, who shall hold office until the next annual meeting of stockholders,
and thereafter until a successor or successors shall be elected and shall
qualify. If the office of any officer of the Corporation shall become vacant for
any reason, the Board, by a majority vote of those present at any meeting at
which a quorum is present, may choose a successor or successors who shall hold
office for the unexpired term in respect of which such vacancy occurred.

RESIGNATIONS

32. Any officer or any director of the Corporation may resign at any time,
such resignation to be made in writing and to take effect from the time of its
receipt by the Corporation, unless some time be fixed in the resignation, and
then from that time.

INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

33. The Corporation shall fully indemnify to the extent not prohibited by
law any person made, or threatened to be made, a party to an action or
proceeding, whether civil or criminal, including an investigative,
administrative, legislative or other proceeding, and including an action by or
in the right of the Corporation or any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, by reason of the fact that he, his testator or
intestate, (i) is or was a director, officer, or employee of the Corporation or
(ii) is or was serving at the request of the Corporation, as a director,
officer, or in any other capacity, any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, against any and all judgments, fines, amounts paid in
settlement and expenses, including attorneys' fees, actually and reasonably
incurred as a result of or in connection with any such action or proceeding or
any appeal therein, except as provided in the next paragraph.

No indemnification shall be made to or on behalf of any director, officer,
or employee if a judgment or other final adjudication adverse to the director,
officer, or employee establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the

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cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled.

Except in the case of an action or proceeding against a director, officer,
or employee specifically approved by the Board of Directors, the Corporation
shall pay expenses incurred by or on behalf of such a person in defending such a
civil or criminal action or proceeding (including appeals) in advance of the
final disposition of such action or proceeding. Such payments shall be made
promptly upon receipt by the Corporation, from time to time, of a written demand
of such person for such advancement, together with an undertaking by or on
behalf of such person to repay any expenses so advanced to the extent that the
person receiving the advancement is ultimately found not to be entitled to
indemnification for such expenses.

The rights to indemnification and advancement of defense expenses granted by
or pursuant to this By-Law (i) shall not limit or exclude, but shall be in
addition to, any other rights which may be granted by or pursuant to any
statute, certificate of incorporation, by-law, resolution or agreement, (ii)
shall be deemed to constitute contractual obligations of the Corporation to any
director, officer, or employee who serves in such capacity at any time while
this By-Law is in effect, (iii) are intended to be retroactive and shall be
available with respect to events occurring prior to the adoption of this By-Law
and (iv) shall continue to exist after the repeal or modification hereof with
respect to events occurring prior thereto. It is the intent of this By-Law to
require the Corporation to indemnify the persons referred to herein for the
aforementioned judgments, fines, amounts paid in settlement and expenses,
including attorneys' fees, in each and every circumstance in which such
indemnification could lawfully be permitted by an express provision of a by-law,
and the indemnification required by this By-Law shall not be limited by the
absence of an express recital of such circumstances.

The Corporation may, with the approval of the Board of Directors, enter into
an agreement with any person who is, or is about to become, a director, officer,
or employee of the Corporation, or who is serving, or is about to serve, at the
request of the Corporation, as a director, officer, or in any other capacity,
any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
which agreement may provide for indemnification of such person and advancement
of defense expenses to such person upon such terms, and to the extent, not
prohibited by law.

STOCK OF OTHER CORPORATIONS

34. The Board of Directors shall have the right to authorize any officer or
other person on behalf of the Corporation to attend, act and vote at meetings of
the stockholders of any corporation in which the Corporation shall hold stock,
and to exercise thereat any and all the rights and powers incident to the
ownership of such stock and to execute waivers of notice of such meetings and
calls therefor; and authority may be given to exercise the same either on one or
more designated occasions, or generally on all occasions until revoked by the
Board. In the event that the Board shall fail to give such authority, such
authority may be exercised by the Chairman or the President in person or by
proxy appointed by him on behalf of the Corporation.

CERTIFICATES OF STOCK

35. Stock of the Corporation may be in certificated or uncertificated form.
Stock of the Corporation represented by certificates shall be numbered and shall
be entered in the books of the Corporation as the certificates are issued. The
certificates shall exhibit the holder's name and number of shares and shall be
signed by the Chairman, President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, and the seal of
the Corporation shall be affixed thereto. Where any such certificates of stock
are signed by a transfer agent and by a registrar, the signatures of the
Chairman, President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant

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Secretary upon any such certificates, if authorized by the Board of Directors,
may be made by engraving, lithographing or printing thereon a facsimile of such
signatures, in lieu of actual signatures, and such facsimile signatures so
engraved, lithographed or printed thereon shall have the same force and effect
as if such officers had actually signed the same.

In case any officer who has signed, or whose facsimile signature has been
affixed to, any such certificate shall cease to be such officer before such
certificate shall have been delivered by the Corporation, such certificate may
nevertheless be issued and delivered as though the person who signed such
certificate, or whose facsimile signature has been affixed thereto, had not
ceased to be such officer of the Corporation.

To the extent permitted by law, some or all of any or all classes and series
of stock of the Corporation may be uncertificated stock, provided that no stock
represented by a certificate shall be registered on the books of the Corporation
as uncertificated stock until such certificate is surrendered to the
Corporation.

TRANSFERS OF STOCK

36. Transfers of certificated stock shall be made on the books of the
Corporation only upon the request of the person named in the certificate or by
attorney, lawfully constituted in writing, and upon surrender of the certificate
therefor.

Transfers of uncertificated stock shall be made on the books of the
Corporation only upon the request of the holder of record of such uncertificated
stock or by attorney, lawfully constituted in writing, and upon receipt by the
Corporation of a written instruction signed by the holder of record of such
uncertificated stock or by such attorney requesting that the transfer of such
uncertificated stock be registered on the books of the Corporation.

