CENTRAL HUDSON GAS & ELECTRIC CORPORATION
284 SOUTH AVENUE
POUGHKEEPSIE, NEW YORK 12601-4879
March 1, 1999
To the Holders of Common Stock:
The annual meeting of shareholders will be held at the Corporation's office
in Poughkeepsie, N.Y. on April 27, 1999. A formal Notice of the Annual Meeting
and Proxy Statement are attached hereto.
We request that you sign, date and mail the enclosed proxy card promptly.
Prompt return of your voted proxy will reduce the cost of further mailings. You
may revoke your voted proxy at any time prior to the meeting or vote in person
if you attend the meeting.
Last year, proxies were received from shareholders representing 85% of the
outstanding common stock. We hope that an equally fine response will be
forthcoming this year.
You are cordially invited to attend the annual meeting in person. It is
always a pleasure for me and the other members of the Board of Directors to meet
with our shareholders. We look forward to greeting as many of you as possible at
the meeting.
John E. Mack III
CHAIRMAN OF THE BOARD
<PAGE>
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
284 SOUTH AVENUE
POUGHKEEPSIE, NEW YORK 12601-4879
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
To the Holders of Common Stock:
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of the
Central Hudson Gas & Electric Corporation will be held:
TIME ...................... 10:30 AM, on Tuesday, April 27, 1999
PLACE ..................... Office of the Corporation
284 South Avenue
Poughkeepsie, New York 12601
ITEMS OF BUSINESS ........ (1) To elect directors for the ensuing year;
(2) To ratify the appointment of
PricewaterhouseCoopers LLP as independent
accountants for the year 1999; and
(3) To take action upon any other matters that may
properly come before the Meeting
RECORD DATE ............... Holders of Common Shares of Record on the close of
business March 1, 1999 are entitled to vote at the
Meeting.
ANNUAL REPORT ............. The Annual Report and Form 10K of the Corporation
for 1998, which is not a part of the proxy
soliciting material, is enclosed.
PROXY VOTING .............. It is important that your Shares be represented and
voted at the Meeting. Please MARK, SIGN, DATE AND
RETURN PROMPTLY the enclosed proxy card in the
postage-paid envelope furnished for that purpose.
Any proxy may be revoked in the manner described in
the accompanying Proxy Statement at any time prior
to its exercise at the Meeting.
By Order of the Board of Directors,
STEVEN V. LANT
CHIEF FINANCIAL OFFICER, TREASURER
AND CORPORATE SECRETARY
March 1, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
Proxy Statement ........................................................... 1
Shareholders Entitled to Vote ............................................. 1
Proxies ................................................................... 1
Cost of Proxy Solicitation ................................................ 1
Submission of Shareholder Proposals ....................................... 1
Shareholder Communications ................................................ 1
Security Ownership of Directors and Officers .............................. 2
Section 16(a) Beneficial Ownership Reporting Compliance ................... 2
Ratification of Appointment of Independent Accountants .................... 2
Election of Directors ..................................................... 4
Board of Directors and Committees ......................................... 7
Meetings and Attendance ................................................... 7
Committee on Audit ........................................................ 7
Committee on Compensation/Interlocks and Inside Participation ............. 7
Compensation of Directors and Officers of the Board ....................... 7
Executive Compensation .................................................... 9
Summary Compensation Table ................................................ 9
Pension/Deferred Compensation Plans ....................................... 10
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements ....................................... 10
Report on Executive Compensation .......................................... 12
Performance Graph ......................................................... 15
Other Matters ............................................................. 16
<PAGE>
PROXY STATEMENT
The enclosed proxy is being solicited by the Board of Directors of the
Corporation for use in connection with the annual meeting of shareholders to be
held on April 27, 1999. This proxy statement and enclosed proxy are first being
sent to shareholders on or about March 1, 1999. The mailing address of the
principal executive office of the Corporation is 284 South Avenue, Poughkeepsie,
New York 12601-4879.
SHAREHOLDERS ENTITLED TO VOTE
The record of shareholders entitled to notice of, and to vote at, the
annual meeting was taken at the close of business on March 1, 1999. At that
date, the Corporation had outstanding 16,862,087 shares of Common Stock ($5.00
par value) of the Corporation ("Common Stock"). Each share of Common Stock is
entitled to one vote. No other class of securities is entitled to vote at this
meeting.
PROXIES
Any shareholder giving the enclosed proxy has the right to revoke it at any
time before it is voted. To revoke a proxy, the shareholder must file with the
Secretary of the Corporation either a written revocation or a duly executed
proxy bearing a later date.
The proxies given pursuant to this solicitation will be voted at the
meeting or any adjournment thereof. Abstentions and broker non-votes are voted
neither "for" nor "against," and have no effect on the vote, but are counted in
the determination of a quorum.
COST OF PROXY SOLICITATION
The cost of preparing, printing and mailing the notice of meeting, proxy,
proxy statement and annual report will be borne by the Corporation. Proxy
solicitation other than by use of the mail may be made by regular employees of
the Corporation by telephone and personal solicitation. Banks, brokerage houses,
custodians, nominees and fiduciaries are being requested to forward the
soliciting material to their principals and to obtain authorization for the
execution of proxies, and may be reimbursed for their out-of-pocket expenses
incurred in that connection. In addition, the Corporation has retained D.F. King
& Co., Inc. of New York, New York, a proxy solicitation organization, to assist
in the solicitation of proxies. The fee of such organization in connection
therewith is estimated to be $7,000, plus reasonable out-of-pocket expenses.
SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2000 annual
meeting of the Corporation [or the 2000 annual meeting of CH Energy Group, Inc.
