<PAGE> 1
As Filed with the Securities and Exchange Commission on February 19, 1999
Registration No. 333-67427
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
RGS ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NEW YORK 4931 16-1558410
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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89 East Avenue
Rochester, New York 14649
(716) 546-2700
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
David C. Heiligman
Secretary
RGS Energy Group, Inc.
89 East Avenue
Rochester, New York 14649
(716) 546-2700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Approximate date of commencement of proposed sale of the securities 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. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
----------------------
RGS Energy Group, Inc. hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until it
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 Securities Exchange Commission, acting pursuant to
said Section 8(a), may determine.
<PAGE> 2
[RG and E LOGO]
ROCHESTER GAS AND ELECTRIC CORPORATION
89 East Avenue - Rochester, NY 14649-0001
(716) 546-2700
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD
APRIL 29, 1999
To the shareholders of
ROCHESTER GAS AND ELECTRIC CORPORATION:
The annual meeting of shareholders will be held on April 29, 1999 at
11:00 a.m. at the Hyatt Regency Rochester, 125 East Main Street, Rochester, New
York. At the meeting we will:
(1) consider and vote upon an Agreement and Plan of Share Exchange
under which RG&E will reorganize into a holding company
structure. As a result, RGS Energy Group, Inc., a New York
corporation formed by RG&E, will become the parent company of
RG&E and will trade on the New York Stock Exchange under the
symbol "RGS;"
(2) elect four Class I directors to serve on RG&E's Board of
Directors for a term expiring at the 2002 annual meeting; and
(3) transact such other business as is properly brought before the
shareholders.
Holders of record of RG&E common stock at the close of business on
March 1, 1999 are entitled to vote at the annual meeting.
This year, you have three ways to vote your proxy: (a) by mail, (b) by
telephone, and (c) over the Internet. To vote electronically, by telephone or
over the Internet, refer to the enclosed proxy card for instructions. If you
prefer to vote by mail, complete and return the enclosed proxy card in the
envelope provided. Whichever method you choose, we ask that you vote at your
earliest convenience. You may, of course, change or withdraw your proxy at any
time prior to voting at the annual meeting.
By Order of the Board of Directors,
David C. Heiligman
Vice President and Corporate Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
PLEASE VOTE BY PROXY PROMPTLY
<PAGE> 3
PROXY STATEMENT
FOR
ROCHESTER GAS AND ELECTRIC CORPORATION
AND
PROSPECTUS
FOR
RGS ENERGY GROUP, INC.
COMMON STOCK
This proxy statement and prospectus combines a proxy statement for the
1999 annual meeting of shareholders of Rochester Gas and Electric Corporation
with a prospectus of RGS Energy Group, Inc. The proxy which accompanies this
proxy statement and prospectus is being solicited by the Board of Directors of
RG&E.
The Board of Directors proposes to reorganize RG&E into a holding
company structure. Under the reorganization, all outstanding shares of RG&E's
common stock will be exchanged on a share-for-share basis for RGS common stock.
Thus, each person who owned RG&E common stock immediately prior to the exchange
will own the same number of shares (and percentage) of RGS common stock after
the exchange. Likewise, RGS will own all of the outstanding shares of RG&E
common stock. For your convenience, we have attached a copy of the legal
document which creates the holding company to this proxy statement and
prospectus as Exhibit A.
In the event the shareholders of RG&E approve the proposed
reorganization, RGS will issue up to 39,750,000 shares of its common stock in
exchange for shares of RG&E common stock. RGS's stock is not currently listed on
any stock exchange. However, we anticipate that shares of its common stock will
be listed on the New York Stock Exchange following completion of the proposed
reorganization and that it will be traded under the symbol "RGS."
If the exchange is implemented, you will not be required to surrender
your RG&E stock certificates. Instead, your RG&E stock certificates will
automatically represent shares of RGS common stock.
The principal executive offices of both RG&E and RGS are located at 89
East Avenue, Rochester, New York 14649, telephone number (716) 546-2700.
RG&E will mail this proxy statement and prospectus, together with the
accompanying proxy solicited by RG&E's Board of Directors, to RG&E's
shareholders on or about March 8, 1999. The date of this proxy statement and
prospectus is March 8, 1999.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT RG&E THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT. PLEASE SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" FOR MORE
INFORMATION REGARDING WHAT DOCUMENTS HAVE BEEN INCORPORATED AND HOW YOU CAN
OBTAIN COPIES OF THOSE DOCUMENTS.
<PAGE> 4
TABLE OF CONTENTS
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Page
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QUESTIONS AND ANSWERS.............................................................................................1
INFORMATION ABOUT THE ANNUAL MEETING..............................................................................2
WHERE YOU CAN FIND MORE INFORMATION...............................................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................4
FORWARD LOOKING STATEMENTS........................................................................................5
PROPOSAL 1: THE AGREEMENT AND PLAN OF SHARE EXCHANGE..............................................................6
PROPOSAL 2: ELECTION OF DIRECTORS................................................................................21
INDEPENDENT ACCOUNTANTS..........................................................................................36
EXPERTS..........................................................................................................37
DEADLINE FOR SHAREHOLDER PROPOSALS...............................................................................37
OTHER MATTERS....................................................................................................37
COST OF SOLICITATION.............................................................................................38
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EXHIBITS
Exhibit A -- Agreement and Plan of Share Exchange
Exhibit B -- Certificate of Incorporation of RGS
Exhibit C -- By-laws of RGS
-ii-
<PAGE> 5
QUESTIONS AND ANSWERS
The following Questions and Answers highlight selected information
regarding the proposed formation of a holding company and may not contain all of
the information that is important to you. For a more complete discussion of our
proposed holding company restructuring, you should read carefully this entire
document, the attached exhibits and the documents that are incorporated by
reference.
1. WHEN AND WHERE WILL THE ANNUAL MEETING TAKE PLACE? The 1999 annual
meeting of shareholders of RG&E will be held at 11:00 a.m. on April 29, 1999 at
the Hyatt Regency Rochester, 125 East Main Street, Rochester, New York.
2. WHAT IS THE PLAN OF EXCHANGE? The plan of exchange is the legal
document that creates the holding company. It provides that each share of RG&E
common stock will be exchanged for one share of RGS common stock. As a result of
the exchange, you will own RGS common stock and RGS will own all of the
outstanding shares of RG&E common stock. RGS will also own all of the
outstanding shares of stock of RG&E's existing subsidiaries. Although our
organizational structure will change, RGS will continue to conduct RG&E's
current businesses through RG&E and its other subsidiaries.
3. WHY IS THE HOLDING COMPANY BEING PROPOSED? Primarily as a result of
federal and state regulatory reforms, the energy industry is undergoing a
fundamental transformation into a competitive marketplace. The holding company
will help RG&E to separate its regulated utility business from its unregulated
non-utility businesses. This will limit the amount of direct regulation to which
the holding company is subject. This will increase its operating flexibility,
enhance its ability to take advantage of new business opportunities in a timely
manner, and broaden the range of financing techniques available to it. As a
result, the holding company will be in a better position to adapt to the rapidly
changing energy marketplace and to meet and take advantage of future challenges
and opportunities.
4. WILL I HAVE TO EXCHANGE MY RG&E STOCK CERTIFICATES FOR NEW RGS STOCK
CERTIFICATES? No. The plan of exchange provides that your RG&E stock
certificates will automatically represent RGS common stock instead of RG&E
common stock.
5. WILL MY DIVIDENDS BE AFFECTED? There is no reason to expect that
dividends will be affected by the reorganization. RG&E intends to pay dividends
to RGS in amounts which will be sufficient for RGS to pay cash dividends to its
shareholders. We anticipate that such dividends paid to RGS will be sufficient
to enable RGS to pay dividends on its common stock on the same dates that RG&E
currently pays dividends. As in the past, however, the ability of RG&E to pay
dividends will depend upon the availability of retained earnings and its
financial circumstances. In the future, dividends from subsidiaries other than
RG&E may also be a source of funds for dividend payments by RGS.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE? You
will not recognize any gain or loss for federal income tax purposes if you
exchange your RG&E common stock for RGS common stock.
<PAGE> 6
7. WHERE WILL MY RGS COMMON STOCK BE TRADED? We expect the RGS common
stock to be listed on the New York Stock Exchange and, after the exchange, to
trade under the stock symbol "RGS."
8. WHO WILL MANAGE RGS? The initial Board of Directors of RGS will
consist of the same directors as the Board of Directors of RG&E. The first
election of RGS directors will be at its annual meeting of shareholders in 2000.
In addition, we anticipate that RGS and RG&E will have some common officers.
INFORMATION ABOUT THE ANNUAL MEETING
ANNUAL REPORT.
RG&E has mailed a copy of its annual report for the year ended December
31, 1998, which includes consolidated financial statements, to all of its
shareholders of record.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS.
GENERAL. The close of business on March 1, 1999 has been fixed as the
record date for determining the holders of RG&E common stock entitled to vote at
the 1999 annual meeting. As of February 1, 1999, RG&E had outstanding 37,359,813
shares of common stock. Shareholders of record are entitled to one vote per
share on the proposed plan of exchange and in the election of directors.
In voting on the proposed plan of exchange (proposal 1 on your proxy
card), you may vote in favor of the proposal or against the proposal or you may
abstain from voting. The vote required to approve the proposed plan of exchange
is the affirmative vote, in person or by proxy, of two-thirds of the outstanding
shares of RG&E common stock. As a result, in accordance with New York law,
abstentions will have the same legal effect as a vote against the proposed plan
of exchange.
In voting in the election of directors (proposal 2 on your proxy card),
you may vote for the election of all of the nominees or you may withhold your
votes as to all or specific nominees. The four nominees who receive the highest
number of affirmative votes, in person or by proxy, will be elected to serve as
directors. As a result, in accordance with New York law, abstentions will have
no effect on the election of directors.
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE ITS EXERCISE AT THE ANNUAL
MEETING. THEREFORE, VOTING BY PROXY NOW WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON AT THE MEETING.
EMPLOYEE SHAREHOLDERS. The proxy is for shares of RG&E common stock
registered in your name. The proxy also includes any shares held for you under
the Automatic Dividend Reinvestment and Stock Purchase Plan, the RG&E Savings
Plus Plan and/or the Employee Stock Ownership Plan.
-2-
<PAGE> 7
If you complete and return your proxy by mail, telephone or Internet,
the proxies will vote your shares in accordance with your instructions. You may
sign and return your proxy card without checking any boxes, in which case the
proxies will vote your shares for the election of all of the nominees and for
the proposed plan of exchange.
If you do not return the proxy card or otherwise vote by telephone or
over the Internet, the trustee of the RG&E Savings Plus Plan may nonetheless
instruct the proxies to vote any Savings Plus Plan shares held by you (but not
your other shares) in the same proportion as shares voted by other participants
in the Plan.
NON-EMPLOYEE SHAREHOLDERS. The proxy is for shares of RG&E common stock
registered in your name. The proxy also includes any shares held for you under
the Automatic Dividend Reinvestment and Stock Purchase Plan. If you complete and
return your proxy by mail, telephone or Internet, the proxies will vote your
shares in accordance with your instructions. If you sign and return your proxy
card without checking any of the boxes, the proxies will vote your shares for
the election of all of the nominees and for the proposed plan of exchange.
SHARES HELD IN STREET NAME. Whether or not you are an employee of RG&E,
if you beneficially own shares which your broker holds in street name on your
behalf, you will be provided with a form of proxy instructing the broker how to
vote for you. If you do not provide voting instructions to your broker, your
broker may, in accordance with the rules of the New York Stock Exchange, vote
such shares in his or her discretion in the election of directors. However, your
broker may not vote such shares in his or her discretion on the proposed plan of
exchange. Such "broker non-votes" will have the same legal effect as a vote
against the proposed plan of exchange. Therefore, to vote your shares in favor
of the plan of exchange, you must so instruct your broker on the form of proxy.
WHERE YOU CAN FIND MORE INFORMATION
RG&E is subject to the informational requirements of the Securities
Exchange Act of 1934. It files annual and quarterly reports, proxy statements
and other information with the Securities and Exchange Commission in accordance
with the Securities Exchange Act. You may read and copy any such reports, proxy
statements and other information at the SEC's public reference facilities in New
York and Chicago as well as in the SEC's Public Reference Room located at 450
Fifth Street, NW, Washington, D.C. 20549. You can obtain information about the
operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC also
maintains an Internet web site at www.sec.gov that contains reports, proxy
statements and other information regarding reporting companies. You may also
read and copy any such reports, proxy statements and other information
concerning RG&E at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.
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<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" certain information
into this proxy statement and prospectus. This means that we can disclose
important information 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 unless it is superseded by information in this
proxy statement and prospectus. This proxy statement and prospectus incorporates
by reference RG&E's annual report on Form 10-K for the year ended December 31,
1998 that was previously filed with the SEC. The annual report contains
important information about RG&E, its subsidiaries and their operations and
financial condition.
We are also incorporating by reference any 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.
RGS has filed a registration statement on Form S-4 with the SEC under
the Securities Act of 1933. The primary purpose of the registration statement is
to register the shares of RGS common stock that it will issue under the proposed
exchange. 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.
RG&E WILL PROVIDE TO YOU WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST,
A COPY OF ANY DOCUMENTS THAT HAVE BEEN OR MAY BE INCORPORATED BY REFERENCE INTO
THIS PROXY STATEMENT AND PROSPECTUS, OTHER THAN CERTAIN LENGTHY EXHIBITS TO SUCH
DOCUMENTS. WRITTEN OR TELEPHONE REQUESTS FOR SUCH MATERIALS SHOULD BE DIRECTED
TO MR. DAVID C. HEILIGMAN, VICE PRESIDENT AND CORPORATE SECRETARY, ROCHESTER GAS
AND ELECTRIC CORPORATION, 89 EAST AVENUE, ROCHESTER, NEW YORK 14649, TELEPHONE
NUMBER (716) 546-2700. PLEASE MAKE YOUR REQUEST NO LATER THAN APRIL 15, 1999 IN
ORDER TO ENSURE TIMELY DELIVERY.
THE BOARD OF DIRECTORS HAS 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 RGS 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 RG&E OR RGS SINCE THE DATE OF THIS
PROXY STATEMENT AND PROSPECTUS.
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<PAGE> 9
FORWARD LOOKING STATEMENTS
This proxy statement and prospectus contains statements which are not
historical fact and which can be classified as forward looking. These statements
can be identified by the use of certain words which suggest forward looking
information, such as "believes," "expects," "projects," "estimates" and
"anticipates." They can also be identified by the use of words which relate to
future goals or strategies.
In addition to the assumptions and other factors referred to
specifically in connection with the forward looking statements, some of the
factors that could make a significant difference in whether the forward looking
statements ultimately prove to be accurate include:
(1) any state or federal legislative or regulatory initiatives
that affect the cost or recovery of investments necessary to
provide utility service in the electric and natural gas
industries. Such initiatives could include, for example,
changes in the regulation of rate structures or changes in the
speed or degree to which competition occurs in the electric
and natural gas industries;
(2) any changes in the ability of RG&E to recover environmental
compliance costs through increased rates;
(3) any changes in the regulatory status of nuclear generating
facilities and their related costs, including recovery of
costs related to spent fuel and decommissioning;
(4) any changes in the rate of industrial, commercial and
residential growth in RGS's service territories;
(5) the development of any new technologies which allow customers
to generate their own energy or produce lower cost energy;
(6) any unusual or extreme weather or other natural phenomena;
(7) the ability of RGS to manage profitably its new unregulated
operations;
(8) certain unknowable risks involved in operating unregulated
businesses in new territories and new industries;
(9) the timing and extent of changes in commodity prices and
interest rates;
(10) any unanticipated developments associated with identifying,
assessing, fixing and testing the modifications necessary to
mitigate Year 2000 compliance problems, including the possible
indirect impact of customers, suppliers and other business
partners who do not sufficiently mitigate their Year 2000
compliance problems; and
(11) any other considerations that may be disclosed from time to
time in RG&E's and RGS's publicly disseminated documents and
filings.
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<PAGE> 10
THE AGREEMENT AND PLAN OF SHARE EXCHANGE
(PROPOSAL 1 ON YOUR PROXY CARD)
TERMS.
RG&E proposes to reorganize its operations by forming a holding company
structure. Under the terms of the plan of exchange, all of the outstanding
shares of RG&E common stock will be exchanged on a share-for-share basis for RGS
common stock. When the exchange is completed, each person who owned RG&E common
stock immediately prior to the exchange will own a corresponding number of
shares (and percentage) of RGS common stock. Similarly, RGS will own all of the
outstanding shares of RG&E common stock. If the exchange is implemented,
shareholders will not be required to surrender their existing RG&E stock
certificates for stock certificates of RGS.
The Board of Directors of RG&E believes that the plan of exchange is in
the best interests of the shareholders. The plan of exchange has been approved
by the Boards of Directors of both RG&E and RGS and has been executed by
authorized officers of each company. If the shareholders approve the plan of
exchange, and if the applicable regulatory approvals are obtained, the exchange
will become effective when the New York Department of State files a certificate
of exchange for RG&E (or at such later time as is specified in the certificate
of exchange).