FIXING OF RECORD DATE

37. The Board of Directors is hereby authorized to fix a day and hour not
exceeding sixty (60) days (and in the case of a meeting not less than ten (10)
days) preceding the date of any meeting of stockholders or the date fixed for
the payment of any dividend or for the delivery of evidences of rights, as a
record time for the determination of the stockholders entitled to notice of and
to vote at any such meeting or entitled to receive any such dividend or rights,
as the case may be; and all persons who are holders of record of voting stock at
such time, and no others, shall be entitled to notice of and to vote at such
meeting, and only stockholders of record at any time so fixed shall be entitled
to receive any such dividend or rights; and the stock transfer books shall not
be closed during any such period.

REGISTERED STOCKHOLDERS

38. The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and accordingly shall not
be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by the statutes of the State of
New York.

INSPECTION OF BOOKS

39. The Board of Directors shall have power to determine whether and to what
extent, and at what time and places and under what conditions and regulations,
the accounts and books of the Corporation (other than the books required by
statute to be open to the inspection of stockholders), or any of them, shall be
open to the inspection of stockholders, and no stockholders shall have any right
to inspect any account or book or document of the Corporation, except as such
right may be conferred by the statutes of the State of New York or by resolution
of the directors or of the stockholders.

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CHECKS, NOTES, BONDS AND OTHER INSTRUMENTS

40. All checks or demands for money and notes of the Corporation shall be
signed by such person or persons (who may but need not be an officer or officers
of the Corporation) as may be authorized by these By-Laws or as the Board of
Directors may from time to time designate, either directly or through such
officers of the Corporation as shall, by resolution of the Board of Directors,
be authorized to designate such person or persons. If authorized by the Board of
Directors, the signatures of such persons, or any of them, upon any checks for
the payment of money may be made by engraving, lithographing or printing thereon
a facsimile of such signatures, in lieu of actual signatures, and such facsimile
signatures so engraved, lithographed or printed thereon shall have the same
force and effect as if such persons had actually signed the same.

All bonds, mortgages and other instruments requiring a seal shall be
executed on behalf of the Corporation by the Chairman or the President or a Vice
President, and the seal of the Corporation shall be thereunto affixed by the
Secretary or an Assistant Secretary who shall, when required, attest the seal
and/ or the execution of said instruments. If authorized by the Board of
Directors, the signatures of the Chairman or the President or a Vice President
and the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer upon any engraved, lithographed or printed bonds, debentures, notes or
other instruments may be made by engraving, lithographing or printing thereon a
facsimile of such signatures, in lieu of actual signatures, and such facsimile
signatures so engraved, lithographed or printed thereon shall have the same
force and effect as if such officers had actually signed the same.

In case any officer who has signed any such bonds, debentures, notes or
other instruments shall cease to be such officer before such bonds, debentures,
notes or other instruments shall have been delivered by the Corporation, such
bonds, debentures, notes or other instruments may nevertheless be adopted by the
Corporation and be issued and delivered as though the person who signed the same
had not ceased to be such officer of the Corporation.

NOTICES

41. Whenever under the provisions of these By-Laws notice is required to be
given to any director, officer or stockholder, it shall not be construed to
require personal notice, but such notice may be given in writing, by mail, by
depositing a copy of the same in a post office, letter box or mail chute,
maintained by the Post Office Department, in a postpaid sealed wrapper,
addressed to such stockholder, officer or director, at his address as the same
appears on the books of the Corporation.

A stockholder, director or officer may waive in writing any notice required
to be given to him under these By-Laws.

INSPECTORS

42. Preceding each meeting of the stockholders, the Board of Directors shall
appoint two inspectors to act at such meeting or any adjournment or adjournments
thereof as inspectors. In the event that such inspectors shall not be so
appointed, or if any inspector shall refuse to serve, or neglect to attend the
meeting or his office become vacant, the person presiding at the meeting shall
appoint an inspector in his place. The inspectors appointed to act at any
meeting of the stockholders shall, before entering upon the discharge of their
duties, be sworn to faithfully execute the duties of inspector at such meeting
with strict impartiality, and according to the best of their ability, and the
oaths so taken shall be subscribed by them and delivered to the Secretary of the
meeting with a certificate of the result of the vote taken thereat.

AMENDMENTS

43. These By-Laws may be altered, amended or repealed, or new By-Laws may be
adopted, by the affirmative vote of the stockholders entitled to cast a majority
of the votes entitled to be cast, or by the affirmative vote of a majority of
the Board of Directors at any meeting duly held as provided above; provided that
any alteration, amendment or repeal of, or the adoption of any provision
inconsistent with, By-Laws 6, 7, 8, 10 or 43, if by action of the stockholders,
shall be only upon the affirmative vote of the stockholders entitled to cast
three-fourths of the votes entitled to be cast.

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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Business Corporation Law of the State of New York ("BCL") provides that
if a derivative action is brought against a director or officer, the Registrant
may indemnify him against amounts paid in settlement and reasonable expenses,
including attorneys' fees, incurred by him in connection with the defense or
settlement of such action, if such director or officer acted in good faith for a
purpose which he reasonably believed to be in the best interests of the
Registrant, except that no indemnification shall be made without court approval
in respect of a threatened action, or a pending action settled or otherwise
disposed of, or in respect of any matter as to which such director or officer
has been found liable to the Registrant. In a nonderivative action or threatened
action, the BCL provides that the Registrant may indemnify a director or officer
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees incurred by him in defending such action if such
director or officer acted in good faith for a purpose which he reasonably
believed to be in the best interests of the Registrant.

Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the by-laws of a
corporation or, when authorized by such certificate of incorporation or by-laws,
pursuant to a shareholders' resolution, a directors' resolution or an agreement
providing for such indemnification.

The above is a general summary of certain provisions of the BCL and is
subject, in all cases, to the specific and detailed provisions of Sections
721-725 of the BCL.

The By-Laws of the Registrant provide that to the extent not prohibited by
law, the Registrant shall indemnify each person made, or threatened to be made,
a party to any civil or criminal action or proceeding by reason of the fact that
he, or his testator or intestate, (i) is or was a director or officer of the
Registrant or (ii) is or was serving any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, in any capacity at the request of the Registrant.