("Holding Company"), if the Holding Company restructuring approved by the
shareholders in September 1998 is effected] to be included in the proxy material
relating to that meeting must be received by the Corporation, or the Holding
Company, as the case may be, by October 30, 1999.
SHAREHOLDER COMMUNICATIONS
Highlights of the 1999 annual meeting will be included on the Corporation's
website (www.cenhud.com) and in the Corporation's or the Holding Company's
August 1, 1999 Report to Shareholders.
Shareholders' comments related to any aspect of the Corporation's business
are welcome. Space for comments is provided on the proxy card given to
shareholders of record. Other shareholders may submit comments to the
Corporation, or to the Holding Company when the Holding Company restructuring is
effected, in care of the Chief Financial Officer, Treasurer and Corporate
Secretary. Although comments are not answered on an individual basis, they do
assist the Directors and management in addressing the needs of shareholders.
1
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table lists the number of shares of Common Stock beneficially
owned by all the directors, and nominees for election as directors, each
executive officer listed in the table under the caption "Executive Compensation"
and by all directors and executive officers of the Corporation as a group:
NO. OF % OF
NAME SHARES(1) CLASS(2)
- ----- --------- ------------
Jack Effron ................................... 2,725 Less Than 1%
Frances D. Fergusson .......................... 2,069 Less Than 1%
Heinz K. Fridrich ............................. 2,968 Less Than 1%
Edward F. X. Gallagher ........................ 2,506 Less Than 1%
Paul J. Ganci ................................. 9,701(3) Less Than 1%
Charles LaForge ............................... 4,085 Less Than 1%
John E. Mack III .............................. 11,638(3) Less Than 1%
Edward P. Swyer ............................... 8,325 Less Than 1%
Joseph J. DeVirgilio, Jr ...................... 1,483 Less Than 1%
Carl E. Meyer ................................. 1,658 Less Than 1%
Allan R. Page ................................. 2,685 Less Than 1%
All directors and executive officers
as a group (11 persons) ..................... 49,843 Less Than 1%
- ----------
(1) Based on information furnished to the Corporation by the directors and
executive officers as of December 31, 1998.
(2) The percentage ownership calculation for each owner has been made on the
basis that there are outstanding 16,862,087 shares of Common Stock on the
record date.
(3) Includes shares owned by the respective spouses of the named individuals as
follows: Mrs. Mack--873 shares and Mrs. Ganci--2,062 shares. The shares
owned by Mrs. Mack and Mrs. Ganci are considered to be beneficially owned
by Mr. Mack and Mr. Ganci, respectively, only for the purpose of this proxy
statement and the respective named individuals disclaim any beneficial
interest in such shares for all other purposes.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors and persons who own more than ten percent
of a registered class of the Corporation's equity securities ("Reporting
Persons") to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC") and the New York
Stock Exchange. Such Reporting Persons are required by SEC regulations to
furnish the Corporation with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to the Corporation and
written representations from the Corporation's officers and directors, all
requisite filings were made on a timely basis in 1998.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP
as independent accountants for the Corporation for the year 1999 and recommends
to shareholders ratification of such appointment.
The appointment of the independent accountants is approved annually by the
Board of Directors and is based on the recommendation of the Committee on Audit,
which reviews the qualifications of independent accountants and which reviews
and approves the audit scope, reasonableness of fees and also the types of
non-audit services for the coming year.
2
<PAGE>
While there is no legal requirement that this appointment be submitted to a
vote of shareholders for ratification, such action is being requested in
response to past suggestions by shareholders and also because the Board of
Directors believes that the selection of the independent accountants to audit
the books, records and accounts of the Corporation is of sufficient importance
to seek such ratification. If this action were not ratified, the Board of
Directors would, in due course and having regard for the requirements of an
orderly transition, select other independent accountants upon the recommendation
of the Committee on Audit.
Representatives of PricewaterhouseCoopers LLP will be present at the annual
meeting of shareholders and will have an opportunity to make a statement if they
desire to do so. They will be available to respond to appropriate questions.
3
<PAGE>
ELECTION OF DIRECTORS
Eight directors are to be elected by a plurality of the votes cast at the
annual meeting of shareholders by holders of shares entitled to vote. Such
directors shall hold office until the next annual meeting of shareholders or
until their successors are duly elected and qualify. Mr. John E. Mack III,
currently Chairman of the Board, has indicated that he will retire as Chairman
of the Board as of the date of the annual meeting of shareholders, April 27,
1999. If reelected by the shareholders at the annual meeting of shareholders,
Mr. Mack will continue as a director of the Corporation. It is the intention of
the Board of Directors to elect, effective April 27, 1999, Mr. Paul J. Ganci as
Chairman of the Board and Chief Executive Officer. The Board of Directors
proposes the following nominees, all of whom are now directors of the
Corporation, and recommends a vote in favor thereof:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT PERIOD OF
AND POSITIONS AND OFFICES WITH THE BUSINESS EXPERIENCE SERVICE AS
NAME AND AGE CORPORATION(1) DURING PAST FIVE YEARS(1) DIRECTOR BEGAN
- ------------- ---------------------------------- ------------------------- --------------
<S> <C> <C> <C>
Jack Effron ............ President of Efco Products, a Present positions 1987