Shareholder approval of the plan of exchange will also result in
approval of several amendments to RG&E's common stock plans (discussed below
under "The Agreement and Plan of Share Exchange - Common Stock Plans"). Such
amendments provide for the future use of RGS common stock instead of RG&E common
stock under the common stock plans. Moreover, after the exchange is completed,
RGS will become the sponsor of the common stock plans instead of RG&E.
After the exchange, RGS common shareholders will have the right to vote
on corporate action concerning RGS (but not RG&E) in accordance with the New
York Business Corporation Law. RG&E preferred stock will remain securities of
RG&E after the exchange. Moreover, the exchange will not result in any change in
the outstanding indebtedness of RG&E, which will continue to be indebtedness of
RG&E after the exchange.
RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors unanimously recommends that shareholders vote
FOR the plan of exchange. In making its decision to recommend the plan of
exchange, the Board of Directors has considered the following material factors:
The energy industry is evolving at an accelerated pace and undergoing a
fundamental transformation into a competitive marketplace. This is primarily a
result of state and federal regulatory developments and escalating competitive
pressures. To respond effectively to the increased competition and restructured
regulatory environment, the Board of Directors has determined that RG&E must
position itself to take advantage of potential business opportunities outside of
its present markets.
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<PAGE> 11
In the opinion of the Board of Directors, it is desirable in the long
run for RG&E to pursue its new business opportunities through a holding company
structure. The plan of exchange will help RG&E to separate its utility business
from its non-utility businesses. This will increase its operating flexibility,
enhance its ability to take advantage of new business opportunities in a timely
manner, and broaden the range of available financing techniques. The separation
of RG&E's businesses will also 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 non-utility businesses.
The Board of Directors considered the financial cost to RG&E of
implementing the plan of exchange. Such costs include (a) expenses associated
with obtaining the required regulatory approvals, (b) expenses associated with
this proxy solicitation, and (c) expenses incurred in connection with
registering the RGS common stock with the SEC.
The Board of Directors has determined that the exchange should only
involve the RG&E common stock. The Board's decision not to provide for the
exchange of RG&E preferred stock was based primarily on two factors. The first
factor was the Board's desire not to alter the nature of the investment decision
represented by such fixed income securities - namely, a direct investment in a
regulated utility. The second factor was the Board's conclusion that the
benefits to the preferred shareholders of maintaining a priority position with
respect to dividends and assets on liquidation outweigh any detriment associated
with not having an interest in the non-utility aspects of RG&E's businesses.
PRESENT BUSINESSES.
RG&E. RG&E was organized under the laws of the State of New York in
1904. It is engaged principally in the businesses of generating, purchasing,
transmitting and distributing electricity, and purchasing, transporting and
distributing natural gas. For the twelve months ended December 31, 1998, 66% of
its operating revenues were derived from electric service, 27% from natural gas
service and 7% from unregulated businesses. RG&E's service area has a population
of approximately one million and is well diversified among residential,
commercial and industrial consumers. In addition to the City of Rochester, which
is the third largest city and a major industrial center in New York State, it
includes a substantial suburban area with a large and prosperous farming area.
RG&E's current corporate structure is as follows:
RG&E
R
ENERGETIX RGS ENERGY GROUP RGS DEVELOPMENT
UR UR UR
R = REGULATED UR = UNREGULATED
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<PAGE> 12
ENERGETIX. It is part of RG&E's business strategy to seek growth by
entering into unregulated businesses. The settlement agreement (discussed below
under "The Agreement and Plan of Share Exchange - Reasons for the Reorganization
- - The Settlement Agreement") allows RG&E to invest up to $100 million in
unregulated businesses. The first step in this direction was the formation and
operation of Energetix, Inc. Although at this time RG&E has no formal
commitments or agreements with respect to further acquisitions, it will continue
to evaluate opportunities as they arise.
Energetix is an unregulated subsidiary that will bring energy products
and services to the marketplace both within and outside RG&E's regulated
franchise territory. Energetix intends to market electricity, natural gas, oil
and propane fuel energy services in an area extending in a 150-mile radius
around Rochester.
In August 1998, Energetix announced the acquisition of Griffith Oil
Co., Inc., the second largest oil and propane distribution company in New York
State. Griffith gives Energetix access to 65,000 new customers, with 60,000 of
them residing outside of RG&E's regulated franchise territory. In addition to
its current products, Griffith sells electricity, natural gas and other services
offered by Energetix to its existing customers. Griffith has approximately 350
employees and operates 16 customer service centers.
RGS DEVELOPMENT. During the second quarter of 1998, RG&E formed a new
unregulated subsidiary, RGS Development Corporation. RGS Development was formed
to pursue unregulated business opportunities in the energy marketplace.
RGS ENERGY GROUP. RGS, a New York corporation, was organized in 1998
for the purpose of carrying out the reorganization of RG&E into a holding
company structure. RGS is currently a direct subsidiary of RG&E. Upon the
consummation of the exchange, RGS will become the parent of RG&E. Moreover, RG&E
intends to transfer Energetix and RGS Development to RGS immediately prior to
the exchange so that RGS will remain the parent of Energetix, RGS Development
and any other former subsidiaries of RG&E after the consummation of the
exchange. Thus, all the business and operations conducted by RG&E and its
subsidiaries immediately before the exchange will continue to be conducted by
RGS and its subsidiaries (including RG&E) immediately after the exchange.
Similarly, the consolidated assets and liabilities of RG&E and its subsidiaries
immediately before the exchange will be the same as the consolidated assets and
liabilities of RGS and its subsidiaries (including RG&E) immediately after the
exchange.
We expect the reorganized corporate structure of RG&E and RGS
immediately after the exchange to be as follows:
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<PAGE> 13
RGS ENERGY GROUP
UR
ENERGETIX RG&E RGS DEVELOPMENT
UR UR UR
R = REGULATED UR = UNREGULATED
RGS is not expected to be an operating company. After the
reorganization is completed, RGS will engage in non-utility business activities
through certain of its subsidiaries, including Energetix and RGS Development. As
business conditions warrant, additional subsidiaries of RGS, or of one or more
of its subsidiaries, may be formed.
REASONS FOR THE REORGANIZATION.
THE REGULATORY FRAMEWORK. The primary purpose of the reorganization is
to establish the optimal corporate structure to respond to increased competition
in the electric and natural gas industries.
Beginning 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. More recently, in 1996, the Federal Energy
Regulatory Commission issued Order No. 888. Among other things, Order 888
requires public utilities controlling transmission facilities to open the
wholesale electricity market to increased competition by filing
non-discriminatory open access transmission tariffs. In early 1997, RG&E and the
other New York State electric utilities made such a filing with the FERC. The
filing included the establishment of (a) a reliability council, (b) a power
exchange that will establish visible spot market prices for wholesale
electricity, and (c) an independent system operator that will control most
electric transmission facilities in New York State as an integrated system and
on a non-discriminatory basis.
The transition to a more competitive electric industry in New York
State was set in motion in August 1994 when the New York Public Service
Commission instituted an investigation of issues related to a restructuring of
the electric industry in New York State. The overall objective of the
investigation was to identify regulatory and ratemaking practices that would
assist in the transition to a more competitive electric industry.
The natural gas business has also 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
-9-
<PAGE> 14
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 unbundling
services has been the creation of a new environment that mixes competition and
regulation.
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
State's gas distribution industry into a more competitive marketplace. In
accordance with that and subsequent orders, RG&E modified its natural gas
tariffs to permit all customers - residential, small business, commercial and
industrial - to purchase natural gas from other sources, provided they use
RG&E's transportation network for a separate fee. Under this program, marketers
are allowed to aggregate smaller loads, thus making smaller customers more
attractive to serve.
Under a March 1996 order, the PSC permitted RG&E and other gas
distribution companies to assign to marketers the pipeline and storage capacity
held by RG&E to serve their customers. In a policy statement issued in November
1998, the PSC ordered that the mandatory assignment of capacity permitted by the
March 1996 order be terminated effective April 1, 1999.
In its November 1998 policy statement, the PSC announced its conclusion
that the most effective way to establish a competitive gas supply market is for
gas distribution utilities to cease selling gas. The PSC established a
transition process in which it plans to address three groups of issues: (a)
individual gas utility plans to implement the PSC's vision of the market, (b)
key generic issues to be dealt with through collaboration among gas utilities,
marketers, pipelines and other stakeholders, and (c) coordination of issues that
are common to both the gas and the electric industries.
In August 1998, prior to issuance of the PSC's policy statement, RG&E
had commenced negotiations with the staff of the PSC and other parties to
develop a comprehensive multi-year settlement of various issues, including rates
and the structure of RG&E's gas business. Because the negotiation of a
comprehensive settlement is not anticipated to conclude until mid-1999, the
parties to the negotiations agreed to an interim settlement, effective through
June 1999. The interim settlement deals with such issues as rates,
transportation and storage capacity costs, and assignment of capacity. Under the
interim settlement, which was approved by the PSC in November 1998, base rates
for gas service remain frozen at their current levels (which were fixed under a
1995 settlement that expired at the end of October 1998). Additionally, RG&E
must provide a guaranteed level of benefits to customers from the re-marketing
of unneeded transportation and storage capacity. Further, RG&E agreed to
eliminate the mandatory assignment of capacity to marketers in the Fall of
1998, rather than as of April 1, 1999. RG&E also agreed to permit marketers
serving up to 10% of retail and aggregated customer load to do so without having
to take assignment of the corresponding capacity. With certain exceptions, RG&E
is permitted to recover the costs associated with non-assigned capacity from all
customers.
RG&E and the other parties to the settlement negotiations are
proceeding with discussions based on the August 1998 comprehensive settlement
proposal and the PSC's policy statement. RG&E's objective is to have a
comprehensive settlement in place prior to July 1, 1999.
This mixture of competition and regulation creates new opportunities
(and risks) for energy service providers and their customers.
-10-
<PAGE> 15
THE SETTLEMENT AGREEMENT. During 1996 and 1997, RG&E, the staff of the
PSC and several other parties negotiated an agreement regarding electric service
which was approved by the PSC in November 1997. The settlement agreement sets
the framework for the introduction and development of open competition in the
electric energy marketplace and lasts through June 30, 2002. Over this time, the
way electricity is delivered to customers will fundamentally change. In phases,
RG&E will allow customers to purchase electricity, and later capacity
commitments, from sources other than RG&E through its Energy Choice Program.
These suppliers will compete to package and sell energy and related services to
customers. Competing suppliers will pay RG&E a fee to use its electric
distribution system and RG&E will remain responsible for maintaining the system
and for responding to emergencies.
The settlement agreement sets RG&E's electric rates for each year
during its five-year term. Over the five-year period, RG&E's rate decreases will
total approximately $64.6 million. The settlement agreement permits RG&E to fund
its unregulated operations with up to $100 million.
The settlement agreement requires RG&E to functionally separate its
three regulated operations: distribution, generation and retailing.
Additionally, unregulated energy retailing operations must be structurally
separate from the regulated utility functions. Although the settlement agreement
provides incentives for the sale of generating assets, it does not require RG&E
to divest generating or other assets or write off stranded costs. Additionally,
RG&E will be given a reasonable opportunity to recover prudently incurred costs,
including those pertaining to generation and purchased power.
RG&E believes that the settlement agreement will not adversely affect
its eligibility to continue to apply certain accounting rules applicable to
regulated industries. In particular, RG&E believes it will continue to be
eligible for the favorable treatment provided by SFAS-71 (Accounting for the
Effects of Certain Types of Regulation) which allows RG&E to include assets on
its balance sheet based on its regulated ability to recoup the cost of those
assets. However, this may not be the case with respect to certain operational
costs associated with non-nuclear generation. If, contrary to RG&E's view, its
eligibility to apply SFAS-71 is adversely affected, RG&E could be required to
make a material write-down of assets, the amount of which it cannot presently
determine.
The Energy Choice Program approved by the PSC as part of the settlement
agreement went into effect on July 1, 1998. During the first year of the
program, customers whose electric energy represents approximately 10% of RG&E's
total annual retail sales are now eligible to purchase electricity (but not
capacity commitments) from alternative suppliers. RG&E will completely open the
system to competitors by July 2001.
The settlement agreement also endorsed the establishment of a holding
company structure for RG&E. Consistent with that endorsement, the PSC approved
RG&E's petition to form RGS in an order issued February 5, 1999. The approval
was subject to a dividend condition, however. The condition states that RG&E may
pay dividends to RGS of no more than 100% of RG&E's net income calculated on a
two-year rolling basis. The calculation of net income for this purpose excludes
non-cash charges to income resulting from accounting changes or certain PSC
required charges as well as charges that may arise from significant
unanticipated events. The condition does not apply to dividends that would be
used to fund the remaining portion of the $100 million authorized for RG&E's
unregulated operations.
BENEFITS OF A HOLDING COMPANY STRUCTURE. RG&E could continue to pursue
non-utility business opportunities directly or through Energetix, RGS
Development and its other subsidiaries. The Board of Directors 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 non-utility companies and for those regulated
companies, such as telephone utilities and water utilities, which
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<PAGE> 16
are not regulated by the Public Utility Holding Company Act of 1935. In
addition, it is utilized by many electric and gas companies which are involved
in non-utility activities.
There are many benefits of a holding company structure. Under a holding
company structure, RGS would be able to engage in non-utility businesses without
obtaining the prior approval of the PSC. This would enable RGS to pursue such
business opportunities in a timely manner. The proposed holding company
structure also would permit the use of financing techniques that are better
suited to the particular requirements, characteristics and risks of non-utility
operations without affecting the capital structure or creditworthiness of RG&E.
This would increase RG&E's financial flexibility by allowing it to establish
different debt-to-equity ratios for each of its individual lines of business.
The proposed holding company structure separates the operations of
RG&E's utility and non-utility 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 businesses. The proposed holding company
structure would also make it easier for investors to analyze and value RG&E's
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 non-utility business activities.
TERMINATION OR AMENDMENT OF THE PLAN OF EXCHANGE.
Even if the shareholders approve the plan of exchange, the Board of
Directors of either RGS or RG&E may terminate the plan of exchange at any time
prior to its effectiveness. In addition, the Board of Directors of RG&E and RGS,
acting together, may amend the plan of exchange at any time prior to its
effectiveness. However, once the shareholders have approved the plan of
exchange, the Boards may not change the number or nature of the shares to be
exchanged or otherwise adversely affect the rights of the shareholders of RG&E.
CONDITIONS TO REORGANIZATION.
The plan of exchange must be approved by various regulatory agencies as
well as by the shareholders of RG&E. RG&E received FERC approval on November 30,
1998 and Nuclear Regulatory Commission approval on December 14, 1998, and PSC
approval on February 5, 1999. RG&E is awaiting action by the SEC on its
application for exemption under the Public Utility Holding Company Act.
RIGHTS OF DISSENTING SHAREHOLDERS.
Under Section 910(a)(1)(C) of the New York Business Corporation Law,
holders of RG&E common and preferred stock will not have dissenters' rights in
connection with the plan of exchange.
COMMON STOCK PLANS.
RG&E currently maintains the following stock-related employee plans:
1996 Performance Stock Option Plan and RG&E Savings Plus Plan. In addition, RG&E
offers to all of its shareholders an Automatic Dividend Reinvestment and Stock
Purchase Plan.
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<PAGE> 17
Once the exchange is completed, RGS common stock will be used instead
of RG&E common stock whenever stock is required in connection with the common
stock plans. Moreover, RGS will become the sponsor of the common stock plans
instead of RG&E. Amendments to the common stock plans to provide for the
foregoing will take effect at the same time as the exchange. Shareholder
approval of the plan of exchange also will constitute shareholder approval of
such amendments to the common stock plans.
LISTING OF RGS COMMON STOCK.
We expect the RGS common stock to be approved for listing on the New
York Stock Exchange and to trade under the stock symbol "RGS." At the time of
the listing of RGS common stock, we will de-list the RG&E common stock.
TRANSFER AGENT AND REGISTRAR.
The transfer agent and registrar for RGS common stock will be
BankBoston, N.A. The address for the transfer agent and registrar is P.O. Box
8040, Boston, Massachusetts 02266-8040.
PRICE OF RG&E COMMON STOCK.
RG&E's common stock is currently listed on the New York Stock Exchange.
The high and low sales prices of RG&E's common stock during the twelve months
ended December 31, 1998 were $33.25 and $28.375, respectively. The high and low
sales prices on February 18, 1999 were $26.625 and $26,125, respectively.
REGULATORY MATTERS.
Upon completion of the reorganization, the PSC, the NRC and the FERC
will continue to regulate RG&E. However, the PSC, the NRC and the FERC will not
regulate RGS, except to the extent that the rules or orders of such regulatory
agencies impose restrictions on RGS's relationships with RG&E. After the
exchange, we anticipate that the reporting requirements of the Exchange Act will
apply to both RGS and RG&E.
