[LOGO]
NIAGARA MOHAWK HOLDINGS, INC.
300 Erie Boulevard West
Syracuse, New York 13202
March 31, 1999
Dear Shareholder:
I am pleased to invite you to the Annual Meeting of Shareholders of
Niagara Mohawk Holdings, Inc., which is the new holding company of
Niagara Mohawk Power Corporation. The meeting will be held on
Tuesday, May 18, 1999, at 10:30 a.m., EDT, in Saratoga Springs, New
York.
- - This year you will be asked to elect five Class II Directors.
You will also be asked to vote on a shareholder proposal
concerning the endorsement by the Company of the CERES
Principles.
- - At the meeting, we will present a report on Niagara Mohawk's
past performance and on other matters of current interest to our
shareholders.
- - If you plan to attend the meeting, please check the appropriate
box on your proxy card and detach the admission card to present
at the meeting registration tables.
This year, shareholders of record may vote their shares by using
the internet or the telephone. Instructions for using these
convenient new services are set forth on the enclosed proxy
card. Of course, you may also vote your shares by completing
and signing the enclosed proxy card and mailing it in the
enclosed postage-paid envelope.
If you require special assistance at the meeting because of a
disability, please contact the Office of the Secretary, Syracuse,
N.Y. 13202.
Sincerely,
William E. Davis
Chairman of the Board and
Chief Executive Officer
[LOGO]
NIAGARA MOHAWK HOLDINGS, INC.
300 Erie Boulevard West
Syracuse, New York 13202
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE & TIME: Tuesday, May 18, 1999, at 10:30 A.M. (EDT)
PLACE: Saratoga Springs City Center
522 Broadway
Saratoga Springs, NY 12866
ITEMS OF BUSINESS:
(1) Election of William F. Allyn, William E. Davis, William J.
Donlon, Anthony H. Gioia and Patti McGill Peterson to serve in
Class II for a 3-year term expiring at the 2002 Annual Meeting; and
(2) To consider and act upon a shareholder proposal relating to
the endorsement by the Company of the CERES Principles; and
(3) To transact other business that may properly come before the
meeting or any adjournments of the meeting.
RECORD DATE: The Board of Directors has fixed the close of
business on March 22, 1999, as the record date for the purpose of
determining shareholders who are entitled to notice of and to vote
at the meeting.
PROXY VOTING: This year, shareholders of record may vote by mail,
telephone or on-line via the internet.
Your vote is important to us. If you do attend and vote at the
Annual Meeting, your vote in person will supersede any earlier vote
by proxy.
By Order of the Board of Directors
Kapua A. Rice
Secretary
March 31, 1999
TABLE OF CONTENTS
Page
PROXY STATEMENT
Annual Meeting Attendance...................... 2
Voting Procedures
By Mail............................... 3
By Telephone............................ 3
Via Internet............................. 3
Revoking Your Proxy......................... 3
Vote Required and Method of Counting Votes............. 3
Confidential Voting......................... 4
Proposal 1: Nomination and Election of Directors
Nominees for Class II Directors Whose Terms Expire in 2002 5
Class III Directors Whose Terms Expire in 2000........... 6
Class I Directors Whose Terms Expire in 2001............. 6
Board Meetings-Committees of the Board
Audit Committee........................... 8
Compensation and Succession Committee............... 9
Director Compensation
Annual Cash Retainer Fees...................... 10
Meeting Fees............................. 10
Outside Director Deferred Stock Unit Plan............... 10
Related Transactions......................... 10
Health and Life Insurance Benefits................... 10
Stock Ownership Information
Security Ownership of Certain Beneficial Owners.......... 11
Security Ownership of Directors and Executive Officers... 11
Section 16(a) Beneficial Ownership Reporting Compliance.. 13
TABLE OF CONTENTS
Page
Board of Directors' Compensation and Succession Committee
Report on Executive Compensation
Base Salary............................. 13
Annual Officer Incentive Compensation Plan ("OICP")........13
Long-Term Incentive Plan....................... 14
Compensation of William E. Davis, Chairman of the Board
and Chief Executive Officer.......................... 15
Executive Compensation
Summary Compensation Table.................... 17
Option/SAR Grants in Last Fiscal Year................. 19
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values..................... . 20
Performance Graph.......................... 20
Retirement Benefits and Employee Agreements
Niagara Mohawk Pension Plan..................... 21
Supplemental Executive Retirement Plan............... 21
Annual Retirement Allowance..................... 22
Employee Agreements........................ 22
Proposal 2: Shareholder Proposal
Statement of Shareholder ...................... 24
Board of Directors' Response to the Shareholder Proposal.. 25
Other Information
Deadline for Shareholder Proposals................... 26
Director and Officer Liability Insurance................. 26
Expenses of Solicitation........................ 26
Independent Accountants...................... 26
Quarterly Reports........................... 27
NIAGARA MOHAWK HOLDINGS, INC.
300 Erie Boulevard West
Syracuse, New York 13202
PROXY STATEMENT
This proxy statement and the accompanying proxy card are being furnished in
connection with the solicitation by the Board of Directors (the "Board of
Directors" or the "Board") of Niagara Mohawk Holdings, Inc. ("NM Holdings" or
the "Company") for use at its 1999 Annual Meeting of Shareholders on Tuesday,
May 18, 1999, at 10:30 a.m. and at any adjournment or postponement. These
proxy materials, together with the 1998 Annual Report of Niagara Mohawk Power
Corporation ("NMPC"), are first being mailed to shareholders on or about
March 31, 1999. On March 18,1999, all shares of common stock of NMPC
were exchanged for common stock of NM Holdings. All references to the
"Company" relating to periods prior to such date refer to NMPC.
Annual Meeting Attendance
Attendance will be limited to:
- - shareholders of record;
- - beneficial owners of common stock entitled to vote at the meeting having
evidence of ownership;
- - the authorized representative of an absent shareholder; and
- - invited guests of the management.
Any person who owns shares of NM Holdings in the name of a bank, broker or other
holder of record must show proof of ownership. Proof of ownership may be in
the form of a letter or a recent statement from the bank or broker showing
ownership of NM Holdings or NMPC common stock.
Any person claiming to be an authorized representative of a shareholder must,
upon request, produce written evidence of the authorization.
In order to assure a fair and orderly meeting and to accommodate as many
shareholders as possible who may wish to speak at the meeting, management
will permit only shareholders or their authorized representatives to address
the meeting. Management will also require that any signs, banners, placards and
similar materials be left outside the meeting room.
Voting Procedures
Only shareholders of common stock whose names appeared on the books of NM
Holdings on the record date will be entitled to vote at the meeting and at
any adjournment thereof.
Any person who owns shares of NM Holdings in the name of a bank, broker or
other holder of record must obtain a proxy from the holder of record to be able
to vote at the meeting.
Whether or not you plan to attend, please take the time to vote. Shareholders
may vote by mail, telephone or on-line via the internet. The telephone and
internet procedures authenticate shareholders by use of a control number and
permit confirmation that the vote has been properly recorded. Also, please be
advised that you do not need to return your proxy card if you vote by
telephone or via the internet.
- - BY MAIL: Please mark your vote, sign, date and promptly return your proxy
card in the enclosed postage-paid envelope.
- - BY TELEPHONE: Please call the toll-free telephone number on your proxy card
(800-250-9081). Once connected, you will be prompted to record and confirm
your vote. Telephone voting is available 24 hours a day, through Monday, May 17,
1999, 5:00 P.M. (EDT).
- - VIA INTERNET: You may vote on-line by using the following internet address:
http://www.votefast.com. Specific instructions will be available, allowing
you to record and confirm your vote. Internet voting is available 24 hours a
day, through Monday, May 17, 1999, 5:00 P.M. (EDT).
Revoking Your Proxy
A shareholder who has executed and returned a proxy may revoke it at any time
before it is voted by:
- - submitting a properly signed proxy with a later date;
- - sending a written statement to that effect to the Secretary of NM Holdings; or
- - voting in person at the annual meeting.
Vote Required and Method of Counting Votes
Record Date
The close of business on March 22, 1999 has been fixed as the record date for
determining the holders of NM Holdings common stock entitled to vote at the
meeting.
Number of Shares Outstanding
At the close of business on the record date, there were 187,364,863 shares of NM
Holdings' common stock outstanding and entitled to vote at the annual
meeting. Each share of common stock is entitled to one vote.
Quorum
A majority of the shares entitled to vote at the meeting shall constitute a
quorum. Abstentions and broker non-votes will be counted in the number of
shares present, in person or by proxy, for purposes of determining a quorum.
Vote Required
The affirmative vote of a plurality of votes cast at the meeting is required for
the election of directors.
The affirmative vote of a majority of votes cast is necessary to approve the
shareholder proposal relating to an endorsement by the Company of the CERES
Principles. Brokers who have not received any instructions from their clients
do not have the authority to vote on this proposal.
Proxies will be voted in accordance with the shareholders' directions. If no
directions are given, proxies will be voted FOR the election of the nominees
for directors and against the shareholder proposal.