65 bakery ingredients corporation;
[PHOTO] Chairman of the St. Francis
Health Care Foundation; Chairman
of the Chief Executive's Network
for Manufacturing of the Council
of Industry of Southeastern New
York Poughkeepsie, NY
Frances D. Fergusson ... President and Professor of Art, Present positions 1993
54 Vassar College; Member, Board of
[PHOTO] Trustees of the Ford Foundation
and Chair of its Education,
Media, Arts and Culture
Committee; Trustee of the Mayo
Foundation and Chair of its
Development Committee; Trustee of
Historic Hudson; Director, Marine
Midland Bank, N.A. and Chair of
its Personnel Committee
Poughkeepsie, NY
Heinz K. Fridrich ...... Courtesy Professor, University of Present position since 1988
65 Florida at Gainesville; Chairman April 1995; Courtesy
[PHOTO] of Committee on Audit Fernandina Professor, University of
Beach, FL Florida at Gainsville
since 1994; Board of
Trustees, Mount St. Mary
College
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT PERIOD OF
AND POSITIONS AND OFFICES WITH THE BUSINESS EXPERIENCE SERVICE AS
NAME AND AGE CORPORATION(1) DURING PAST FIVE YEARS(1) DIRECTOR BEGAN
- ------------- ---------------------------------- ------------------------- --------------
<S> <C> <C> <C>
Edward F. X. Gallagher . Owner of Gallagher Transportation Present positions 1984
65 Services, a group of companies
[PHOTO] engaged in the sale and leasing
of commercial motor vehicles, the
distribution of wholesale
automotive parts and the
operation, under the trade name
of Leprechaun Lines and Tours, of
several bus companies Newburgh,
NY
Paul J. Ganci .......... President and Chief Executive Present position since 1989
60 Officer of the Corporation August 1, 1998-
[PHOTO] Poughkeepsie, NY President and Chief
Operating Officer of
the Corporation,
December 1993-
July 31, 1998
Charles LaForge ........ President of Wayfarer Inns and Present positions 1987
68 owner of the Beekman Arms in
[PHOTO] Rhinebeck, NY; Trustee of Rondout
Savings Bank in Kingston, NY;
Trustee emeritus of the Culinary
Institute of America in
Poughkeepsie, NY Rhinebeck, NY
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT PERIOD OF
AND POSITIONS AND OFFICES WITH THE BUSINESS EXPERIENCE SERVICE AS
NAME AND AGE CORPORATION(1) DURING PAST FIVE YEARS(1) DIRECTOR BEGAN
- ------------- ---------------------------------- ------------------------- --------------
<S> <C> <C> <C>
John E. Mack III ....... Chairman of the Board of the Present positions since 1981
64 Corporation; Chairman of the August 1, 1998, except
[PHOTO] Executive, Finance and Retirement Chairman of the Board
Committees Poughkeepsie, NY and Chief Executive
Officer, December 1993,
-July 31, 1998
Edward P. Swyer ........ President of the Swyer Companies, Present position 1990
49 a real estate firm engaged in the
[PHOTO] construction, development and
management of commercial
properties in the Capital
District Region Albany, NY
</TABLE>
- -------
(1) Based on information furnished to the Corporation by the nominees as of
December 31, 1998.
IT IS THE INTENTION OF THE PERSONS NAMED IN THE PROXY FORM TO VOTE SUCH
PROXIES FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE. ALTHOUGH THE
BOARD OF DIRECTORS DOES NOT CONTEMPLATE THAT ANY OF THE NOMINEES WILL BE UNABLE
TO SERVE, SHOULD SUCH A SITUATION ARISE PRIOR TO THE MEETING, THE PROXIES WILL
BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS ACTING THEREUNDER.
6
<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
MEETINGS AND ATTENDANCE
During 1998, there were 12 meetings of the Board of Directors. All
directors attended at least 75% of the aggregate of the total number of Board
meetings and meetings of Committees of the Board on which they served. The
average attendance at all such meetings during 1998 was 93%.
The five standing Committees of the Board of Directors are the Committee on
Audit, the Committee on Compensation and Succession, the Executive Committee,
the Committee on Finance and the Retirement Committee. Information with respect
to the Committee on Audit and the Committee on Compensation and Succession is
set forth below.
COMMITTEE ON AUDIT
The members of this Committee are Messrs. Fridrich (Chairman) and LaForge
and Dr. Fergusson. The Committee had three meetings during 1998, which were
attended by representatives of the Corporation's independent accountants,
PricewaterhouseCoopers LLP. The Committee examines the adequacy of the
Corporation's internal audit activities, reviews the scope of the audit by
PricewaterhouseCoopers LLP and related matters pertaining to the examination of
the financial statements, reviews the nature and extent of any non-audit
services provided by the Corporation's independent accountants, consults at
least three times a year with them and makes recommendations to the Board of
Directors with respect to the foregoing matters as well as with respect to the
appointment of the Corporation's independent accountants.
COMMITTEE ON COMPENSATION AND SUCCESSION/INTERLOCKS AND INSIDER PARTICIPATION
The members of this Committee ("Compensation Committee") are Messrs. Effron
(Chairman) and Swyer and Dr. Fergusson. The Compensation Committee had three
meetings during 1998. The Compensation Committee considers and recommends to the
Board of Directors the compensation (and special terms, if any, of employment)
of directors, officers of the Board of Directors and the salaries of officers of
the Corporation. The Compensation Committee also considers and recommends to the
Board of Directors the candidates to be nominated for election to the Board and
candidates for appointment by the Board as officers of the Corporation. The
Compensation Committee is charged with receiving recommendations of nominees by
shareholders for election of the Board of Directors and reviewing and comparing
the qualifications of such nominees with those of other potential nominees. Any
shareholder desiring to submit the name of a nominee should send it, together
with a statement of the candidate's qualifications, to the Committee on
Compensation and Succession, c/o the Chief Financial Officer, Treasurer and
Corporate Secretary, Central Hudson Gas & Electric Corporation, 284 South
Avenue, Poughkeepsie, New York 12601-4879.
No Compensation Committee interlock relationship existed in 1998.
