<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
RGS Energy Group, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
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[RGS logo]
89 East Avenue . Rochester, NY 14649-0001
(716) 771-4444
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NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD
APRIL 26, 2000
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To the shareholders of
RGS ENERGY GROUP, INC:
The annual meeting of shareholders of RGS Energy Group, Inc. (RGS) will be
held on April 26, 2000 at 11:00 a.m. at the Hyatt Regency Rochester, 125 East
Main Street, Rochester, New York. At the meeting we will elect four Class II
directors to serve on RGS's Board of Directors for a term expiring at the 2003
annual meeting and transact any other business that is properly brought before
shareholders.
Holders of record of RGS common stock at the close of business on March 8,
2000 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 form for instructions. If you
prefer to vote by mail, complete and return the proxy form 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
Secretary
March 15, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
PLEASE VOTE BY PROXY PROMPTLY
<PAGE>
RGS Energy Group, Inc.
89 East Avenue . Rochester, NY 14649-0001
(716) 771-4444
-------------------------
PROXY STATEMENT
-------------------------
INFORMATION ABOUT THE ANNUAL MEETING
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of RGS Energy Group, Inc. (RGS) for its 2000
Annual Meeting of Shareholders to be held on April 26, 2000. This proxy
statement and the enclosed proxy form are being furnished to shareholders on or
about March 15, 2000.
Outstanding Voting Securities and Voting Rights.
General. The close of business on March 8, 2000 has been fixed as the record
date for determining the holders of RGS common stock entitled to vote at the
2000 annual meeting. As of February 1, 2000, RGS had outstanding 35,869,813
shares of common stock. Shareholders of record are entitled to one vote per
share.
In voting in the election of directors, you may vote for 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. As a result, in accordance with New York law,
abstentions will have no effect on the election of directors.
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 form for instructions. If you
prefer to vote by mail, complete and return the proxy form in the envelope
provided.
You may revoke your proxy at any time before its exercise at the annual
meeting, regardless of how you submit it. 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 RGS 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 Rochester Gas
and Electric Corporation (RG&E) Savings Plus Plan and/or the Employee Stock
Ownership Plan.
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 form without checking any boxes, in which case the
proxies will vote your shares for the election of all of the nominees.
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If you do not return the proxy form 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 RGS 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 form without checking any of the boxes, the proxies will vote your shares
for the election of all of the nominees.
Shares Held in Street Name. Whether or not you are an employee of RGS or any
of its subsidiaries, 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.
Election of Directors
The Board of Directors of RGS 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.
The following individuals, all of whom are incumbent directors of the
Company, have been nominated for election at the 2000 annual meeting to serve
as directors for a term expiring at the 2003 annual meeting and thereafter
until their successors are elected and qualify:
. Allan E. Dugan,
. Susan R. Holliday,
. Charles I. Plosser, and
. Thomas S. Richards.
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 II (Term expiring in 2003)
Allan E. Dugan. (age 59) Mr. Dugan has served as Executive Vice President,
Worldwide Business Services 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 RGS since August 2, 1999
and a director of RG&E since 1991.
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Susan R. Holliday. (age 44) 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,
University of Rochester Medical Center and Rochester Institute of Technology.
Ms. Holliday has been a director of RGS since August 2, 1999 and a director of
RG&E since 1997.
Charles I. Plosser. (age 51) 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 RGS since
August 2, 1999 and a director of RG&E since 1996.
Thomas S. Richards. (age 56) Mr. Richards has been Chairman of the Board,
President and Chief Executive Officer of RGS since August 2, 1999 and Chairman
of the Board, President and Chief Executive Officer of RG&E since January 1998.
Mr. Richards was President and Chief Operating Officer of RG&E 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, Peabody LLP. He has been a
director of RGS since August 2, 1999 and a director of RG&E since 1996.