Abstentions and broker non-votes will not be considered as votes cast with
respect to a particular matter. A broker non-vote occurs when a broker does
not have discretionary voting power to vote on a specific matter and has not
received instructions from the beneficial owner.
Voting on Other Matters
Management does not know of any matters to be presented for action at the annual
meeting other than those listed in the Notice of Meeting and referred to
herein. However, if other matters are properly brought before the meeting or at
any adjournment, the persons named on the enclosed proxy card intend to vote
the shares represented by them in accordance with their best judgment.
Confidential Voting
Under the By-Laws, tabulation of proxies and the votes cast at the meeting is
conducted by an independent agent and certified by independent inspectors of
election. Any information which would identify the vote of any shareholder is
held permanently confidential and will not be disclosed to the Company,
except as may be necessary to meet legal requirements.
Proposal 1: Nomination and Election of Directors
The Board of Directors is divided into three classes, composed of as nearly
equal a number of directors as is possible, with staggered terms of office so
that one class of the directors must be elected at each annual meeting.
Shareholders who wish to nominate a director from the floor may do so upon
written request to the Company. Recommendations should be sent to:
Office of the Secretary
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202.
Any nominations for director to be made at a shareholder meeting must contain
the specific information required in the Company By-Laws and must be received
by the Secretary between 90-120 days before the meeting. A copy of the
relevant portion of the By-Laws may be obtained upon request from the Secretary
of the Company.
This year, you are being asked to vote for the following nominees to serve as
directors in Class II until the 2002 Annual Meeting of Shareholders:
William F. Allyn
William E. Davis
William J. Donlon
Anthony H. Gioia
Patti McGill Peterson
All nominees are currently directors of the Company and have consented to serve
a 3-year term. Each nominee elected as a director will continue in office until
his or her term expires or until his or her successor has been elected.
The principal occupation, age as of the May 18, 1999 meeting date, and certain
other information about each of the nominees and other directors whose terms of
office continue after the Annual Meeting is as follows.
Each director of the Company is a member of the class of directors in which
such director served for NMPC and the length of term as a director reflects
such director's service with NMPC.
NOMINEES FOR CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 2002
WILLIAM F. ALLYN
- - President and Chief Executive Officer of Welch Allyn, Inc.
- - Director since 1988
- - Member of Audit, Compensation and Succession, and Nuclear Oversight Committees
of the Board
Mr. Allyn, age 63, President and Chief Executive Officer of Welch Allyn, Inc.,
Skaneateles Falls, NY, a manufacturer of medical diagnostic instrumentation, bar
code readers and optical scanning devices. Mr. Allyn joined Welch Allyn,
Inc. in 1962 and was elected to his present position in 1980. Director of
M&T Corporation; Oneida Limited; and Perfex Corporation.
WILLIAM E. DAVIS
- - Chairman of the Board and Chief Executive Officer of the Company
- - Director since 1992
- - Chair of Executive Committee of the Board
Mr. Davis, age 57, was elected Chairman of the Board and Chief Executive Officer
of NMPC in 1993 and of NM Holdings in April 1998. Mr. Davis joined NMPC in 1990
and was elected Senior Vice President in April 1992, serving in that capacity
until elected Vice-Chairman of the Board of NMPC in November 1992. Director of
Opinac North America, Inc. ("Opinac NA"); Niagara Mohawk Energy, Inc. ("NM
Energy"); NMPC; Canadian Niagara Power Company, Limited ("CNP"); and
Utilities Mutual Insurance Company. Mr. Davis is also the Chairman of the
Board of NM Energy and NMPC and holds the position of Secretary,
Utilities Mutual Insurance Company. NMPC and Opinac NA are wholly-owned
subsidiaries of the Company and Opinac NA holds 100 percent of NM Energy and,
through its subsidiary, Opinac Energy Corporation ("Opinac"), a 50 percent
interest in CNP.
WILLIAM J. DONLON
- - Former Chairman of the Board and Chief Executive Officer of NMPC
- - Director since 1980
Mr. Donlon, age 69, retired in 1993 as Chairman of the Board and Chief Executive
Officer of NMPC with 45 years service as an active employee. Director of the
Directors' Advisory Council--Syracuse Division for M&T Bank.
ANTHONY H. GIOIA
- - Chairman and Chief Executive Officer of Gioia Management, Inc.
- - Director since 1996
- - Member of Executive, Compensation and Succession and Nuclear Oversight
Committees of the Board
Mr. Gioia, age 57, Chairman and
Chief Executive Officer of Gioia Management, Inc., a holding company for several
companies, including three packaging companies located in Buffalo and
Lockport, NY. Mr. Gioia has held his present position since 1987. Director of
Greater Buffalo Savings Bank.
DR. PATTI McGILL PETERSON
- - Executive Director of the Council for International Exchange of Scholars
and Vice President of the Institute for International Education
- - Director since 1988
- - Member of Executive, Audit (Chair) and Corporate Public Policy &
Environmental Affairs Committees of the Board
Dr. Peterson, age 55, Executive Director of the Council for International
Exchange of Scholars, Washington, DC, and Vice President of the Institute for
International Education, New York, NY, affiliated non-profit institutions.
From 1996 to 1997, Dr. Peterson was a Senior Fellow of the Cornell Institute
for Public Affairs, Cornell University, Ithaca, NY. Dr. Peterson also served
asPresident of St. Lawrence University from 1987-1996. Prior to that, she was
President of Wells College. She holds the title President Emerita at both
institutions. Independent Trustee of John Hancock Mutual Funds.
CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 2000
LAWRENCE BURKHARDT, III
- - Retired Rear Admiral, United States Navy
- - Director since 1988
- - Chair of Nuclear Oversight Committee of the Board
Mr. Burkhardt, age 66, independent consultant to the nuclear industry since
1990. Prior to his retirement in 1990, Mr. Burkhardt was employed by NMPC
and served as Executive Vice President of Nuclear Operations. Director of
MACTEC, Inc.
DOUGLAS M. COSTLE
- - Distinguished Senior Fellow and Chairman of the Board of the Institute for
Sustainable Communities
- - Director since 1991
- - Member of Executive, Audit, Corporate Public Policy & Environmental Affairs
(Chair), and Nuclear Oversight Committees of the Board
Mr. Costle, age 59, Distinguished Senior Fellow and Chairman of the Board of the
Institute for Sustainable Communities, a non-profit organization located in
Montpelier, VT. Mr. Costle has held his present position since 1991. Former
Dean of the Vermont Law School in South Royalton, VT, and Administrator of the
U.S. Environmental Protection Agency. Independent Trustee of John Hancock
Mutual Funds.
DONALD B. RIEFLER
- - Financial Market Consultant
- - Director since 1978
- - Member of Executive, Audit, Finance (Chair) and Nuclear Oversight Committees
of the Board
Mr. Riefler, age 71, financial market consultant and advisor to J. P. Morgan,
Florida FSB, Palm Beach, FL, a private banking concern affiliated with J. P.
Morgan & Co., Inc. Prior to his retirement in 1991, Mr. Riefler was Chairman of
the Market Risk Committee for J. P. Morgan & Co., Inc. and Morgan Guaranty
Trust Company of New York.
STEPHEN B. SCHWARTZ
- - Retired Senior Vice President, International Business Machines Corporation
- - Director since 1992
- - Member of Executive, Compensation and Succession (Chair) and Finance
Committees of the Board
Mr. Schwartz, age 64, retired as Senior Vice President of International Business
Machines Corporation in 1992. Mr. Schwartz joined IBM in 1957. In 1984 he
served as President and Chief Executive Officer of Satellite Business Systems.
He returned to IBM in 1985 and was elected Senior Vice President in 1990.
Director of MFRI, Inc.
CLASS I DIRECTORS WHOSE TERMS EXPIRE IN 2001
SALVATORE H. ALFIERO
- - Chairman and Chief Executive Officer, Mark IV Industries, Inc.
- - Director since 1998
- - Member of Corporate Public Policy & Environmental Affairs and Finance
Committees of the Board
Mr. Alfiero, age 61, Chairman and Chief Executive Officer, Mark IV Industries,
Inc., a manufacturer of engineered systems and components for power
transmission, fluid power and transfer, and filtration applications, located in
Amherst, NY. Mr. Alfiero founded Mark IV Industries, Inc. in 1969 and has been
Chairman and Chief Executive Officer since its inception. Director of Marine
Midland Bank; Phoenix Home Life Mutual Insurance Company; and Southwire Company.
ALBERT J. BUDNEY, JR.
- - President of the Company
- - Director since 1995
Mr. Budney, age 51, was elected President of NM Holdings in April 1998. From
1995 to March 1999, he served as President of NMPC. Mr. Budney was
previously employed by UtiliCorp United, Inc., an energy services company, as
Managing Vice President of the UtiliCorp Power Services Group and as
President of the Missouri Public Service Division. Mr. Budney joined
UtiliCorp United, Inc., in 1993. Director of Opinac NA; NM Energy; CNP; and
Utilities Mutual Insurance Company. Mr. Budney is also President and Chief
Executive Officer of Opinac NA and President of Opinac.