The By-Laws of the Registrant also provide, among other things, that:

(1) no indemnification shall be made to or on behalf of any director or
officer, if a judgment or other final adjudication adverse to the director or
officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled;

(2) the rights to indemnification and advancement of defense expenses
granted by or pursuant to the By-Laws shall not limit or exclude, but shall be
in addition to, any other rights which may be granted by or pursuant to any
statute, certificate of incorporation, by-law, resolution or agreement; and

(3) the Registrant may, with the approval of the Board of Directors, enter
into an agreement with any person who is, or is about to become, a director or
officer of the Registrant, or who is serving, or is about to serve, at the
request of the Registrant, as a director, officer, or in any other capacity, any
other corporation of any type or kind, domestic or foreign, or any partnership,
joint venture, trust, employee benefit plan or other enterprise, which agreement
may provide for indemnification of such person and advancement of defense
expenses to such person upon such terms, and to the extent, not prohibited by
law.

The Registrant has insurance policies indemnifying its directors and
officers against certain obligations that may be incurred by them, subject to
certain retention and co-insurance provisions.

II-1
<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

See Exhibit Index.

ITEM 22. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10 (b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 24th day of February, 1998.

ENERGY EAST CORPORATION
(Registrant)

By * WESLEY W. VON SCHACK
-----------------------------------------
Wesley W. von Schack
Chairman

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities indicated on the 24th day of February, 1998.

SIGNATURE TITLE
- ------------------------------ --------------------------

Principal Executive, Financial
and
Accounting Officer:

* WESLEY W. VON SCHACK Chairman and Director
- ------------------------------
Wesley W. von Schack

Directors:

* RICHARD AURELIO Director
- ------------------------------
Richard Aurelio

* LOIS B. DEFLEUR Director
- ------------------------------
Lois B. DeFleur

* WALTER G. RICH Director
- ------------------------------
Walter G. Rich

*By: /s/ L. BLUM
-------------------------
L. Blum
(L. BLUM,
ATTORNEY-IN-FACT)

II-3
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. METHOD OF FILING
- ------------- --------------------------------------------

<C> <S> <C>
2.1 Agreement and Plan of Share Exchange.................. Included as Exhibit A to the Proxy State-
ment and Prospectus.

3.1 Form of Restated Certificate of Incorporation of
HoldCo to be in effect at Effective Time of Share
Exchange.............................................. Included as Exhibit B to the Proxy State-
ment and Prospectus.

3.2 Form of By-Laws of HoldCo to be in effect at Effective
Time of Share Exchange................................ Included as Exhibit C to the Proxy State-
ment and Prospectus.

5.1 Opinion of Huber Lawrence & Abell with respect to the
legality of the securities registered hereunder....... Filed herewith.

8.1 Tax Opinion of Huber Lawrence & Abell................. Filed herewith.

23.1 Consent of Counsel.................................... Included in opinions filed as Exhibit Nos.
5.1 and 8.1.

23.2 Consent of Coopers & Lybrand L.L.P.................... Previously filed.

24.1 Power of Attorney of Directors and Officers........... Previously filed.

24.2 Power of Attorney of HoldCo........................... Previously filed.

99.1 Form of Proxy......................................... Filed herewith.

99.2 Agreement Concerning the Competitive Rate and
Restructuring Plan of New York State Electric & Gas
Corporation........................................... Previously filed.

99.3 Order of the PSC dated January 27, 1998, modifying and
approving Agreement Concerning the Competitive Rate
and Restructuring Plan of New York State Electric &
Gas Corporation....................................... Filed herewith.
</TABLE>

II-4

<PAGE>
Exhibit 5.1

February 24, 1998

Energy East Corporation

One Commerce Plaza

Suite 2006A 20th Floor

Albany, New York 12260

Ladies and Gentlemen:

We have acted as counsel for Energy East Corporation (formerly known as NGE
Resources, Inc.) (the "Company") in connection with a Registration Statement on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission for the purpose of registering under the Securities Act of 1933, as
amended, 76,000,000 shares of the Company's Common Stock, with a par value of
One Cent ($.01) per share (the "Common Stock"), which are issuable upon the
consummation of, and subsequent to, the Share Exchange contemplated by the
Agreement and Plan of Share Exchange (the "Plan of Exchange") between the
Company and New York State Electric & Gas Corporation, filed as Exhibit A to the
Proxy Statement and Prospectus which forms a part of the Registration Statement.
All capitalized terms not otherwise defined herein have the same meanings as
defined in the Registration Statement.

As counsel to the Company, we are generally familiar with its corporate
proceedings and have examined the Registration Statement and the Plan of
Exchange and such other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth. In addition, we have made such
other and further investigations as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth.

In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.

Based on the foregoing and upon such further examination of corporate
records and documents and matters of law as we have considered necessary or
desirable for the purposes of this opinion, it is our opinion that the Common
Stock, when issued in accordance with the terms of the Plan of Exchange, at the
Effective Time of the Share Exchange, will be validly issued, fully paid and
non-assessable shares of Common Stock of the Company.

The opinion expressed herein is limited to the laws of the State of New York
and to applicable United States federal law and we express no opinion as to the
laws of any other jurisdiction.

We hereby consent to the making of the statements with reference to our firm
under the heading "Legal Opinions" in the Registration Statement and to the
filing of this opinion as Exhibit 5.1 to the Registration Statement.

Very truly yours,

Huber Lawrence & Abell

<PAGE>
Exhibit 8.1

February 24, 1998

Energy East Corporation

One Commerce Plaza

Suite 2006A 20th Floor

Albany, New York 12260

Ladies and Gentlemen:

Based on the foregoing and upon such further examination of corporate
records and documents and matters of law as we have considered necessary or
desirable for the purposes of this opinion, it is our opinion that the
statements made in the Registration Statement under the caption "Certain Income
Tax Consequences," insofar as they purport to constitute summaries of matters of
United States federal tax law and regulations or legal conclusions with respect
thereto, constitute our opinion as to the matters described therein.

The opinion expressed herein is limited to applicable United States federal
law and we express no opinion as to the laws of any other jurisdiction.

We hereby consent to the making of the statements with reference to our firm
under the heading "Certain Income Tax Consequences" in the Registration
Statement and to the filing of this opinion as Exhibit 8.1 to the Registration
Statement.