Continuing Directors--Class III (Term expiring in 2001)
Angelo J. Chiarella. (age 66) Mr. Chiarella has been Director of Planning at
FJF Architects, LLP since March 1999. He served as 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 RGS since August 2, 1999 and a
director of RG&E since 1992.
Mark B. Grier. (age 47) Mr. Grier has been Executive Vice President,
Corporate Governance of The Prudential Insurance Company of America since
October 1998. He served as Executive Vice President, Financial Management of
The Prudential from June 1997 to October 1998, as Chief Financial Officer of
The Prudential from May 1995 to June 1997 and as Executive Vice President, The
Chase Manhattan Bank, N.A. from 1991 to May 1995. He is a director of Annuity &
Life Reinsurance, Ltd. Mr. Grier has been a director of RGS since August 2,
1999 and a director of RG&E since 1997.
Jay T. Holmes. (age 57) Mr. Holmes has been a practicing attorney and
business consultant 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. He
is a director of VISX, Incorporated. Mr. Holmes has been a director of RGS
since August 2, 1999 and a director of RG&E since 1992.
Cornelius J. Murphy. (age 69) Mr. Murphy has served as Senior Vice President
of Goodrich & Sherwood Associates, Inc., 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
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Project Manager, Office of the Chief Executive until March 1989. He is a
director of Transmation, Inc. Mr. Murphy has been a director of RGS since
August 2, 1999 and a director of RG&E since 1981.
Continuing Directors--Class I (Term expiring in 2002)
G. Jean Howard. (age 56) 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 and the Center for Governmental
Research, Inc. Ms. Howard has been a director of RGS since August 2, 1999 and a
director of RG&E since April 29, 1999.
Samuel T. Hubbard, Jr. (age 50) Mr. Hubbard has served as President and
Chief Operating Officer of the Genesee Corporation, which conducts business in
the areas of malt beverages, dry-food processing and packaging, equipment and
real estate investment, since June 1999. He previously served as 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 M&T Bank Corporation and the
Genesee Corporation. Mr. Hubbard has been a director of RGS since August 2,
1999 and a director of RG&E since 1996.
Cleve L. Killingsworth, Jr. (age 47) 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 RGS since August 2, 1999 and a director of
RG&E since July 1998.
Roger W. Kober. (age 66) 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 of RG&E from January 1992 to March 1996. Mr. Kober is a director of
Home Properties of New York, Inc. He has been a director of RGS since August 2,
1999 and a director of RG&E since 1988.
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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
RGS and the performance of RGS's common stock, a 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 but including common stock equivalent units accrued
under RGS's Long Term Incentive Plan and 401(k) Restoration Plan. A 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, including
common stock equivalent units held in the director's deferred stock plans.
The following table indicates the number of shares of RGS common stock and
equivalent units beneficially owned as of February 1, 2000 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 February 1, 2000, each of the individuals listed in the table, as well as
the directors, nominees and executive officers as a group, beneficially owned
less than 1.0% of the total shares outstanding. The following persons disclaim
beneficial ownership with respect to shares of RGS common stock held by their
spouses: Mr. Bovalino, 12,906 shares; Mr. Chiarella, 319 shares; Ms. Holliday,
370 shares; Mr. Kober, 7,446 shares; and all directors, nominees and executive
officers as a group, including the aforementioned, 24,685 shares.