The FERC has held that the transfer of common stock of a public utility
company from its existing shareholders to a holding company constitutes a
transfer of the "ownership and control" of the facilities of such utility. Such
an exchange must therefore be reviewed and approved by the FERC under Section
203 of the Federal Power Act. RG&E received FERC approval for the exchange on
November 30, 1998.
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<PAGE> 18
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 proposed reorganization. RG&E owns
one nuclear generating facility and a portion of one other nuclear generating
facility and therefore holds NRC licenses for both facilities. RG&E applied for
NRC approval for the transfer of control of its licenses to RGS and received
approval of such transfer on December 14, 1998.
DIVIDEND POLICY.
We expect that RGS will pay quarterly dividends on its common stock on
the same dates that RG&E currently pays dividends. The most recent quarterly
dividend paid on RG&E common stock was $.45 per share payable on January 25,
1999. The ability of RGS to pay common stock dividends will be governed by the
ability of RGS's subsidiaries to pay dividends to RGS. Because RG&E will be by
far the largest of the subsidiaries, we expect that for the foreseeable future
the funds required by RGS to enable it to pay dividends will be derived
predominantly from the dividends paid to RGS by RG&E. In the future, dividends
from subsidiaries other than RG&E may also be a source of funds for dividend
payments by RGS.
RG&E's ability to make dividend payments to RGS will depend upon the
availability of retained earnings and the needs of its utility business. RG&E
intends to pay dividends to RGS, if available, in amounts which will be
sufficient for RGS to pay cash dividends and to pay its operating expenses.
However, because RG&E will continue to be regulated by the PSC, the amount of
its earnings and dividends will be affected by the manner in which the PSC
regulates RG&E. As described above under "Reasons for the Reorganization - The
Settlement Agreement," the PSC's order of February 5, 1999 approving the
reorganization was subject to a dividend condition. That condition states that
RG&E may pay dividends to RGS of no more than 100% of RG&E's net income
calculated on a two-year rolling basis, excluding extraordinary items and the
remaining portion of the $100 million authorized for RG&E's unregulated
operations. Furthermore, the preferential dividend rights of the holders of RG&E
preferred stock will continue to affect the ability of RG&E to pay dividends to
RGS. In addition, although it has no present intention to do so, it is possible
that RG&E may need to issue additional preferred stock in the future. Such
additional preferred stock would also have preferential dividend rights.
DIRECTORS AND EXECUTIVE OFFICERS.
Until the year 2000 annual meeting, the Board of Directors of RGS will
consist of the same directors as the Board of Directors of RG&E. If the
shareholders approve the plan of exchange, they will be considered also to have
ratified the election of such persons as directors of RGS. In addition, we
anticipate that RGS and RG&E will have some common officers. RGS and RG&E may
also have directors and executive officers who are not directors or executive
officers of the other.
DESCRIPTION OF RG&E CAPITAL STOCK.
RG&E is authorized to issue:
- 50,000,000 shares of common stock, of which 37,378,813 shares
were issued and outstanding as of December 31, 1998;
- 2,000,000 shares of preferred stock having a par value of
$100.00 per share, of which 820,000 shares were issued and
outstanding as of December 31, 1998;
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<PAGE> 19
- 4,000,000 shares of preferred stock having a par value of
$25.00 per share, of which none were issued and outstanding as
of December 31, 1998; and
- 5,000,000 shares of preference stock having a par value of
$1.00 per share, of which none were issued and outstanding as
of December 31, 1998.
The outstanding preferred stock has preference over the common stock,
and would have preference over shares of preference stock if any such shares
were outstanding, as to dividends and assets on liquidation. If shares of
preference stock were issued and outstanding, such shares would have preference
over the common stock as to dividends and assets on liquidation.
DESCRIPTION OF RGS CAPITAL STOCK.
GENERAL. RGS is authorized to issue:
- 100 million shares of common stock, of which 1,000 shares were
issued and outstanding as of December 31, 1998; and
- 10 million shares of preferred stock, of which none were
issued and outstanding as of December 31, 1998.
PREFERRED STOCK. Like the RG&E charter, the RGS charter provides that,
to the extent permitted by the New York Business Corporation Law, 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.
DIVIDENDS. After giving effect to any prior rights of RGS preferred
stock, if any should become outstanding, RGS will pay dividends on its common
stock as determined by its Board of Directors out of legally available funds.
VOTING RIGHTS. Generally, the holders of RGS common stock are entitled
to one vote for each share held by them on all matters submitted to the
shareholders of RGS. Holders of RGS common stock do not have cumulative voting
rights in the election of directors. The RGS charter and by-laws generally
require the affirmative vote of a majority of the outstanding shares for
shareholder action. However, the RGS charter and by-laws require the affirmative
vote of the holders of 75% of the outstanding shares in order for shareholders
to amend or adopt any provision inconsistent with certain specified provisions
of the RGS charter and by-laws.
LIQUIDATION. In the event RGS is liquidated or dissolved, either
voluntarily or involuntarily, the holders of any RGS preferred stock established
by the Board of Directors would have priority (after RGS's creditors) with
respect to the distribution of RGS's assets. After the holders of any such
preferred stock are paid, the holders of RGS common stock would be entitled, to
the exclusion of the holders of any such preferred stock, to share ratably
(according to the number of shares held by them) in all remaining assets of RGS
available for distribution.
PREEMPTIVE AND OTHER RIGHTS. The holders of RGS capital stock do not
have any preemptive rights to purchase shares of RGS common or preferred stock
(or their equivalents). The RGS common stock is not subject to redemption or to
any further calls or assessments and is
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<PAGE> 20
not entitled to the benefit of any sinking fund provisions. The shares of RGS
common stock to be issued in connection with the exchange will be fully paid and
non-assessable once the exchange is completed.
COMPARISON OF RG&E COMMON STOCK AND RGS COMMON STOCK.
As New York corporations, both RG&E and RGS are governed by the New
York Business Corporation Law. As a result of the exchange, holders of RG&E
common stock, whose rights as shareholders are currently governed by RG&E's
charter and by-laws, will become holders of RGS common stock, whose rights as
shareholders will be governed by the RGS charter and by-laws.
The following table summarizes and compares the principal rights of RGS
shareholders and the rights of RG&E shareholders. It is qualified in its
entirety, however, by reference to the full texts of the RGS charter and by-laws
and the RG&E charter and by-laws. We have attached the RGS charter and by-laws
as Exhibits B and C for your convenience. The RG&E charter and by-laws are
included as exhibits to RG&E's Annual Report on Form 10-K for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RG&E COMMON SHAREHOLDERS RGS COMMON SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED SHARES 50 million shares of common stock, 6 100 million shares of common
million shares of preferred stock and 5 stock and 10 million shares of
million shares of preference stock. preferred stock.
- ------------------------------------------------------------------------------------------------------------------------------
PREEMPTIVE RIGHTS Limited preemptive rights to purchase newly issued None.
common stock which is not offered pursuant to a
public offering or to or through underwriters or
investment bankers.
- ------------------------------------------------------------------------------------------------------------------------------
NUMBER OF DIRECTORS Minimum of 9 and maximum of 18. Actual number to No minimum or maximum number.
be set by the Board. Actual number to be set by the
Board.
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NUMBER OF DIRECTORS Shareholders can change the maximum and minimum Same.
limits by amending the by-laws.
- ------------------------------------------------------------------------------------------------------------------------------
CLASSIFIED BOARD Three classes of directors, each serving staggered Same.
three-year terms.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RG&E COMMON SHAREHOLDERS RGS COMMON SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NOMINATIONS OF DIRECTORS By the Board, or by a shareholder upon 90 days' Same.
notice in advance of an annual meeting.
- ------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE VOTING FOR None. Same.
DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------
REMOVAL OF DIRECTORS Only for cause. Same.
- ------------------------------------------------------------------------------------------------------------------------------
ELECTION OF TEMPORARY By a majority of the existing directors. Same.
DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------
SPECIAL MEETINGS OF May only be called by the Chairman or President, Same.
SHAREHOLDERS or by the Secretary at the written request of a
majority of the directors.
- ------------------------------------------------------------------------------------------------------------------------------
SETTING OF BUSINESS TO BE By the Board, or by a shareholder upon 90 days' Same.
TRANSACTED AT AN ANNUAL notice in advance of an annual meeting.
MEETING
- ------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER ACTION BY Only if unanimous. Same.
WRITTEN CONSENT
- ------------------------------------------------------------------------------------------------------------------------------
SUPERMAJORITY VOTING 75% vote to amend or repeal certain provisions of Same.
REQUIREMENTS the charter and by-laws.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 22
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN RGS PROVISIONS AND NEW YORK LAW.
RGS CHARTER AND BY-LAWS. Certain provisions of the RGS charter and
by-laws could have the effect of delaying, discouraging or preventing tender
offers or other unsolicited attempts to take over and acquire the business of
RGS. These provisions, all of which were the same under the RG&E charter and
by-laws, include:
(1) the existence of authorized but unissued common and preferred
stock;
(2) the ability of the directors to increase the number of
directors and to elect, by majority vote, the additional
directors;
(3) the division of the board into three classes of directors;
(4) the requirement that shareholders give advance notice of
nominations of directors and proposals to transact business at
an annual or special meeting;
(5) the absence of cumulative voting for directors;
(6) the inability of shareholders to remove directors other than
for cause;
(7) the inability of shareholders to call a special meeting;
(8) the inability of shareholders to act by written consent unless
the consent is unanimous; and
(9) the requirement of supermajority voting in order to amend or
adopt certain by-law and charter provisions.
By discouraging potential takeover bids, these provisions might
diminish the opportunity for RGS's shareholders to sell their shares at a
premium over then prevailing market prices. The Board of Directors decided to
include such provisions to ensure that it would have the ability to evaluate any
proposed acquisition or change in control based on the interests of RG&E and all
of its constituencies without undue pressure.
BCL SECTION 912. Section 912 of the New York Business Corporation Law
prohibits a resident domestic corporation like RGS from engaging in certain
business combinations with an interested shareholder (generally, the beneficial
owner of 20% or more of a corporation's voting stock) for five years following
the time such shareholder became an interested shareholder. However, if the
corporation's Board of Directors approved the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder, such prohibition does not apply. After the expiration of the
five-year period, such business combinations may occur only if approved by a
majority vote of disinterested shareholders, or if specific requirements as to
consideration paid to holders of common and preferred stock are met.
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<PAGE> 23
PSL SECTION 70. Under Section 70 of the New York Public Service Law, no
gas or electric corporation may 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, other than a gas or electric corporation,
may purchase or acquire more than 10% of the voting stock of any New York gas or
electric corporation unless the purchase is on the terms and conditions set by
the PSC.
TREATMENT OF RG&E PREFERRED STOCK.
The shares of RG&E preferred stock issued and outstanding immediately
prior to the exchange will not be converted or otherwise affected by the
exchange. They will continue as equity securities of RG&E with all the same
rights and restrictions as were applicable to them prior to the exchange. The
Board of Directors decided to have the RG&E preferred stock continue as
securities of RG&E so it would not alter the nature of the investment
represented by such fixed income securities, namely a direct investment in a
regulated utility.
TREATMENT OF RG&E INDEBTEDNESS.
The exchange will not result in any change in the outstanding
indebtedness of RG&E, which will continue to be indebtedness of RG&E after the
exchange. The indebtedness will be neither assumed nor guaranteed by RGS in
connection with the exchange. The Board of Directors decided to have the
indebtedness of RG&E continue as indebtedness of RG&E so it would not 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 RGS and its subsidiaries
(including RG&E) immediately after the exchange will be the same as the
consolidated assets and liabilities of RG&E and its subsidiaries (including RGS)
immediately before the exchange. RGS, on an unconsolidated basis, will record
its investment in RG&E and in the subsidiaries transferred by RG&E to RGS at
their net book value. The exchange will result in RGS becoming the owner of all
of the outstanding shares of RG&E common stock. This change in ownership will
have no accounting effect on RG&E. The transfers of subsidiaries by RG&E to RGS
and its subsidiaries will reduce RG&E's retained earnings by an amount equal to
the net book value of such subsidiaries.
FEDERAL INCOME TAX CONSEQUENCES.
GENERAL. The following discussion is based upon a legal opinion of
Nixon, Hargrave, Devans & Doyle, LLP, RG&E's principal outside counsel. For
federal income tax purposes, the exchange will qualify as a tax-free exchange
under Section 351 of the Internal Revenue Code of 1986.
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<PAGE> 24
TAX IMPLICATIONS TO THE SHAREHOLDERS. For federal income tax purposes,
no gain or loss will be recognized by the shareholders from the exchange. The
aggregate tax basis of the RGS common stock received by each shareholder will be
the same as the shareholder's present aggregate tax basis in his or her RG&E
common stock (typically, when a shareholder sells his or her stock, the tax
basis, or initial cost, of the stock is subtracted from the proceeds of the sale
to determine the taxable amount of the shareholder's gain). The holding period
of the RGS common stock held by each shareholder for determining long-term
capital gains for federal income tax purposes will include the period during
which such shareholder held the RG&E common stock, provided that the RG&E common
stock was held as a capital asset on the date of the exchange.
TAX IMPLICATIONS TO RG&E AND RGS. Neither RG&E nor RGS will recognize
any gain or loss for federal income tax purposes upon the exchange of the RG&E
and RGS common stock. For federal income tax purposes, the basis of the RG&E
common stock received by RGS will be the same as RG&E's net asset basis
immediately prior to the exchange, subject to certain adjustments under Treasury
regulations relating to consolidated groups. RGS's holding period in the RG&E
common stock received in the exchange will include the periods during which such
stock was held by the RG&E shareholders.
OTHER TAX ASPECTS. Apart from U.S. federal income tax aspects, we have
made no attempt to determine any tax that may be imposed on shareholders by the
country, state or jurisdiction in which such shareholders reside or are
citizens. Shareholders subject to special treatment because of their personal
tax circumstances should consult their tax advisors as to the application of
state or local income and other laws.
LEGAL OPINIONS.
Nixon, Hargrave, Devans & Doyle LLP, RG&E's and RGS's principal outside
counsel, will pass upon the validity of the RGS common stock and on certain tax
matters.
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<PAGE> 25
ELECTION OF DIRECTORS
(PROPOSAL 2 ON YOUR PROXY CARD)
The Board of Directors of RG&E currently consists of twelve directors
divided into three classes. One class of directors is elected at each annual
meeting of shareholders for a term expiring at the third succeeding annual
meeting.
Ms. Constance M. Mitchell, a member of the class of 1999, will be
retiring from the Board at the annual meeting on April 29, 1999. Ms. Mitchell
has been a director since 1981 and the Board is appreciative of her
contributions to RG&E over the years.
The following individuals have been nominated for election at the 1999
annual meeting to serve as directors for a term expiring at the 2002 annual
meeting and thereafter until their successors are elected and qualify:
- G. Jean Howard,
- Samuel T. Hubbard, Jr.,
- Cleve L. Killingsworth, Jr., and
- Roger W. Kober.
Ms. G. Jean Howard has been nominated to stand for election for the
first time to fill the Board seat to be vacated by Ms. Mitchell. The other
nominees are incumbent directors.
Unless you specify otherwise on your proxy, the proxies will vote
shares represented by proxies for the election of the nominees listed above.
While it is anticipated that the nominees will be able to qualify or accept
office, if one or more should be unable to do so, the proxies reserve the right
to vote for any substitute nominee or nominees designated by the Board of
Directors.
The following paragraphs identify the nominees standing for election
and the continuing directors, including their principal occupations and business
experience for the past five years.
NOMINEES - CLASS I (Term expiring in 2002)
G. JEAN HOWARD. (age 55) Ms. Howard has served as Executive Director of
Wilson Commencement Park, a human services and housing management agency
empowering low-income, single-parent families to become socially and
economically self-sufficient, since 1990. Prior to joining WCP, Ms. Howard
served in management capacities at several human services agencies nationwide.
Ms. Howard serves as a board member or trustee of numerous civic and
philanthropic organizations, including Bennett College, WXXI Public
Broadcasting, Inc., Monroe Community College, the Center for Governmental
Research, Inc. and Genesee Hospital, Rochester, New York. Ms. Howard is standing
for election to RG&E's Board of Directors for the first time.
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<PAGE> 26
SAMUEL T. HUBBARD, JR. (age 49) Mr. Hubbard was President and Chief
Executive Officer of the Alling and Cory Company, a wholesale distributor of
fine printing paper, industrial and business products, from 1986 until November
1998. Prior to joining Alling and Cory, Mr. Hubbard held various management
positions with Chase Lincoln First Bank, a former subsidiary of The Chase
Manhattan Corporation. He is a director of First Empire Corporation and the
Genesee Corporation. Mr. Hubbard has been a director of RG&E since 1996.
CLEVE L. KILLINGSWORTH, JR. (age 46) Mr. Killingsworth has served as
President and Chief Executive Officer of Health Alliance Plan, a corporate
affiliate of the Henry Ford Health System, since January 1998. He served as
President of several Kaiser Foundation Health Plans from 1994 to 1997 and in
senior executive positions at Blue Cross/Blue Shield of the Rochester Area from
1986 to 1994. Mr. Killingsworth is a director of the Reynolds and Reynolds
Company. He has been a director of RG&E since July 1998.