Very truly yours,

Huber Lawrence & Abell

<PAGE>
EXHIBIT 99.1

<TABLE>

<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1 AND 2 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 3

1. APPROVAL OF THE PLAN 2. ELECTION OF FOR all WITHHOLD AUTHORITY 3. THE STOCKHOLDER PROPOSAL, as provided
OF EXCHANGE DIRECTORS, as Nominees to vote for all nominees in the Company's Proxy Statement.
FOR AGAINST ABSTAIN provided in the listed below listed below FOR AGAINST ABSTAIN
/ / / / / / Company's Proxy / / / / / / / / / /
Statement:
(INSTRUCTIONS: TO
WITHHOLD AUTHORITY THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED
to vote for any individual AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS
nominee, print that INDICATED, WILL BE VOTED FOR THE PLAN OF EXCHANGE,
nominee's name on the line FOR ALL THE NOMINEES, AGAINST PROPOSAL (3) AND
provided below.) AS SAID PROXIES SHALL DEEM ADVISABLE ON SUCH
J.A. Carrigg, P.L. Gioia, B.E. Lynch OTHER BUSINESS AS MAY COME BEFORE THE MEETING.

The undersigned hereby revokes any other proxy
to vote at such Annual Meeting, and hereby
ratifies and confirms all that said attorneys and
____________________________________ proxies, and each of them, may lawfully do by
virtue hereof. With respect to matters not known
at the time of the solicitations hereof, said
proxies are authorized to vote in accordance
with their best judgment.

Date: __________________________, 1998

_______________________________________
Signature(s) of Stockholder(s)

Note: (This proxy should be marked, dated
and signed by the stockholder(s) exactly as
his name appears hereon, and returned
promptly in the enclosed envelope. Persons
signing as a fiduciary should so indicate.
If shares are held by joint tenants or as
community property, both must sign.)
</TABLE>

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- -------------------------------------------------------------------------------

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS

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 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
April 29, 1998, and at any adjournment thereof.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

<PAGE>

Exhibit 99.3

STATE OF NEW YORK
PUBLIC SERVICE COMMISSION

At a session of the Public Service
Commission held in the City of
Albany on January 21, 1998

COMMISSIONERS PRESENT:

John F. O'Mara, Chairman
Maureen O. Helmer
Thomas J. Dunleavy

CASE 96-E-089l - In the Matter of New York State Electric & Gas Corporation's
Plans for Electric Rate/Restructuring Pursuant to Opinion No.
96-l2.

CASE 93-E-0960 - Proceeding on Motion of the Commission as to the Rates,
Charges, Rules and Regulations of New York State Electric and
Gas Corporation - Tariff Filing Governing the Sale of Economic
Development Power Generated by the New York State Power
Authority to Specific Customers Recommended by the Allocation
Board.

CASES 94-M-0349 et al. - New York State Electric & Gas
Corporation - Electric Rates.(1)

ORDER ADOPTING TERMS OF SETTLEMENT
SUBJECT TO MODIFICATIONS AND CONDITIONS

(Issued and Effective January 27, 1998)

BY THE COMMISSION:

INTRODUCTION

Opinion No. 96-12 required New York State Electric & Gas Corporation
(NYSEG or the company), among others, to file a proposed plan for
rates/restructuring, no later than October 1, 1996. Despite the parties' efforts
to negotiate a resolution of the filings, no agreement was reached within the
period allotted, and testimony was filed by the parties on March 25, 1997. At
our direction, the testimony addressed not only the rate/restructuring
proceeding, but a pending case involving the rates

- ----------
(1) These include cases 94-M-0349, 93-E-0284, 93-E-0664, 95-M-0017, 95-E-0425,
and 95-E-0426. See Opinion No. 95-17 (issued September 27, 1995).

<PAGE>

for the delivery of power from the New York Power Authority (NYPA) to
Economic Development Power (EDP) customers,(1) as well as a 1995 rate
settlement in which second- and third-year rate increases initially had been
authorized. Evidentiary hearings were held during May 1997 and briefs were
filed with the Administrative Law Judge in June and July.

Prior to the issuance of a recommended decision, NYSEG submitted an
"Agreement Concerning the Competitive Rate and Restructuring Plan of New York
State Electric & Gas Corporation"(2) (Settlement), which purported to resolve by
agreement all of the issues in all of the cases. The Settlement was signed by
Staff of the Department of Public Service (Staff), NYSEG, the New York State
Department of Economic Development (DED), NYPA, the National Association of
Energy Services Companies (NAESCO), and the Joint Supporters.(3) On October 23,
1997, statements supporting the Settlement were filed by the signatories, and
NYSEG filed its environmental assessment form (EAF). On November 1, 1997,
statements in opposition were filed by Multiple Intervenors (MI), Wheeled
Electric Power Company (WEPCO), the New York State Department of Law (DOL), the
Public Utility Law Project (PULP), Public Interest Intervenors (PII), the
Retail Council, the New York State Consumer Protection Board (CPB), the
Independent Power Producers of New York jointly with Enron Capital & Trade
Resources (IPPNY/Enron), and Tioga/Tompkins Counties (Counties). Evidentiary
hearings to review the Settlement were held in November 1997 and public
statement hearings were held in Lockport, Plattsburgh, Johnson City, Auburn, and
Hudson on various dates in October and November.

- -----------------
(1) Case 93-E-0960.

(2) A copy of the Settlement submitted on October 9, 1997, is attached as
Appendix A.

(3) The Joint Supporters is a voluntary unincorporated association of
consumers and providers in favor of competitive opportunities for electric
service.

<PAGE>

A recommended decision was issued on December 3, 1997, in which the Judge
found that the Settlement contained the basics of an acceptable plan, but that
certain provisions should be reexamined by the parties. The recommended decision
concluded that the Settlement should be returned to the parties for further
negotiations on specified provisions. Briefs on exceptions were filed on
December 22, 1997 by Staff, the company, MI, IPPNY/Enron, PULP, PII, the
Counties, CPB, Joint Supporters, NAESCO, and WEPCO.(1) Replies to exceptions
were filed on December 17, 1997 by Staff, the company, MI, DED, IPPNY/Enron,
and CPB.