<TABLE>
<CAPTION>
Total Common
Stock and
Common Stock Common Stock
Common Stock Equivalent Units Equivalent Units
Name of Beneficially Beneficially Beneficially
Beneficial Owner Owned(1)(2) Owned (3) Owned
- ---------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Michael J. Bovalino............ 37,317 2,462 39,779
Angelo J. Chiarella............ 2,663 15,260 17,923
Allan E. Dugan................. 1,310 8,039 9,349
Mark B. Grier.................. 1,888 1,844 3,732
Susan R. Holliday.............. 2,322 2,668 4,990
Jay T. Holmes.................. 3,728 15,915 19,643
G. Jean Howard................. 786 1,387 2,173
Samuel T. Hubbard, Jr.......... 1,288 3,381 4,669
Cleve L. Killingsworth, Jr..... 948 1,827 2,775
Roger W. Kober................. 70,461 1,763 72,224
Cornelius J. Murphy............ 3,768 18,567 22,335
Charles I. Plosser............. 988 3,295 4,283
Thomas S. Richards............. 59,268 6,340 65,608
J. Burt Stokes................. 40,960 2,652 43,612
Michael T. Tomaino............. 32,795 2,535 35,330
Paul C. Wilkens................ 17,921 2,067 19,988
All Directors, Nominees and
Executive Officers as a group
(17 Individuals).............. 296,899 90,581 387,480
</TABLE>
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(1) Includes shares of RGS common stock over which the named person has direct
or indirect voting or investment power.
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(2) Includes shares of RGS common stock which may be acquired through the
exercise of stock options as follows: Mr. Bovalino, 23,838 shares; Mr.
Kober, 57,513 shares; Mr. Richards, 36,320 shares; Mr. Stokes, 23,838
shares; Mr. Tomaino, 16,609 shares; Mr. Wilkens, 10,883 shares; and all
directors, nominees and executive officers as a group, including the
aforementioned, 181,099 shares.
(3) Includes RGS common stock equivalent units accrued under RGS and RG&E
employee and director benefit plans for which the named person does not
have voting rights.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires RGS's
directors and executive officers, as well as persons holding 10% or more of
RGS'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 RGS 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 1999 all filing requirements were timely satisfied by the directors and
executive officers of RGS.
Meetings and Standing Committees of the Board of Directors.
The Board of Directors met twelve times during 1999.
Executive and Finance Committee. The Executive and Finance Committee, with
certain exceptions, possesses all of the authority of the Board of Directors.
During 1999, the Committee met two times. Messrs. Murphy (Chairman), Dugan,
Holmes, Kober, Plosser and Richards are currently members of the Committee.
Audit Committee. The Audit Committee monitors the integrity of RGS's
financial statements and its financial reporting process. It reviews
management's internal controls and RGS'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 RGS for the ensuing year, reviews the results of the auditors'
examinations of RGS's financial statements and recommends any actions deemed
necessary. During 1999, the Committee met four times. Messrs. Hubbard
(Chairman), Chiarella, Grier and Killingsworth and Ms. Howard are currently
members of the Committee.
Committee on Management. The Committee on Management reviews RGS's executive
compensation and benefits program, including awards under RGS'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 RGS's organizational structure,
corporate goals and objectives and management development, including management
succession. During 1999, the Committee met three times. Messrs. Dugan
(Chairman), Grier, Hubbard, Murphy and Plosser are currently members of the
Committee.
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 1999, the Committee met four times. Messrs. Holmes (Chairman), Chiarella
and Killingsworth and Ms. Holliday are currently members of the Committee.
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Shareholders wishing to recommend candidates for nomination to the Board
should submit in writing to the Secretary of RGS 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, 2000, will be
considered by the Committee when recommending nominees for election at the
2001 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 RGS.
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 RGS'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 RGS's
executive compensation levels were below the average for comparable utility
and general industry companies, and based on these results, the Committee has
adjusted RGS's compensation objectives to the targets discussed below. The
studies also provided competitive benchmarks for 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. RGS's target base salary objective for its top
five executive positions is to be competitive with utility companies in the
Edison Electric Institute (EEI) revenue class of $1 billion to $3 billion (32
companies) at the median of this class. The average base pay for RGS's five
highest paid executives in 1999 was 33.8% 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 RGS, as well as the individual contribution of each officer. As
a result, a portion of each officer's total potential compensation is
variable.