ROGER W. KOBER. (age 65) Mr. Kober served as Chairman of the Board and
Chief Executive Officer of RG&E from March 1996 until his retirement in January
1998. Mr. Kober served as Chairman of the Board, President and Chief Executive
Officer from January 1992 to March 1996. Mr. Kober is a director of Home
Properties of New York, Inc. He has been a director of RG&E since 1988.
CONTINUING DIRECTORS - CLASS II (Term expiring in 2000)
ALLAN E. DUGAN. (age 58) Mr. Dugan has served as Executive Vice
President, Business Group Operations of Xerox Corporation since January 1999.
Prior to assuming his current position, Mr. Dugan was Senior Vice President,
Corporate Strategic Services and Senior Vice President and General Manager,
Manufacturing Operations Worldwide. Mr. Dugan has been a director of RG&E since
1991.
SUSAN R. HOLLIDAY. (age 43) Ms. Holliday has been President and
Publisher of the Rochester Business Journal since 1988. She is Chairman of the
Rochester Regional Advisory Board, Key Bank, N.A. and serves as a board member
or trustee of several civic and philanthropic organizations including the United
Way of Greater Rochester, Rochester Museum and Science Center, George Eastman
House and Rochester Institute of Technology. Ms. Holliday has been a director of
RG&E since 1997.
CHARLES I. PLOSSER. (age 50) Dean Plosser has served since 1991 as the
John M. Olin Distinguished Professor of Economics and Public Policy, and as Dean
since July 1993, of the William E. Simon Graduate School of Business
Administration, University of Rochester. He has been a director of RG&E since
1996.
THOMAS S. RICHARDS. (age 55) Mr. Richards has been Chairman of the
Board, President and Chief Executive Officer of RG&E since January 1998. Mr.
Richards was President and Chief Operating Officer from March 1996 to January
1998, and has served in numerous senior executive capacities since joining RG&E
as General Counsel in October 1991. Prior to joining RG&E, Mr. Richards was an
attorney with the law firm of Nixon, Hargrave, Devans & Doyle LLP. He has been a
director of RG&E since 1996.
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<PAGE> 27
CONTINUING DIRECTORS - CLASS III (Term expiring in 2001)
ANGELO J. CHIARELLA. (age 65) Mr. Chiarella was Vice President,
Rochester Midtown L.L.C., a real estate development and leasing company, from
November 1997 until January 1999. Mr. Chiarella was previously President and
Chief Executive Officer of Midtown Holdings Corp. He is a director of
Transmation, Inc. Mr. Chiarella has been a director of RG&E since 1992.
MARK B. GRIER. (age 46) Mr. Grier has been Executive Vice President,
Financial Management of The Prudential Insurance Company of America since June
1997. He served as Chief Financial Officer of The Prudential from May 1995 to
June 1997 and was Executive Vice President, The Chase Manhattan Bank, N.A. from
1991 to May 1995. Mr. Grier has been a director of RG&E since 1997.
JAY T. HOLMES. (age 56) Mr. Holmes has been a commercial arbitrator and
practicing attorney since May 1996. He served as Executive Vice President and
Chief Administrative Officer of Bausch & Lomb Incorporated from March 1995 until
his retirement in May 1996. Mr. Holmes previously held numerous executive
positions at Bausch & Lomb, serving as Senior Vice President and Chief
Administrative Officer from November 1994 to March 1995 and as Senior Vice
President - Corporate Affairs and Secretary from 1983 until November 1994. Mr.
Holmes has been a director of RG&E since 1992.
CORNELIUS J. MURPHY. (age 68) Mr. Murphy has served as Senior Vice
President of Goodrich & Sherwood Company, a management consulting and human
resource services company, since 1990. Prior to assuming his current
responsibilities, Mr. Murphy held a number of senior management positions at
Eastman Kodak Company, the last of which was Senior Vice President and Project
Manager, Office of the Chief Executive until March 1989. He is a director of
Transmation, Inc. Mr. Murphy has been a director of RG&E since 1981.
SECURITY OWNERSHIP OF MANAGEMENT.
In order to ensure that the interests of each executive officer and
each member of the Board of Directors are directly tied to the continuing
success of RG&E and the performance of RG&E's common stock, a suggested target
level of stock ownership is recommended to be held by each executive officer and
Board member. For executive officers, the target level is three times base
salary for the Chairman of the Board, President and Chief Executive Officer, and
two and one-half times base salary for the other executive officers, exclusive
of exercisable stock options and common stock equivalent units accrued under
RG&E's Long Term Incentive Plan and 401(k) Restoration Plan. A suggested target
level of stock ownership of $150,000 is recommended to be held directly by each
Board member who has been on the Board a minimum of five years exclusive of
common stock equivalent units held in the directors deferred stock plans.
The following table indicates the number of shares (and percentage) of
RG&E common stock and equivalent units beneficially owned as of February 15,
1999 by (a) each director and nominee, (b) each of the executive officers named
in the Summary Compensation Table, and (c) the executive officers and directors
as a group. As of December 31, 1998, no director, nominee or executive officer
beneficially owned over .2% of the outstanding shares, and the total
beneficially owned by all of the directors, nominees and executive officers as a
group represented .9% of the total shares outstanding. The following persons
disclaim beneficial ownership with respect to shares of RG&E common stock held
by their spouses: Mr. Bovalino, 9,591 shares; Mr. Chiarella, 298 shares; Ms.
Holliday, 344 shares; Mr. Kober, 6,918 shares; and all directors, nominees and
executive officers as a group, including the aforementioned, 19,849 shares.
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<PAGE> 28
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NAME OF BENEFICIAL OWNER COMMON COMMON STOCK EQUIVALENT TOTAL COMMON STOCK AND COMMON
STOCK BENEFICIALLY UNITS BENEFICIALLY STOCK EQUIVALENT UNITS
OWNED (1)(2) OWNED (3) BENEFICIALLY OWNED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael J. Bovalino 33,780 4,428 38,208
- ------------------------------------------------------------------------------------------------------------------------
Angelo J. Chiarella 2,002 12,653 14,655
- ------------------------------------------------------------------------------------------------------------------------
Allan E. Dugan 630 6,723 7,353
- ------------------------------------------------------------------------------------------------------------------------
Mark B. Grier 1,330 969 2,299
- ------------------------------------------------------------------------------------------------------------------------
Susan R. Holliday 1,750 1,734 3,484
- ------------------------------------------------------------------------------------------------------------------------
Jay T. Holmes 2,930 13,467 16,397
- ------------------------------------------------------------------------------------------------------------------------
G. Jean Howard (4) 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Samuel T. Hubbard, Jr. 730 2,397 3,127
- ------------------------------------------------------------------------------------------------------------------------
Cleve L. Killingsworth, Jr. 390 955 1,345
- ------------------------------------------------------------------------------------------------------------------------
Roger W. Kober 69,707 2,681 72,388
- ------------------------------------------------------------------------------------------------------------------------
Constance M. Mitchell 240 11,068 11,308
- ------------------------------------------------------------------------------------------------------------------------
Cornelius J. Murphy 3,501 16,502 20,003
- ------------------------------------------------------------------------------------------------------------------------
Charles I. Plosser 430 2,359 2,789
- ------------------------------------------------------------------------------------------------------------------------
Thomas S. Richards 52,483 8,532 61,015
- ------------------------------------------------------------------------------------------------------------------------
J. Burt Stokes 36,563 4,494 41,057
- ------------------------------------------------------------------------------------------------------------------------
Michael T. Tomaino 28,525 4,428 32,953
- ------------------------------------------------------------------------------------------------------------------------
All Directors, Nominees and 304,123 99,884 404,007
Executive Officers as a group (19
Individuals)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of RG&E common stock over which the named person has
direct or indirect voting or investment power.
(2) Includes shares of RG&E common stock which may be acquired through the
exercise of stock options as follows: Mr. Bovalino, 23,839 shares; Mr.
Kober, 57,513 shares; Mr. Richards, 36,320 shares; Mr. Stokes, 23,839
shares; Mr. Tomaino, 16,609 shares; and all directors, nominees and
executive officers as a group, including the aforementioned, 204,940
shares.
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<PAGE> 29
(3) Includes RG&E common stock equivalent units accrued under RG&E's
employee and director benefit plans for which the named person does not
have voting rights.
(4) New nominee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 requires RG&E's
directors and executive officers, as well as persons holding 10% or more of
RG&E's equity securities, to file reports of ownership and changes in ownership
with the SEC and the New York Stock Exchange. These reporting persons are also
required to provide RG&E with copies of all such Section 16(a) forms they file.
Based solely on our review of the copies of the reports received by us, and on
the written representations of certain reporting persons, we believe that during
1998 all filing requirements were timely satisfied by the directors and
executive officers of RG&E.
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors met ten times during 1998. All nominees attended
at least 75% of the total meetings of the Board and the committees on which they
served.
EXECUTIVE AND FINANCE COMMITTEE. The Executive and Finance Committee,
with certain exceptions, possesses all of the authority of the Board of
Directors. During 1998, the Committee met four times. Messrs. Kober (Chairman),
Dugan, Holmes, Murphy, Plosser and Richards are currently members of the
Committee.
AUDIT COMMITTEE. The Audit Committee monitors the integrity of RG&E's
financial statements and its financial reporting process. It reviews
management's internal controls and RG&E's policies and procedures that monitor
compliance with all applicable laws, regulations and ethical business practices.
The Committee also recommends to the Board independent auditors to be retained
by RG&E for the ensuing year, reviews the results of the auditors' examinations
of RG&E's financial statements and recommends any actions deemed necessary.
During 1998, the Committee met four times. Mrs. Mitchell (Chairman) and Messrs.
Chiarella, Grier and Hubbard are currently members of the Committee.
COMMITTEE ON MANAGEMENT. The Committee on Management reviews RG&E's
executive compensation and benefits program, including awards under RG&E's
annual Executive Incentive Plan, Long Term Incentive Plan and Performance Stock
Option Plan. The Committee sets the compensation of the Chief Executive Officer
and reviews the compensation levels of members of management proposed by the
Chief Executive Officer. The Committee oversees RG&E's organizational structure,
corporate goals and objectives and management development, including management
succession. During 1998, the Committee met six times. Messrs. Murphy (Chairman),
Dugan, Hubbard and Plosser are currently members of the Committee.
-25-
<PAGE> 30
COMMITTEE ON DIRECTORS. The Committee on Directors is responsible for
evaluation of director performance, director compensation, director succession,
committee membership and corporate governance issues. The Committee recommends
to the Board of Directors candidates to be nominated for election as directors.
During 1998, the Committee met four times. Messrs. Holmes (Chairman) and
Chiarella and Mmes. Holliday and Mitchell are currently members of the
Committee.
Shareholders wishing to recommend candidates for nomination to the
Board should submit in writing to the Secretary of RG&E the name of the nominee,
a statement of the nominee's qualifications and the written consent of the
person so named. Suggestions received prior to October 1, 1999, will be
considered by the Committee when recommending nominees for election at the 2000
annual meeting of shareholders.
REPORT OF THE COMMITTEE ON MANAGEMENT ON EXECUTIVE COMPENSATION.
The Committee on Management is appointed by the Board of Directors of
RG&E. Its objective is to assure that executive compensation is fair and
reasonable to customers, shareholders and employees by providing competitive
compensation linked to the achievement of RG&E's goals. The Committee provides
to the Board a detailed review of all aspects of compensation for the senior
officer positions.
The Committee has used the services of a compensation consulting firm
to advise it on the reasonableness of compensation paid to senior officers as
compared to other companies, including both utility companies and general
industry companies. The Committee has commissioned several consultant studies on
executive compensation in recent years. The studies indicated that RG&E's
executive compensation levels were below the average for comparable utility and
general industry companies, and based on these results, the Committee has
adjusted RG&E's compensation objectives to the targets discussed below. The
studies also facilitated establishment of short and long-term incentive
programs.
COMPONENTS OF COMPENSATION. The executive compensation program consists
of three components: base salary, annual incentive compensation and long-term
incentive compensation.
Base Salary. The first component of executive compensation is base
salary, which is predicated on competitive market conditions, level of
responsibility and individual performance. RG&E's target base compensation
objective for its top five executive positions is to be competitive with utility
companies in the Edison Electric Institute revenue class of $1 billion to $2.5
billion (18 companies) at the 50th percentile of this class. The average base
pay for RG&E's five highest paid executives in 1998 was 22.2% below the median
base pay of those companies.
Executive Incentive Plan. The second component of executive
compensation is annual incentive compensation. A substantial portion of the
annual compensation of each officer relates to, and is contingent upon, the
performance of RG&E, as well as the individual contribution of each officer. As
a result, a portion of each officer's total potential compensation is variable.
RG&E has an Executive Incentive Plan which provides for annual
performance bonus awards for key employees that are paid upon meeting
established performance objectives.
-26-
<PAGE> 31
Awards may range from 0% to 50% of the midpoint of a participant's salary grade.
Awards are dependent upon the achievement level against the corporate annual
performance objectives. Performance goals are established annually by the
Committee on Management and approved by the Board of Directors. The annual award
will be paid in cash in the year following the year in which it was earned.
The Executive Incentive Plan objectives for 1998 consisted of three
categories: (1) shareholder satisfaction, (2) customer satisfaction, and (3)
employee satisfaction. The weighting of importance and value for each of these
categories was 50%, 30% and 20% respectively. The Committee monitored RG&E's
performance regarding the Plan's objectives throughout the year. Based upon 1998
performance results, the computations of which were reviewed by RG&E's
independent auditors, the Board granted an Executive Incentive Plan payout for
achieving the combined objectives: (1) cash flow return on net assets, (2)
customer satisfaction measurements in the RG&E's Distribution Business, Customer
Service, Generation Business and RGS segments, and (3) employee satisfaction
index and employee performance initiatives. Members of the executive management
team (6 employees) and the executive leadership team (17 employees) participated
in the 1998 Plan. The bonus awards for 1998, as reported below in the Summary
Compensation Table, reflect the achievement of Mr. Richards' earning 32.8% of
the midpoint of his salary grade and the other executive officers earning 22.9%
of their salary grades, as determined by the Committee and as approved by the
Board of Directors. Twenty percent of the bonus awards was based upon the
achievement of each executive's individual performance objectives.
Long Term Incentive Plan. The third component of executive compensation
is long-term incentive compensation, which is designed to ensure the continuing
success of RG&E and is directly tied to RG&E's common stock performance. Under
RG&E's Long Term Incentive Plan, the Committee may recommend to the Board of
Directors the granting of annual awards of 500 to 4,000 performance shares based
on the participant's positional responsibilities. The performance shares are
RG&E common stock equivalents and will accumulate reinvested dividends over a
three-year performance cycle. At the end of the three-year performance cycle,
RG&E's three-year annualized shareholder return on common stock will be ranked
with the companies which comprise the EEI Index. The Committee on Management may
award from 0% to 200% of each participant's performance share account based on
RG&E's ranking in the peer comparison and RG&E's cash flow return on net assets
results. The number of performance shares payable to a participant will be
valued based on the average of the closing price of RG&E common stock during
December of the year prior to the awarding of such shares. Awards granted under
the Long Term Incentive Plan are paid in cash. Participants are required to
invest the after-tax proceeds in shares of RG&E common stock and to retain the
shares for a period of at least three years.
The fourth Long Term Incentive Plan performance cycle concluded in
December 1998. The total shareholder return during the three-year performance
cycle, as compared to the EEI Index, placed RG&E in the 20th position out of 97
companies. During the previous three-year performance cycle concluded in
December 1997, RG&E ranked 13th out of 98 companies. Based upon RG&E's relative
performance compared to the EEI Index, and cash flow return on net assets of
9.69%, which was above the target goal established in the corporate business
plan, the Board of Directors approved a 176.3% payout for 1998 for performance
shares granted in
-27-
<PAGE> 32
January 1996. These awards were grossed up to cover federal and state income
taxes, as reported below in the Summary Compensation Table.
The last Long Term Incentive Plan grants were made in January of 1998.
The 1997 and 1998 performance cycles (1997-1999 and 1998-2000) will be the last
under this Plan. Effective January 1999, performance shares previously granted
under the Long Term Incentive Plan will be replaced with annual stock options.
Stock options will be awarded under the 1996 Performance Stock Option Plan
referenced below.
Performance Stock Option Plan. In 1996, the Performance Stock Option
Plan was established and approved by the shareholders of RG&E. The Stock Option
Plan is designed to motivate management to increase shareholder value over the
long term. Under the Plan, officers and other key executives may be awarded
stock options over a ten-year period ending December 31, 2006. The stock options
are intended to more closely align the interests of management with those of
shareholders by giving management a greater interest in significant stock price
appreciation. The full benefit of the compensation package to each executive
cannot be realized unless stock price appreciation occurs over a number of
years. Option grants include dividend equivalent rights from the date of grant.