COMPENSATION OF DIRECTORS AND OFFICERS OF THE BOARD
Each non-employee member of the Board of Directors ("Outside Directors")
(Messrs. Mack and Ganci are employee-directors), receives an annual retainer of
$15,000, $750 for attendance at each meeting of the Board and $650 for
attendance at each meeting of any committee of the Board of which such director
is a member if such meeting is held on the same day as a meeting of the Board,
and $750 for such committee meeting if held on a day other than that on which a
Board meeting is held. Only Outside Directors serving as chairpersons of
Committees of the Board received additional annual compensation in 1998 as
follows: Mr. Effron, as Chairman of the Compensation Committee--$2,500; and Mr.
Fridrich, as Chairman of the Committee on Audit--$2,500.
7
<PAGE>
DIRECTORS DEFERRED COMPENSATION PLAN
The Corporation's Directors' Deferred Compensation Plan applies to Outside
Directors of the Corporation, and permits a director to elect at any time or
from time to time to defer all or part of such director's compensation for
services thereafter rendered to the Corporation. For purposes of such Plan,
compensation is defined to include the amount of money to be paid to the
director for serving as a member of the Board of Directors and any committee of
the Board, for serving as an officer of the Board of Directors and any committee
of the Board and for any other services rendered individually by agreement with
the Corporation. A director's compensation deferred in accordance with such Plan
is paid to said director (together with an interest equivalent computed by
applying monthly a rolling average of the United States Treasury Bill rate to
the amount of compensation then deferred from the time the compensation would
ordinarily have been paid until the time it is actually paid) at such time as
the director ceases being a member of the Board of Directors or at such other
time after ceasing to be a director as the director may specify when making the
original election to defer compensation. The commencement of such pay-out
period, however, must be at least one year after the effective date of such
election.
STOCK PLAN FOR OUTSIDE DIRECTORS
In response to suggestions by shareholders that at least a portion of
compensation of the Outside Directors of the Corporation be made in the form of
Common Stock, the Board of Directors adopted, effective January 1, 1996, a
"Stock Plan for Outside Directors" ("Stock Plan"). The Stock Plan is not only
responsive to shareholders' interests, but will also continue to enable the
Corporation to retain and attract qualified Outside Directors.
Pursuant to the terms of the Stock Plan, for each full quarterly period of
each year of service, an Outside Director is credited with 25 Share Equivalents
(a Share Equivalent being equal to one share of Common Stock). Generally, Share
Equivalents credited to an Outside Director are distributed quarterly to the
participant in the form of shares of Common Stock. In addition, when an Outside
Director ceases to be a director for any reason, other than removal for cause,
that director will receive, quarterly, 25 shares of Common Stock for each full
quarterly period (but not beyond 40 such periods) during which that director
served as an Outside Director, including periods prior to January 1, 1996;
however, no such distribution will be made after that director's death.
8
<PAGE>
EXECUTIVE COMPENSATION
The Summary Compensation Table set forth below includes compensation
information on the Chairman of the Board of the Corporation and each of the
Corporation's four most highly compensated executive officers whose salary in
1998 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2)
- --------------------------- ---- -------- --------- ---------------
<S> <C> <C> <C> <C>
John E. Mack III,...................................... 1998 $391,580 $36,000(3) $5,000
Chairman of the Board 1997 355,000 34,000(3) 4,750
1996 336,250 19,500(3) 4,750
Paul J. Ganci,......................................... 1998 322,500 22,800(3) 5,000
President and Chief Executive Officers 1997 280,250 21,280(3) 4,750
1996 263,250 10,200(3) 4,750
Carl E. Meyer,......................................... 1998 212,000 3,582(4) 5,000
Executive Vice President--Operations 1997 186,750 6,331(4) 4,750
1996 176,625 1,024(4) 4,750
Allan R. Page, ........................................ 1998 189,199 3,180(4) 5,000
Executive Vice President Energy Resources & 1997 165,750 6,331(4) 4,750
Development 1996 156,000 991(4) 4,750
Joseph J. DeVirgilio, Jr............................... 1998 162,870 2,925(4) 5,000
Senior Vice President Corporate Services & 1997 152,720 6,194(4) 4,750
Administration 1996 146,860 966(4) 4,750
</TABLE>
- ----------
(1) This base salary amount includes amounts deferred pursuant to the
Corporation's (i) Flexible Benefits Plan, which Plan is established
pursuant to Section 125 of the Internal Revenue Code of 1986, as amended
("Code") which permits those electing to participate to defer salary,
within specified limits, to be applied to qualified medical and/or child
care benefit payments and (ii) Savings Incentive Plan ("SIP"), a "defined
contribution" plan which meets the requirements of the Code, including Code
Section 401(k), which, among other things, permits, within limitations,
participants to tax-defer base salary, and, within limits, provides for
Corporation contributions to participants.
(2) These are amounts contributed by the Corporation for the benefit of the
named individual under the SIP.
(3) Compensation paid pursuant to the terms of the Corporation's Executive
Incentive Compensation Plan ("Executive Incentive Plan"), which terms are
more fully described below under the caption "Report on Executive
Compensation--Executive Incentive Plan".
(4) Compensation paid pursuant to the terms of the Corporation's Management
Incentive Plan, which terms are more fully described below under the
caption "Report on Executive Compensation--Management Incentive Plan."
9
<PAGE>
PENSIONS/DEFERRED COMPENSATION PLANS
RETIREMENT INCOME PLAN
The Corporation's Retirement Income Plan ("Retirement Plan") is a "defined
benefit" plan, which meets the requirements of the Code, and applies to all
employees of the Corporation. In 1998, there were no contributions made to the
Retirement Plan as a result of its full-funding status for Federal income tax
purposes. The Retirement Plan provides for retirement benefits related to the
participant's annual base salary for each year of eligible employment.