SETTLEMENT SUMMARY

In accordance with our directions, the submitted Settlement contains a
five-year rate plan, provisions concerning the recovery and mitigation of
strandable costs, a phased schedule for providing retail access and unbundled
tariffs, a proposed holding company corporate structure, a funding source for
public policy programs, reduced delivery rates for EDP power, and a number of
other terms. These terms are briefly summarized below.

Under the Settlement rate plan, the company agrees to: forgo the two
previously approved rate increases; reduce large industrial and commercial
customer rates by 5% per year for each of the next five years; reduce the rates
for all other customers by 5% in the fifth year of the plan; and, reduce EDP
wheeling rates by between 35% and 56%. The plan contains a 12% return on equity
(ROE) earnings cap with all excess earnings to be used to benefit ratepayers and
a 9% ROE earnings trigger that permits the company to petition for rate relief
if earnings fall below that level.

Retail access under the Settlement occurs in three phases, with all
customers being provided retail access by August 1999. Also by that time, the
company has agreed to auction all of its fossil generating units and to
structurally separate its

- ----------
(1) DOL filed a letter supporting the remand recommendation.

<PAGE>

business into a regulated wires company (RegSub) and a competitive generating
company (GenSub), both owned by a holding company (HoldCo). Finally, the
company has agreed to urge the cotenants of the Nine Mile II Nuclear
Generating Unit (NM II) to auction that unit.

In the public policy program area, the Settlement sets aside approximately
$13 million (approximately 1 mill/kWh) per year for the first three years of the
rate plan to dedicate to public policy programs. The Settlement does not address
specific programs, and the record indicates that the company's existing
low-income assistance program (Fresh Start) may be discontinued. Finally, the
Settlement sets forth a customer service incentive involving two measures of the
reliability of NYSEG's electric service. The incentive is a penalty-only
mechanism, providing a maximum annual penalty of 15 basis points (bp).

The terms of the Settlement, briefly recited above, will offer a generally
sound regulatory framework for NYSEG, its competitors, and its customers in the
transition to fully competitive generation and energy services markets. Having
reviewed these terms, the recommended decision, and the parties' exceptions,
however, there are several aspects of the Settlement and other important issues
that are not resolved to our satisfaction. For this reason, we are adopting the
terms of the Settlement subject to the following modifications and conditions:

1. All industrial customers not eligible for 5% annual rate decreases
and not taking service under special contracts, will be provided
retail access as of August 1, 1998.

2. The company will file marginal cost-based tariffs(1) within 30 days
of this order applicable to the customers' incremental energy usage
above historic levels for all industrial and commercial customers
who are not eligible for 5% annual rate decreases.

- ----------
(1) The company is urged to consult with Staff prior to filing this tariff. We
expect the rates to include some contribution for system costs.

<PAGE>

3. If, but for the use of accelerated depreciation or amortization, the
company's earnings would have exceeded the 12% earnings cap, it
shall request approval from the Commission to use such accelerated
depreciation or amortization. The company must request such approval
as part of its reporting under the annual earnings cap. It should be
understood that publicly disclosed earnings, which may reflect
accelerated depreciation or amortization, will not be considered the
basis upon which the earnings cap will be applied.

4. The Commission is reserving the right to reexamine the
reasonableness of the generation back-out credit specified in the
Settlement in the event market prices exceed the Settlement credit.

5. Regarding the company's provider of last resort responsibility to
offer a low-income assistance program:

a. The company will continue its Fresh Start program until a
replacement program is approved;

b. The company will file within 30 days of this order a proposed
low-income assistance program, designed to provide service to
all HEAP-eligible customers (an estimated 37,000) over the
term of the rate plan. It is estimated that the program will
cost about $5 million annually. The company will consider in
designing the program the best practices of other New York
utilities and may propose a program operated by a third party.
The company's proposal will be subject to comment by
interested parties, who may also submit alternate proposals.

c. Of the approximately $5 million annual program cost, $2.5
million will be obtained from the $13 million set-aside in the
Settlement and will be dedicated to energy efficiency and
other similar low-income programs approved by the Commission
for SBC funding. For the first few years of NYSEG's
administration of the program,(1) the balance

- --------------
(1) NYSEG's administration of the program may be re-examined if its program
development and implementation is not satisfactory.

<PAGE>

of program costs will be covered by the proceeds from the sale
of excess land.(1) Thereafter, it is assumed that savings
from reduced uncollectibles and a reduced level of arrearages
will equal or exceed total program costs.(2)

6. The Settlement is modified by adding the environmental provisions
approved in the Con Edison proceeding, as set forth in Appendix B of
this order.(3) In addition, we recognize that we must carefully
consider alternative energy sources during the transition to
competition and if opportunities present themselves (such as through
the passage of securitization legislation), we will evaluate
potential ways to accomplish further environmental benefits through
environmental protection and energy efficiency programs.

7. The customer service incentive program (penalty only) will consist
of five indicators: the two set forth in the Settlement and PSC
complaint rates, overall customer satisfaction index, and contact
customer satisfaction index as described in Appendix C of this
order. Each of the five indicators will carry the possibility of a
maximum annual penalty of 8 bp, or a total maximum annual penalty of
40 bp. All other aspects of the service incentive program will
remain as set forth in the Settlement.

8. No New York State utility or New York State utility-affiliated load
serving entity may be denied permission to participate in NYSEG's
retail access program under the reciprocity provisions of the
Settlement (Appendix A, p. 24) unless prior approval is granted by
the Commission.

- ------------
(1) Funding from this source will be limited to $7.5 million over the first
three years of the program.

(2) The cost effectiveness of the program will be monitored by Staff and the
company. The fourth and fifth year funding of the program will be
revisited during the third year of the rate plan.

(3) Cases 96-E-0897 et al., Consolidated Edison Company of New York, Inc. -
Rate/Restructuring Proceeding, Opinion No. 97-16 (issued November 3,
1997), mimeo pp. 43, 66; Order Adopting Terms of Settlement Subject to
Conditions and Understandings (issued September 23, 1997), Appendix A, pp.
27, 54-55.