DR. BONNIE G. HILL
- - President and Chief Executive Officer of The Times Mirror Foundation; Vice
President of The Times Mirror Company and Sr. Vice President-Communications
and Public Affairs of The Los Angeles Times
- - Director since 1991
- - Member of Audit, Corporate Public Policy & Environmental Affairs and Finance
Committees of the Board
Dr. Hill, age 57, President and Chief Executive Officer of The
Times Mirror Foundation, a non-profit institution; Vice
President of The Times Mirror Company, a news and information
company, and Sr. Vice President-Communications and Public Affairs of The Los
Angeles Times, located in Los Angeles, CA. Dr. Hill served as Dean and
Professor of Commerce of the McIntire School of Commerce at the University of
Virginia from 1992-1996. Prior to that, she served as the Secretary of State
and Consumer Services Agency for the State of California. Director of
AK Steel Corporation; and Hershey Foods Corporation.
CLARK A. JOHNSON
- - Former Chairman, Pier 1 Imports Inc.
- - Director since 1998
- - Member of Compensation and Succession and Finance Committees of the Board
Mr. Johnson, age 68, retired on February 28, 1999 as Chairman of Pier 1 Imports,
Inc., a specialty retailer of imported home furnishings, gifts and related
items, located in Fort Worth, TX. Mr. Johnson joined Pier 1 Imports, Inc. in
1985 and was elected Chairman and Chief Executive Officer in 1987, serving in
that capacity until elected Chairman in 1998. Director of Albertson's Inc.;
InterTAN Inc.; Metro Media International Group; and Land Care, Inc.
HENRY A. PANASCI, JR.
- - Chairman of Cygnus Management Group, LLC
- - Director since 1988
- - Member of Compensation and Succession, Corporate Public Policy & Environmental
Affairs and Finance Committees of the Board
Mr. Panasci, age 70, Chairman of Cygnus Management Group, LLC, a consulting firm
specializing in venture capital and private investments headquartered in
Syracuse, NY. Mr. Panasci retired in 1996 as Chairman of the Board and Chief
Executive Officer of Fay's Incorporated, a drug store chain. Mr. Panasci
co-founded Fay's Drug Co., Inc. with his father in 1958. Director of National
Association of Chain Drug Stores.
Board Meetings--Committees of the Board
During 1998, the Board of Directors held fifteen meetings. Each director
attended more than 75 percent of the meetings of the Board and Board Committees
on which he or she served in 1998.
The Board Committees consist of an Executive Committee, Audit Committee,
Committee on Corporate Public Policy & Environmental Affairs, Compensation
and Succession Committee, Finance Committee, and Nuclear Oversight Committee.
The Board does not have a standing nominating committee to nominate candidates
for Board membership, but functions as a committee of the whole.
<TABLE>
<CAPTION>
BOARD MEMBERSHIP
Corp.
Public Compen-
Policy sation Nuclear
Name Board Audit & Env. & Succes- Execu- Finance Over-
Affairs sion tive sight
<S> <C> <C> <C> <C> <C> <C> <C>
S. H. Alfiero X X X
W. F. Allyn X X X X
A. J. Budney, Jr. X
L. Burkhardt, III X X*
D. M. Costle X X X* X X
W. E. Davis X* X*
W. J. Donlon X
A. H. Gioia X X X X
B. G. Hill X X X X
C. A. Johnson X X X
H. A. Panasci,Jr. X X X X
P. M. Peterson X X* X X
D. B. Riefler X X X X* X
S. B. Schwartz X X* X X
No. of Meetings 15 10 6 11 1 10 9
In 1998
</TABLE>
*Chairperson
With the exception of the Executive Committee, membership on the
Board Committees is limited to non-employee directors.
Information on the Audit Committee and the Compensation and
Succession Committee is as follows.
Audit Committee
The primary function of the Audit Committee is to assist the Board
in fulfilling its responsibilities of ensuring that management is
maintaining an adequate system of internal controls such that there
is reasonable assurance that assets are safeguarded and that
financial statements are fairly stated.
The Audit Committee shall have the power to:
- - recommend to the Board of Directors the accounting firm to be
selected by the Board as independent auditor of the Company and
its subsidiaries;
- - act on behalf of the Board in meeting and reviewing with the
independent auditors, the chief internal auditor and the
appropriate Company officers;
- - consider the impact on the Company's financial statements of any
changes in accounting procedures and policies, and adequacy of
internal controls, and make recommendations on such matters to
the Board of Directors;
- - meet with the independent auditors, the appropriate Company
officers and the Company's chief internal auditor during each
year to:
(a) review and make recommendations to the Board concerning the
independent auditor's proposal on the scope of their audit and
related fees and services and the scope of the respective
audits of the internal auditor;
(b) review the results of such audits with the respective auditing
agency and reporting thereon to the Board;
(c) review interim and annual financial reports and disclosures
and submit to the Board any recommendations it may have from
time-to-time with respect to financial reporting and
accounting practices and policies;
- - be consulted, and its consent obtained, prior to the selection
or termination of the chief internal auditor;
- - review management's assessment of financial risks;
- - authorize special investigations and studies;
- - at each Board meeting, report on the Committee's activities; and
- - conduct a self-assessment at least every three years.
The membership of the Committee shall consist of only directors of
the Company who are not, and have not been, officers of the
Company.
Compensation and Succession Committee
The primary function of the Compensation and Succession Committee
is to ensure that the compensation and benefits available to the
Board of Directors, senior management and other Company officers
and employees enables the Company to attract and retain qualified
individuals.
The Compensation and Succession Committee shall have the power to
conduct an annual evaluation of the performance of the Company's
Chief Executive Officer and review the results with the Board. In
addition, the Committee shall have the power to review and report
results of those reviews as well as make recommendations where
appropriate to the Board concerning the following:
- - annual performance evaluations of the Company's senior officers;
- - senior officer succession plans on an annual basis;
- - names of qualified persons to be nominated for election as
directors and officers;
- - the Company's compensation programs and benefit plans;
- - the appropriateness of Board and officer compensation;
- - periodic assessments of the Board's effectiveness;
- - the Company's diversity strategies and plans; and
- - the Company's actuarial advisor's annual reports and progress
toward funding the Company's Pension Plan, Post-Retirement
Benefits Other Than Pension Plan, and Supplemental Executive
Retirement Plan.
Director Compensation
Annual Cash Retainer Fees
Directors who are not employees of the Company receive an annual
retainer of $20,000. Non-employee directors who chair any of the
Board Committees receive an additional annual fee of $3,000.
Meeting Fees
Directors who are not employees of the Company receive a fee of
$1,000 for attending each Board meeting and $850 for each Committee
meeting. Directors are reimbursed for their travel, lodging and
related expenses.
Outside Director Deferred Stock Unit Plan
In 1996, the Board of Directors adopted an Outside Director
Deferred Stock Unit Plan.
Each outside director is credited with deferred stock units
("DSUs") on an annual basis equal in value to $15,000 ($17,000 for
Committee Chairs). Accordingly, all outside directors were
credited with 1,011 DSUs (1,145 for Committee Chairs) based on the
average of the opening and closing price of a share of common stock
on June 30, 1998 ($14.84375). The beneficial stock ownership table
on page 12, shows the total number of DSUs credited to each of the
outside directors under this plan as of March 15, 1999.
When a director ceases to be an outside director, the amount of
DSUs credited to him or her is paid in a lump sum or in five equal
annual installments. The first DSU installment payment would be
made shortly after the director's service ends and the other
installments would be paid on the first through fourth
anniversaries of such date, based on the prevailing stock price at
that time.
Related Transactions
Lawrence Burkhardt, III, received a consulting fee of $18,000
during 1998.
Health and Life Insurance Benefits
The Company provides certain health and life insurance benefits to
directors who are not employees of the Company. Each outside
director who elected coverage under the Company's health care plans
contributes a portion of the monthly costs associated with these
plans. During 1998, the following health and life insurance
benefits were received by the following directors: Mr. Alfiero
($138), Mr. Burkhardt ($5,448), Mr. Costle ($3,980), Mr. Donlon
($288), Mr. Gioia ($7,665), Dr. Hill ($4,040), Mr. Panasci ($187),
Dr. Peterson ($3,114), Mr. Riefler ($6,163) and Mr. Schwartz
($552).
Stock Ownership Information
Security Ownership of Certain Beneficial Owners
The following table indicates the number of shares of Common Stock
owned by persons known to the Company to own beneficially more than
5% of the outstanding Common Stock as of December 31, 1998.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common Stock Tiger Management LLC 12,714,700(a) 6.8%
101 Park Avenue
New York, NY 10178
Common Stock FMR Corp. 10,877,491(b) 5.805%
82 Devonshire Street
Boston, Massachusetts 02109
Common Stock Fidelity Management Trust Co. 10,074,275(c) 5.377%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
(a) Tiger Management L.L.C. has shared voting power pursuant
to Schedule 13G, dated February 12, 1999, filed with the SEC.