Retirement Plan benefits depend upon length of service, age at retirement and
earnings during years of participation in the Retirement Plan and any
predecessor plans. A participant's benefits under the Retirement Plan are
determined as the accumulation, over that participant's career, of a percentage
of each year's base salary. For periods on and after October 1, 1998, the
percentage is 2% of base salary, except that for years in which the participant
is over 50 years of age such percentage is increased to 2.5%. The Retirement
Plan also provides a benefit for service prior to October 1, 1998 based on a
percentage of a participant's average earnings at October 1, 1998 (being 50% of
each of the base salaries at October 1, 1995 and 1998 and 100% of each of the
base salaries at October 1, 1996 and 1997) and the number of years of service
while a member of the Retirement Plan prior to October 1, 1998, all subject to
certain limitations. A cash balance account benefit provided by the Corporation
is also available upon retirement under the Retirement Plan, which benefit,
generally, provides for a credit to those participants in the Retirement Plan,
on January 1, 1987, of 10% of their base salary on that date, a credit to those
participants in the Retirement Plan, on September 30, 1991, of 5% of their base
salary on that date and a further credit to those participants in the Retirement
Plan, on September 30, 1997, of 5% of their base salary on that date, with, in
all three cases, annual interest earned thereon. While the amount of the
contribution payment or accrual with respect to a specified person is not and
cannot readily be separately or individually calculated by the regular actuaries
for the Retirement Plan, estimated annual benefits under the Retirement Plan
upon retirement at age 65 for the individuals listed in the table under the
above caption "Executive Compensation", assuming continuation of present annual
salaries and giving effect to applicable benefit limitations in the Code, are as
follows: Mr. Mack--$130,000; Mr. Ganci--$130,000; Mr. Meyer--$128,685; Mr.
Page--$125,778 and Mr. DeVirgilio--$130,000.
RETIREMENT BENEFIT RESTORATION PLAN
Effective May 1, 1993, the Corporation adopted an unfunded, uninsured
pension benefit plan for a select group of highly compensated management
employees called the Retirement Benefit Restoration Plan ("RBRP"). The RBRP
provides an annual retirement benefit to those participants in the Retirement
Plan who hold the following offices with the Corporation: Chairman of the Board,
President and Chief Executive Officer, Vice President (including all levels
thereof), Secretary, Treasurer, Controller, and Assistant Vice President. Such
benefit is equal to the difference between (i) that received under the
Retirement Plan, giving effect to applicable salary and benefit limitations
under the Code and (ii) that which would have been received under the Retirement
Plan, without giving effect to such limitations under the Code. The individuals
listed in the table under the above caption "Executive Compensation" have a
current salary level which, if continued to retirement at age 65, would provide
a benefit under the RBRP. The estimated annual benefits under the RBRP upon
retirement at age 65 for those individuals, assuming the continuation of their
present salaries, are as follows: Mr. Mack--$110,415; Mr. Ganci--$85,175; Mr.
Meyer--$35,588; Mr. Page--$16,552.
EXECUTIVE DEFERRED COMPENSATION PLAN
The Corporation's Executive Deferred Compensation Plan ("EDCP") covers a
select group of highly compensated management employees as an incentive for them
to remain with the Corporation. Under that Plan, an annual benefit is payable,
commencing on retirement, to eligible participants (who retire at age 60 or
older and with 10 or more years of service) for 10 years of the following
percentage of annual base compensation at retirement: 60 to 63--10%; 63 to
65--15%; 65 or over -20%. In view of changes in the Code which became effective
January 1, 1994, the EDCP was amended prior thereto so that eligible
participants, who reached age 55 at Decem-
10
<PAGE>
ber 31, 1993, are considered to have accrued benefits under the EDCP as if they
were age 60 and had 10 years of service with the Corporation at December 31,
1993. Upon a Change in Control (as defined in the EDCP) of the Corporation, all
participants who have not then reached age 60 and 10 years of service with the
Corporation, shall be eligible to receive all accrued benefits at retirement as
if they had reached age 60 and had 10 years of service with the Corporation as
of the date of such change in control. No amounts were paid under the EDCP for
the individuals named in the table under the above caption "Executive
Compensation" for the year 1998. Estimated annual benefits under the EDCP upon
retirement at age 65 for such named individuals, assuming continuation of their
present annual salaries, are as follows: Mr. Mack--$80,000; Mr. Ganci--$67,000;
Mr. Meyer--$43,400; Mr. Page--$38,600; and Mr. DeVirgilio--$32,700.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On December 1,1998, the Corporation entered into Employment Agreements
(each, the "Agreement") with each of the individuals listed in the table under
the above caption "Executive Compensation" ("Officers"). Until a Change in
Control occurs, each Agreement is automatically renewed for one (1) year on each
July 31 commencing July 31, 1999, unless a notice not to extend is given. If a
Change in Control (defined in the Agreement) occurs during the term of an
Agreement, then the Agreement becomes operative for a fixed three-year period.
Upon a Change in Control, each Agreement provides generally that the
Officers' terms and conditions of employment (including position, location, base
salary, bonus and benefits) will not be adversely changed during the three (3)
year period after a Change in Control. If the Officer's employment is terminated
by the Corporation for reasons other than death, Cause or Disability (as those
terms are defined in each Agreement), by the Officer for Good Reason (as that
term is defined in each Agreement), by the Officer regardless of reason (during
the 30 day period beginning on the first anniversary of the Change in Control),
upon certain terminations prior to a Change in Control or in connection with or
in anticipation of a Change in Control, the Officer, in addition to all amounts
accrued to the date of his termination, will receive a lump-sum payment
("Lump-Sum Payment") equal to the sum of (i) the Officer's base salary through
the date of termination, (ii) a proportionate bonus based on the higher of the
Officer's most recent annual bonus and the Officer's annual bonus for the last
fiscal year ("Highest Annual Bonus"), (iii) accrued vacation and (iv) three (3)
times the sum of the Officer's base salary and the Officer's Highest Annual
Bonus. In addition, such Officers would be entitled to continued employee
welfare benefits and to credit for pension purposes for the three (3) years from
the date of such termination.