In 1998, the Committee granted stock options to Mr. Richards upon his
promotion to Chief Executive Officer. These option grants are reflected in the
stock option tables on the following pages. In determining the number of
options, consideration was given to competitive practices and the duties and
scope of responsibilities of Mr. Richards' position.
The Committee granted 27,984 options at an exercise price of $33.9065
per share to Mr. Richards. Because they were performance related, these options
are scheduled to become 25% vested upon achieving a common stock closing price
of $35 or more for five consecutive trading days; 50% vested at $40 or more for
five consecutive trading days; 75% vested at $45 or more for five consecutive
trading days; and 100% vested upon achieving a common stock closing price of $50
or more for five consecutive trading days.
Under the annual stock option program the granting of options will be
based upon RG&E's three-year total shareholder return performance as compared to
the performance of the EEI Index. Top third, middle third and bottom third
performance by RG&E will result in a varying number of stock option grants. As
RG&E's total shareholder return performance for the period 1996-1998 was in the
top third of the comparative group, annual options were granted on January 20,
1999 at an exercise price of $29.875 per share as follows: Mr. Richards, 27,256
options; Mr. Stokes, 13,387 options; Mr. Tomaino, 12,689 options; and Mr.
Bovalino, 11,687 options. These options cannot be exercised for three years from
the date of grant and include dividend equivalent rights from the date the
option was granted to the date of exercise.
Under the provisions of the Stock Option Plan, the Committee may grant
additional options in the future.
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<PAGE> 33
RG&E's total compensation objective for its top five executive
positions is to be fully competitive with a utility industry comparison group.
Total compensation is defined as the combination of base salary and short and
long-term incentives.
CHIEF EXECUTIVE OFFICER COMPENSATION. In recognition of Mr. Richards'
promotion to the position of Chairman, President and Chief Executive Officer on
January 1, 1998, and with respect to his overall leadership of RG&E, the Board
of Directors, upon recommendation of the Committee, increased his annual base
salary from $250,008 to $325,704, effective January 1, 1998. This salary
increase also reflects Mr. Richards' 1997 performance and additional
responsibilities he assumed upon the retirement of former Chairman and CEO, Mr.
Kober. The Board of Directors was favorably impressed with Mr. Richards'
continuing efforts to create solid earnings results in the face of poor weather
comparisons, his continued leadership in establishing Energetix to compete for
the energy supply and service needs of our customers as the energy marketplace
deregulates, and continued excellent operating performance and expense control.
With the above increase in salary level, Mr. Richards' base pay for
1998 was 36.7% below the median of the EEI salary comparison group. As a result
of the awards paid to Mr. Richards for the positive performance achieved under
the Executive Incentive Plan and Long Term Incentive Plan for 1998, his total
compensation is 12.5% below the median of the EEI salary comparison group.
Mr. Richards was granted 4,000 performance shares in January 1998 under
the Long Term Incentive Plan. The performance cycle for these shares will end on
December 31, 2000 and will be evaluated at that time.
Mr. Richards was granted an additional 27,984 performance contingent
stock options on January 1, 1998 at an exercise price of $33.9065 per share.
These options will vest as discussed above.
Performance shares under the Long Term Incentive Plan and the
Performance Stock Option Plan link executive compensation directly with
shareholder interests since both the targets and the payouts are measured in
terms of shareholder value.
Committee on Management
Cornelius J. Murphy, Chairman
Allan E. Dugan
Samuel T. Hubbard, Jr.
Dr. Charles I. Plosser
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<PAGE> 34
EXECUTIVE COMPENSATION.
EXECUTIVE OFFICERS. The following tables show the compensation RG&E
paid for services of the chief executive officer and the next four most highly
compensated executive officers for each of the last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- ------------------------
LTIP SECURITIES ALL OTHER
FISCAL PAYOUTS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) ($)(2) OPTIONS(3) ($)(4)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THOMAS S. RICHARDS 1998 325,704 136,859 338,641 27,984 8,143
Chairman of the Board, 1997 246,710 73,846 277,849 48,427 6,168
President and 1996 223,825 37,265 41,853 N/A 5,596
Chief Executive Officer (5)
ROBERT E. SMITH 1998 226,061 47,651 247,573 0 5,652
Senior Vice President (6) 1997 224,931 42,411 277,776 31,785 5,623
1996 217,689 27,305 41,853 N/A 5,442
J. BURT STOKES 1998 208,820 47,651 249,464 0 5,221
Senior Vice President, 1997 198,717 42,411 277,744 31,785 4,968
Corporate Services and 1996 190,000 27,305 41,853 N/A 4,750
Chief Financial Officer
MICHAEL T. TOMAINO 1998 197,928 47,651 249,510 0 4,948
Senior Vice President and 1997 47,502 10,603 277,643 33,218 1,188
General Counsel (7) 1996 N/A N/A N/A N/A N/A
MICHAEL J. BOVALINO 1998 182,297 47,651 249,686 0 4,557
President and Chief Executive 1997 167,148 42,411 277,719 31,785 4,179
Officer, Energetix, Inc. (8) 1996 N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A - Not Applicable
(1) Under the Executive Incentive Plan, the amount of annual awards depends
upon the level of achievement of one-year goals. If performance is
below a minimal level, no award is earned. Actual amounts of annual
awards earned under the Plan are shown.
(2) Under the Long Term Incentive Plan, the amount of annual awards depends
upon the total shareholder return over a three-year period ending in
December of such year, as compared to the companies which comprise the
EEI Index of investor-owned electric utilities. The Plan also includes
a financial performance measurement which compares RG&E's cash flow
return on net assets against a pre-established target goal identified
in RG&E's corporate business plan. The table reports actual amounts
earned at the end of each performance cycle, grossed up to cover
federal and state income taxes. Awards granted under the Plan are paid
in cash. Participants are required to invest the after-tax proceeds in
shares of RG&E's common stock and to retain the shares for a period of
at least three years.
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<PAGE> 35
(3) Options granted in 1997 and 1998.
(4) RG&E contributions to the Savings Plus Plan, 401(k) Plan and the 401(k)
Restoration Plan.
(5) Mr. Richards was elected Chairman of the Board, President and Chief
Executive Officer effective January 1, 1998.
(6) Mr. Smith retired from RG&E effective January 1, 1999.
(7) Mr. Tomaino was elected Senior Vice President and General Counsel
effective October 1, 1997.
(8) Mr. Bovalino was elected President and Chief Executive Officer of
Energetix effective January 1, 1998. Previously, he was Senior Vice
President, Energy Services of RG&E.
LONG TERM INCENTIVE PLAN - GRANTS IN LAST FISCAL YEAR (1998)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PERFORMANCE OR
NUMBER OF OTHER PERIOD
COMMON STOCK UNTIL ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
EQUIVALENT MATURATION OR PRICE-BASED PLANS
--------------------------------------------
NAME AND PRINCIPAL POSITION UNITS (#)(1) PAYOUT THRESHOLD (#) TARGET (#) MAXIMUM (#)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THOMAS S. RICHARDS 4,000 3 Years 0 - 3,999 4,000 8,000
Chairman of the Board,
President and
Chief Executive Officer
ROBERT E. SMITH 2,000 3 Years 0 - 1,999 2,000 4,000
Senior Vice President
J. BURT STOKES 2,000 3 Years 0 - 1,999 2,000 4,000
Senior Vice President,
Corporate Services and
Chief Financial Officer
MICHAEL T. TOMAINO 2,000 3 Years 0 - 1,999 2,000 4,000
Senior Vice President and
General Counsel
MICHAEL J. BOVALINO 2,000 3 Years 0 - 1,999 2,000 4,000
President and Chief Executive
Officer, Energetix, Inc.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 36
(1) Under the Long Term Incentive Plan, in January 1998, officers were
granted a specific number of performance shares based upon their salary
grade. Each performance share is deemed to be equivalent to one share
of RG&E common stock. Stock dividend equivalents will be deemed to be
paid and reinvested during the length of a performance cycle. The
Committee on Management may award from 0% to 200% of each officer's
performance share account at the end of a three-year performance cycle
(2000 for this cycle) based on RG&E's ranking against the Edison
Electric Institute 100 Index of investor-owned electric utilities for
total shareholder return on a three-year annualized basis and RG&E's
cash flow return on net assets compared to a pre-established target
goal identified in RG&E's corporate business plan. The number of
performance shares payable, if any, will be based on the average
closing price of RG&E common stock for December 2000. Any award will be
paid in cash by March 1, 2001. Participants are required to invest the
after-tax proceeds of any award in shares of RG&E's common stock and to
retain the shares for a period of at least three years.
OPTION GRANTS IN LAST FISCAL YEAR (1998)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS (1)
--------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE OR GRANT DATE
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE ($)(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas S. Richards 27,984 64.9 $33.9065 1/1/08 158,110
- -------------------------------------------------------------------------------------------------------------------------
Robert E. Smith 0 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
J. Burt Stokes 0 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Michael T. Tomaino 0 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Michael J. Bovalino 0 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A - Not Applicable.
(1) The options shown in this table were granted in 1998 under the 1996
Performance Stock Option Plan. During the exercise period, the
recipient of the option grant may exercise 25% of the total options
granted after the stock price closes at $35 or more for five
consecutive trading days, 50% after the stock closes at $40 or more for
five consecutive trading days, 75% after the stock closes at $45 or
more for five consecutive trading days, and 100% after the stock closes
at $50 or more for five consecutive trading days. Options carry
dividend equivalent rights which provide for a cash payment upon
exercise of an option equal to the quarterly dividend payments per
share of RG&E common stock paid to RG&E's shareholders from the date
the option was granted to the date of exercise.
-32-
<PAGE> 37
(2) The grant date valuation was calculated using the Black-Scholes option
pricing model assuming stock price volatility of 17%, a risk-free rate
of return of 5.4% and an annual dividend yield of 0%. The weighted
average grant date option fair value is $5.56.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (1998)
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON OPTIONS AT FISCAL YEAR END (#) FISCAL YEAR END ($)(1)
------------------------------ ----------------------------
EXERCISE VALUE
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas S. Richards 0 0 36,320 40,091 442,650 147,554
- --------------------------------------------------------------------------------------------------------------------------------
Robert E. Smith 0 0 23,838 7,947 290,526 96,854
- --------------------------------------------------------------------------------------------------------------------------------
J. Burt Stokes 0 0 23,838 7,947 290,526 96,854
- --------------------------------------------------------------------------------------------------------------------------------
Michael T. Tomaino 0 0 16,609 16,609 107,959 107,959
- --------------------------------------------------------------------------------------------------------------------------------
Michael J. Bovalino 0 0 23,838 7,947 290,526 96,854
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the market value of the stock at fiscal year-end less exercise
price. Does not include dividend equivalent rights from the date the
option was granted to the date of exercise.
SEVERANCE AGREEMENTS.
RG&E has entered into severance agreements for an indefinite term with
Messrs. Richards, Stokes, Tomaino and Bovalino. The agreements provide that each
of the officers that is a party to the agreements is obligated, in the event of
an attempted change of control (as defined in the agreements), not to leave RG&E
and to render certain services to RG&E for a designated period. The agreements
also provide that the officer is entitled to specified compensation and benefits
if, within three years after a change in control, the officer's employment is
involuntarily terminated, other than for cause (as defined in the agreements) or
by reason of death, disability or normal retirement. Involuntary termination
also includes the officer's resignation following a change in duties (as defined
in the agreements). If an involuntary termination occurs within the three-year
covered period, the officer will receive a lump sum payment equal to three times
his annual salary (as defined in the agreements) and certain other benefits
including health and death benefits and outplacement and relocation expense
reimbursement. The agreements also provide for a gross-up for any excise taxes
that may apply under Section 4999 of the Internal Revenue Code.
-33-
<PAGE> 38
DIRECTORS' COMPENSATION.
Effective January 1, 1999, RG&E pays directors an annual retainer of
$20,000, $10,000 in cash and $10,000 to be applied to the purchase of shares of
RG&E common stock. RG&E pays committee chairmen an additional cash retainer of
$3,000. Directors receive $900 for each Board or committee meeting attended and
$600 for each additional Board or committee meeting attended the same day.
RG&E does not pay its officers any fees for their services as
directors. The total amount of compensation RG&E pays to its directors is
comparable to the total compensation paid to directors of similar sized
combination electric and gas utility companies.
RG&E has deferral plans under which a director's fees and the cash
portion of his or her retainer may either be deferred with interest in a cash
account or deferred and converted to common stock equivalent units which earn
dividends equal to dividends declared on RG&E common stock. In either case,
deferred amounts are paid in cash, in a lump sum or over a period of up to ten
years commencing no later than the director's 70th birthday.
RG&E has a Deferred Stock Unit Plan for Non-Employee Directors which
also serves to align the directors' financial interests with those of the
shareholders. Each director's deferred stock account is based on the amount of
the annual retainer, the number of years of Board service, and the price of
RG&E's common stock. Under the Plan, each non-employee director is credited
annually with deferred stock units equal to 75% of his or her annual retainer.
Benefits under the Plan become partially vested after five years of service and
are fully vested after ten years. Upon cessation of membership on the Board,
deferred amounts will be payable in cash in a lump sum or in up to ten annual
installments as determined by each director.
SHAREHOLDER RETURN COMPARISON.
The following graph compares the cumulative total shareholder return on
RG&E's common Stock with the EEI Index of investor-owned electric utilities and
the Standard & Poors 500 Index for the past five years. Total return was
calculated assuming investment of $100 on December 31, 1993 and reinvestment of
all dividends.
-34-
<PAGE> 39
FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON
(RG&E, EEI INDEX, AND S&P 500 INDEX)
[FLOW CHART]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
RG$E $100 $86 $101 $94 $179 $174
EEI $100 $88 $116 $117 $149 $170
S&P 500 $100 $101 $139 $171 $228 $294
</TABLE>
PENSION PLAN TABLE.
RG&E has a non-contributory, tax qualified, defined benefit pension
plan known as the RG&E Retirement Plan. RG&E also has an unfunded, non-qualified
plan known as the RG&E Unfunded Retirement Income Plan. All employees, including
executive officers, are eligible to participate in these plans. RG&E also has an
unfunded supplemental executive retirement plan in which executive officers
participate. The annual pension benefit under the plans, taken together, is
determined by the employee's years of service and annual compensation (salary
and bonus). Under the Internal Revenue Code of 1986, the annual benefit payable
by the funded plan was limited to $130,000 for 1998. The unfunded plans will
provide those benefits which cannot be fully provided by the funded plan. The
table below may be used to calculate the approximate annual benefits payable to
executive officers at normal retirement age (65) under these plans in specified
remuneration and years-of-service classifications.
-35-
<PAGE> 40
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL SALARY RETIREMENT BENEFITS BASED ON YEARS OF SERVICE ($)(2)
($)(1)
5 10 15 20 25 30 40
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
150,000 30,000 56,250 78,750 97,500 97,500 97,500 97,500
200,000 40,000 75,000 105,000 130,000 130,000 130,000 130,000
250,000 50,000 93,750 131,250 162,500 162,500 162,500 162,500
300,000 60,000 112,500 157,500 195,000 195,000 195,000 195,000
350,000 70,000 131,250 183,750 227,500 227,500 227,500 227,500
400,000 80,000 150,000 210,000 260,000 260,000 260,000 260,000
450,000 90,000 168,750 236,250 292,500 292,500 292,500 292,500
500,000 100,000 187,500 262,500 325,000 325,000 325,000 325,000
550,000 110,000 206,250 288,750 357,500 357,500 357,500 357,500
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average annual salary includes base pay (three highest consecutive
years) and annual bonus (three highest years) during the last ten years
before retirement. The amounts shown in the salary and bonus columns in
the Summary Compensation Table constitute qualifying compensation under
the plans.
(2) Messrs. Richards, Smith, Stokes, Tomaino and Bovalino have been
credited with 15, 39, 3, 9 and 2 years of service, respectively, under
the plans.
INDEPENDENT ACCOUNTANTS
RG&E has appointed PricewaterhouseCoopers LLP, a firm of independent
certified public accountants, to continue as its auditors for the year 1999. We
expect representatives of PricewaterhouseCoopers LLP to be present at the annual
meeting and available to answer appropriate questions from shareholders. They
will also have the opportunity to make a statement if they desire to do so. From
time to time, PricewaterhouseCoopers LLP performs certain management advisory
services for RG&E.
-36-
<PAGE> 41
EXPERTS
We have incorporated by reference (a) the consolidated balance sheets
as of December 31, 1998, 1997 and 1996, (b) the consolidated statements of
income, changes in common stock equity, and cash flows for each of the three
years in the period ended December 31, 1998, and (c) the related financial
statement schedule incorporated in this proxy statement and prospectus by
reference from RG&E's Annual Report on Form 10-K. In doing so, we have relied on
the report of PricewaterhouseCoopers LLP, a firm of independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.