(b) Includes 1,271,991 shares with respect to which FMR Corp.
has sole voting power and 10,877,491 with sole power to dispose
or to direct disposition as reported on Schedule 13G, dated
February 1, 1999 filed with the Securities and Exchange
Commission ("SEC").
(c) The above represents shares in the Company's Non-
Represented and Represented Employees' Savings Fund Plans.
Fidelity Management Trust Company serves as Trustee. The
Trustee will vote all shares of Common Stock held in the Trusts
established for the Plans in accordance with the directions
received from the employees participating in the Plans. The
Trustee will vote shares for which it receives no instructions
in the same proportion as it votes shares for which it receives
instructions.
Approximately 83.8% or 156,937,575 shares of the Company's common
stock outstanding as of December 31, 1998, are held by shareholders
who elected to hold their shares, not in their own names, but in
the names of banking or financial intermediaries. These shares are
registered in the nominee name of The Depository Trust Company,
Cede & Co.
Security Ownership of Directors and Executive Officers
The following table indicates the number of shares of the Company's
Common Stock beneficially owned as of March 15, 1999, by each
director of the Company, each of the executive officers named in
the Summary Compensation Table below and the current directors and
executive officers of the Company and NMPC as a group. The table
also lists the number of stock units credited to directors, named
executive officers and the directors and executive officers of the
Company and NMPC as a group pursuant to the Company's compensation
and benefit programs as of March 15, 1999. No voting rights are
associated with stock units
<TABLE>
<CAPTION>
Amount and
Nature
Title of Name of of Benefical Percent Stock Units
Class Beneficial Owner Ownership* Of Class Held***
<S> <C> <C> <C> <C>
Common Stock
Directors:
Salvatore H. Alfiero 5,000 ** 1,011(6)
William F. Allyn 1,500 ** 10,169(6)
Albert J. Budney, Jr. 11,756(1) ** 55,000(7)
Lawrence Burkhardt, III 452 ** 3,918(6)
Douglas M. Costle 500 ** 10,696(6)
William E. Davis 48,167(2) ** 126,000(7)
William J. Donlon 2,010 ** 337(6)
Anthony H. Gioia 500 ** 3,322(6)
Bonnie G. Hill 1,000 ** 9,088(6)
Clark A. Johnson 15,000 ** 1,011(6)
Henry A. Panasci, Jr. 2,500 ** 3,322(6)
Patti McGill Peterson 1,500 ** 12,344(6)
Donald B. Riefler 1,000 ** 27,022(6)
Stephen B. Schwartz 500 ** 12,349(6)
Named Executives:
Darlene D. Kerr 16,072(3) ** 35,100(7)
John H. Mueller 415 ** 24,100(7)
Gary J. Lavine 17,640(4) ** 29,000(7)
All Directors and Executive
Officers (24) as a group ... 183,309(5) ** 394,200
</TABLE>
*Based on information furnished to the Company by the Directors
and Executive Officers. Includes shares of Common Stock credited
under the Employees' Savings Fund Plan as of March 15, 1999.
**Less than one percent.
***Stock units which vested on December 31, 1998 were paid following
the filing of this chart in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, and thus this chart reflects
the lower amounts.
(1) Includes presently exercisable options for 10,000 shares of Common Stock.
(2) Includes presently exercisable options for 42,625 shares of Common Stock.
(3) Includes presently exercisable options for 9,000 shares of Common Stock.
(4) Includes presently exercisable options for 12,000 shares of Common Stock.
(5) Includes presently exercisable options for 106,375 shares of Common Stock.
(6) Represents deferred stock units granted pursuant to the Outside Director
Deferred Stock Unit Plan. For additional information regarding deferred
stock units, refer to page 10 ("Director Compensation").
(7) Represents stock units granted in 1997, 1998 and 1999 pursuant to the
Long-Term Incentive Plan. For additional information regarding stock units
granted to named executives, refer to page 14 ("Long-Term Incentive Plan").
In addition to the shares of the Company's common stock, Albert J.
Budney, Jr. indirectly owns 100 shares of preferred stock, 9 1/2%
Series, in NMPC, a subsidiary of NM Holdings.
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the SEC require that the Company disclose late filings
of reports of ownership and changes in ownership of the Company's
equity securities by its directors, executive officers and any
other person subject to Section 16 of the Securities and Exchange
Act of 1934. To the best of the Company's knowledge, there were no
late filings during 1998
Board of Directors' Compensation and Succession Committee Report on Executive
Compensation
The Compensation and Succession Committee of the Board of Directors (the
"Committee") is composed entirely of non-employee directors. The Committee
has responsibility for recommending officer salaries and for the administration
of the Company's officer incentive compensation plans as described in this
report. The Committee makes recommendations to the Board of Directors which
makes final officer compensation determinations.
This Committee report describes the Company's executive officer compensation
policies, the components of the compensation program, and the manner in which
1998 compensation determinations were made for the Company's Chairman of the
Board and Chief Executive Officer, Mr. William E. Davis.
The 1998 Executive Officer Compensation Program was composed of base salary,
annual incentive compensation, and grants of stock units and stock
appreciation rights ("SARs") made pursuant to the Long-Term Incentive Plan
("LTIP") adopted by the Board of Directors on September 25, 1996, as
described later in this report.
Base Salary
The Committee seeks to ensure that salaries of the Company's officers, including
executive officers, remain competitive with levels paid to comparable positions
among other U.S. electric and gas utilities with comparable revenues
(collectively referred to as the "Comparator Utilities"). The Committee
believes that competitive salaries provide the foundation of the Company's
officer compensation program and are essential for the Company to attract and
retain qualified officers, especially in light of the increasing competition
within the industry. Each officer position has been assigned to a
competitive salary range. The Committee intends to administer salaries within
the 25th to 75th percentiles of practice with respect to those Comparator
Utilities. The 1998 average salary of the five named executive officers fell
between the 25th and 50th percentile competitive levels.
Annual Officer Incentive Compensation Plan ("OICP")
On December 13, 1990 the Board of Directors adopted the Company's OICP for
officers and the Management Incentive Compensation Plan for management
employees. The OICP is structured and administered so that a significant
component of each officer's annual cash compensation must be earned on the
basis of the Company's and the officer's annual performance. Maximum
incentive award opportunities for 1998 were set by the Committee at 40% of
salary for Mr. Davis and at 25% to 40% for all other officers. OICP award
opportunities are intended to position officer annual compensation (salary +
OICP awards) within the 25th to 75th percentile of Comparator Utilities
practice depending on company financial, business and support unit
performance. In connection with a freeze on award cash compensation instituted
in late 1995, no awards were made to officers under the OICP for plan years
1996 and 1997. The OICP was reinstated for the 1998 plan year.
For the 1998 plan year, awards were based on the degree to which certain pre-
established financial and operating objectives were met or exceeded. The
objectives for the 1998 plan year included economic value added (EVA), business
unit financial objectives and business/support group operating objectives.
These objectives were weighted differently for each business/support unit,
based on the applicability of such objectives to the business or support unit.
Awards for the named executive officers averaged 30.6% of their 1998 salaries.
Their average annual compensation (salary + OICP awards) fell between the
25th and 50th percentiles of Comparator Utilities practice. Refer to the Summary
Compensation Table on page XXXX for specific amounts paid to named executive
officers under the 1998 OICP. These awards were paid on February 26, 1999.
Long-Term Incentive Plan
To provide a continuous program of long-term stock incentives, on September 25,
1996 the Board of Directors adopted the LTIP and approved stock unit and SAR
grants for the 1996-1998 period. These stock unit grants were paid in cash in
early 1999. Under the LTIP, dividends are credited (in an amount equivalent to
dividends paid, if any, on the Company's common stock) with respect to stock
unit grants, which would be reinvested at the prevailing stock price, thereby
increasing the number of stock units payable. The payment value of the 1996
LTIP stock units was based on the average fair market value of the Company's
common stock during the last 12 consecutive trading days in 1998 ($16.138). The
1996 LTIP SAR grants became exercisable on January 2, 1999, and may be exercised
until they expire on December 31, 2005.
On January 29, 1997, the Board of Directors approved the grant of LTIP stock
units and SARs for the 1997-1999 performance period. These stock units, and
accumulated dividend stock units, will be paid in early 2000 based on the
average fair market value of the Company's common stock during the last twelve
consecutive trading days in 1999. The SARs first become exercisable on
January 2, 2000, and can be exercised until they expire on December 31, 2006.
The size of both the 1996-1998 and 1997-1999 LTIP stock unit and SAR grants were
determined, based on the price of the Company's common stock at the time
these grants were made, so that the combination of the officers' current
salaries plus the grant date present value of December 14, 1995 stock unit and
SAR grants made under the 1995 Stock Incentive Plan ("SIP"), and LTIP grants
for the 1996-1998 and 1997-1999 performance periods, would approximate the 50th
percentile of Comparator Utilities total compensation practice for the 3-year
period 1995 through 1997. The competitiveness of the actual compensation
realized from these grants is dependent on the market value of the Company's
common stock at the end of 1997, 1998, and 1999.