<PAGE>

9. The following clause regarding remedies for RegSub violations as
approved in the Con Edison proceeding shall be incorporated into the
Settlement.

The Commission may impose on RegSub remedial action (including
redress or penalties, as applicable) for RegSub's violations
of the standards of competitive conduct set forth in the
Settlement. If the Commission finds that RegSub has engaged in
a consistent pattern of material violations of the standards
of competitive conduct, it shall provide RegSub notice and a
reasonable opportunity to remedy such conduct. If RegSub fails
to remedy such conduct within a reasonable period after
receiving such notice, the Commission may take remedial action
with respect to HoldCo to prevent RegSub from further code of
conduct violations. Such remedial actions may include
directing the HoldCo to divest the unregulated subsidiary, or
some portion of the assets of the unregulated subsidiary, that
is the subject of RegSub's consistent pattern of material
violations but exclude directing the HoldCo to divest RegSub
or imposing a service territory restriction on the unregulated
subsidiary. If the HoldCo is directed to divest an unregulated
subsidiary, it may not thereafter, without prior Commission
approval, use a new or existing subsidiary of the HoldCo to
conduct within its service territory the same business
activities as the divested subsidiary (e.g., energy services).
RegSub and the HoldCo may exercise any or all of their
administrative and judicial rights to seek a reversal or
modification of remedial actions ordered by the Commission and
may seek to obtain any and all legal and/or equitable relief
from such remedial actions, including but not limited to
injunctive relief. Neither NYSEG nor its affiliates will
challenge the Commission's authority to implement this
paragraph.(1)

10. The EDP delivery rates set forth in the Settlement shall be frozen
during the term of the five-year rate plan, in the same manner as
other rates are frozen in the Settlement.

- ----------
(1) Cases 96-E0897 et al., supra, Order Adopting Terms of Settlement Subject
to Conditions and Understandings, Appendix A, p. 50.

<PAGE>

11. We understand the Settlement to provide (Appendix A, p. 27) the
company with no more than a reasonable opportunity to recover all
prudent NM II costs, subject to our duty to set just and reasonable
rates, and this understanding supersedes any contrary language or
interpretation of the Settlement.

12. Our adoption of the Settlement's terms is also subject to the
express condition that NYSEG is committed to cooperate in the
development of the infrastructure (e.g., independent system
operator, power exchange, etc.) needed to allow competition in New
York.

Based on the above modifications, both PACE Energy Project (a member of
PII) and the CPB have indicated their agreement with the Settlement, as adopted.

STATE ENVIRONMENTAL QUALITY REVIEW ACT EVALUATION

In conformance with the State Environmental Quality Review Act (SEQRA), we
issued on May 30, 1996 a Final Generic Environmental Impact Statement (FGEIS),
which evaluated the action adopted in Case 94-E-0952. We also required
individual utilities to file an environmental assessment of their restructuring
proposals. NYSEG filed its EAF concerning the Settlement on October 23, 1997.

The information provided by NYSEG in its EAF, the parties' comments and
responses, and other information were evaluated in order to determine whether
the potential impacts resulting from adoption of the Settlement's terms would be
within the bounds and thresholds of the FGEIS adopted in 1996. The analysis
examined several areas of potential impacts including the potential for
increased air emissions due to load growth from reduced rates and reduced demand
side management, and the potential incentive to over-invest in utility plant.

Arguably, all of the potential impacts need not be considered given that
some result from Type II exempt rate actions. In any event, however, based on
these analyses, the potential environmental impacts of the Settlement are found
to be

<PAGE>

within the bounds and thresholds evaluated in the FGEIS. Therefore, no
further SEQRA action is necessary. The final EAF will be appended to the
opinion to be issued later.

DISCUSSION

Taking into account our overall responsibility to set just and reasonable
rates, the company's statutory burden of proof, and our settlement guidelines,
and having considered the evidence, comments, arguments, and EAF information,
the terms of the Settlement, subject to the above described modifications and
conditions, are found to be reasonable and in the public interest.

Among other things, these terms will help NYSEG consumers save or avoid
$725 million of additional charges for electricity in the next few years and
this will help attract businesses and stimulate economic activity. These
savings will be achieved by substantial rate reductions over the term of the
Settlement for the largest businesses in the NYSEG territory, a rate
reduction for all other customers in year five, and by ensuring that
previously approved rate increases will not become effective. The
Settlement's terms also call for prompt divestiture of all the utility's
fossil generation, thereby mitigating strandable costs and providing an
environment for a robust, competitive electric generation market, and access
to that market will be available to all NYSEG customers by August 1, 1999.
With this framework and expected competition in the energy services sector,
customers can expect to receive electricity bills lower than otherwise would
be the case and enjoy greater choice of energy providers and services. At the
same time, the Settlement's terms as modified fairly address environmental
concerns and cost-effective low-income assistance during the transition to a
fully competitive market. These are the essential elements of the competitive
electricity market envisioned for New Yorkers and for the transition to that
market.

Accordingly, the Settlement's terms are adopted in their entirety subject
to the modifications and conditions listed

<PAGE>

above and the Settlement terms are incorporated by reference into this order.
Inasmuch as the terms of the Settlement are interrelated, as are our
modifications and conditions listed above, if any term, condition, or
understanding is modified, vacated, or otherwise materially affected on
judicial review, we may reexamine our entire decision.

Subsequent to the issuance of this abbreviated order, we shall issue a
more comprehensive opinion and order describing the bases for our decision, and
containing the final EAF. The statute of limitations for filing petitions for
rehearing or clarification of our decision will be deemed to run from the date
of issuance of that opinion.

The Commission orders:

1. The terms of the Settlement filed in these proceedings dated October 9,
1997 (Settlement), with the modifications and conditions described above and
subject to the company's unconditional acceptance of this order, are adopted in
their entirety and are incorporated as part of this order.

2. The potential environmental impacts of these terms are within the
bounds and thresholds evaluated in the 1996 FGEIS, and therefore no further
SEQRA action is necessary.