DEADLINE FOR SHAREHOLDER PROPOSALS
Rule 14a-3(c) of the SEC's proxy rules allows RG&E to use discretionary
voting authority to vote on a matter coming before an annual meeting of
shareholders which is not included in its proxy statement if RG&E does not have
notice of the matter at least 90 days before the date of the annual meeting. In
addition, discretionary voting authority may generally also be used if RG&E
receives timely notice of such matter (as described in the preceding sentence)
and if RG&E describes the nature of such matter in its proxy statement.
Accordingly, for RG&E's year 2000 annual meeting of shareholders, any such
notice must be received by RG&E's Secretary at 89 East Avenue, Rochester, New
York 14649, on or before January 19, 2000.
RG&E's by-laws provide that any shareholder who wishes to submit a
proposal must notify RG&E 90 days in advance of a meeting and must submit the
following: (a) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting the business at that meeting,
(b) the shareholder's name and address as they appear on RG&E's books, (c) the
class and number of shares of RG&E that are owned by the shareholder, and (d)
any material interest of such shareholder in such business.
These requirements are separate and apart from the SEC's requirements
that a shareholder must meet in order to have a shareholder proposal included in
RG&E's proxy statement for its year 2000 annual meeting. Specific proposals of
common shareholders intended to be presented at RG&E's year 2000 annual meeting
of shareholders (or at RGS's year 2000 annual meeting if the plan of exchange is
approved) must be received by the Secretary of RG&E (or RGS) at 89 East Avenue,
Rochester, New York 14649 no later than November 9, 1999 in order to be eligible
for inclusion in RG&E's (or RGS's) proxy materials relating to that meeting.
OTHER MATTERS
The Board of Directors does not know of any other business matters to
be presented for action at the annual meeting. However, the enclosed proxy will
confer discretionary authority for the transacting of any such business properly
brought before the annual meeting or any adjournment thereof. If any such
business is so brought before the meeting, the persons named in the enclosed
proxy form, or their substitutes, will vote according to their discretion.
-37-
<PAGE> 42
New York State law requires RG&E to inform shareholders of the
initiation or renewal of insurance indemnifying itself and its officers and
directors. This insurance, which is carried with Associated Electric and Gas
Insurance Services Limited, has been renewed for a one-year term, effective
January 1, 1999. The policy insures RG&E against any obligations it may incur as
a result of the indemnification of its directors and officers. The effective
cost of the insurance will be zero for 1999 as RG&E received a member's
continuity credit which partially offset the premium for the policy. In
addition, RG&E has a policy with Energy Insurance Mutual Limited that provides
excess coverage for such insurance for a one-year term, effective January 1,
1999. RG&E also expects that the effective cost of this policy will be zero for
1999 as it anticipates receiving a dividend from the insurance carrier in 1999.
RG&E also renewed a fiduciary liability insurance policy carried with Associated
Electric and Gas Insurance Services Limited, effective May 1, 1998. The premium
cost for this policy was $39,455 for a one-year term.
COST OF SOLICITATION
The accompanying proxy is being solicited by the Board of Directors of
RG&E. RG&E will pay the costs of this solicitation, including reimbursing
brokerage firms and others for their expenses in forwarding proxy material to
beneficial owners of stock. Directors, officers and employees of RG&E may
solicit proxies by telephone, other electronic means or in person without
additional compensation. In addition, RG&E has retained Morrow & Co. to assist
in soliciting proxies at an anticipated fee of approximately $50,000, plus
out-of-pocket expenses.
By Order of the Board of Directors
David C. Heiligman
Vice President and Corporate Secretary
Dated: March 8, 1999
Rochester, New York
-38-
<PAGE> 43
EXHIBIT A
AGREEMENT AND PLAN OF SHARE EXCHANGE
OF
ROCHESTER GAS AND ELECTRIC CORPORATION
AND
RGS ENERGY GROUP, INC.
(FORMERLY RG&E HOLDINGS, INC.)
<PAGE> 44
AGREEMENT AND PLAN OF SHARE EXCHANGE
OF
ROCHESTER GAS AND ELECTRIC CORPORATION
AND
RG&E HOLDINGS, INC.
This Agreement and Plan of Share Exchange (the "Plan of Exchange") is
dated and executed as of the 13th day of November, 1998, by and between
Rochester Gas & Electric Corporation, a New York corporation, and RG&E Holdings,
Inc., a New York corporation.
1. The name of the acquiring corporation is RG&E Holdings, Inc. (the
"Acquiring Corporation"). The name of the subject corporation is Rochester Gas
and Electric Corporation (the "Subject Corporation"). The name under which the
Subject Corporation was originally formed was Rochester Railway and Light
Company.
2. The designation and number of outstanding shares of capital stock of
the Subject Corporation, as of November 13, 1998, are as follows: Common Stock,
$5 par value per share, each of which is entitled to one vote and of which
37,761,613 shares are outstanding (the "Subject Corporation Common Stock"); 4%
Preferred Stock, Series F, $100 par value per share, of which 120,000 shares are
outstanding; 4.10% Preferred Stock, Series H, $100 par value per share, of which
80,000 shares are outstanding; 4 3/4% Preferred Stock, Series I, $100 par value
per share, of which 60,000 shares are outstanding; 4.10% Preferred Stock, Series
J, $100 par value per share, of which 50,000 shares are outstanding; 4.95%
Preferred Stock, Series K, $100 par value per share, of which 60,000 shares are
outstanding; 4.55% Preferred Stock, Series M, $100 par value per share, of which
100,000 shares are outstanding; 7.50% Preferred Stock, Series N, $100 par value
per share, of which no shares are outstanding; 8.60% Preferred Stock, Series P,
$100 par value per share, of which no shares are outstanding; 8.25% Preferred
Stock, Series R, $100 par value per share, of which no shares are outstanding;
7.45% Preferred Stock, Series S, $100 par value per share, of which no shares
are outstanding; 7.55% Preferred Stock, Series T, $100 par value per share, of
which no shares are outstanding; 7.65% Preferred Stock, Series U, $100 par value
per share, of which 100,000 shares are outstanding and 6.60% Preferred Stock,
Series V, $100 par value per share, of which 250,000 shares are outstanding
(said series of preferred stock are collectively referred to herein as the
"Subject Corporation Preferred Stock"). The Subject Corporation is also
authorized by its Certificate of Incorporation to issue Preference Stock, $1 par
value per share, of which no shares are outstanding (the "Subject Corporation
Preference Stock"). Holders of Subject Corporation Preferred Stock and Subject
Corporation Preference Stock are not entitled to vote except as provided in the
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.
A-1
<PAGE> 45
The designation and number of outstanding shares of the Acquiring
Corporation are: Common Stock, $.01 par value per share, each of which is
entitled to one vote and of which 1,000 shares are outstanding (the "Acquiring
Corporation Common Stock"), and Preferred Stock, $.01 par value per share, of
which no shares are outstanding (the "Acquiring Corporation Preferred Stock").
In accordance with the provisions of Section 913(c) of the New York
Business Corporation Law (the "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 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 and Subject
Corporation Preference Stock shall not be exchanged or otherwise affected by
this Plan of Exchange. Each share of Subject Corporation Preferred Stock and
Subject Corporation Preference Stock that was 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.
A-2
<PAGE> 46
6. At the Effective Time, the Acquiring Corporation will, as
appropriate, succeed to and assume responsibility for the Subject Corporation's
1996 Performance Stock Option Plan, Automatic Dividend Reinvestment and Stock
Purchase Plan and RG&E Savings Plus 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;
(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 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) Filing of the Certificate of Exchange of the Acquiring
Corporation by 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,
that once the Plan of Exchange is approved by the holders of the Common Stock 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 holders of the
Subject Corporation Common Stock 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
A-3
<PAGE> 47
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 July 15, 1998.
11. The Plan of Exchange was duly adopted by the Board of Directors of
the Acquiring Corporation on November 9, 1998.
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.
ROCHESTER GAS AND ELECTRIC CORPORATION
By: /s/ Thomas S. Richards
Name: Thomas S. Richards
Title: Chairman of the Board, President and
Chief Executive Officer
RG&E HOLDINGS, INC.
By: /s/ Thomas S. Richards
Name: Thomas S. Richards
Title: President and Director
A-4
<PAGE> 48
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
RGS ENERGY GROUP, INC.
<PAGE> 49
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
RG&E HOLDINGS, INC.
Under Section 805 of the Business Corporation Law
The undersigned, being the Secretary of RG&E HOLDINGS, INC. (the
"Corporation"), hereby certifies that:
1. The name of the Corporation is RG&E HOLDINGS, INC.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State of the State of New York on November 5, 1998.
3. Paragraph I of the Certificate of Incorporation of the Corporation,
setting forth the name of the Corporation, is hereby amended to change the name
of the Corporation.
4. To effect the foregoing, Paragraph I of the Certificate of
Incorporation is amended to read in its entirety as follows:
"FIRST: The name of the Corporation is RGS ENERGY GROUP, INC."
5. The amendment to the Certificate of Incorporation effected hereby
was authorized by the unanimous written consent of the Board of the Directors of
the Corporation followed by the written consent of the holder of all the
outstanding shares of stock of the Corporation.
IN WITNESS WHEREOF, I have signed this Certificate this 27th day of
January, 1999.
/s/ David C. Heiligman
David C. Heiligman, Secretary
B-1
<PAGE> 50
CERTIFICATE OF INCORPORATION
OF
RG&E HOLDINGS, INC.
(Under Section 402 of the New York Business Corporation Law)
The undersigned, a natural person at least eighteen years of age, for
the purpose of forming a corporation pursuant to the provisions of the Business
Corporation Law of the State of New York, hereby certifies that:
I. The name of the Corporation is RG&E Holdings, Inc.
II. Its duration shall be perpetual.
III. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the New York
Business Corporation Law, and it is not formed to engage in any act or activity
requiring the consent or approval of any state official, department, board,
agency or other body without such consent or approval first being obtained.
IV. Its principal office is situated in the City of Rochester,
County of Monroe, State of New York.
V. The Secretary of State of the State of New York is hereby
designated by the Corporation as its agent upon whom process against it may be
served. The address to which the Secretary of State shall mail a copy of any
process against the Corporation served upon him is 89 East Avenue, Rochester,
New York 14649.
VI. No director of the Corporation shall be personally liable
to the Corporation or its shareholders for damages for any breach of duty in
such capacity except where a judgment or other final adjudication adverse to the
director establishes: (i) that the director's acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law; or (ii)
that the director personally gained in fact a financial profit or other
advantage to which the director was not legally entitled; or (iii) that the
director's acts violated Section 719 of the New York Business Corporation Law.
If the New York Business Corporation Law is hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of directors of the Corporation shall be
eliminated or limited to the fullest extent permitted by the New York Business
Corporation Law, as so amended. Any repeal of this Article, or any amendment of
this Article insofar as it would in any way enlarge the liability of any
director of the Corporation, shall be ineffective with respect to any acts or
omissions occurring prior to the date of such repeal or amendment.
B-2
<PAGE> 51
VII. The capital of the Corporation shall be at least equal to
the sum of the aggregate par value of all issued shares having par value, plus
the aggregate amount of consideration received by the Corporation for the
issuance of shares without par value, plus such amounts as, from time to time,
by resolution of the Board of Directors, may be transferred thereto.
VIII. The total number of shares which the Corporation is
authorized to issue is 110 million, of which 10 million shares shall be
Preferred Stock, par value $.01 per share, and 100 million shares shall be
Common Stock, par value $.01 per share.
If at any time a vacancy in the office of any director shall
occur, during the term of his office, by reason of death, resignation, removal
or disability, or for any other cause, such vacancy shall be filled in the
manner provided in the Bylaws of the Corporation.
The Corporation shall be entitled to treat the person in whose
name any share or other security is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or other claim to or
interest in such share or other security on the part of any other person,
whether or not the Corporation shall have notice thereof, save as may be
expressly provided by the laws of the State of New York. The Corporation from
time to time may resell any of its own stock or any securities convertible into
or carrying options or warrants to purchase its own stock, purchased or
otherwise acquired by it, at such price as may be fixed by its Board of
Directors or Executive and Finance Committee.
No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential or preemptive rights to
subscribe for, purchase or receive any shares of the Corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights to subscribe for or purchase such shares, or any securities convertible
into or exchangeable for such shares, which may at any time be issued, sold or
offered for sale by the Corporation.
A. Preferred Stock
The Board of Directors may authorize the issuance, from time
to time, in one or more series, of the authorized and unissued Preferred Stock
and may fix, from time to time, before issuance, the designations, preferences,
privileges and voting powers of the shares of each series thereof, and the
restrictions or qualifications thereof, to the extent that the designations,
preferences, privileges and voting powers, and the restrictions and
qualifications thereof, are not herein expressly prescribed, determined and set
forth. Subject to the provisions of this Certificate of Incorporation, 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 number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or
dates;
B-3
<PAGE> 52
(c) Whether shares of that series shall participate in
unlimited dividend rights, and, if so, the extent of such
participation;
(d) Whether shares of that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the
terms of such voting rights;
(e) Whether shares of that series shall have the right to be
converted into shares of the Corporation of any other
authorized class or classes, and, if so, the terms and
conditions of such conversion, including provision for
adjustment of the conversion rate, or whether options or
warrants to purchase shares of stock of the Corporation shall
be issued in connection with that series, and the terms and
conditions of such options or warrants;
(f) Whether the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions
and at different redemption dates;
(g) Whether there will be sinking fund provisions in
connection with that series, and, if so, the terms and
conditions of such provisions;
(h) The amounts payable on the shares of that series in the
event of voluntary or involuntary liquidation or dissolution
of the Corporation; and
(i) Any other relative rights, preferences, and limitations of
shares of that series.
B. Common Stock
The holders of the Common Stock have voting rights on the
basis of one vote for each share of such stock held by them. The provisions of
this paragraph, insofar as they relate to the manner of voting for the election
of directors, may be altered, amended, changed, added to or repealed only by a
vote of the holders of two-thirds of all the shares of Common Stock then
outstanding and entitled to vote.
IX. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
seventy-five percent (75%) of the outstanding shares entitled to vote in the
election of directors, voting together as a single class, shall be required to
alter, amend or repeal unnumbered paragraph 4 of Article VIII, this Article IX
or Article X of this Certificate of Incorporation.
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X. Bylaws of the Corporation may be amended, repealed or
adopted by vote of the holders of record of the shares at the time entitled to
vote in the election of any directors. Bylaws may also be amended, repealed, or
adopted by the Board of Directors, but any Bylaw adopted by the Board may be
amended or repealed by the shareholders entitled to vote thereon as hereinabove
provided; provided, that notwithstanding the foregoing and anything contained in
this Certificate of Incorporation to the contrary, Sections 1.2 and 1.5 of
Article I, Sections 2.2, 2.3, 2.7, 2.8 and 2.9 of Article II and Section 5.6 of
Article V of the Bylaws shall not be altered, amended or repealed and no
provision inconsistent therewith shall be adopted without the affirmative vote
of the holders of at least seventy-five percent (75%) of the outstanding shares
entitled to vote in the election of directors, voting together as a single
class.
IN WITNESS WHEREOF, I have made and subscribed this
Certificate and hereby affirm under the penalties of perjury that its contents
are true on this 5th day of November, 1998.
/s/ David C. Heiligman
David C. Heiligman, Incorporator
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EXHIBIT C
BY-LAWS
OF
RGS ENERGY GROUP, INC.
<PAGE> 55
RGS ENERGY GROUP, INC.
BYLAWS
ARTICLE I
SHAREHOLDERS
SECTION 1.1 ANNUAL MEETING An annual meeting of shareholders for the
election of directors and the transaction of other business shall be held on
such date and at such time as may be fixed by the Board of Directors not less
than ten days prior thereto.
SECTION 1.2 SPECIAL MEETINGS Special meetings of the shareholders may
be called by the Chairman of the Board of Directors or by the President, and
shall be called by the Chairman of the Board or by the Secretary at the request
in writing of a majority of the Board of Directors. Such meetings shall be held
at such time as may be fixed in the call and stated in the notice of meeting.
Any such written request shall state the purpose or purposes of the proposed
meeting.
SECTION 1.3 PLACE OF MEETINGS Meetings of shareholders shall be held at
such place, within or without the State of New York, as may be fixed in the
notice of meeting. Unless otherwise provided by action of the Board of
Directors, all meetings of shareholders shall be held at the principal office of
the Corporation in Rochester, New York.
SECTION 1.4 NOTICE OF MEETINGS Notice of each meeting of shareholders
shall be in writing and shall state the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called. The notice of a special
meeting shall also state that it is being issued by or at the direction of the
person or persons calling the meeting.
A copy of the notice of any meeting shall be given, personally or by
mail, not less than ten or more than sixty days before the date of the meeting,
to each shareholder entitled to vote at such meeting. If mailed, such notice is
given when deposited in the United States mail, with postage prepaid, directed
to the shareholder at his address as it appears on the record of shareholders,
or, if he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, then directed to
him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under the
preceding paragraphs of this Section 1.4.