The Board of Directors also approved a January 19, 1998 grant of LTIP stock
units and SARs for the period 1998-2000. These stock units, and any
accumulated dividend stock units, will be paid in early 2001 based on the
average fair market value of the Company's common stock during the last 12
consecutive trading days in 2000. The SARs will first become
exercisable on January 2, 2001, and can be exercised until they expire on
December 31, 2007. The 1998 stock unit and SAR grants were determined so
that the average current salary and the average grant date present value of the
1998 LTIP grants for the named executive officers would approximate the 50th
percentile of 1997 Comparator Utilities total compensation practice.
On August 25, 1998 the Board of Directors approved the accelerated granting of
LTIP stock units and SARs that would have normally been granted at the start
of 1999 (for the 3-year period 1999-2001) and at the start of 2000 (for the
3-year period 2000-2002). These LTIP grants were accelerated so as to
provide additional motivation and incentive to officers and to increase the
retention value of LTIP grants. The LTIP stock units granted with respect to
the 1999-2001 period will not vest until the end of 2001, and the LTIP stock
units granted with respect to the 2000-2002 period will not vest
until the end of 2002. Similarly, accelerated 1999 SAR grants do not vest and
become exercisable until January 2, 2002 and expire on December 31, 2008.
Accelerated 2000 SAR grants do not vest and become exercisable until January 2,
2003, and expire December 31, 2009. Thus, despite the acceleration of these
two stock unit and SAR grants, the accelerated LTIP stock units would not
vest and be paid, and the accelerated SAR grants would not vest, become
exercisable or expire, any sooner than would have been the case had they been
made at the start of 1999 and 2000. Since the 1999 and 2000 LTIP stock
unit and SAR grants were accelerated, additional LTIP grants for these periods
are not anticipated. The two accelerated LTIP stock unit and SAR grants were
determined so that the sum of the average grant date value of the January 19,
1998 and the two accelerated August 25, 1998 grants, in combination with the
average salaries and incentive award payments (at half maximum levels) of the
named executive officers would approximate the 50th percentile of Comparator
Utilities total compensation practice over the 3-year period 1998-2000.
Through the combination of base salary, annual incentive compensation, stock
unit and SAR grants, the Committee seeks to focus the efforts of officers
toward improving, annually and over the longer-term, the financial returns for
its shareholders.
Compensation of William E. Davis, Chairman of the Board and Chief Executive
Officer
Mr. Davis became Chief Executive Officer on May 1, 1993. During 1998, Mr.
Davis' salary was increased to its current annual rate of $570,000. The
increase in Mr. Davis' salary reflected an evaluation of his performance and the
fact that his salary was well below the 25th percentile relative to salaries
paid to CEOs at electric and gas utilities with comparable revenues. The
Committee has been advised by its consultant that Mr. Davis' current annual
salary approximates the 25th percentile of this comparison group. With
respect to 1998, Mr. Davis earned an annual incentive compensation
award in the amount of $180,937, which represented 34.139% of the salary he
received in 1998. This award was paid pursuant to the terms of the OICP and
financial and operating objectives approved by the Committee for 1998. These
objectives related to economic value added (EVA), business unit financial
performance, and business/support group operating performance. Mr. Davis'
1998 annual compensation (salary + OICP award) fell between the 25th and 50th
percentiles of Comparator Utilities practice.
As previously indicated, the Committee and the Board of Directors seek to
provide a continuous program of long-term stock incentives beyond 1997 when
SIP stock unit grants became payable and SIP SAR grants became exercisable.
Accordingly, on September 25, 1996 the Board of Directors approved a grant of
45,000 stock units and 90,000 SARs, with an exercise price
of $8.00, for Mr. Davis for the 1996-1998 performance period. On January 29,
1997 the Board of Directors approved a grant of 35,000 stock units and 70,000
SARs, with an exercise price of $10.30, for the 1997-1999 performance period.
Both the 1996-1998 and 1997-1999 grants were made under the terms of the LTIP.
The size of the 1996-1998 and 1997-1999 LTIP grants for Mr. Davis was
determined so that the grant date present value of both grants, in combination
with his current salary and his SIP grants, would approximate the 50th
percentile for Comparator Utilities chief executive officers during the
1995-1997 period. The competitiveness of the compensation Mr. Davis actually
realizes from the SIP and LTIP grants will depend on the market value of the
Company's common stock at the end of 1997, 1998, and 1999.
As previously indicated, the Board of Directors approved a January 19, 1998
grant of LTIP stock units and SARs for Mr. Davis for the period 1998-2000.
This grant consisted of 35,000 stock units and 125,000 SARs with an exercise
price of $10.90. The size of these grants was determined so that the sum of his
current salary plus the grant date present value of the 1998 stock unit and
SAR grants would fall approximately midway between the 25th and 50th percentiles
of 1997 total compensation practice for electric/gas utilities of comparable
size.
On August 25, 1998, the Board of Directors approved an accelerated grant of LTIP
stock units and SARs to Mr. Davis that would have normally been granted at the
start of 1999 (for the 3-year period 1999-2001) and at the start of 2000 (for
the 3-year period 2000-2002). Each of these grants consisted of 28,000 stock
units and 100,000 SARs, with an exercise price of $15.36. These grants were
accelerated in order to increase the incentive and retention value of these LTIP
grants. Despite the acceleration of these grants, the stock units will not vest
and be paid, and the SARs will not vest, become exercisable or expire any
sooner than would have been the case had they been granted at the start of 1999
and 2000. Additional LTIP grants to Mr. Davis for these periods are not
anticipated. The two accelerated LTIP stock unit and SAR grants were
determined so that the sum of the average grant date value of the January 19,
1998 and the two August 25, 1998 LTIP grants, in combination with Mr. Davis'
salary and incentive award payment (at half maximum level) would approximate
the 50th percentile of Comparator Utilities total compensation practice over
the 3-year period 1998-2000.
Under Section 162(m) of the Internal Revenue Code, the Company may not deduct
certain compensation in excess of $1,000,000 paid to a named executive
officer in any taxable year. The Committee continually reviews executive
compensation plans and programs for changes to comply with the limit, where
appropriate. The Committee believes it is important to maintain flexibility
in its executive compensation plans in order to attract and retain high quality
executives, which may result in compensation being paid in a particular year
in excess of the limit. In 1998, a substantial increase in the value of a
share of common stock resulted in a corresponding increase in the value of
stock-based compensation. As a result, in 1998 the compensation of Mr. Davis
exceeded the limit.
Submitted by the Compensation and Succession Committee of the Board of
Directors:
Stephen B. Schwartz, Chair
William F. Allyn
Anthony H. Gioia
Clark A. Johnson
Henry A. Panasci, Jr.
Executive Compensation
The following table shows, for the last three fiscal years, cash and other
compensation paid to the Chairman of the Board and Chief Executive Officer
and to each of the other four most highly compensated executive officers of the
Company for fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Fiscal Years 1998, 1997 and 1996
Annual Compensation
Other
Annual
Name and Compen-
Principal Year Salary Bonus sation
Position ($)(A) ($) ($)(B)
<S> <C> <C> <C> <C>
W. E. Davis
Chairman and CEO 1998 530,001 180,937 218
1997 450,501 0 110
1996 462,351 0 0
A. J. Budney, Jr.
President 1998 366,001 124,949 218
1997 315,002 0 110
1996 315,002 0 2,956
D. D. Kerr
Executive Vice 1998 256,334 79,942 218
President 1997 210,001 0 110
1996 210,001 0 0
J. H. Mueller
Senior Vice 1998 255,835 48,519 11,585
President 1997 ----- ----- -----
1996 ----- ----- -----
G. J. Lavine
Senior Vice 1998 222,001 63,936 16,370
President 1997 191,502 0 110
1996 191,502 0 0
(continued)
Long-Term Compensation
Awards
Securities All Other
Restricted Underlying Compensa-
Name and Stock Options/ sation
Principal Award(s) SARs ($)(E)
Position Year ($)(C) (#)
<S> <C> <C> <C> <C>
W.E. Davis
Chairman and CEO 1998 1,256,500(D) 325,000(D) 44,539
1997 371,875 70,000 42,358
1996 36O,000 90,000 43,365
A.J. Budney, Jr. 1998 503,750(D) 170,000(D) 18,051
1997 185,938 35,000 16,436
1996 180,000 45,000 24,975
D.D. Kerr 1998 371,100(D) 119,000(D) 9,583
1997 85,000 16,000 7,953
1996 82,000 20,500 9,415
J.H. Mueller 1998 324,413(D) 104,000(D) 30,529
1997 --- --- ---
1996 --- --- ---
G.J. Lavine 1998 290,313(D) 89,000(D) 29,283
1997 85,000 16,000 8,564
1996 82,000 20,500 8,571
</TABLE>
(A) Includes all employee contributions to the Employees' Savings
Fund Plan.
(B) Other Annual Compensation for Mr. Budney in 1996 and for Mr.