RGS has an Executive Incentive Plan which provides for annual performance
bonus awards for key employees that are paid upon meeting established
performance objectives. Awards may range from 0% to 60% of a participant's
annual base salary. 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 1999 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 RGS's
performance regarding the Plan's objectives throughout the year. Based upon
1999
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performance results, the computations of which were reviewed by RGS'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 business segment areas of Generate
Energy, Deliver Energy and Establish and Maintain Customer Relationships, and
(3) employee satisfaction index and employee performance initiatives. Members
of the executive management team (5 employees) and selected leadership council
members (15 employees) participated in the 1999 Plan. The bonus awards for
1999, as reported below in the Summary Compensation Table, reflect the
achievement of Mr. Richards' earning 35.0% of his 1999 annualized salary and
the other executive officers earning between 25.3% and 28.8% of their
annualized salary, as determined by the Committee and as approved by the Board
of Directors. Bonus awards were also based upon the achievement of each
executive's individual performance objectives. The individual component portion
of the total eligible award ranged from 20% for the CEO, 40% for Senior
Officers, to 50% for Vice President level participants.
Long Term Incentive Plan. The third component of executive compensation is
long-term incentive compensation, which is designed to ensure the continuing
success of RGS and is directly tied to RGS's common stock performance.
The fifth Long Term Incentive Plan performance cycle concluded in December
1999. The total shareholder return during the three-year performance cycle, as
compared to the EEI Index, placed RGS in the 30th position out of 96 companies.
During the previous three-year performance cycle concluded in December 1998,
RG&E ranked 20th out of 97 companies. Based upon RGS's relative performance
compared to the EEI Index, and cash flow return on net assets of 9.79%, which
was above the target goal established in the corporate business plan, the Board
of Directors approved a 129.25% payout for 1999 for performance shares granted
in January 1997. These awards were grossed up to cover federal and state income
taxes, as reported below in the Summary Compensation Table. Awards granted
under the Long Term Incentive Plan are paid in cash. Participants are required
to invest the after-tax proceeds in shares of RGS common stock and to retain
the shares for a period of at least three years.
The previous Long Term Incentive Plan grants, based upon a three-year
performance cycle, were made in January of 1998. The 1998 performance cycle
(1998-2000) will be the last under this Plan. Effective January 1999,
performance shares previously granted under the Long Term Incentive Plan were
replaced with annual stock options as approved by the Committee on Management
and the Board effective January 1, 1999.
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. 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. Annually, the Committee may
recommend to the Board of Directors the granting of options based upon a
participant's positional responsibilities. The number of options is determined
by RGS's performance as compared to an industry performance measure (EEI
Index), which can increase or decrease the number of options granted in any
given year. Options granted are vested immediately, but cannot be exercised for
a minimum of three years. Quarterly dividends granted will be paid at the time
of exercise.
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Under the annual stock option program, the granting of options is based upon
RGS'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; Mr. Bovalino,
11,687 options; and Mr. Wilkens, 10,581 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.
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. The Board, upon recommendation of the
Committee, increased Mr. Richards' base salary to $350,004 effective March 1,
1999 and awarded short and long term incentives based on performance against
established metrics and the subjective judgment of the Board. The Committee
benchmarked Mr. Richards' total compensation against CEO compensation in
similar sized energy utilities. Mr. Richards' total compensation is slightly
below the 25th percentile of similar benchmarked positions. The Committee
determined that Mr. Richards' total compensation is consistent with Mr.
Richards' performance, the company's relative performance to similar companies,
and Mr. Richards' tenure as CEO. In the opinion of the Committee, Mr. Richards
has provided exemplary leadership during 1999 resulting in the establishment of
the RGS Energy Group, continued implementation of retail energy choice, the
development and initial implementation of a Nuclear Generation Strategy and the
steady improvement in earnings per share in a highly volatile and increasingly
competitive deregulated environment.
With the above increase in salary level, Mr. Richards' base pay for 1999 was
54.3% 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 1999, his total
compensation is 33.2% 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.
Mr. Richards was granted an additional 27,256 performance stock options on
January 1, 1999 at an exercise price of $29.875 per share. These options will
vest as discussed above.