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SECTION 1.5 NOTICE OF SHAREHOLDER BUSINESS At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than ninety (90) days prior to the meeting. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) 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, (b) the name and address, as
they appear on the Corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.10. The chairman of
an annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
SECTION 1.6 INSPECTORS OF ELECTION The Board of Directors, in advance
of any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat shall, appoint two inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
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SECTION 1.7 LIST OF SHAREHOLDERS AT MEETINGS A list of shareholders as
of the record date, certified by the Secretary or any Assistant Secretary or by
a transfer agent, shall be produced at any meeting of shareholders upon the
request thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors of election, or person presiding thereat,
shall require such list of shareholders 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 shareholders entitled to vote thereat may vote at such
meeting.
SECTION 1.8 QUALIFICATION OF VOTERS Each shareholder of record of
Common Stock of the Corporation shall be entitled at each meeting of
shareholders to one vote for each share of Common Stock standing in his name on
the record of shareholders at the record date.
SECTION 1.9 QUORUM OF SHAREHOLDERS The holders of a majority of the
shares entitled to vote thereat shall constitute a quorum at a meeting of
shareholders for the transaction of any business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders.
The shareholders present, in person or by proxy, and entitled to vote
may, by a majority of votes cast, adjourn the meeting despite the absence of a
quorum.
SECTION 1.10 VOTE OF SHAREHOLDERS Directors shall, except as otherwise
required by law, be elected by a plurality of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote in the election.
Whenever any corporate action, other than the election of directors, is
to be taken by vote of the shareholders, it shall, except as otherwise required
by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
SECTION 1.11 PROXIES Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy.
Each proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Each proxy shall be revocable at
the pleasure of the shareholder executing it, except as otherwise provided by
law.
The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the Secretary or any Assistant
Secretary.
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SECTION 1.12 FIXING RECORD DATE For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than sixty or less than ten days before the date of such meeting,
nor more than fifty days prior to any other action.
When a determination of shareholders of record entitled to notice of or
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof, unless the
Board of Directors fixes a new record date for the adjourned meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 POWER OF BOARD AND QUALIFICATION OF DIRECTORS The business
of the Corporation shall be managed by the Board of Directors, each of whom
shall be at least twenty-one years of age.
SECTION 2.2 NUMBER OF DIRECTORS The number of directors shall be fixed
from time to time by the majority vote of the entire Board of Directors. No
decrease in the number of directors shall shorten the term of any incumbent
director. 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, additional directors in
each class will serve until the next annual meeting of shareholders and
thereafter until their successors shall be elected and shall qualify, which
election shall be conducted in accordance with the provisions of these Bylaws
applicable to the election of the initial classified board.
SECTION 2.3 ELECTION AND TERM OF DIRECTORS Directors shall be elected
at each annual meeting of the shareholders, 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. The directors shall be divided, with respect to the
terms for which they severally hold office, into three classes, hereby
designated as 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, elected at the 1999 annual meeting of
shareholders, shall expire at the next succeeding annual meeting of
shareholders, the second succeeding annual meeting of shareholders and the third
succeeding annual meeting of shareholders, respectively. At each annual meeting
of shareholders after 1999, the successors of the class of directors whose
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term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of shareholders to be held in the third year following the
year of their election.
SECTION 2.4 QUORUM OF THE BOARD; ACTION BY THE BOARD One-third of the
entire Board of Directors shall constitute a quorum for the transaction of
business and, except as otherwise provided in these Bylaws, the vote of a
majority of the directors present at the time of such vote, if a quorum is then
present, shall be the act of the Board.
SECTION 2.5 MEETINGS OF THE BOARD An annual meeting of the Board of
Directors shall be held in each year directly after adjournment of the annual
shareholders' meeting. Regular meetings of the Board may be held at such times
as may from time to time be fixed by resolution of the Board. Special meetings
of the Board may be held at any time upon the call of the Chairman of the Board
of Directors, the President or any two directors.
Meetings of the Board of Directors may be held at such place, within or
without the State of New York, as from time to time may be fixed by resolution
of the Board for annual and regular meetings and in the notice of meeting for
special meetings. If no place is so fixed, meetings of the Board shall be held
at the principal office of the Corporation in Rochester, New York.
No notice need be given of annual or regular meetings of the Board of
Directors. Notice of each special meeting of the Board shall be given by oral,
telegraphic or written notice, duly given or sent or mailed to each director not
less than one day before such meetings.
Notice of a meeting of the Board of Directors need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any
meeting of the Board of Directors.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of any
adjournment of a meeting to another time or place shall be given, in the manner
described above, to the directors who were not present at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
SECTION 2.6 RESIGNATIONS Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the Chairman
of the Board of Directors or to the President or to the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein;
and unless otherwise specified therein the acceptance of such resignation shall
not be necessary to make it effective.
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SECTION 2.7 REMOVAL OF DIRECTORS Any of the directors may be removed
from office, for cause only, by action of the Board of Directors or by vote of
the shareholders.
SECTION 2.8 NEWLY CREATED DIRECTORSHIPS AND VACANCIES Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason may be filled by
vote of a majority of the directors then in office, although less than a quorum
exists. A director elected to fill a vacancy shall be elected to hold office
until the next annual meeting of the shareholders and thereafter until a
successor shall be elected and shall qualify.
SECTION 2.9 NOMINATIONS Nominations for the election of directors may
be made by the Board of Directors or a committee appointed by the Board of
Directors or by any shareholder entitled to vote in the election of directors
generally. However, any shareholder entitled to vote in the election of
directors generally may nominate one or more persons for election as a director
at a meeting only if written notice of such shareholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual meeting of
shareholders, ninety (90) days in advance of such meeting, and (ii) with respect
to an election to be held at a special meeting of shareholders for the election
of directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to shareholders. Each such notice shall
set forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the Company entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Company if so elected. The chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
SECTION 2.10 EXECUTIVE AND FINANCE COMMITTEE AND OTHER COMMITTEES OF
THE BOARD OF DIRECTORS The Board of Directors, by resolution adopted by a
majority of the entire Board, shall designate from among its members an
Executive and Finance Committee consisting of three or more directors, and which
shall have all the authority of the Board, except that no such Committee shall
have authority as to the following matters:
(a) The submission to shareholders of any action that needs
shareholders' approval;
(b) The filling of vacancies in the Board or in the Executive and
Finance Committee;
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(c) The fixing of compensation of the directors for serving on the
Board or on the Executive and Finance Committee;
(d) The amendment or repeal of the Bylaws, or the adoption of new
Bylaws;
(e) The amendment or repeal of any resolution of the Board which, by
its terms, shall not be so amendable or repealable;
(f) The declaration of dividends.
The Board of Directors may designate one or more directors as alternate
members of the Executive and Finance Committee, who may replace any absent
member or members at any meeting of such Committee.
A majority of the entire authorized number of members of the Executive
and Finance Committee or any other Committee authorized by the Board of
Directors shall constitute a quorum for the transaction of business and, except
as otherwise provided in these Bylaws, the vote of a majority of the members
present at the time of such vote, if a quorum is present at such time, shall be
the act of such Committee.
The Executive and Finance Committee shall serve at the pleasure of the
Board of Directors.
The Executive and Finance 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. The Executive and Finance 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.
The Board of Directors by resolution adopted by a majority of the
entire Board may designate from among its members other committees, each to
consist of at least three directors, and each of which committees shall have
authority only to the extent provided in such resolution. The Board may by
resolution designate directors to act as alternate members of a committee to
replace absent members at meetings of the committee. Such committees shall serve
at the pleasure of the Board of Directors.
SECTION 2.11 ACTION WITHOUT A MEETING Any action required or permitted
to be taken by the Board of Directors or any Committee thereof may be taken
without a meeting if all members of the Board or the Committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and written consents thereto shall be filed with the minutes of the proceedings
of the Board or Committee.
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SECTION 2.12 PARTICIPATION IN BOARD MEETINGS BY CONFERENCE TELEPHONE
Any one or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
SECTION 2.13 COMPENSATION OF DIRECTORS The Board of Directors shall
have authority to fix the compensation of directors for services in any
capacity.
SECTION 2.14 INTEREST OF DIRECTOR IN A TRANSACTION Unless shown to be
unfair and unreasonable as to the Corporation at the time it is approved by the
Board of Directors, a committee of such Board or the shareholders, no contract
or other transaction between the Corporation and one or more of its directors,
or between the Corporation and any other corporation, firm, association or other
entity in which one or more of the directors are directors or officers, or are
financially interested, shall be either void or voidable irrespective of whether
such interested director or directors are present at the meeting of the Board of
Directors or of a committee thereof, which approves such contract or transaction
and irrespective of whether his or their votes are counted for such purpose. Any
such contract or transaction may be conclusively approved as fair and reasonable
by:
(a) the Board of Directors, or a duly empowered committee thereof, by a
vote sufficient for such purpose without counting the vote or votes of
such interested director or directors (and he or they may not be
counted in determining the presence of a quorum at the meeting which
approves such contract or transaction), if the fact of such common
directorship, officership or financial interest is disclosed or known
to the Board or committee (as the case may be); or
(b) the shareholders entitled to vote for the election of directors, if
such common directorship, officership or financial interest is
disclosed or known to such shareholders.
SECTION 2.15 LOANS TO DIRECTORS A loan shall not be made by the
Corporation to any director unless it is authorized by vote of the shareholders.
For this purpose, the shares of the director who would be the borrower shall not
be shares entitled to vote.
SECTION 2.16 INDEMNIFICATION OF DIRECTORS AND OFFICERS (a) To the full
extent authorized by law, the Corporation shall indemnify any person, made or
threatened to be made, a party in any civil or criminal action or proceeding by
reason of the fact that he, his testator or intestate, is or was a director or
officer of the Corporation or any subsidiary of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise.
(b) Except as prohibited by law or as provided in paragraph (c) below,
in addition to the rights granted in paragraph (a), every person shall be
entitled as of right to be indemnified by the Corporation against all expenses
and any liability paid or incurred by such person in connection with any actual
or threatened claim, action, suit or proceeding, civil, criminal,
administrative, investigative or other, whether brought by or in the right of
the Corporation or otherwise, in
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which he or she may be involved as a party or otherwise, by reason of such
person being or having been a director or officer of the Corporation or by
reason of the fact that such person is or was serving at the request of the
Corporation as a director, officer, employee, fiduciary or other representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other entity (any such actual or threatened claim, action, suit or proceeding
hereinafter being referred to as an "action"). Such indemnification shall
include advances of any expense incurred by such person in connection with an
action prior to final disposition of such action to the maximum extent not
prohibited by the provisions of any applicable statute. As used herein,
"expense" shall include, without limitation, costs of investigation, including
experts, the costs of defense of actions and appeals therefrom and fees and
expenses of counsel selected by such person, and "liability" shall include
amounts of judgments, excise taxes, fines and penalties, amounts paid in
settlement (provided the Corporation shall have consented to such settlement,
which consent shall not be unreasonably withheld by it), and any other amounts
which the person may be obligated to pay as a result of any action.
(c) No right of indemnification under paragraph (b) shall exist for any
person unless it is determined by a court or, if not finally adjudicated by a
court, by the Board of Directors that such person did not act in bad faith or
with an active and deliberate dishonesty and which was material to the action,
or that he or she did not personally gain in fact a financial profit or other
economic advantage to which he or she was not legally entitled. In making such a
determination, the Board of Directors may act by a quorum consisting of
directors who are not parties to such action or, if such a quorum is not
obtainable or, if obtainable, such quorum is unable to make such a finding and
directs, (i) by the Board of Directors upon having received the opinion in
writing of independent legal counsel that indemnification is proper because the
standard of conduct set forth herein has been met or (ii) by the shareholders
entitled to vote in the election of directors upon a finding that such standard
has been met. Indemnification amounts shall be advanced or promptly reimbursed
by the Corporation under paragraph (b) in advance of the final disposition of
such action or proceeding and prior to the determination to be made under this
paragraph (c), subject to the obligation of the person indemnified to repay the
Corporation if, and upon a determination that, such person acted or benefited as
specified above. If indemnification is denied because of a finding by the Board
in the absence of a judgment or other final adjudication, such action by the
Board will in no way affect the right of the person seeking such indemnification
to make application therefor in any court having jurisdiction thereof; in such
action or proceeding the issue will be whether the director or officer met the
standard of conduct set forth in this paragraph (c), not whether the finding of
the Board that he did not was correct, and the determination of such issue will
not be affected by the Board's finding. If the judgment or other final
adjudication in such action or proceeding establishes that the director or
officer met such standard, the Board shall then find such standard to have been
met and shall grant such indemnification, and also shall grant, to the person
entitled to such indemnification, indemnification of the expenses incurred by
such person in the action or proceeding resulting in the judgment or other final
adjudication that such standard of conduct was met.
(d) The right of indemnification provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification
hereunder may be entitled under applicable law, by agreement or otherwise, and
the provisions hereof shall inure to the benefit of the heirs and legal
representatives of persons entitled to indemnification hereunder and shall be
applicable
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to actions commenced before or after the adoption hereof, whether arising from
acts or omissions occurring before or after the adoption hereof. The Corporation
is authorized to enter into agreements with any of its directors or officers
extending rights to indemnification and advancement of expenses to such person
to the full extent permitted by law, but the failure to enter into any such
agreement shall not affect or limit the rights of such person pursuant to this
bylaw.
(e) This provision shall be deemed to constitute a right of the persons
entitled to indemnification and may not, without the consent of such person, be
amended or repealed to have effect with respect to any event, act or omission
occurring or allegedly occurring prior to the end of the term of office he or
she is serving when such amendment or repeal is adopted.
ARTICLE III
OFFICERS
SECTION 3.1 OFFICERS The Board of Directors, as soon as may be
practicable after the annual election of directors, shall elect a Chairman of
the Board of Directors, a President, one or more Vice Presidents (one or more of
whom may be designated Executive Vice Presidents or Senior Vice Presidents), a
Controller, a Secretary and a Treasurer. From time to time the Board may elect,
or the Board or the Chairman of the Board upon subsequent ratification by the
Board may appoint such other officers as may be determined to be appropriate.
Any two or more offices may be held by the same person, except the offices of
President and Secretary.
SECTION 3.2 TERM OF OFFICE AND REMOVAL Each officer shall hold office
for the term for which he is elected or appointed, and until his successor has
been elected or appointed and qualified. Unless otherwise provided in the
resolution of the Board of Directors electing or appointing an officer, the term
of office of each officer shall extend to and expire at the meeting of the Board
following the next annual meeting of shareholders. Any officer may be removed by
the Board, with or without cause, at any time. Removal of an officer without
cause shall be without prejudice to his contract rights, if any, but his
election or appointment as an officer shall not of itself create contract
rights.
SECTION 3.3 POWERS AND DUTIES The officers of the Corporation shall
each have such powers and authority and perform such duties in the management of
the property and affairs of the Corporation, as from time to time may be
prescribed by the Board of Directors and, to the extent not so prescribed, they
shall each have such powers and authority and perform such duties in the
management of the property and affairs of the Corporation, subject to the
control of the Board, as generally pertain to their respective offices.
Without limitation of the foregoing:
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(a) Chairman of the Board of Directors The Chairman of the Board of
Directors shall be the chief executive officer of the Corporation. He
shall preside at all meetings of the Board and of the shareholders. He
shall ex officio be a member of the Executive and Finance Committee.
(b) President The President shall be charged with the responsibility
for the direction and supervision of the business and affairs of the
Corporation subject only to the supervision of the Board of Directors,
the Executive and Finance Committee and the Chairman of the Board. In
the absence of the Chairman of the Board, he shall preside at all
meetings of the Board and of the shareholders. In the event of the
death, resignation, removal, disability or absence of the Chairman of
the Board, the President shall possess the powers and perform the
duties of the Chairman of the Board. The President shall ex officio be
a member of the Executive and Finance Committee.
(c) Vice Presidents The Executive Vice President and Senior Vice
Presidents (if such there be) and other Vice Presidents shall have such
powers and duties as usually pertain to their respective offices,
except as otherwise directed by the Board of Directors or by the
Executive and Finance Committee, and shall also have such powers and
duties as may from time to time be conferred upon them by the Board of
Directors, the Executive and Finance Committee, the Chairman of the
Board, or the President. In the absence of the President, the Executive
Vice President, the Senior Vice Presidents or one of the Vice
Presidents designated by the Board of Directors or by the Chairman of
the Board or by the President shall have all the powers and perform all
the duties of the President.
(d) Secretary The Secretary shall issue notices of all meetings of
shareholders and directors where notices of such meetings are required
by law or these Bylaws, and shall keep the minutes of such meetings. He
shall attend and keep the minutes of all meetings of the shareholders,
Board of Directors and Executive and Finance Committee. He shall sign
such instruments and attest such documents as require his signature or
attestation and affix the corporate seal thereto where appropriate.
Assistant Secretaries shall assist the Secretary in the performance of
his powers and duties and in his absence exercise such powers and
duties.