Mueller in 1998 represents or includes amounts reimbursed for payment
of taxes associated with relocation expenses. 1997 and 1998 Other
Annual Compensation for Messrs. Davis, Budney, Mueller and Lavine
and Ms. Kerr represents or includes amounts reimbursed for payment
of taxes associated with non-cash compensation. 1998 Other Annual
Compensation for Mr. Lavine includes amounts reimbursed for payment
of taxes associated with Company-paid legal expenses.
(C) In 1996, 88,000 stock units were granted to the above-named
executive officers pursuant to the LTIP adopted by the Board of
Directors on September 25, 1996. These stock units vested and became
payable on December 31, 1998. No dividend equivalents were credited
on these stock units. The 1996 values listed in the table were
calculated by multiplying the stock units granted by $8.00, the
price at the time these stock unit grants were determined.
In 1997, 68,500 stock units were granted to the above-named
executive officers pursuant to the LTIP adopted by the Board of
Directors on September 25, 1996. These grants were made for the
3-year period January 1, 1997, through December 31, 1999, and
vest and become payable on December 31, 1999. The 1997 values
listed in the table were calculated by multiplying the stock units
granted by $10.625, the price at the time these stock unit grants
were determined. Dividend equivalents, if any, will be credited on
these grants and will be paid when the related stock units are paid.
In 1998, 82,700 stock units were granted in January and 118,000 in
August (consisting of two grants of 59,000 each) to the above-named
executive officers pursuant to the LTIP adopted by the Board of
Directors on September 25, 1996. The first grant was made for a
3-year period January 1, 1998 through December 31, 2000, and vest
and become payable on December 31, 2000; the second grant was made
for a 3-year period January 1, 1999 through December 31, 2001, and
vest and become payable on December 31, 2001; and the third grant
was made for a 3-year period January 1, 2000 through December 31,
2002, and vest and become payable on December 31, 2002. The 1998
values listed in the table were calculated by multiplying the stock
units granted in January by $12.00 and those granted in August by
$15.5625, the prices at the time these stock unit grants were determined.
Dividend equivalents, if any, will be credited on these grants and
will be paid when the related stock units are paid.
As of the end of the 1998 fiscal year, based on a closing market
price of $16.125, Mr. Davis held 171,000 stock units having a market
value of $2,757,375; Mr. Budney held 77,500 stock units having a market
value of $1,249,688; Ms. Kerr held 45,350 stock units having a market
value of $731,269; Mr. Mueller held 24,100 stock units having a market
value of $388,613; and Mr. Lavine held 39,250 stock units having a
market value of $632,906.
(D) This amount represents three distinct grants from the LTIP. The
first grant will vest and become payable (in the case of stock units)
and exercisable (in the case of SARs) after December 31, 2000; the
second after December 31, 2001; and the third after December 31, 2002.
No additional grants for these periods are anticipated.
All Other Compensation for 1998 includes: employer contributions to
the Company's Employees' Savings Fund Plan: Mr. Davis ($4,793),
Mr. Budney ($1,955), Ms. Kerr ($4,758), Mr. Mueller ($5,044), and
Mr. Lavine ($4,797); taxable portion of life insurance premiums:
Mr. Davis ($15,935), Mr. Budney ($2,821), Ms. Kerr ($2,020),
Mr. Mueller ($3,565), and Mr. Lavine ($3,243); payments under the
Company's Relocation Policy: Mr. Mueller ($21,673); employer
contributions to the Company's Excess Benefit Plan: Mr. Davis
($10,811), Ms. Kerr ($2,805), and Mr. Lavine ($1,747); directors
fees received from Canadian Niagara Power Corporation: Mr. Davis
($13,000) and Mr. Budney ($13,000); personal travel allowance:
Mr. Budney ($275) and Mr. Mueller ($247); Company-paid legal
expenses: Mr. Lavine ($19,496).
The following table discloses, for the Chairman of the Board and
Chief Executive Officer, Mr. William E. Davis, and the other named
executive officers, the number and terms of SARs granted during the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
Number of % of Total Grant Date
Securities Options/SARs Present
Underlying Granted To Exercise or Expiration Value
Options/SARs Employees in Base Price Date (A) ($)(B)
Name Granted(#) Fiscal Year ($/Sh)
<S> <C> <C> <C> <C> <C>
W.E. Davis 125,000 7.37 10.90 12/31/2007 478,750
100,000 6.00 15.36 12/31/2008 773,000
100,000 6.00 15.36 12/31/2009 802,000
A.J. Budney, 70,000 4.13 10.90 12/31/2007 268,100
Jr. 50,000 2.95 15.36 12/31/2008 386,500
50,000 2.95 15.36 12/31/2009 401,000
D.D. Kerr 39,000 2.30 10.90 12/31/2007 149,370
40,000 2.36 15.36 12/31/2008 309,200
40,000 2.36 15.36 12/31/2009 320,800
J.H. Mueller 39,000 2.30 10.90 12/31/2007 149,370
32,500 1.92 15.36 12/31/2008 251,225
32,500 1.92 15.36 12/31/2009 260,650
G.J. Lavine 24,000 1.42 10.90 12/31/2007 91,920
32,500 1.92 15.36 12/31/2008 251,225
32,500 1.92 15.36 12/31/2009 260,650
</TABLE>
(A) In 1998, the Board of Directors made three grants of SARs under
the LTIP. The first grant of SARs that expire on December 31, 2007
become exercisable January 2, 2001; the second grant of SARs that
expire on December 31, 2008 become exercisable January 2, 2002; and
the third grant of SARs that expire on December 31, 2009 become
exercisable January 2, 2003. All SARs become exercisable upon a
change in control.
(B) The grant date present value of SARs is calculated using the
Black-Scholes Option Pricing Model with the following assumptions:
(1) exercise price of rights that expire on December 31, 2007
($10.90); stock volatility (29.57%); dividend yield (2.86%);
risk free rate (6.25%); exercise term (10 years); Black-Scholes
ratio (.3512); and Black-Scholes value ($3.83) for rights
that expire on December 31, 2007. Stock volatility and
dividend yield assumptions are based on 36 months of
results for the period ending December 31, 1998.
(2) exercise price of rights that expire on December 31, 2008
($15.36); stock volatility (31.10%); dividend yield (0.86%);
risk free rate (6.25%); exercise term (10 1/3 years);
Black-Scholes ratio (.5031); and Black-Scholes value ($7.73)
for rights that expire on December 31, 2008. Stock volatility
and dividend yield assumptions are based on 36 months of
results for the period ending December 31, 1998.
(3) exercise price of rights that expire on December 31, 2009
($15.36); stock volatility (31.10%); dividend yield (0.86%);
risk free rate (6.25%); exercise term (11 1/3 years);
Black-Scholes ratio (.5224); and Black-Scholes value ($8.02)
for rights that expire on December 31, 2009. Stock volatility
and dividend yield assumptions are based on 36 months of results
for the period ending December 31, 1998.
The following table summarizes exercises of options by the Chairman
of the Board and Chief Executive Officer, Mr. William E. Davis,
and the other named executive officers, the number of unexercised
options held by them and the spread (the difference between the
current market price of the stock and the exercise price of the
option, to the extent that market price at the end of the year
exceeds exercise price) on those unexercised options for fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Number of Securities
Underlying Unexercised
Options/SARs At Fiscal
Year-End (#)
Name SARs Value
Exercised Realized Exercisable Unexercisable
(#) ($)
<S> <C> <C> <C> <C>
W.E. Davis 0 0 185,125 485,000
A.J. Budney, Jr. 0 0 76,000 250,000
D.D. Kerr 6,000 28,320 31,500 155,500
J.H. Mueller 0 0 0 104,000
G.J. Lavine 0 0 37,500 125,500
(continued)
Value of Unexercised
Options/SARs At Fiscal
Year-End ($)(A)
Name Exercisable Unexercisable
<S> <C> <C>
W.E. Davis 787,188 1,945,125
A.J. Budney, Jr. 376,000 1,011,750
D.D. Kerr 125,063 524,738
J.H. Mueller 0 253,501
G.J. Lavine 157,313 434,889
</TABLE>
_______________
(A) Calculated based on the closing market price of the Company's Common Stock
on December 31, 1998 ($16.125).
PERFORMANCE GRAPH
Niagara Mohawk Power Corporation
Comparison of Five-Year Cumulative Total Return
vs. S&P 500 Index and EEI Index
[ILLUSTRATION OF PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
NMPC 100.00 75.38 54.93 57.10 60.71 93.23
S&P 500 Index 100.00 101.32 139.40 171.40 228.59 293.91
EEI Index 100.00 87.12 110.96 110.27 142.54 165.62
</TABLE>
Assumes $100 invested on December 31, 1993 in NMPC common stock,
S&P 500 and the Edison Electric Institute Combination Gas and
Electric Investor-Owned Utilities Index ("EEI Index"). All
dividends assumed to be reinvested over the five-year period.
Retirement Benefits and Employee Agreements
Niagara Mohawk Pension Plan
The Niagara Mohawk Pension Plan ("Basic Plan") is a
noncontributory, tax-qualified defined benefit plan and provides
all employees of the Company with a minimum retirement benefit.