3. New York State Electric & Gas Corporation (NYSEG or the company) must
submit a written statement of unconditional acceptance of the modifications and
conditions contained in this order, signed and acknowledged by a duly authorized
officer of NYSEG, by January 28, 1998. This filing date may be extended by a
maximum of one week if the company files its consent to further extend its rate
case suspension periods by a like amount. This statement should be filed with
the Secretary of the Commission and served on all parties in this proceeding.

4. By not later than January 28, 1998, NYSEG shall cancel the tariff
leaves listed in Appendix D to this order. If the company extends its rate case
suspension periods, the Appendix D tariff leaves shall be cancelled no later
than one day before the end of the extended suspension period.

<PAGE>

5. NYSEG is directed to file by February 6, 1998, on not less than one
day's notice, such tariff amendments as are necessary to effectuate the retail
access program and rate reductions for large customers contemplated by the
Settlement as adopted. NYSEG is also directed to file by February 25, 1998, to
become effective April 1, 1998, such tariff amendments as are necessary to
effectuate the rate reductions for incremental energy usage by small commercial
and small industrial customers contemplated by the Settlement as adopted. The
company shall serve copies of its filings upon all parties to these proceedings.
Any comments on the filing to effectuate the retail access program and rate
reductions for large customers must be received at the Commission's offices
within 20 days of service of the company's proposed amendments. Any comments on
the filing to effectuate the rate reductions for incremental energy usage must
be received at the Commission's offices within ten days of service of the
company's proposed amendments. The amendments shall not become effective on a
permanent basis until approved by the Commission.

6. On or before March 2, 1998 NYSEG shall file a proposed low-income
program as contemplated by the Settlement as adopted.

7. To the extent exceptions to the recommended decision issued in these
proceedings on December 3, 1997 are not moot, or are otherwise granted, they are
denied.

8. NYSEG, in cooperation with Staff, shall monitor the environmental
impacts of electric restructuring resulting from this order.

9. Cases 94-M-0349, 95-E-0425, 95-E-0426, and 93-E-0960 are closed.

10. Case 96-E-0891 is continued.

By the Commission,

(SIGNED) JOHN C. CRARY
Secretary

<PAGE>

APPENDIX A

(The Agreement Concerning the Competitive Rate and
Restructuring Plan of NYSEG was previously filed as
Exhibit 99.2 to this Registration Statement)

<PAGE>

APPENDIX B

<PAGE>

APPENDIX B
Page 1 of 2

4. The Company agrees to address certain restructuring-related issues raised
by the Natural Resources Defense Council and others as follows:

Deferral of T&D Capital Projects:

The Company will continue to develop detailed annual forecasts of
transmission and distribution ("T&D") capital budget requirements and
will identify for each major T&D project (i.e., projects of $10
million or more), the location, reason for project, scope of project,
projected capital costs, appropriate load and other data. The Company
will also perform load monitoring consisting of monitors at a
significant sample of the transmission and area substations scheduled
for expansion/upgrade in the five-year T&D capital plan. The Company
will evaluate and implement cost-effective measures as alternatives to
major T&D projects that defer major T&D system projects through the
use of technologies or services that could reduce peak T&D loads. For
such cost-effective projects, consideration will be given to
technologies or services that minimize the environmental impacts of
electricity usage including demand side and other new technologies
where practicable. Con Edison will continue to seek to minimize costs
and environmental impacts for T&D projects that are not major T&D
projects.

Customer Information:

The Company and staff agree that customer choice would be enhanced by
the availability of environmental information concerning the power
being provided to them. To effectuate such disclosure, Con Edison and
Staff agree to work with LSEs and others to develop and implement,
where feasible, meaningful and cost-effective, an approach to
providing customers with fuel mix and emission characteristics of the
generation sources relied on by the load serving entity. Such an
approach would facilitate informed customer choice, promote resource
diversity and improve environmental quality.

Building Codes:

Con Edison supports the adoption of improved building codes and
standards as an appropriate mechanism for improving the energy
efficiency of buildings and, in particular, their use of electricity.
Con Edison supports the Summary of the Basic Requirements of the 1995
Model Energy Code and ASHRAE 90.1 (1989). Nothing herein requires any
party to support different proposals for energy efficiency standards.

<PAGE>

APPENDIX B
Page 2 of 2

Performance-Based Ratemaking:

In its first major electric rate filing following Commission approval
of this agreement, Con Edison will address the merits of
performance-based ratemaking including the relationship between sales
and distribution revenues and energy efficiency and make ratemaking
proposals as warranted.

The company also agrees to the following language:

The formation of a third-party administrator, appropriately
implemented, would serve the objectives embodied in the Commission's
May 20, 1996 order. Therefore, subject to the Commission's approval,
there will be a third-party administrator, and the Commission will
choose the administrator of the SBC-funded programs.

<PAGE>

APPENDIX C

<PAGE>

Service Quality Performance Mechanism

The electric Service Quality Performance Mechanism will incorporate the
following individual customer service measures:

- Overall Customer Satisfaction Index
- Customer Contact Satisfaction Index
- PSC Complaint Rate

(Reliability measures agreed to in the settlement will remain unchanged.)

Overall Customer Satisfaction Index

An overall customer satisfaction index will be calculated based on the
results of the annual customer expectation survey and will reflect the
percentage of customers satisfied with the service they receive from NYSEG.
The survey will be conducted by an independent consultant on an annual
basis from a representative sample of NYSEG customers from all regions of
the company's service territory, and will include a proportionate number of
the RegSub customers once retail access begins. The results of the last
three annual surveys showed an average customer satisfaction level of
72.6%. If the overall satisfaction index for the Price Cap Period falls
below 71% for any year of the agreement, the company will be subject to a
minimum 2.0 basis-point penalty. If the annual survey results drop to 68%
or below, the company will incur a maximum 8 basis point penalty. The
company will be assessed penalties on this indicator based on the following
sliding scale.