Performance shares under the Long Term Incentive Plan and the Performance
Stock Option Plan link executive compensation directly with shareholder
interests since both the targets and the payouts are measured in terms of
shareholder value.
Committee on Management
Allan E. Dugan, Chairman
Mark B. Grier
Samuel T. Hubbard, Jr.
Cornelius J. Murphy
Charles I. Plosser
9
<PAGE>
Executive Compensation.
Executive Officers. The following tables show the compensation RGS and its
subsidiaries paid for services of the chief executive officer and the next four
most highly compensated executive officers for each of the last three fiscal
years:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-
Term Compensation
-------------------
Annual Compensation
------------------- LTIP Securities All Other
Name and Principal Fiscal Salary Bonus Payouts Underlying Compensation
Position Year ($) ($)(1) ($)(2) Options (3) ($)(4)
- ------------------ ------ --------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
THOMAS S. RICHARDS 1999 345,954 122,422 176,094 27,256 9,524
Chairman of the Board, 1998 325,704 136,859 338,641 27,984 8,143
President and Chief
Executive 1997 246,710 73,846 277,849 48,427 6,168
Officer, RGS and RG&E
J. BURT STOKES 1999 217,512 55,471 119,619 13,387 5,985
Senior Vice President
and 1998 208,820 47,651 249,464 0 5,221
Chief Financial Officer,
RGS 1997 198,717 42,411 277,744 31,785 4,968
and RG&E
MICHAEL T. TOMAINO 1999 206,162 57,355 119,872 12,689 5,673
Senior Vice President
and 1998 197,928 47,651 249,510 0 4,948
General Counsel, RGS and 1997 47,502 10,603 277,643 33,218 1,188
RG&E
MICHAEL J. BOVALINO 1999 189,886 55,029 120,345 11,687 5,225
Senior Vice President,
RGS 1998 182,297 47,651 249,686 0 4,557
and President and Chief 1997 167,148 42,411 277,719 31,785 4,179
Executive Officer,
Energetix, Inc.
PAUL C. WILKENS 1999 171,930 47,832 32,794 10,581 4,731
Senior Vice President,
RGS 1998 157,990 47,651 64,152 15,157 3,950
and RG&E 1997 115,030 13,831 70,753 14,511 2,876
</TABLE>
- --------
(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 RGS's cash flow return on
net assets against a pre-established target goal identified in RGS'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 RGS's common
stock and to retain the shares for a period of at least three years.
(3) Options granted between 1997-1999.
(4) Contributions to the RG&E Savings Plus Plan (401k Plan) and the 401(k)
Restoration Plan.
10
<PAGE>
Option Grants In Last Fiscal Year (1999)
<TABLE>
<CAPTION>
Individual Grants (1)
--------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present Value
Name Granted (#) Fiscal Year ($/Share) Date ($)(2)
- ---- ----------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Thomas S.
Richards 27,256 15.4 $29.875 1/20/09 262,231
J. Burt Stokes 13,387 7.5 $29.875 1/20/09 128,920
Michael T.
Tomaino 12,689 7.2 $29.875 1/20/09 79,940
Michael J.
Bovalino 11,687 6.6 $29.875 1/20/09 112,541
Paul C. Wilkens 10,581 6.0 $29.875 1/20/09 101,898
</TABLE>
- --------
(1) The options shown in this table were granted in January 1999 under the
1996 Performance Stock Option Plan. All options are vested as of day of
grant; however, they may not be exercised for a minimum of three years.
Options carry dividend rights which provide for a cash payment upon
exercise of an option equal to the quarterly dividend payments per share
of RGS common stock paid to RGS's shareholders from the date the option
was granted to the date of exercise.
(2) The grant date valuation was calculated using the Black-Scholes option
pricing model assuming stock price volatility of 19.0%, a risk-free rate
of return of 5.16% and an annual dividend yield of 6.03%. The weighted
average grant date option fair value is $3.25.