Mr. Ganci's Agreement is substantially identical to the other Officers,
except that it is modified to limit the term of his Agreement to his normal
retirement date, May 1, 2003. In addition, Mr. Ganci will not receive a Lump Sum
Payment if his employment is terminated at any time on or after a Change in
Control through May 1, 2003, by the Corporation, for reasons other than for
Cause or Disability, by Mr. Ganci for any reason, upon certain terminations
prior to a Change in Control or in connection with or in anticipation of a
Change in Control. In such case, he will receive all amounts accrued to the date
of his termination and will be treated as if he had retired on May 1, 2003 for
all employee welfare benefits of the Corporation. If Mr. Ganci's employment is
so terminated for any reason other than by the Corporation for Cause, Mr. Ganci
or his beneficiaries, as the case may be, will receive collective benefits under
the EDCP, the RBRP and the Retirement Plan as if Mr. Ganci had continued to be
employed through May 1, 2003, and as if his base salary and other cash
compensation had increased by 10% annually on each October 1 from the date of
his termination of employment to May 1, 2003.
In the event any payments made to any of the Officers on account of a
Change in Control, whether under an Agreement or otherwise, would subject the
Officer to the excise tax on certain "excess parachute payments" payable under
Code ss.4999, or interest or penalties with respect to such tax, the Officer
will be entitled to be made whole for the payment of any such taxes, interest or
penalties. Each Officer, while covered by an Agreement, is not entitled to
participate in the Corporation's Change-of-Control Severance Policy. In the
event of a Change in Control, the Agreements will supersede any individual
employment and/or severance agreements entered into by the Corporation with the
Officers, except in certain instances.
11
<PAGE>
Mr. Mack's Agreement will no longer be effective after April 27, 1999,
unless a Change in Control occurs on or before that date.
REPORT ON EXECUTIVE COMPENSATION
The following disclosure is made over the name of each Outside Director, on
the date hereof, and shall be considered a report of the Outside Directors and
the Compensation Committee:
As described above under the caption "Board of Directors and
Committees-Committee on Compensation and Succession/Interlocks and Insider
Participation," the members of the Compensation Committee are Messrs. Effron and
Swyer and Dr. Fergusson. Among the responsibilities of the Compensation
Committee are consideration and recommendation to the Board of Directors of the
salaries of officers of the Corporation. Annual salary determinations by the
Board of Directors become effective as of April 1 of each year and continue
until the following March 31.
COMPENSATION PHILOSOPHY
The Compensation Committee based its 1998 officers' compensation
recommendations to the Board of Directors on an evaluation of each of the
following three factors, giving balanced weight to each, which factors reflect a
long-standing executive compensation philosophy of the Corporation:
(1) Compensation comparisons of other comparable executive officers.
Comparisons are made to the compensation of officers of other New York
State utilities and of other utilities with revenues and other
characteristics similar to those of the Corporation, using data
received from the Edison Electric Institute and the American Gas
Association, which utilities are some, but not all, of the utilities
included on the graph under the below caption "Performance Graph."
And, every two years, an executive compensation study is performed by
an independent consultant engaged by the Corporation. The data
obtained by these various sources was evaluated and compensation
levels for the Corporation's officers were established based generally
on averages of comparative salary ranges.
(2) The experience, responsibility and contribution of each individual
officer to the Corporation's performance.
(3) The incumbent's performance in carrying out the responsibilities and
duties of his or her office, as described below:
The performance of each officer of the Corporation (other than Messrs. Mack
and Ganci, as discussed below) was also evaluated, by the Compensation
Committee, on the basis of how he or she contributed to the extent applicable,
to furthering the Corporation's mission:
to provide customers with safe, reliable utility service at the lowest
reasonable price;
to provide a competitive return to the Corporation's shareholders;
to provide a safe working environment that will attract, retain and
motivate employees; and
to provide corporate resources to enhance the quality of life in the
Corporation's service territory.
With the exception of (1) above, the performance criteria set forth above
for Mr. Mack and each other officer of the Corporation were subjectively
evaluated by the Board of Directors in its deliberations related to compensation
for each officer, based on an assessment of the degree to which each such
officer (i) met the criteria set forth in his/her position description and (ii)
accomplished the Corporation's strategic goals and objectives for which such
officers were responsible.
12
<PAGE>
SECTION 162(M) OF THE CODE
The Compensation Committee and the Board of Directors is aware of and has
considered the qualifying compensation regulations established in Section 162(m)
of the Code, which provides that, unless an appropriate exemption applies, a tax
deduction for the Corporation for remuneration of any officer named in the above
captioned--"Executive Compensation--Summary Compensation Table" will not be
allowed to the extent such remuneration in any taxable year exceeds $1 million.
As no officer of the Corporation received remuneration during the 1998 fiscal
year approaching $1 million, the Corporation has not developed an executive
compensation policy with respect to qualifying compensation paid to its
executive officers for deductibility under Section 162(m) of the Code.