Overall Customer Basis Point
Satisfaction Index Penalty
------------------ -----------
< = 71.0 2.0
< = 70.0 4.0
< = 69.0 6.0
< = 68.0 8.0

<PAGE>

Contact Satisfaction Survey

The contact satisfaction index measures the level of satisfaction of
customers who have had recent contact with the company. Each month, NYSEG
will conduct a customer contact or follow-up survey comprised of a
statistically valid sample of customers from each of the regions who have
recently contacted the company, including a representative sample of
customers who have requested a change in electric suppliers. A final annual
average of the monthly survey results will be calculated for each year of
the Price Cap Period. Based on a three year average of past performance,
the company has received a customer satisfaction score of 84.7%. If the
annual results are equal to or below 83.0%, the company will be subject to
a minimum 2.0 basis point penalty. If the annual results are equal to or
below 80.0%, NYSEG will incur a maximum 8 basis point penalty. Penalties
will be imposed on this indicator according to the following scale.

Contact Satisfaction Basis Point
Index Penalty
-------------------- -----------
< = 83.0 2.0
< = 82.0 4.0
< = 81.0 6.0
< = 80.0 8.0

PSC Complaint Rate

A complaint target measured by PSC complaint rate data for the 12 month
period covered by each year of the Price Cap Period. For the past two
years, NYSEG's PSC complaint rates has averaged 3.1. The company's PSC
Complaint rate target will be 4.0 for each year of the Price Cap Period
based on 12 months data. If the PSC Complaint Rate is above 4.0, the
company will be incur a minimum 2.0 basis point penalty. If the company's
PSC complaint rate for each 12 month period of the Price Cap Plan is above
7.0, the company will be subject to a

<PAGE>

maximum 8.0 basis point penalty. Penalties will be assessed based on the
following scale.

PSC Complaint Basis Point
Rate Penalty
------------- -----------
> = 4.0 2.0
> = 5.0 4.0
> = 6.0 6.0
> = 7.0 8.0

Customer Surveys

The company will consult staff in the event that it proposes to make
modifications to either of the survey instruments or the manner in which
they are conducted.

Reporting Requirements

The three customer service measures will be tracked and calculated
separately on an annual basis. The company will submit the results of its
service quality performance quarterly to the Consumer Services Division.
The final report for each rate year of the Price Cap Period should include
an assurance of the integrity of the results either by including
verification of all reported survey data by a third party audit or an
attestation by an officer of the company that the results are accurate and
verifiable. The maximum penalty that could be assessed for each year of the
Price Cap Period is 24 basis points. In the year that a penalty is
incurred, the earnings cap contained in the Settlement Agreement will be
reduced by the number of basis points of the penalty incurred. For example,
if the maximum aggregate penalty is incurred the ROE cap for that year
would be reduced by 0.24%.

<PAGE>

APPENDIX D

<PAGE>

APPENDIX D
Page 1 of 2

SUBJECT: Filing by NEW YORK STATE ELECTRIC & GAS CORPORATION (Second-stage)

Amendments to Schedule P.S.C. No. 115 - Electricity

Original Leaves Nos. 22-D, 26-B, 39-J and 39-K
Second Revised Leaves Nos. 16-I and 16-J
Third Revised Leaf No. 22-C
Fourth Revised Leaf No. 49
Fifth Revised Leaf No. 65
Sixth Revised Leaves Nos. 29-D and 30-C
Seventh Revised Leaf No. 26-A
Eighth Revised Leaves Nos. 29-B and 41
Tenth Revised Leaves Nos. 24, 30 and 52
Eleventh Revised Leaf No. 54
Thirteenth Revised Leaves Nos. 29-A, 36 and 53
Sixteenth Revised Leaf No. 2
Eighteenth Revised Leaf No. 50
Twenty-Second Revised Leaf No. 46
Twenty-Fourth Revised Leaf No. 42
Twenty-Fifth Revised Leaf No. 44
Twenty-Ninth Revised Leaves Nos. 21, 35 and 40
Thirtieth Revised Leaf No. 22
Thirty-Third Revised Leaf No. 32
Thirty-Sixth Revised Leaf No. 31
Forty-Second Revised Leaf No. 18
Forty-Third Revised Leaves Nos. 20 and 23
Forty-Sixth Revised Leaf No. 17

Amendments to Schedule P.S.C. No. 118 - Electricity

First Revised Leaf No. 12A
Third Revised Leaf No. 2
Sixth Revised Leaf No. 19
Eighth Revised Leaf No. 15
Tenth Revised Leaf No. 17, 22, and 23
Eleventh Revised Leaf No. 14 and 18
Twelfth Revised Leaf No. 24
Thirteenth Revised Leaf No. 25
<PAGE>

APPENDIX D
Page 2 of 2

Amendments to Schedule P.S.C. No. 115 - Electricity (Third-stage)

Third Revised Leaves Nos. 16-I and 16-J
Sixth Revised Leaf No. 65
Seventh Revised Leaves Nos. 29-D and 30-C
Ninth Revised Leaves Nos. 29-B and 41
Eleventh Revised Leaf No. 30
Fourteenth Revised Leaf No. 36
Fifteenth Revised Leaf No. 29-A
Seventeenth Revised Leaf No. 2
Twenty-Third Revised Leaf No. 46
Twenty-Fifth Revised Leaf No. 42
Twenty-Sixth Revised Leaf No. 44
Thirtieth Revised Leaves Nos. 35 and 40
Thirty-First Revised Leaf No. 22
Thirty-Fourth Revised Leaf No. 32
Thirty-Seventh Revised Leaf No. 31
Forty-Third Revised Leaf No. 18
Forty-Fourth Revised Leaves Nos. 20 and 23
Forty-Seventh Revised Leaf No. 17

Amendments to Schedule P.S.C. No. 118 - Electricity

Eleventh Revised Leaf No. 17, 22, and 23
Twelfth Revised Leaf No. 14 and 18
Fourteenth Revised Leaves Nos. 24 and 25

Supplement Nos. 138, 139, 143, 144, 146, 147, 148 and 150 to Schedule
P.S.C. No. 115 - Electricity

Supplement Nos. 15, 16, 17, 18, 19, 20, 21 and 22 to Schedule P.S.C.
No. 118 - Electricity