Aggregated Option Exercises in Last Fiscal Year (1999)
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Shares Fiscal Year End (#) at Fiscal Year End ($)(1)
Acquired on Value --------------------------- --------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas S. Richards 0 0 36,320 67,347 54,480 18,161
J. Burt Stokes 0 0 23,838 21,334 35,757 11,921
Michael T. Tomaino 0 0 16,609 29,298 0 0
Michael J. Bovalino 0 0 23,838 19,634 35,757 11,921
Paul C. Wilkens 0 0 10,883 29,366 16,325 5,442
</TABLE>
- --------
(1) Based on the market value of the stock at fiscal year-end less exercise
price. For exercisable options, does not include the value of dividend
equivalent rights from the date the options were granted to December 31,
1999 as follows: Mr. Richards, $196,128; Mr. Stokes, $128,725; Mr.
Tomaino, $67,266; Mr. Bovalino, $128,725; and Mr. Wilkens, $58,768.
Severance Agreements.
RGS has entered into severance agreements for an indefinite term with
Messrs. Richards, Stokes, Tomaino, Bovalino and Wilkens. 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 RGS and to render certain services to RGS 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
11
<PAGE>
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.
Directors' Compensation.
Effective January 1, 2000, RGS pays its directors an annual retainer of
$22,000, $11,000 in cash and $11,000 to be applied to the purchase of shares of
RGS common stock. RGS pays committee chairmen an additional annual 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.
RGS does not pay its officers any fees for their services as directors. The
total amount of compensation RGS pays to its directors is comparable to the
total compensation paid to directors of similar sized combination electric and
gas utility companies.
RGS 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 RGS 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.
RGS 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
RGS'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.
12
<PAGE>
Shareholder Return Comparison.
The following graph compares the cumulative total shareholder return on
RGS'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, 1994 and reinvestment of
all dividends.
Five-Year Cumulative Total Return Comparison (RGS, EEI Index, and S&P 500
Index)
[CHART]
Retirement Plans.
RGS has a non-contributory, tax qualified, defined benefit pension plan
known as the RG&E Retirement Plan. RGS 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. The benefit
provided by the RG&E Retirement Plan and the RG&E Unfunded Retirement Income
Plan is based upon one of the two following formulas depending on age and
service on December 31, 1999:
. a pension equity plan formula; or
. final average pay (highest 36 month average of the last 120 months prior
to retirement).
The pension equity plan formula was introduced effective July 1, 1999.
Employees whose age and service equaled 75 or who were age 55 with 10 years of
service on December 31, 1999 receive the most valuable of these two formulas.
All other employees' benefits will be based on the pension equity plan formula
only. The pension equity plan provides a lump sum payment option as well as
monthly annuity options.
RGS also has an unfunded supplemental executive retirement plan, known as
the RG&E Unfunded Supplemental Executive Retirement Plan, in which executive
officers participate. The annual pension benefit under these 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 $130,000 for 1999. The
unfunded plans will
13
<PAGE>
provide those benefits which cannot be fully provided by the funded plan. The
table below may be used to calculate the approximate annual benefits payable as
a straight-life annuity to executive officers at normal retirement age (65)
under these plans in specified remuneration and years-of-service
classifications.
<TABLE>
<CAPTION>
Average Retirement Benefits Based on Years of Service ($)(2)
Annual Salary -------------------------------------------------------
($)(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, Stokes, Tomaino, Bovalino and Wilkens have been credited
with 16, 4, 10, 3 and 26 years of service, respectively, under the plans.
Independent Accountants
RGS has appointed PricewaterhouseCoopers LLP, a firm of independent
certified public accountants, to continue as its auditors for the year 2000. 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 RGS.