MANAGEMENT INCENTIVE PLAN
The Management Incentive Plan, effective January 1, 1991, is a cash bonus
program which bases its awards on the Corporation meeting certain "Incentive
Goals," as such term is defined in that Plan. All management employees are
eligible to receive awards except for: (i) the Chairman of the Board (Mr. Mack),
the President and Chief Executive Officer (Mr. Ganci) and any other officer(s)
which the Chairman shall determine from time to time, (ii) temporary employees
and (iii) those employees whose employment is terminated in a year in which an
Incentive Award is made unless such termination is a retirement.
The Incentive Goal is established each fiscal year by the Board of
Directors. After the audited financial results of the Corporation for a fiscal
year have been made public, the Board of Directors of the Corporation determines
whether or not the Incentive Goal has been met for that fiscal year, which
determination is final. The resulting award is allocated among and paid to each
eligible management employee in the same proportion that each such employee's
compensation for the fiscal year bears to base compensation paid to all such
eligible management employees for that fiscal year.
EXECUTIVE INCENTIVE PLAN
The Executive Incentive Plan, established January 1, 1993 and applicable to
Mr. Mack, currently the Chairman of the Board, was amended, effective January 1,
1995, to include Mr. Ganci, currently the President and Chief Executive Officer.
The Executive Incentive Plan establishes the compensation for the
incumbents in such offices based on two components: annual base salary (which
becomes effective as of April 1 of each year and continues until the following
March 31) and an incentive feature (which provides an award, as noted below, for
performance for the most recently ended calendar year). The determination of
annual base salary and incentive compensation, if any, is determined by the
Outside Directors, for Mr. Mack and for Mr. Ganci, by the Outside Directors and
Mr. Mack.
Under the incentive component of the Executive Incentive Plan, Messrs. Mack
and Ganci have the opportunity to earn up to an additional 10% of their base
salaries, based on a formula which measures the Corporation's achievement of
goals within the following four categories: (i) shareholder value; (ii) level of
customer electric and gas prices and reliability; (iii) employee safety and (iv)
community involvement.
A determination as to whether any incentive compensation is earned is made
within 90 days after the end of each calendar year; and if an award is made,
compensation will be made in a lump sum within 30 days of such determination.
13
<PAGE>
BASE SALARY AND EXECUTIVE INCENTIVE COMPENSATION FOR THE CHAIRMAN OF THE BOARD
AND FOR THE CHIEF EXECUTIVE OFFICER
The performance of Mr. Mack, as Chairman of the Board and Chief Executive
Officer from April 1, 1998--July 31, 1998 and Chairman of the Board thereafter,
and of Mr. Ganci, as President and Chief Operating Officer from April 1,
1998--July 31, 1998 and President and Chief Executive Officer thereafter, were
evaluated by the Outside Directors, under the Executive Incentive Plan.
In establishing the annual base salary component for Mr. Mack under the
Executive Incentive Plan, which for the period April 1, 1998 to March 31, 1999
is $400,000, the Outside Directors reviewed Mr. Mack's and Mr. Ganci's
performance as Chief Executive Officer during 1998 related to their policies and
leadership in the goal of building a more profitable corporation and thereby
increasing shareholder value while providing reliable service at reasonable
prices. As a measure of this goal, their performance was evaluated pursuant to
the following criteria:
Has the confidence of the financial community and the Corporation's
shareholders been maintained and/or enhanced? Key financial indices, credit
ratings, total return to shareholders and the adequacy of cash flow are
significant quantitative factors.
Does the Corporation have effective management and other personnel so as to
assure a high quality of customer service and to meet the changing needs of
its customers?
Has the Corporation's physical plant and equipment been maintained and/or
improved so as to assure that the Corporation continues to meet its
objective of providing highly reliable utility service at the lowest
reasonable price?
Is the Corporation's strategic plan effective in keeping the Corporation
abreast of or ahead of changes that occur as a result of competition,
technology changes and new regulation?
With respect to the relationship of the Company's performance in 1997 to
Mr. Mack's base salary for 1998, the Outside Directors determined that
performance by Mr. Mack of his duties in 1997 more than satisfied the related
performance criteria, as described above. Not all of these performance criteria
lend themselves to objective measurement. However, in 1997 (i) the Corporation's
total return to shareholders was 49.1%, above the EEI peer group return of
29.3%, (ii) Central Hudson's residential electric prices were 20% lower than the
New York State Average, (iii) the Corporation's Employee Safety Index was lower
than the average of the prior five years, (iv) the Corporation demonstrated a
high level of involvement in the communities served. In addition, the
Corporation instituted its first common stock repurchase program to manage
growth in the common equity ratio above the target range, and the Corporation's
bond rating was increased from A- to A by Standard and Poor's, the first time
the Corporation had been so rated by Standard and Poor's since 1975.
Based on the recommendation of the Compensation Committee, the Board of
Directors, on April 1, 1998, awarded Mr. Mack 10% (or $36,000) of his 1997 Base
Salary as incentive compensation.
Mr. Mack did not participate in the determination of his 1998 compensation.
Mr. Ganci did not participate in the determination of either his or Mr. Mack's
1998 compensation.
Jack Effron
Frances D. Fergusson
Heinz K. Fridrich
Edward F. X. Gallagher
Charles LaForge
Edward P. Swyer
14
<PAGE>
PERFORMANCE GRAPH
The line graph set forth below provides a comparison of the Corporation's
cumulative total shareholder return on its Common Stock with the Standard &
Poor's 500 Index and, as a Corporation determined peer comparison, the EEI
Combination Gas and Electric Investor-Owned Utilities' Index ("EEI Index"). Such
shareholder return is the sum of the dividends paid and the change in the market
price of stock.