This retirement benefit is related to compensation--that is, base
salary or pay--subject to the maximum annual limits noted in the
Retirement Benefits Table.
The participant's Basic Plan retirement benefit is based on one of
two formulas depending on age and years of service on July 1, 1998:
- - the cash balance formula; or
- - the highest five-year average compensation.
Effective July 1, 1998, the Basic Plan was amended to include a
cash balance formula. Under a cash balance formula a participant's
retirement benefit grows with pay credits (4% - 8% x salary) plus
interest credits on a monthly basis. A non-represented
(management) employee who was at least 45 years of age and has 10
years of service on July 1, 1998 will receive the higher of the two
formulas--the cash balance formula or the highest consecutive five-
year compensation. All other non-represented employees' Basic Plan
benefit will be based on the cash balance formula only. Directors
who are not employees are not eligible to participate in the Basic
Plan.
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan ("SERP") is a
noncontributory, nonqualified defined benefit plan that provides
additional retirement benefits to officers of the Company who have
obtained age 55 and who have 20 or more years of employment. The
Committee may grant exceptions to the age and service requirements.
The SERP provides a benefit equal to the greater of:
(i) 60% of base salary averaged over the final 36 months of
employment, reduced by benefits payable under the Basic Plan;
retirement benefits accrued during previous employment and
one-half of the maximum security benefit to which the
participant may be entitled at the time of retirement, or
(ii) benefits payable under the Basic Plan without regard to the
annual benefit limitations imposed by the Internal Revenue
Code.
Provided certain established criteria are met, participants in the
SERP may elect to receive their benefit in a lump sum payment.
The following table shows the maximum retirement benefit (adjusted
for Social Security) an officer can earn in aggregate under both
the Basic Plan and the SERP
<TABLE>
<CAPTION>
Annual Retirement Allowance
3-Year Average
Annual Salary
Years of Service 10* 15* 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$150,000 $21,090 $33,885 $ 81,762 $ 81,762 $ 81,762 $ 81,762
225,000 21,670 34,815 126,762 126,762 126,762 126,762
300,000 21,670 34,815 171,762 171,762 171,762 171,762
375,000 21,670 34,815 216,762 216,762 216,762 216,762
450,000 21,670 34,815 261,762 261,762 261,762 261,762
525,000 21,670 34,815 306,762 306,762 306,762 306,762
</TABLE>
*Basic Plan benefit only.
The benefit calculations assume the officer has selected a straight
life annuity and retired on December 31, 1998 at age 65. Annual
compensation limits ($150,000 in 1996; $160,000 for 1997 and 1998)
under a tax-qualified plan will reduce the benefit amount
collectible under the Basic Plan for some highly compensated
officers.
As of December 31, 1998, the persons named in the Summary
Compensation Table had the following estimated credited years of
benefit service for purposes of the pension program: Mr. Davis, 9
years; Mr. Budney, 4 years; Ms. Kerr, 26 years; Mr. Mueller, 3
years; and Mr. Lavine, 12 years.
Employee Agreements
The Company has entered into employment agreements with Messrs.
Davis, Budney, Lavine, Mueller and Ms. Kerr, which have a rolling
3-year term. In the event of a change in control (as defined in
the agreement), the agreement will remain in effect for a period of
at least 36 months thereafter unless a notice not to extend the
term of the agreement was given at least 18 months prior to the
change in control. The agreements provide that the executive will
receive a base salary equal to the executive's annual salary at the
effective date of the agreements or such greater amount determined
by the Company, that the executive will be able to participate in
the Company's incentive compensation plans and that the executive
is entitled to vacation, fringe benefits, insurance coverage and
other terms and conditions of the agreement as are provided to
employees of the Company with comparable rank and seniority. If
the executive has completed eight years of service and attained age
55 at the time of the executive's termination of employment, the
executive (and eligible dependents) will be entitled to coverage
for medical, prescription drug, dental and hospitalization benefits
for the remainder of the executive's life with all premiums
therefor paid by the Company. If an executive has completed eight
years of service but has not attained age 55 upon terminating
employment, such benefits will be provided when the executive
attains age 55.
The employment agreements also provide that the executive's
benefits under the SERP will be based on the executive's salary,
annual incentive awards and SIP awards, as applicable. Further, if
the executive's employment is terminated by the Company without
cause at any time, or by the executive for good reason after a
change in control (as such terms are defined in the agreement), or
after completing eight years of service, the agreements provide
that the executive will be deemed fully vested under the SERP
without reduction for early commencement. If the executive is
under age 55, the executive will be entitled to a fully vested SERP
benefit upon attaining age 55, without reduction for early
commencement.
If the executive's employment is terminated by the Company without
cause prior to a change in control, the executive will be entitled
to a lump sum severance benefit in an amount equal to two times the
executive's base salary plus an amount equal to two times the
greater of the executive's (i) most recent annual incentive award
or (ii) average annual incentive award paid over the previous three
years. In addition, the executive will receive a pro rata portion
of the incentive award which would have been payable to the
executive for the fiscal year in which termination of employment
occurs, provided that the executive has been employed for 180 days
in such fiscal year. The executive will also be entitled to
continued participation in the Company's employee benefit plans for
two years, coverage for the balance of the executive's life under a
life insurance policy providing a death benefit equal to 2.5 times
the executive's base salary at termination and payment by the
Company of fees and expenses or any executive recruiting or
placement firm in seeking new employment.
If, following a change in control, the executive's employment is
terminated by the Company without cause or by the executive for
good reason, the executive will be entitled to a lump sum severance
benefit equal to four times the executive's base salary. The
executive will also be entitled to the additional benefits referred
to in the last sentence of the preceding paragraph, except that
employee benefit plan coverage for medical, prescription drug,
dental and hospitalization benefits will continue for the remainder
of the executive's life with all premiums therefor paid by the
Company and coverage under other employee benefit plans will
continue for four years. In the event that the payments to the
executive upon termination of employment following a change in
control would subject the executive to the excise tax on excess
parachute payments under the Internal Revenue Code, the Company
will reimburse the executive for such excise tax (and the income
tax and excise tax on such reimbursement). In the event of a
dispute over an executive's rights under the executive's agreement
following a change in control of the Company, the Company will pay
the executive's reasonable legal fees with respect to the dispute
unless the executive's claims are found to be frivolous.
Proposal 2: Shareholder Proposal
The Benedictine Sisters, 530 Bandera Road, San Antonio, Texas
78240, who own 205__ shares of the Company's common stock, have
advised the Company that they intend to present the following
proposal at the 1999 Annual Meeting of Shareholders. The proposed
resolution and supporting statement are as follows:
"WHEREAS:
All leaders of industry in the United States now acknowledge their
obligation to pursue superior environmental performance and to
disclose information about that performance to their investors and
other stakeholders.
The integrity, utility, and comparability of environmental
disclosure depends on the creation of environmental reports that
employ a common format, use credible metrics, and follow a set of a
generally accepted environmental disclosure standards.
The Coalition for Environmentally Responsible Economies (CERES), a
ten year old partnership among some of the largest investors,
environmental groups, and corporations in the country, has
established what we believe is the most thorough and well-respected
environmental disclosure form in the United States.
CERES has also gathered leading international organizations,
including the United Nations Environment Programme, into a
collaborative Global Reporting Initiative to guide and accelerate
the worldwide trend toward standardized environmental reporting.
The CERES Principles and the CERES Report have already been adopted
by leading firms in highly diverse industries such as Bank America,
Baxter International, Bethlehem Steel, Coca-Cola, General Motors,
Interface, ITT Industries, Pennsylvania Power and Light, Polaroid,
and Sun Company.
We believe endorsing the CERES Principles commits a company to the
prudent oversight of its financial and physical resources through:
1) protection of the biosphere; 2) sustainable use of natural
resources; 3) waste reduction; 4) energy conservation; 5) risk
reduction; 6) safe products/services; 7) environmental restoration;
8) informing the public; 9) management commitment; 10) audits and
reports. (The full text of the CERES Principles and accompanying
CERES Report form are obtainable from CERES, 11 Arlington Street,
Boston Massachusetts 02116, (617) 247-0700 or at www.ceres.org).
RESOLVED: Shareholders request that the company endorse the CERES
Principles as a reasonable and beneficial component of their
corporate commitment to be publicly accountable for environmental
performance."
Statement of Shareholder
"Recent studies show that the integration of environmental
commitment into business operations provide competitive advantage
and improve long-term financial performance for companies. In
addition, the depth of a firm's environmental commitment and the
quality with which it manages its environmental performance provide
us with indicators of the foresight of its management.
Given investors' needs for credible information about a firm's
environmental performance, and given the large number of companies
that have already endorsed the CERES Principles and adopted its
report format, endorsement of the CERES Principles is a reasonable,
widely accepted step for any company wishing to demonstrate its
seriousness about superior environmental performance.