Deadline for Shareholder Proposals
The deadline for submitting shareholder proposals for inclusion in RGS's
proxy statement for its year 2001 annual meeting is November 15, 2000. These
proposals must be received by the Secretary of RGS at 89 East Avenue,
Rochester, New York 14649 no later than November 15, 2000 in order to be
eligible for inclusion in RGS's proxy materials relating to the 2001 meeting.
Rule 14a-4(c) of the SEC's proxy rules allows RGS 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 RGS 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 RGS
receives timely notice of such matter (as described in the preceding sentence)
and if RGS describes the nature of such matter in its proxy statement.
Accordingly, for RGS's year 2001 annual meeting of shareholders, any such
notice must be received by RGS's Secretary at 89 East Avenue, Rochester, New
York 14649, on or before January 27, 2001.
14
<PAGE>
RGS's by-laws provide that any shareholder who wishes to submit a proposal
must notify RGS 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 RGS's books, (c) the class and
number of shares of RGS that are owned by the shareholder, and (d) any material
interest of such shareholder in such business.
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.
New York State law requires RGS 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, 2000. The
policy insures RGS 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 2000 as RGS received a member's continuity credit
which fully offset the premium for the policy. In addition, RGS has a policy
with Energy Insurance Mutual Limited that provides excess coverage for such
insurance for a three-year term, effective January 1, 2000. RGS also expects
that the effective cost of this policy will be zero for 2000 as it anticipates
receiving a dividend from the insurance carrier in 2000. RGS also renewed a
fiduciary liability insurance policy carried with Associated Electric and Gas
Insurance Services Limited, effective May 1, 1999. 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 RGS.
RGS 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 RGS and RG&E may solicit
proxies by telephone, other electronic means or in person without additional
compensation. In addition, RGS has retained Morrow & Co. to assist in
soliciting proxies at an anticipated fee of approximately $8,500, plus out-of-
pocket expenses.
By Order of the Board of Directors,
David C. Heiligman
Secretary
Dated: March 15, 2000
Rochester, New York
1440-PS-00
<PAGE>
RGS ENERGY GROUP, INC.
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 RGS Energy
Group, Inc. Annual Meeting of Shareholders to be held on April 26, 2000 or any
adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE LISTED NOMINEES.
---
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
Logo of RGS
Energy Group, Inc.
89 EAST AVE., ROCHESTER, NY 14649-0001
Vote by Telephone, Internet or Mail
The accompanying Proxy Statement addresses important issues affecting your
investment in RGS. 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.
- -----------------
Vote by Telephone
- -----------------
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
Follow these three easy steps:
1. have your Proxy card handy and call
1-877-PRX-VOTE (1-877-779-8673).
2. enter your 14 digit control number located
above your name and address in the lower left
corner of your Proxy card
3. follow the simple recorded instructions
Your vote is important!
Call 1-877-PRX-VOTE anytime!
- ----------------
Vote by Internet
- ----------------
It's fast, convenient, and your vote is immediately
confirmed and posted.
Follow these three easy steps:
1. have your Proxy card handy and go to web
site: http://www.eproxyvote.com/rgs
2. enter your 14 digit control number located
above your name and address in the lower left
corner of your Proxy card
3. follow the instructions on the screen
Your vote is important!
Go to http://www.eproxyvote.com/rgs anytime!
Do not return your Proxy Card if you are voting by Telephone or Internet
THANK YOU FOR VOTING
RGS30A DETACH HERE
---- Please mark
X votes as in
---- this example.
RGS's directors recommend a vote "FOR" the following proposal:
1. Election of Directors
Nominees (Class II): (01) A.E. Dugan, (02) S.R. Holliday,
(03) C.I. Plosser, and (04) T.S. Richards
FOR WITHHELD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
[ ]
--------------------------------------
For all nominees except as noted above
2. Other Matters
In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting. As of March 8, 2000, the
Board of Directors does not know of any other matters to come before the
meeting.
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 election of the listed
nominees for directors.
Please sign exactly as name appears at left.
Signature: Date: Signature: Date:
------------- ------------ ----------- ----------