COMPARISON OF THE ORPORATION'S FIVE YEAR TOTAL
CUMULATIVE RETURN WITH THE S&P 500 INDEX AND
THE EEI INDEX
[The following table represents plot points for a line chart]
Central Hudson S&P 500 Index EEI Index
1993 100 100 100
1994 94 101 87
1995 118 139 111
1996 129 171 110
1997 192 229 143
1998 206 294 166
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
CENTRAL HUDSON 100 94 118 129 192 206
S&P 500 INDEX 100 101 139 171 229 294
EEI INDEX 100 87 111 110 143 166
- --------------------------------------------------------------------------------
- ----------
* Assumes $100 invested on January 1, 1993 in the Corporation's Common Stock,
the S&P 500 Index and the EEI Index
15
<PAGE>
OTHER MATTERS
The Board of Directors does not know of any matters to be brought before
the meeting other than those referred to in the notice hereof. If any other
matters properly come before the meeting, it is the intention of the persons
named in the form of proxy to vote such proxy in accordance with their judgment
on such matters.
Pursuant to Section 727(d) of the New York Business Corporation Law, notice
is hereby given to shareholders that the Company has provided Directors' and
Officers' Liability Insurance through various contracts. These contracts became
effective June 1, 1998 and provide aggregate coverage of $60 million with the
following carriers: Chubb Group of Insurance Companies, Associated Electric &
Gas Insurance Services, Ltd. and American Casualty Excess Insurance, Ltd.
The aggregate premium costs for this insurance, which covers the Company
and its directors and executive officers, are approximately $455,000, a decrease
of $128,000 when compared to 1997.
By Order of the Board of Directors,
Steven V. Lant
CHIEF FINANCIAL OFFICER, TREASURER AND CORPORATE SECRETARY
March 1, 1999
16
<PAGE>
P
R
O
X
Y
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
PROXY OF COMMON SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN E. MACK III, JACK EFFRON, HEINZ K. FRIDRICH
and PAUL J. GANCI, or any one or more of them, proxy, with full power of
substitution, to vote, as designated on the reverse hereof, all shares of Common
Stock owned by the undersigned at the annual meeting of shareholders of Central
Hudson Gas & Electric Corporation to be held at the office of the Corporation,
284 South Avenue, in the City of Poughkeepsie, Dutchess County, New York, on
April 27, 1999, or any adjournment thereof, upon all such matters as may
properly come before the meeting, including the following proposals described in
the Proxy Statement, dated March 1, 1999, a copy of which has been received by
the undersigned:
1. Election of Directors, Nominees:
Jack Effron, Frances D. Fergusson, Heinz K. Fridrich, Edward F. X. Gallagher,
Paul J. Ganci, Charles LaForge, John E. Mack III, Edward P. Swyer.
2. Ratification of Appointment of Independent Accountants.
Change of Address/Comments (If Any)
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
(If you have written in the above space, please mark the corresponding box on
the reverse side of this card)
SEE REVERSE
SIDE
FOLD AND DETACH HERE
ROUTE TO CENTRAL HUDSON
[Map Here]
FROM NEW YORK CITY AREA:
o Taconic State Parkway North to Interstate 84 (I-84)
o I-84 West to Exit 13 (Route 9)
o Turn right off ramp onto Route 9 North
o Route 9 approximately 12 miles to the Academy Street / South Avenue Exit
o Bear left at end of ramp and go under the overpass
o Turn right into Central Hudson entrance
FROM CONNECTICUT:
o I-84 West to Exit 13 (Route 9)
o Continue as above
FROM PENNSYLVANIA:
o I-84 East to Exit 13 (Route 9)
o Turn left off ramp onto Route 9 North
o Continue as above
FROM NEW JERSEY AND UPSTATE NEW YORK:
o New York Thruway (I-87) to Exit 18 (New Paltz)
o Turn right onto Route 299
o Route 299 approximately 5 miles, turn right onto route 9W South
o Route 9W approximately 2 miles, bear right for Mid-Hudson Bridge
o After crossing bridge, take first right (Route 9 South)
o Route 9 approximately 1 mile to Academy Street/South Avenue Exit
o Bear right off exit ramp into Central Hudson entrance
<PAGE>
1535
[X]
PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THE DIRECTORS RECOMMEND A VOTE "FOR" THIS ITEM
1. Election of Directors FOR WITHHELD
(see reverse)
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
THE DIRECTORS RECOMMEND A VOTE "FOR" THIS ITEM
2. Ratification of Appointment of PricewaterhouseCoopers LLP as Independent
Accountants
FOR AGAINST ABSTAIN
SPECIAL ACTION
If you plan to attend the Annual Meeting place an X in this box.
If you wish us to discontinue Annual Report mailing for this account, place an X
in this box. [ ]
If you indicated a change of address below or comments on reverse side, place an
X in this box. [ ]
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, ad-ministrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE (S) DATE
================================================================================
ADMISSION TICKET
Present this to the Central Hudson Representative at the
entrance to the auditorium
ANNUAL MEETING OF SHAREHOLDERS
April 27, 1999, 10:30 am
Office of the Corporation
284 South Avenue, Poughkeepsie, NY
================================================================================
AGENDA
ELECTION OF EIGHT DIRECTORS
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS
================================================================================
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING,
WHETHER OR NOT YOU ATTEND THE MEETING IN PERSON.
TO MAKE SURE YOUR SHARES ARE REPRESENTED,
WE URGE YOU TO COMPLETE AND MAIL THE PROXY CARD ABOVE.
================================================================================
IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK THE
APPROPRIATE BOX ON THIS SIDE OF THE PROXY CARD. PRESENT THIS
ADMISSION TICKET TO THE REPRESENTATIVE
AT THE ENTRANCE TO THE ANNUAL MEETING ROOM.
================================================================================