(e) Treasurer The Treasurer shall have custody of the corporate funds
and securities and shall deposit all monies and other financial
instruments in the name of the Corporation or such other name as the
Board of Directors may designate. He shall disburse the funds of the
Corporation as appropriate and Assistant Treasurers shall assist the
Treasurer in the performance of his powers and duties and in his
absence exercise such powers and duties.
(f) Controller The Controller of the Corporation shall have full
control of the books of account of the Corporation and keep true and
accurate record of all property owned by it, of its contracts, debts,
and of its revenues and expenses, and shall keep all accounting records
of the Corporation other than those relating to the deposit and custody
of monies and securities which shall be kept by the Treasurer. The
Controller shall make reports to the Chairman of the Board of
Directors, the President, and as required to the Board of Directors or,
when appropriate, to others relating to the financial condition of the
C-11
<PAGE> 66
Corporation. Assistant Controllers shall assist the Controller in the
performance of his powers and duties and in his absence exercise such
powers and duties.
ARTICLE IV
SHARE CERTIFICATE AND LOSS THEREOF - TRANSFER OF SHARES
SECTION 4.1 FORM OF SHARE CERTIFICATES The shares of the Corporation
shall be represented by certificates, in such forms as the Board of Directors
may from time to time prescribe, signed by the Chairman of the Board, or the
President, or a Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation or its employee.
In case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer at the date of issue.
Each certificate representing shares shall, when issued, state upon the
face thereof:
(a) That the Corporation is formed under the laws of the State of New
York;
(b) The name of the person or persons to whom issued; and
(c) The number, class and series, if any, of shares which such
certificate represents.
SECTION 4.2 LOST, STOLEN OR DESTROYED SHARE CERTIFICATES No certificate
or certificates for shares of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed, except upon
production of such evidence of the loss, theft or destruction, and upon such
indemnification and payment of costs of the Corporation and its agent to such
extent and in such manner as the Board of Directors may from time to time
prescribe.
SECTION 4.3 TRANSFER OF SHARES Shares of the Corporation shall be
transferable on the books of the Corporation by the registered holder thereof in
person or by his duly authorized attorney, by delivery for cancellation of a
certificate or certificates for the same number of shares, with proper
indorsement consisting of either a written assignment of the certificate or a
power of attorney to sell, assign or transfer the same or the shares represented
thereby, signed by the person appearing by the certificate to be the owner of
the shares represented thereby, either written thereon or attached thereto, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require. Such indorsement may be either in blank or to a
specified person, and shall have affixed thereto all stock transfer stamps
required by law.
C-12
<PAGE> 67
ARTICLE V
OTHER MATTERS
SECTION 5.1 RECORDS The Corporation shall keep (a) correct and complete
books and records of account; (b) minutes of the proceedings of the
shareholders, Board of Directors and any committees of the Board; and (c) a
current list of the directors and officers and their resident addresses.
The Corporation shall also keep at its office in the State of New York
or at the office of its transfer agent, if any, a record containing the names
and addresses of all shareholders, the number and class of shares held by each
and the dates when they respectively became the owners of record thereof.
SECTION 5.2 CHECKS AND SIMILAR INSTRUMENTS All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes and
all acceptances, obligations and other instruments, for the payment of money,
shall be signed by the Treasurer (by facsimile or otherwise) on behalf of the
Corporation or by such officer or officers or person or persons as shall be
thereunto authorized from time to time by the Board of Directors or designated
by the Treasurer.
SECTION 5.3 STOCK OF OTHER CORPORATIONS 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 shareholders of any
corporation in which the Corporation shall hold shares, and to exercise thereat
any and all the rights and powers incident to the ownership of such shares 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
President in person or by proxy appointed by him on behalf of the Corporation.
SECTION 5.4 CORPORATE SEAL The corporate seal shall have inscribed
thereon the name of the Corporation and such other appropriate legend as the
Board of Directors may from time to time determine. In lieu of the corporate
seal, when so authorized by the Board, a facsimile thereof may be affixed or
impressed or reproduced in any other manner.
SECTION 5.5 FISCAL YEAR The fiscal year of the Corporation shall be the
calendar year.
SECTION 5.6 AMENDMENTS Except as otherwise provided by these Bylaws and
the Certificate of Incorporation, the Bylaws of the Corporation may be amended,
repealed or adopted by vote of the holders of record of the shares at the time
entitled to vote in the election of any directors; provided that Sections 1.2
and 1.5 of Article I, Sections 2.2, 2.3, 2.7, 2.8 and 2.9 of Article II and
Section 5.6 of Article V of the Bylaws shall not be altered, amended or repealed
and no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least seventy-five percent (75%) of the outstanding
shares entitled to vote in the election of directors, voting together as a
single class. Except as otherwise provided above, Bylaws may also be amended,
repealed, or adopted by the Board of Directors, but any Bylaw
C-13
<PAGE> 68
adopted by the Board may be amended or repealed by the shareholders entitled to
vote thereon as hereinabove provided.
If any Bylaw regulating an impending election of directors is adopted,
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
Bylaws so adopted, amended or repealed, together with a concise statement of the
change made.
C-14
<PAGE> 69
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The New York Business Corporation Law provides that, under certain
circumstances, New York corporations may indemnify their directors and officers
against judgments, fines, amounts paid in settlement and reasonable expenses
actually and necessarily incurred by them in connection with settling or
otherwise disposing of suits or threatened suits to which such directors and
officers are a party or threatened to be made a party by reason of acting in any
such capacities. Such indemnification may only be made if such person acted in
good faith and in a manner which he or she reasonably believed to be in the best
interests of the corporation. Additionally, in criminal actions or proceedings,
such person must have had no reasonable cause to believe that his or her conduct
was unlawful.
RGS's by-laws provide for indemnification to the fullest extent
permitted by New York law, including the payment of expenses in advance of the
resolution of any such action. Moreover, RGS's charter limits the potential
personal monetary liability of the members of its Board of Directors to RGS or
its stockholders for certain breaches of their duty of care or other duties as
directors.
The New York Business Corporation Law permits corporations to purchase
liability insurance for their officers and directors and RGS has purchased such
insurance.
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
<PAGE> 70
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 proxy statement and
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, 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.
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment no. 2 to this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rochester, State of New York, on the 19th day of February, 1999.
RGS ENERGY GROUP, INC.
By: * Thomas S. Richards
Thomas S. Richards
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 2 to this registration statement has been signed by the following
persons in the capacities indicated on the 19th day of February, 1999.
SIGNATURE TITLE
Principal Executive Officer:
* Thomas S. Richards President and Director
Thomas S. Richards
Principal Financial Officer and Controller
or Principal Accounting Officer:
* J. Burt Stockes Vice President and Director
J. Burt Stokes
* Michael T. Tomaino Director
Michael T. Tomaino
*By: /s/ David C. Heiligman
David C. Heiligman
Attorney-in-Fact
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. METHOD OF FILING
<S> <C> <C>
2.1 Agreement and Plan of Share Exchange...................... Included as Exhibit A to the
proxy statement and prospectus.
3.1 Certificate of Incorporation of RGS....................... Included as Exhibit B to the
proxy statement and prospectus.
3.2 By-laws of RGS............................................ Included as Exhibit C to the
proxy statement and prospectus.
5.1 Opinion of Nixon, Hargrave, Devans & Doyle, LLP with
respect to the legality of the securities registered
hereunder................................................. Filed herewith.
8.1 Tax Opinion of Nixon Hargrave, Devans & Doyle, LLP........ Filed herewith.
23.1 Consent of Counsel........................................ Included in opinions filed as
Exhibit 5.1 and 8.1.
23.2 Consent of PricewaterhouseCoopers LLP..................... Filed herewith.
24.1 Power of Attorney of Directors and Officers............... Previously filed.
99.1 Form of Proxy............................................. Filed herewith.
</TABLE>
<PAGE> 1
Exhibit 5.1
[LETTERHEAD]
February 19, 1999
RGS Energy Group, Inc.
89 East Avenue
Rochester, New York 14649
Ladies and Gentlemen:
We have acted as counsel to RGS Energy Group, Inc. (the "Company") in
connection with the Registration Statement on Form S-4 filed by the Company with
the Securities and Exchange Commission on November 17, 1998 under the Securities
Act of 1933, as amended, relating to up to 39,750,000 shares of Common Stock of
the Company, par value $.01 per share (the "Common Stock"), which are proposed
to be issued by the Company in connection with the share exchange contemplated
by the Agreement and Plan of Share Exchange, dated as of November 13, 1998,
between the Company and Rochester Gas and Electric Corporation (the "Plan of
Exchange").
We have examined the originals or copies, certified or otherwise
identified to our satisfaction, of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or other
representatives of the Company, and such other documents, certificates and
corporate or other records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein, including (a) the Certificate of
Incorporation of the Company, as amended to the date hereof, (b) the By-laws of
the Company, (c) copies of certain resolutions duly adopted by the Board of
Directors of the Company, and (d) the Plan of Exchange.
Based upon the foregoing, it is our opinion that the shares of Common
Stock have been duly authorized, and, after the Common Stock shall have been
issued and delivered as described in the Registration Statement (including as
described in the Plan of Exchange which is an exhibit to the Registration
Statement) and the consideration therefor shall have been received by the
Company, the shares of Common Stock will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name as it appears
under the caption "Legal Matters" in the Proxy Statement and Prospectus
contained in the Registration Statement.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
<PAGE> 1
Exhibit 8.1
[LETTERHEAD]
February 19, 1999
RGS Energy Group, Inc.
89 East Avenue
Rochester, New York 14649
Rochester Gas and Electric Corporation
89 East Avenue
Rochester, New York 14649
Ladies and Gentlemen:
We have acted as counsel to RGS Energy Group, Inc. ("RGS") and
Rochester Gas and Electric Corporation ("RG&E") in connection with the
Registration Statement on Form S-4 filed by RGS and RG&E with the Securities and
Exchange Commission on November 17, 1998 under the Securities Act of 1933, as
amended (the "Registration Statement"), in connection with the Agreement and
Plan of Share Exchange, dated as of November 13, 1998, between RGS and RG&E (the
"Plan of Exchange").
We have examined the originals or copies, certified or otherwise
identified to our satisfaction, of all such records of RGS and/or RG&E and all
such agreements, certificates of public officials, certificates of officers or
other representatives of RGS and/or RG&E, and such other documents, certificates
and corporate or other records as we have deemed necessary or appropriate as a
basis for the opinions set forth herein, including (a) the Certificate of
Incorporation of RGS, as amended to the date hereof, (b) the Restated
Certificate of Incorporation of RG&E, as amended to the date hereof, (c) the
By-laws of RGS, (d) the By-laws of RG&E, as amended to the date hereof, (e)
copies of certain resolutions duly adopted by the Board of Directors of RGS and
RG&E, (d) the Registration Statement, and (e) the Plan of Exchange. In addition,
we have relied upon certain express representations made to us by RGS and RG&E
set forth in a letter of representations and on the accuracy of the factual
representations and statements in the Registration Statement and Plan of
Exchange.
Based on our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that for federal income tax purposes:
<PAGE> 2
Nixon, Hargrove, Devans & Doyle LLP
RGS Energy Group, Inc.
Rochester Gas and Electric Corporation
February 19, 1999
Page 2
1. No gain or loss will be recognized by the current holders of RG&E
common stock as a result of the proposed exchange of shares of RGS and RG&E
common stock pursuant to the Plan of Exchange (the "Share Exchange").
2. The aggregate tax basis of the RGS common stock to be received by
the current holders of RG&E common stock as a result of the Share Exchange will
be the same as such holders' present aggregate tax basis in the RG&E common
stock which they will surrender pursuant to the Share Exchange.
3. The holding period of the RGS common stock to be received by the
current holders of RG&E common stock as a result of the Share Exchange for
determining long-term capital gains for federal income tax purposes will include
the period during which such holders held the RG&E common stock which they will
surrender pursuant to the Share Exchange, provided that the shares of RG&E
common stock which they will surrender were held as capital assets on the date
of the Share Exchange.
4. Neither RGS nor RG&E will recognize any gain or loss as a result of
the Share Exchange.
5. The tax basis of the RG&E common stock to be received by RGS
pursuant to the Share Exchange will be the same as RG&E's net asset tax basis
immediately prior to the Share Exchange, subject to certain adjustments under
Treasury regulations relating to consolidated groups.
Our opinions expressed herein are based upon our interpretation of the
current provisions of the Internal Revenue Code of 1986, as amended to date, and
existing judicial decisions, administrative regulations and published rulings
and procedures (including the practices and policies in issuing private letter
rulings, which are not binding on the Internal Revenue Service except with
respect to the taxpayer who receives such ruling). We undertake no obligation to
advise you of changes in law which may occur after the date hereof.
Our opinions are limited to the federal income tax matters and the
federal law of the United States of America addressed herein, and no other
opinions are rendered with respect to any other matter not specifically set
forth in the foregoing opinion and we assume no responsibility as to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
In the event any one of the statements, representations, warranties or
assumptions we have relied upon to issue this opinion is incorrect in a material
respect, our opinions might be adversely affected and may not be relied upon.
<PAGE> 3
Nixon, Hargrove, Devans & Doyle LLP
RGS Energy Group, Inc.
Rochester Gas and Electric Corporation
February 19, 1999
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name as it appears under the
captions "Federal Income Tax Consequences" and "Legal Matters" in the Proxy
Statement and Prospectus contained in the Registration Statement, without
implying or admitting that we are experts within the meaning of the Securities
Act of 1933, as amended, with respect to any part of the Registration Statement.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 (File No.
333-67427) of Rochester Gas and Electric Corporation of our report dated January
20, 1999 appearing on page 45 of Rochester Gas and Electric Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
[PRICEWATERHOUSECOOPERS LLP]
PricewaterhouseCoopers LLP
Rochester, New York
February 19, 1999
Ex 23.2
<PAGE> 1
ROCHESTER GAS AND ELECTRIC CORPORATION
89 East Avenue, Rochester, New York 14649-0001
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints T.S. Richards, M.T. Tomaino and D.C. Heiligman
and each of them as proxies, with power of substitution, to vote all Common
Stock of the undersigned, as directed on the reverse side, at the Rochester Gas
and Electric Corporation Annual Meeting of Shareholders to be held on April 29,
1999 or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED
---
AGREEMENT AND PLAN OF SHARE EXCHANGE AND FOR THE LISTED NOMINEES.
---
SEE REVERSE SEE REVERSE
SIDE SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
99.1 Form of Proxy
<PAGE> 2
[LETTERHEAD]
VOTE BY TELEPHONE, INTERNET OR MAIL
The accompanying Proxy Statement and Prospectus addresses important issues
affecting your investment in RG&E. Help us save time and postage costs by
voting your proxy electronically - either by touch-tone telephone or over the
Internet. Your telephone or Internet vote authorizes the named proxies to vote
your shares in the same manner as if you completed and returned a Proxy card in
the mail.
TO VOTE BY TOUCH-TONE TELEPHONE
- - have your proxy card handy and call 1-877-PRX-VOTE (1-877-779-8683) TOLL FREE
- - enter the 14-digit control number located above your name and address in the
lower left corner of your Proxy card
- - follow the simple recorded instructions
TO VOTE OVER THE INTERNET
- - have your proxy card handy and go to web site: http://www.eproxyvote.com/rgs
- - enter the 14-digit control number located above your name and address in the
lower left corner of your Proxy card
- - follow the instructions on the screen
If you prefer to vote by mail, simply complete and return your Proxy card in
the postage-paid envelope provided. DO NOT MAIL THE PROXY CARD IF YOU ARE
VOTING BY TELEPHONE OR OVER THE INTERNET.
THANK YOU FOR VOTING
[1440 ROCHESTER GAS AND ELECTRIC CORP.] [FILE NAME, RGE41A.ELX][VERSION - 4]
[2/10/99]
DETACH HERE
- ------------------------------------------------------------------------------
Please mark
[X] votes as in
this example.
RG&E's directors recommend a vote "FOR" the following proposals:
<TABLE>
<S> <C> <C>
1 Agreement and Plan of 2 Election of Directors 3 Other Matters
Share Exchange NOMINEES (CLASS I): (01) G.J. Howard, In their discretion the proxies are authorized to
(02) S.T. Hubbard, Jr., vote upon such other business as may properly
(03) C.L. Killingsworth, Jr. and come before the meeting. As of March 8, 1999,
(04) R.W. Kober the Board of Directors does not know of any
other matters to come before the meeting.
FOR AGAINST ABSTAIN FOR WITHHELD
[ ] [ ] [ ] [ ] [ ]
[ ]
--------------------------------------
For all nominees except as noted above
</TABLE>
MARK HERE FOR
ADDRESS CHANGE [ ]
AND NOTE AT LEFT
This Proxy, when properly executed, will
be voted in the manner directed herein
by the undersigned shareholder. If no
direction is made, this proxy will be
voted FOR the Agreement and Plan of
Share Exchange and FOR the election of
the listed nominees for directors.
Please sign exactly as name appears
at left.
Signature: Date:
------------------------------------------- -------------------
Signature: Date:
------------------------------------------- -------------------
99.1 Proxy Card