The goal of the CERES Principles is continuous improvement in
corporate environmental performance, coupled with public
accountability. One cannot measure improvement without having data
over time. Standardizing that data enables investors to assess
environmental progress within and across industries. By endorsing
the CERES Principles, a company agrees to a single consistent
standard for environmental reporting. An endorsing company works
with CERES and other endorsing companies in setting that reporting
standard.
Your vote FOR this resolution serves the best interests of our
Company and its shareholders."
Board of Directors' Response to the Shareholder Proposal
In 1991, the Company adopted the Corporate Policy on Protection of
the Environment that articulates the Company's proactive approach
toward environmental issues. The environmental policy takes the
Company beyond mere compliance with the law. In addition, its
comprehensive environmental management system has helped the
Company stay in the forefront of progress toward an environmentally
sustainable energy future.
Since adopting its policy in 1991, the Company has comprehensively
measured and reported on its environmental performance and has
engaged in benchmarking its environmental program against corporate
programs both within and outside of the utility industry. Such
benchmarking has consistently shown that the Company has a leading-
edge environmental program. In addition, the Company has been
recognized by a number of governmental and environmental
organizations for its environmental achievements, including its
proactive response to global warming, its leadership in
establishing environmental performance indices for the utility
industry, and other advanced strategic environmental management
practices.
Consistent with its policy of going beyond compliance, during 1997
the Company became the first utility in the U.S. to voluntarily
undertake and achieve full registration of its fossil and nuclear
generation portfolio to the newly adopted international quality
standard for Environmental Management Systems known as ISO 14001.
The registration process culminated in rigorous independent audit,
conducted by an accredited Registrar, which assessed each
facility's conformance to every element contained in the Standard.
This included effective implementation of the Company's
environmental policies and procedures, compliance with
environmental laws and regulation, commitments to pollution
prevention, continuous improvement, environmental performance
monitoring and measurement, and other aspects of demonstrated
adherence to the Standard. Further ISO 14001 registered facilities
are subject to ongoing formal semi-annual surveillance audits
performed by the Registrar, in order to maintain their Certificates
of Registration. It is the Company's intent to achieve an ISO
14001 certificate of registration for its Investment Recovery
operation in 1999.
Given its track record of dealing successfully with environmental
issues under its own corporate policy, the Company carefully
reviewed the CERES Principles and does not believe that adopting
the CERES Principles in lieu of, or in addition to, the Company's
existing environmental policy and programs, would help the Company
better fulfill its continuing commitment to environmental
performance excellence. The Company believes that its
environmental program provides the most specific and focused
approach to ensure that the Company is in compliance with all
applicable environmental regulations and to position itself as a
recognized leader for its environmental achievements.
Therefore, the Board of Directors recommends that you vote AGAINST
this proposal
Other Information
Deadline for Shareholder Proposals
Shareholders who want to have a proposal included in the Company's
proxy statement and proxy card for the 2000 Annual Meeting of
Shareholders must notify the Secretary of the Company. The
proposal must be received on or before Thursday, December 2, 1999
and should be addressed to:
Office of the Secretary
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202.
A shareholder must be a registered or beneficial owner of at least
one percent of the Company's outstanding common stock or stock with
a market value of $2,000 and the shareholder must continue to own
such stock through the date on which the meeting is held.
Shareholders who wish to present a proposal at the 1999 Annual
Meeting must notify the Secretary of the Company in writing not
less than 90 days nor more than 120 days before the annual meeting.
Director and Officer Liability Insurance
The directors and officers of the Company and its subsidiaries are
insured against obligations which may be incurred as a result of
the Company's indemnification of its directors and officers. The
coverage also insures the directors and officers against
liabilities for which they may not be indemnified by the Company or
its subsidiaries, except a dishonest act or breach of trust. The
insurance was purchased from the National Union Fire Insurance
Company, Associated Electric & Gas Insurance Services, Ltd.,
Executive Risk Indemnity, Inc., Federal Insurance Company, CAN
Insurance Company and ACE Insurance Company Ltd., for the term from
January 31, 1999, to January 30, 2000, for an aggregate premium of
$904,040.
Expenses of Solicitation
Niagara Mohawk retained D.F. King & Co. to assist in the
solicitation of proxies for the 1999 Annual Meeting of Shareholders
at a fee of approximately $12,000 plus out-of-pocket expenses. The
Company pays all costs of solicitation, including certain expenses
of brokers and nominees who mail proxy material to their customers
or principals. In addition to the use of the mail, proxies may be
solicited personally, by telephone or telegram or by the Company
officers and employees without additional compensation.
Independent Accountants
The Company has selected the independent accounting firm of
PricewaterhouseCoopers LLP to examine the financial statements of
the Company and its subsidiaries for the year ended December 31,
1999. Representatives of PricewaterhouseCoopers LLP will be
present at the meeting to make a statement if they wish to do so
and will be available to respond to appropriate questions.
Quarterly Reports
Shareholders who are not receiving quarterly reports directly from
the Company and who would like to receive the Company's quarterly
reports may write to:
Investor Relations
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Building C-3
Syracuse, NY 13202-7904.
By Order of the Board of Directors,
Kapua A. Rice
Secretary
March 31, 1999
FORM OF PROXY
(FRONT SIDE)
[LOGO]
NIAGARA MOHAWK HOLDINGS, INC.
IF YOU WISH TO VOTE BY TELEPHONE OR INTERNET, PLEASE READ THE
INSTRUCTIONS BELOW
Niagara Mohawk Power Holdings, Inc. encourages you to take
advantage of new and convenient ways to vote your shares on matters
to be covered at the 1999 Annual Meeting of Shareholders. Please
take the opportunity to use one of the three voting methods
outlined below to cast your ballot.
VOTE BY PHONE - 1-800-250-9081
Use any tough-tone telephone to vote your proxy 24 hours a day, 7
days a week. Have your proxy card in hand when you call. You will
be prompted to enter your Control Number, which is located below,
and then follow the simple prompts that will be presented to you to
record your vote.
VOTE BY INTERNET - http://www.votefast.com
Use the Internet to vote your proxy 24 hours a day, 7 days a week.
Have your proxy card in hand when you access the web site. You
will be prompted to enter your Control Number, and then you can
follow the simple prompts that will be presented to you to record
your vote.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the enclosed
postage-paid envelope or return it to: Corporate Election
Services, P.O. Box 3200, Pittsburgh, Pennsylvania 15230
If you vote by phone or by using the Internet, please do not mail
your proxy.
THANK YOU FOR VOTING
CONTROL NUMBER
ACCOUNT NUMBER
[PLEASE FOLD AND DETACH HERE]
Niagara Mohawk Holdings, Inc.
Please mark you votes as this X
The Board of Directors recommends a vote FOR Proposal 1:
1. Election of Directors to Class II:
Nominees: (1) William F. Allyn,
(2) William E. Davis, (3) William J. Donlon,
(4) Anthony H. Gioia, (5) Patti McGill Peterson
FOR WITHHOLD FOR ALL To withhold authority to vote, mark
ALL ALL EXCEPT: "For All Except" and write the
Nominees number on this line ________
The Board of Directors recommends a vote AGAINST Proposal 2:
2. Shareholder proposal requesting the Corporation to endorse the
CERES Principles.
3. To transact such other business as may properly come before
the meeting.
FOR AGAINST ABSTAIN
____ _____ ______
(Continued - To be dated and signed on other side)
(BACK SIDE)
ADMISSION CARD
Niagara Mohawk Holdings, Inc. Annual Meeting of Shareholders -
May 18, 1999 - 10:30 a.m
Name(s) Mr., Ms., Mr. & Mrs. _________________________________
(Please circle one)
Address ______________________________________________________
____Common Shareholder _____ Company employee
___Number of shares _____ Company retiree
of common stock
_____ Invited guest representing:
Social Security Number __________________________
_____________________ (Company,organization,etc.)
SARATOGA SPRINGS CITY CENTER, 522 BROADWAY, SARATOGA SPRINGS, NEW YORK
Dear Shareholder:
Please bring the above card to the Annual Meeting. It will
expedite your admittance when presented upon arrival.
Very truly yours,
Kapua Rice
Corporate Secretary
PLEASE FOLD AND TEAR HERE
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West, Syracuse, New York 13202
The undersigned appoints William E. Davis, Henry A. Panasci, Jr.,
Donald B. Riefler and Stephen B. Schwartz and each of them, proxies
of the undersigned, with full power of substitution to represent
and to vote, as designated on the reverse side, and on any other
business that may come before the meeting, all the shares of Common
Stock of the Corporation held of record by the undersigned on
March 22, 1999 at the Annual Meeting of Shareholders to be held on
May 18, 1999 and at any adjournment(s) thereof. Said proxies are
instructed to vote for or against proposals, as indicated by the
undersigned (or, if no indication is given, for Proposal 1 and
against Proposal 2).
(Please sign exactly as name appears hereon. When signing as
attorney, executor, administrator, trustee, guardian, etc., give
full title as such.)
Signature _______________Dated___________, 1999
Signature if held jointly _____________________
___Please check this box if you plan to attend
the Annual Meeting of Shareholders.
PLEASE MARK ON REVERSE SIDE, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE
