<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
March 9, 1998
Re: NEES Companies Incentive Thrift Plan I
NEES Companies Incentive Thrift Plan II
Yankee Thrift Plan
Yankee Thrift Plan II
Dear NEES Shareholder:
----------------------
Under the thrift plans, NEES common shares are
held by the trustee. As beneficial owner of NEES
common shares through one or more of the plans, you
have a right to direct the trustee how to vote at the
1998 New England Electric System Annual Meeting of
shareholders. Shareholders who own NEES common shares
directly vote through a proxy. Plan participants have
a somewhat different procedure. Included in this
package is a voting instruction card on which you
instruct the trustee how to vote. Your share balance
in each of the plans in which you participate appears
at the top of the enclosed voting instruction card.
Please note that all of the shares in the plans must be
voted. Therefore, the trustee will vote shares for
which it does not receive instructions in the same
proportion as those for which it does.
We would appreciate your voting on the election of
directors and other matters as set forth in the
accompanying proxy statement. Please take the time to
review the proxy material, complete your voting
instruction card, and mail the card in the enclosed
envelope. Your voting instruction will be kept
confidential by an independent proxy tabulator.
Sincerely,
(Facsimile Signature) (Facsimile Signature)
Joan T. Bok Richard P. Sergel
Chairman President and
of the Board Chief Executive Officer
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
March 9, 1998
Dear Shareholder:
The directors and officers of New England Electric
System invite you to attend the Annual Meeting of
shareholders to be held on Tuesday, April 28, 1998, at
10:30 A.M. at Mechanics Hall at 321 Main Street in
Worcester, Massachusetts. The historic Mechanics Hall
building is handicapped accessible.
The business part of the meeting is fully
described in the accompanying Notice of Annual Meeting
and Proxy Statement. At the conclusion of the formal
portion of the meeting, there will be a discussion of
the Company's operations, followed by a question and
answer period.
We would appreciate your voting, signing, and
dating the proxy, and mailing it promptly in the
enclosed postage-paid envelope, even if you plan to
attend the meeting in person. Please enclose a note
if you would like to receive directions to the meeting
and information on parking arrangements.
Sincerely,
(Facsimile Signature) (Facsimile Signature)
Joan T. Bok Richard P. Sergel
Chairman President and
of the Board Chief Executive Officer
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
NOTICE OF ANNUAL MEETING
The 1998 Annual Meeting of the shareholders of New
England Electric System will be held at Mechanics Hall
at 321 Main Street in Worcester, Massachusetts, on
Tuesday, April 28, 1998, at 10:30 A.M., E.D.S.T., for
the following purposes, all as set forth in the
accompanying proxy statement:
1. To fix the number of directors;
2. To elect directors;
3. To consider and vote on two shareholder
proposals if presented at the meeting;
and
4. To transact such other business as may
properly come before the meeting or any
adjournment thereof.
Shareholders of record at the close of business on
March 9, 1998, will be entitled to vote at the meeting.
By order of the Board of Directors,
(Facsimile Signature)
Cheryl A. LaFleur,
Secretary
March 9, 1998
<PAGE>
PROXY STATEMENT
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
ANNUAL MEETING OF SHAREHOLDERS, APRIL 28, 1998
The Board of Directors of New England Electric
System is soliciting proxies in the accompanying form.
Proxies may be revoked at any time prior to being used
by completing a new proxy, by notifying the Company in
writing of such revocation, or by voting in person at
the Annual Meeting. All shares represented by properly
executed proxies will be voted at the Annual Meeting or
any adjournment thereof as specified in such proxies.
The Company's annual report for 1997, which
includes financial statements and a summary of
important developments during 1997, has been mailed to
shareholders on or about March 10, 1998. The
approximate date on which the proxy statement and form
of proxy are first being sent is March 18, 1998.
Holders of common shares of record at the close of
business on March 9, 1998, are entitled to vote at the
Annual Meeting. At that date there were 64,178,488
common shares outstanding and each share is entitled to
one vote.
An affirmative vote of a majority of the shares
present in person or represented by proxy at the
meeting and entitled to vote is required for approval
of each of the items being submitted to the
shareholders for their consideration. Votes for
directors will be counted by the Company as (i) For or
(ii) Withhold Authority; abstentions have the same
effect as "Withhold Authority" votes. Votes concerning
other matters will be counted by the Company as (i)
For, (ii) Against, or (iii) Abstain; abstentions are
counted separately, but have the same effect as
"Against" votes. Broker nonvotes (shares held by
brokers or nominees as to which instructions have not
been received from the beneficial owners and the broker
or nominee does not have discretionary voting power on
the particular matter) are counted as not represented
at the meeting for all matters.
<PAGE>
1. FIXING THE NUMBER OF DIRECTORS
The Board of Directors recommends a vote IN FAVOR
of this proposal.
The persons named on the accompanying proxy will
vote, unless otherwise directed, to fix the number of
directors at thirteen. The Company's Agreement and
Declaration of Trust provides that the Board may fix
the number of directors at a number between eleven and
sixteen until the next annual meeting of shareholders.
2. ELECTION OF DIRECTORS
The persons named on the accompanying proxy will
vote, unless otherwise directed, for the election of
the thirteen nominees listed below as directors of the
Company. All of the elected directors will hold office
until the next annual meeting of shareholders or the
special meeting held in lieu thereof and until their
respective successors are chosen and qualified.
All of the nominees for election as directors,
except Messrs. Houston and Sergel, were elected
directors by the shareholders at the 1997 Annual
Meeting. Messrs. Houston and Sergel were elected
directors by the Board of Directors effective February
6, 1998, upon Mr. Rowe's resignation as director,
president, and chief executive officer of the Company
to become chairman, president, and chief executive
officer of Chicago-based Unicom Corporation and its
subsidiary Commonwealth Edison.
The Company knows of no reason why any of the
nominees would be unable to act as a director, but, if
any of them should become unavailable to serve, the
persons named on the accompanying proxy have the
authority to vote for any other person nominated and
recommended by the Nominating Committee. If an
alternative nominee is not recommended by the
Nominating Committee, the number of directors will be
reduced.
Certain information regarding each nominee for
director is given below. This information has been
furnished to the Company by the respective nominees.
<PAGE>
Joan T. Bok Director since 1979
Chairman of the Board. Mrs. Bok, 68 years of age,
was elected Chairman in 1984 and held that
position through 1993, when she was elected
Chairman of the Board. From July 1988 until
February 1989, she also served as President and
Chief Executive Officer. Until December 31, 1997,
Mrs. Bok served as a director of each of the
Company's direct subsidiaries, including
Massachusetts Electric Company, The Narragansett
Electric Company, and New England Power Company.
Mrs. Bok has announced her intention to retire as
Chairman of the Board in April 1998 but is seeking
re-election as a director. She is a director of
Avery Dennison Corporation, John Hancock Mutual
Life Insurance Company, and Solutia, Inc., and is
a Trustee of the Boston Athenaeum and the Urban
Institute.
William M. Bulger Director since 1996
President of the University of Massachusetts,
Boston, Massachusetts. Mr. Bulger, 64 years of
age, served as President of the Massachusetts
State Senate from July 1978 to January 1996. He
also serves as a director of Citizens Bank and is
a Trustee of Massachusetts General Hospital, the
Boston Public Library, and the Museum of Fine
Arts. He is a corporator of the Children's Museum
and the Winsor School and is on the board of
overseers of the Boston Symphony Orchestra.
Alfred D. Houston Director since 1998
Executive Vice President. Mr. Houston, 57 years of
age, has served as Executive Vice President of the
Company since 1994 and as Chief Financial Officer
from 1984 to 1998. He was Senior Vice President
from 1987 to 1994. He is an officer or director
of a number of the Company's subsidiaries,
including The Narragansett Electric Company and
New England Power Company. The Board of Directors
has previously announced its intention to elect
Mr. Houston as Chairman in April 1998. Mr.
Houston is a Trustee of the Boston Ballet, Nichols
College, and the Massachusetts Taxpayers
Foundation.
<PAGE>
Paul L. Joskow Director since 1987
Professor of Economics and Management and
Chairman, Department of Economics, Massachusetts
Institute of Technology, Cambridge, Massachusetts.
Professor Joskow, 50 years of age, teaches and
conducts research in the fields of industrial
organization, government regulation, antitrust law
and economics, and energy economics. He was named
Chairman of the Economics Department in 1994.
Professor Joskow is a director of State Farm
Indemnity Company and a Trustee of the Putnam
Funds. He is also a director of the Whitehead
Institute for Biomedical Research, President of
the Yale University Council, and a Special
Consultant to National Economic Research
Associates, Inc.
John M. Kucharski Director since 1989
Chairman and Chief Executive Officer of EG&G,
Inc., Wellesley, Massachusetts. Mr. Kucharski, 62
years of age, is a director of State Street Boston
Corporation and Nashua Corporation. He also
serves as Trustee of George Washington University
and Marquette University.
Edward H. Ladd Director since 1974
Chairman of Standish, Ayer & Wood, Inc.
(investment counselors), Boston, Massachusetts.
Mr. Ladd, 60 years of age, is a director of
Harvard Management Company and Greylock Management
Company. He is also a Trustee of Wheelock
College and an Overseer of Beth Israel Deaconess
Hospital.
Joshua A. McClure Director since 1978
Former President of American Custom Kitchens,
Inc., Providence, Rhode Island. Mr. McClure, 66
years of age, is a director of the Westerly
Pawcatuck YMCA and the North End Crime Watch and
Community Development Corporation. He is also a
member of the Building Committee of the Westerly
Senior Center, and a director of the Washington
County Housing Authority.
<PAGE>
George M. Sage Director since 1975
President and Treasurer of Bonanza Bus Lines,
Inc., Providence, Rhode Island. Mr. Sage, 66 years
of age, is a director of Collette Travel, Inc. and
the American Bus Association. Mr. Sage also
serves as a director of United Way of Southeastern
New England and is a director and member of the
Executive Committee of Business Development of
Rhode Island. He is also a Trustee of St. Andrew's
School.
Richard P. Sergel Director since 1998
President and Chief Executive Officer. Mr. Sergel,
48 years of age, was elected President and Chief
Executive Officer of the Company in February,
1998. From 1996 to 1998, he served as Senior Vice
President and from 1992 to 1995, he served as Vice
President of the Company. He is a director of a
number of the Company's subsidiaries, including
Massachusetts Electric Company and The
Narragansett Electric Company. Mr. Sergel is a
director of United Way of Merrimack Valley and the
Lowell Plan.
Charles E. Soule Director since 1994
Retired President and Chief Executive Officer of
Paul Revere Insurance Group, Worcester,
Massachusetts. Mr. Soule, 63 years of age,
retired as President and Chief Executive Officer
of Paul Revere Insurance Group, a subsidiary of
Textron, Inc. in 1997, a position he held since
1990. Mr. Soule is Executive in Residence at The
American College. Mr. Soule also serves as a
Trustee for the Westboro Savings Bank. He was a
member of the Massachusetts Electric Company Board
of Directors from 1991 to 1993.
Anne Wexler Director since 1981
Chairman of The Wexler Group (management
consultants), Washington, D.C. The Wexler Group
is a subsidiary of Hill and Knowlton. Ms. Wexler,
68 years of age, served as Assistant to the
President of the United States from 1978 to 1981
with responsibility for liaison with the business
community and other major interest groups. She is
a director of Alumax, Inc., Comcast Corporation,
Dreyfus Index Funds, Dreyfus Mutual Funds, NOVA
Corporation, and Wilshire Target Funds Inc.
<PAGE>
James Q. Wilson Director since 1982
Professor Emeritus of Management at The University
of California at Los Angeles, Los Angeles,
California. Professor Wilson is 66 years of age.
He is a director of State Farm Insurance Company
and Protection One, Inc. and a Trustee of the
American Enterprise Institute, the RAND
Corporation, and the Randolph Foundation.
James R. Winoker Director since 1991
Chief Executive Officer of Belvoir Properties,
Inc. (real estate investment), Providence, Rhode
Island. Mr. Winoker, 66 years of age, has served
as Chief Executive Officer of Belvoir Properties,
Inc. since 1994. He was Treasurer of Belvoir
Properties, Inc. from 1980 to 1994 and President
of B.B. Greenberg Co. (jewelry manufacturers) from
1970 to 1994. A receiver was appointed for B.B.
Greenberg Co. in 1994. Mr. Winoker is also a
director of Original Bradford Soap Works, Inc.
BOARD STRUCTURE AND COMPENSATION
The Company has an Executive Committee, an Audit
Committee, a Compensation Committee, a Corporate
Responsibility Committee, and a Nominating Committee.
The committee memberships listed below are as of March
1, 1998.
The members of the Executive Committee are Mrs.
Bok, Mr. Houston, Mr. Joskow, Mr. Ladd, Mr. Sage, Mr.
Sergel and Ms. Wexler. Mrs. Bok serves as the Chairman
of this Committee. During the intervals between
meetings of the Board of Directors, the Executive
Committee has all the powers of the Board that may be
delegated.
The members of the Audit Committee are Messrs.
Bulger, Joskow, Soule, and Winoker. Mr. Joskow serves
as the Chairman of this Committee. The Audit Committee
reviews with the independent public accountants the
scope of their audit and management's financial
stewardship for the current and prior years. This
Committee also recommends to the Board of Directors the
independent public accountants to be engaged for the
coming year.
<PAGE>
The members of the Compensation Committee are Mr.
Kucharski, Mr. Sage, and Ms. Wexler. Mr. Sage serves
as the Chairman of this Committee. The Compensation
Committee is responsible for executive compensation,
including the administration of certain of the
Company's incentive compensation plans.
The members of the Corporate Responsibility
Committee are Mrs. Bok, Mr. McClure, Mr. Sergel, Mr.
Wilson, and Mr. Winoker. Mr. Wilson serves as the
Chairman of this Committee. The Corporate
Responsibility Committee reviews compliance with laws
and regulations, offers guidance in considering public
policy issues, and helps to assure ethical conduct.
The members of the Nominating Committee are
Mr. Joskow, Mr. Ladd, Mr. Sage, and Ms. Wexler. Mr.
Ladd serves as Chairman of this Committee. The
Nominating Committee functions as a Corporate
Governance Committee and also considers and evaluates
director candidates, determines criteria and procedures
for selecting nonmanagement directors, and conducts
periodic reviews of director performance. This
Committee also considers written recommendations from
shareholders for nominees to the Board.
The Chairman of the Executive Committee receives
an annual retainer of $12,000. Other members of the
Executive Committee, except Messrs. Houston and Sergel,
receive an annual retainer of $5,000. The Chairmen of
the Audit, Compensation, Corporate Responsibility, and
Nominating Committees each receive an annual retainer
of $6,000. Other members of the Audit, Compensation,
and Corporate Responsibility Committees, except Mr.
Sergel, receive annual retainers of $4,000. There is
no retainer for the other members of the Nominating
Committee. All directors participating in a Committee
meeting, except Messrs. Houston and Sergel, receive a
meeting fee of $1,000 plus expenses.
Members of the Board of Directors, except Messrs.
Houston and Sergel, receive annually a retainer of
$20,000 and 300 common shares of the Company and
receive a meeting fee of $1,000 plus expenses for each
meeting attended.
The Company permits directors to defer all or a
portion of any cash retainers, meeting fees, and
retainer shares under a deferred compensation plan. At
the end of the deferral period, the compensation is
paid out in the same form, cash or shares, as was
deferred. Deferred shares do not have voting rights or
other rights associated with ownership while deferred.
<PAGE>
A special account is maintained on the Company's books
showing the amounts deferred and the interest accrued
thereon. Group life insurance of $80,000 is provided
to each member of the Board of Directors. Director
contributions to qualified charities are matched by the
Company under a matching gift program, which has a
maximum limit of $3,500.
Pursuant to a director retirement plan,
nonemployee directors who have served on the Board of
the Company for 5 years or more will receive a
retirement benefit upon the later of the director's
retirement from the Board or age 60. The benefit level
is 100% of the annual cash retainer for directors who
served on the Board for 10 or more years and 75% of the
annual cash retainer for directors who served between
5 and 10 years. There are no death benefits under the
plan.
The Board of Directors held 9 meetings in 1997.
The Executive, Audit, Compensation, Corporate
Responsibility, and Nominating Committees held 2, 3, 3,
3, and 2 meetings, respectively, in 1997. All
directors attended at least 75% of the aggregate number
of meetings of the Board of Directors and the
committees of which they were members.
During 1997, Mr. Joskow did consulting work for
the Company or subsidiaries of the Company under a
separate consulting contract for which he was paid
approximately $30,000. These consulting services were
not related to his duties as a Board member.
During 1997, Mrs. Bok served as a consultant to
the Company. Under the terms of her contract, she
received a retainer of $100,000. Mrs. Bok also served
as a director for each of the Company's direct
subsidiaries during 1997. She agreed to waive the
normal fees and annual retainers otherwise payable for
services by nonemployees on these boards and received
in lieu thereof a single annual stipend of $60,000.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Mr. Winoker served as a member of the Company's
Compensation Committee for a portion of 1997. Mr.
Winoker is Chief Executive Officer of Belvoir
Properties, Inc. (Belvoir). A subsidiary of the
Company entered into a three-year lease for office
<PAGE>
space in 1996 with Belvoir with an annual rent of
$34,000. Belvoir also leases two parcels of land in
Providence, Rhode Island from a subsidiary of the
Company under a twenty-year lease with an initial
annual rent of approximately $60,000.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Under the securities laws, the Company's officers
and directors are required to file reports on Forms 3,
4, and 5 of share ownership and changes in share
ownership with the Securities and Exchange Commission
and New York Stock Exchange. Based solely on its
review of copies of such forms, it appears that all
directors and officers filed all of their required
forms on a timely basis, with two exceptions. Mr. Sage
inadvertently filed one form late reporting the
purchase of 400 shares of the Company and Mr. Winoker
inadvertently was late in reporting one purchase of 500
shares of the Company.
TOTAL COMMON EQUITY BASED HOLDINGS
The following table lists the holdings of Company
common shares and deferred shares by the Company's
directors, the executive officers named in the Summary
Compensation Table, and for directors and all executive
officers as a group. The information includes all
whole shares beneficially owned, directly or
indirectly, as of March 2, 1998.
<PAGE>
<TABLE>
<CAPTION>
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents(b) Total
- ---- ----------- -------------- -------
<S> <C> <C> <C>
Joan T. Bok 13,605 13,605
William M. Bulger 100 1,272 1,372
Alfred D. Houston 13,688 11,558 25,246
Michael E. Jesanis 4,000 5,847 9,847
Paul L. Joskow 2,829 313 3,142
John M. Kucharski 2,800 2,800
Edward H. Ladd 6,475 6,475
Cheryl A. LaFleur 3,191 5,787 8,978
Joshua A. McClure 2,461 307 2,768
John W. Rowe (c) 14,823 25,355 40,178
George M. Sage 4,000 4,000
Richard P. Sergel 8,086 8,313 16,399
Charles E. Soule 1,270 5,201 6,471
Anne Wexler 2,629 2,629
James Q. Wilson 3,508 3,508
James R. Winoker 2,300 2,300
All of the above and
other executive
officers, as a group 97,363 (d) 69,882 167,245
(18 persons)
<FN>
(a) Number of shares beneficially owned includes: (i) shares directly
owned by certain relatives with whom directors or officers share voting
or investment power; (ii) shares held of record individually by a
director or officer or jointly with others or held in the name of a
bank, broker, or nominee for such individual's account; (iii) shares in
which certain directors or officers maintain exclusive or shared
investment or voting power whether or not the securities are held for
their benefit; and (iv) with respect to the
executive officers of the Company, allocated shares in the Incentive
Thrift Plan described below.
(b) Deferred share equivalents are held under the Company's Deferred
Compensation Plan or pursuant to individual deferral agreements. Under
the Plan or deferral agreements, executives may elect to defer cash
compensation and share awards. There are various deferral periods
available under the plans. At the end of the deferral period, the
compensation is paid out in the same form, cash or shares, as was
deferred. The rights of the executives to payment are those of
general, unsecured creditors. While deferred, the shares do not have
voting rights or other rights associated with ownership. As cash
<PAGE>
dividends are declared, the number of deferred share equivalents will
be increased as if the dividends were reinvested in the Company's
common shares. Deferred share equivalents for directors are held under
the Directors Deferred Compensation Plan. See Board Structure and
Compensation for a description of that plan.
Potential share awards under the Long-Term Performance Share Award Plan
are not included in this table.
(c) Mr. Rowe, former President and Chief Executive Officer, resigned
effective February 6, 1998.
(d) Amount is less than 1% of the total number of shares of the Company
outstanding.
</FN>
</TABLE>
SHARE OWNERSHIP GUIDELINES
The Company has long recognized the importance of consistent
alignment of executive interests with those of shareholders. In
1995, the Compensation Committee of the Board voted that it is
expected that executives will own shares or share equivalents to
certain minimum levels within five years of being subject to the
requirement. For Mr. Sergel, the level is 40,000 shares. For Mr.
Houston, the level is 25,000 shares. For the other executives
listed in the Executive Compensation Summary Table, the level is
7,000 to 15,000 shares. Other executives are expected to hold from
2,000 to 7,000 shares depending on their compensation levels and
bonus plans. In 1996, the Board of Directors voted that members of
the Board were expected to own 2,500 shares within five years of
being subject to that requirement.
To further reinforce the importance of executive share
ownership, all shares awarded to Company officers under the
Incentive Share and the Long-Term Performance Share Award Plans,
described below, are restricted for five years, unless deferred, at
the officer's option, until termination of service or ten years.
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Listed below is the only person or group known to the Company
as of March 9, 1998 to beneficially own 5% or more of the Company's
common shares. However, T. Rowe Price Trust Company disclaims
beneficial ownership of all such shares. The quantity of shares
listed below is as of December 31, 1997.
<PAGE>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Common Shares
- --------------------------- ----------------- -------------
T. Rowe Price Trust Company 5,377,414 shares 8.3%
100 East Pratt Street as trustee for
Baltimore, MD 21202 Company employee
benefits plans,
including those
discussed herein.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
To the Shareholders of
New England Electric System:
As members of the Compensation Committee (the Committee) of
the Board of Directors (the Board), we have the responsibility for
executive compensation, including the administration of certain of
the Company's incentive compensation plans.
The Company's total compensation package is designed to
attract, retain, and reward superior managers who are committed to
solid financial performance and who successfully can lead the
Company as our industry becomes increasingly competitive. The
compensation package reflects the fact that these managers'
backgrounds are not necessarily limited to our Company or industry.
Total compensation consists of Base Salary, Incentive Compensation
(performance based, at risk compensation), and Benefits. The
Committee periodically reviews each component of the Company's
executive compensation program to ensure that pay levels and
incentive opportunities are competitive and that incentive
opportunities are linked to Company performance. The Company's
general compensation philosophy is that (1) the Base Salary ranges
should be competitive, with individual salaries reflecting
performance and experience; (2) a significant portion of management
compensation should be tied to achievement of corporate goals in
order to maintain a sharp focus on corporate performance; (3)
substantial portions of incentive compensation should be in shares
so as to consistently align the interest of management and the
Company's shareholders and customers; and (4) an ever higher
percentage of total compensation should be at risk and share-based
as one moves upward through management. The compensation of the
Chief Executive Officer, Mr. Rowe in 1997 and Mr. Sergel in 1998,
is based on these considerations.
As discussed below, the incentive compensation plans are being
restructured to reflect the new focus of the Company during and
following divestiture.
<PAGE>
Compensation Decisions
- ----------------------
The Board votes the compensation of the Chief Executive
Officer and Mr. Houston, acting upon recommendations of the
Committee. The Committee reports its decisions to the Board.
After meeting in executive session without any Company officers
present and discussing the reports made by the Committee, the Board
unanimously has accepted each of the recommendations described
below made in 1997 and to date in 1998. The Committee also votes
the compensation of all other Company executive officers listed in
the Summary Compensation Table, as well as other senior employees.
The Board has ratified the compensation decisions for these
executive officers. Although Company management may be present
during Committee discussions of officers' compensation, Committee
decisions with respect to the compensation of Mr. Rowe were reached
in executive session.
Under Section 162(m) of the Internal Revenue Code, tax
deductions are limited for compensation above $1 million, not
including amounts deferred. Mr. Rowe's total compensation of
$898,435 in cash and $152,206 in deferred shares for 1997 exceeded
$1 million. Given the mandatory deferral of his plan share
bonuses, the Internal Revenue Code provisions do not currently
impact the Company. Total compensation for each of the other
executive officers is below the $1 million threshold. The
Committee has not, therefore, had to address issues related to
Section 162(m) and does not expect to in the near future, but will
continue to monitor these issues.
Base Salary
- -----------
Base Salary levels are established after consideration of the
appropriate market to determine the salary range for a position.
Extensive salary survey analyses are compiled annually and
presented to the Committee for review. Salary ranges are then
defined on the basis of those market surveys. These surveys may
include some of the same companies included in incentive
compensation plan comparisons or in the corporate performance
chart.
In November 1997, after consideration of multiple surveys
prepared by various consulting organizations and industry groups,
and taking into account the continued outstanding performance of
the Company and Mr. Rowe's leadership in the restructuring of the
electric utility industry, the Committee recommended the base
salary for Mr. Rowe be set at $625,200 for 1998. This would have
placed Mr. Rowe somewhat above the 50th percentile in the
compensation surveys. The Board adopted this recommendation.
<PAGE>
On February 10, 1998, upon Mr. Rowe's resignation as President
and Chief Executive Officer of the Company, the Committee
considered the appropriate compensation for Messrs. Sergel and
Houston in view of their new responsibilities. The Committee
reviewed information developed from multiple compensation surveys
for the 50th percentile for corporations in the same revenue range
as the Company. This data was further stratified between the
utility industry and general industry. The Committee considered
the relative experience and past performance of, and our future
expectations for, Messrs. Houston and Sergel, the historical
compensation levels in the Company for their new positions, and
comparative salary data presented to us. We further reviewed the
Company's compensation philosophy as to the relative values for
base salary, incentive compensation, and benefits. We then
recommended the base salaries for Mr. Houston and for Mr. Sergel be
set at $450,000 per year, effective February 1, 1998. As described
below, we determined an appropriate change in control agreement for
Mr. Sergel and supplemental insurance annuity benefits for Mr.
Houston. The Board adopted our recommendations.
In November 1997, the Committee reviewed the performance of
each individual in the compensation group below the Chief Executive
Officer, and, after the Committee's subjective analysis of their
performance and discussion with the Chief Executive Officer, we set
the salaries for these individuals.
Performance Based Incentive Compensation
- ----------------------------------------
Performance Based Incentive Compensation (at risk compensation
or bonus) is designed to deliver rewards above base salary, if the
Company and the individual executives perform well.
Annual Target Plans
-------------------
For 1997, the incentive components of the annual target
compensation plans were based on formulae with defined threshold
targets. Under the formulae, in order for any plan bonuses to be
awarded, the Company must achieve a return on equity that places
the Company in the top 50% of the approximately 80 electric
utilities in the national utility group (the national grouping) or
in the top 50% of the New England/New York regional utilities (the
regional grouping). See the Return on Equity graph, below. The
Board, in response to extraordinary events, may enhance or curtail
the actual return on equity used to determine whether the Company
met the targets. The Board did not do so for 1997. On February
24, 1998, the Committee voted the bonuses under these plans.
For the maximum incentive to be awarded, the Company had to
achieve a return on equity in the top 25% of both the national and
<PAGE>
regional groupings and the Company's cost per kilowatt-hour must be
the lowest or next lowest of a selected group of New England
electric utilities. In 1997, if only one of the return on equity
targets had been met, Mr. Rowe and Mr. Houston would have received
a formula bonus of 12% of base pay in cash and 7.2% in shares. The
maximum would have been 50% of base pay in cash and 30% in shares.
Based on the performance described below, their formula bonus (cash
and shares) was 42.5% of base pay in cash and 25.5% in shares.
For purposes of determining the bonus amount for 1997, the
Company placed in the 79th percentile in return on shareholder
equity of the national grouping and first in the regional grouping.
The Company placed third in the regional grouping with respect to
lowest customer cost per kilowatt-hour in 1997.
No bonus awards would have been made under the plans if
earnings were not sufficient to cover dividends, even if the return
on equity targets had been met.
Mr. Rowe's and Mr. Houston's bonuses under the plan were
directly related to achievement of the above described corporate
targets. For 1997, the incentive compensation plan bonuses of the
other executives were additionally dependent upon the achievement
of individual goals.
The participants in the incentive compensation plans are
awarded common shares of the Company under the Incentive Share
Plan, approved by the shareholders in 1990. No discretion is
exercised by the Committee in the awarding of shares generated by
the formulae. An individual's award of shares under the Incentive
Share Plan is a fixed percentage of her or his cash award for that
year from the incentive compensation plan in which she or he
participates. For Mr. Rowe and Mr. Houston, the percentage was
60%. If no cash award is made, no shares are distributed under the
formulae. Further, total plan awards of shares in any calendar
year cannot exceed one-half of one percent (0.5%) of the number of
outstanding shares at the end of the previous calendar year. (The
incentive plan shares awarded, including those restricted or
deferred, for 1997 were approximately .06% of the number of
outstanding shares.) As noted above under Share Ownership
Guidelines, the share awards of Company officers were restricted.
New Annual Target Plans
-----------------------
Over several meetings in 1997, the Committee considered the
appropriate structure of the annual bonus plans. We decided to
replace the existing plans because: the Company is shifting from a
vertically integrated utility to being primarily a transmission and
distribution company; the Company's strategic plan calls for new
business development in competitive new areas; and comparative
return on equity and cost per kilowatt-hour measurements will
<PAGE>
become increasingly less representative as the prime measures of
success as different utilities proceed through competitive
transitions at different times and at different rates.
The incentive compensation plans therefore were revised to
reflect the achievement of core business operating income and
strategic objectives. Annual income targets will be established by
the Board of Directors prior to or early in the plan year. In
addition, strategic objectives will be established for each year.
For 1998 those objectives are: achieving recovery of stranded
investments; maximizing the return on the sale of the generation
business; running the best wires business in the Northeast;
increasing the size of the energy delivery business; and profiting
from growth in unregulated ventures.
Participants in the senior plan and other principal System
officers will share all five of these objectives. Other
participants may have some but not all of these objectives
depending upon their responsibilities within the Company.
Benchmarks have been established for each of the strategic
objectives. The Committee retains the discretion to adjust the
benchmarks as it deems necessary in response to unanticipated
events during the year. For Messrs. Sergel and Houston,
achievement of the operating income target would provide a formula
bonus of 15% to 25% of base pay. Achievement above that target and
achievement of all strategic objectives in full would produce an
award of 50% of base pay in cash and 30% in shares.
Special Bonus Awards
--------------------
In its review of Company performance in 1997 as part of its
evaluation of the annual target plans, the Committee noted the
strong earnings of the Company in a very difficult year, the
success achieved to date in meeting the strategic objectives,
particularly those relating to the recovery of stranded investment
and maximizing the return from the sale of the generation business,
and recommended to the Board special cash bonuses of $147,000 to
Mr. Houston and $126,000 to Mr. Sergel. We also voted the special
bonuses to other officers which are reflected in the compensation
table.
Three-Year Target Plan
----------------------
In order to increase executive focus on multi-year
performance, in 1995 the Company established the Long-Term
Performance Share Award Plan described below. No payout was made
in 1997 nor will be made under this plan until the Spring of 1999.
Under this plan, awards are based upon various measures of
Company performance over a three-year period. Each award factor or
measurement functions independently. The factors change from year
<PAGE>
to year and include financial and operating performance. The
factors may be related to those in the incentive plans. The factors
are established by the Committee at the beginning of each cycle.
All participants share the same factors and factor weights.
Performance is rated on rolling three-year periods, with a new
cycle beginning each year. An individual's potential award under
the plan is a fixed percentage of her or his base pay on January 1
of the first year of the plan measurement period. For Mr. Rowe,
that percentage was 50%. Under the terms of this plan, Mr. Rowe
forfeited his allocated shares as a result of his resignation.
Percentages for other executives range from 15% to 50%. No
dividends accrue on the allocated shares until awarded. At the end
of the three-year cycle, the participant receives actual shares
based upon the performance against the various factors. For
example, for the first cycle, 20% of the shares are dependent upon
total shareholder return compared to other regional utilities. See
Estimated Future Payouts under Non-Stock Price-Based Plans, below.
Benefits
- --------
The executive benefits are designed both to provide a
competitive package and to retain Company flexibility in staffing
management to meet changing conditions.
Respectfully submitted,
New England Electric System Compensation Committee
John M. Kucharski
George M. Sage
Anne Wexler
CORPORATE PERFORMANCE
Total Return
The following graph shows total shareholder return for the
Company (capital appreciation plus reinvested dividends) for the
years 1992 through 1997, as compared to the Standard & Poor's 500
Index and the Edison Electric Institute (EEI) Index of 100
investor-owned electric companies, assuming the investment of $100
on December 31, 1992.
<PAGE>
<TABLE>
<CAPTION>
NEES S & P 500 EEI Index
---- --------- ---------
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 107.25 110.08 111.15
1994 94.06 111.53 98.29
1995 124.27 153.44 128.78
1996 116.71 188.67 130.32
1997 152.60 251.61 166.00
</TABLE>
Note: The share price performance shown on the graph above is
not necessarily indicative of future price performance.
<PAGE>
Return on Equity
The following graph shows the return on equity of Company common
shares for the years 1993 through 1997 compared to a national
grouping of approximately 80 electric utilities and a regional
grouping of utilities in the New York and New England area. As
discussed in the report of the Compensation Committee, return on
equity has been a key driver of the Company's incentive
compensation program.
<TABLE>
<CAPTION>
NEES National Regional
Grouping Grouping
---- -------- --------
<S> <C> <C> <C>
1993 12.6% 11.9% 11.4%
1994 12.7% 11.4% 11.4%
1995 12.8% 11.7% 10.4%
1996 12.6% 11.4% 11.1%
1997 12.8% 10.9% 10.6%
</TABLE>
Note: The earnings performance shown on the graph above
is not necessarily indicative of future
performance.
<PAGE>
EXECUTIVE COMPENSATION
The following table gives information with respect to all
compensation for services in all capacities for the Company and its
subsidiaries for the years 1995 through 1997 to or for the benefit
of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compen-
Annual Compensation (b) sation
----------------------- ---------
Other Restricted
Name and Annual Share All Other
Principal Salary Bonus Compensa- Awards Compensa-
Position (a) Year ($) ($)(c) tion ($)(d) ($)(e) tion ($)(f)
- ------------ ---- ------ ------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard P. 1997 244,893 242,020 8,764 51,043 781
Sergel, 1996 212,700 110,724 5,366 138,376 3,535
President and 1995 184,956 139,373 4,877 0 3,424
Chief Executive
Officer
(elected 2/6/98)
John W. Rowe, 1997 597,600 285,692 12,599 152,206 2,544
Former President 1996 537,600 287,896 9,093 370,288 4,891
and Chief 1995 537,600 427,213 9,568 0 4,750
Executive
Officer
Alfred D. 1997 345,072 314,028 9,616 88,573 1,836
Houston, 1996 335,016 167,306 6,265 182,267 4,649
Executive Vice 1995 262,800 177,663 5,753 0 4,180
President
Cheryl A. LaFleur 1997 176,388 192,437 6,827 37,768 335
Senior 1996 165,624 89,477 4,059 106,020 3,251
Vice President, 1995 125,616 107,617 116 0 2,721
General Counsel
and Secretary
Michael E. 1997 164,736 188,213 7,399 31,866 320
Jesanis, Senior 1996 153,995 80,070 4,007 101,376 3,218
Vice President 1995 140,784 85,703 275 27,718 3,012
and Chief
Financial Officer
</TABLE>
<PAGE>
(a) Officers of the Company also hold various
positions with subsidiary companies.
Compensation for these positions is included in
this table.
(b) Includes deferred compensation in category and
year earned.
(c) The bonus figures represent: cash bonuses under
an incentive compensation plan; the all-employee
goals program; the variable match of the
Incentive Thrift Plan including related deferred
compensation plan matches; special cash bonuses;
and unrestricted shares under the Incentive Share
Plan. See descriptions under Plan Summaries.
In 1996 and 1997, the bonus amounts were all cash
or contributions to the Incentive Thrift Plan,
including related deferred compensation plan
matches. In 1995, Mr. Sergel's bonus was $96,649
in cash and contributions and $42,724 in shares;
Mr. Rowe's bonus was $276,728 in cash and
contributions and $150,485 in shares; Mr.
Houston's bonus was $123,160 in cash and
contributions and $54,503 in shares; Ms.
LaFleur's bonus was $84,370 in cash and
contributions and $23,247 in shares; and Mr.
Jesanis's bonus was $85,703 in cash and
contributions and $27,718 in shares.
(d) Includes amounts reimbursed by the Company for
the payment of taxes on certain noncash benefits
and Company contributions to the Incentive Thrift
Plan that are not bonus contributions including
related deferred compensation plan match. See
description under Plan Summaries.
(e) The incentive share awards for the named
executives made for 1996 and 1997 were in the
form of restricted shares (with a five-year
restriction) or deferred share equivalents,
deferred for receipt for at least five years, at
the executive's option. As cash dividends are
declared, the number of deferred share
equivalents will be increased as if the dividends
were reinvested in shares. See also Payments
Upon a Change in Control below. The shares
awarded for 1995 were not restricted and the
value of the awards is included in the bonus
column.
<PAGE>
As of December 31, 1997, the following executive
officers held the amount of restricted and
deferred share equivalents with the value
indicated: Mr. Sergel 8,698 shares, $371,840
value; Mr. Rowe 28,380 shares, $1,213,245 value;
Mr. Houston 11,689 shares, $499,705 value; Ms.
LaFleur 5,890 shares, $251,798 value; and Mr.
Jesanis 6,233 shares, $266,461 value. The value
was calculated by multiplying the closing market
price on December 31, 1997, by the number of
shares.
No awards vested during 1997 under the Company's
Long-Term Performance Share Award Plan. See Long
Term Incentive Plan - Awards in Last Fiscal Year.
(f) Includes Company contributions to life insurance.
See description under Plan Summaries. The life
insurance contribution is calculated based on the
value of term life insurance for the named
individuals. The premium costs for most of these
policies have been or will be recovered by the
Company. Prior to 1997, this column also
included Company contributions to the Incentive
Thrift Plan that are not bonus contributions.
These figures are now included in the Other
Annual Compensation column.
PAYMENTS UPON A CHANGE OF CONTROL OR TERMINATION OF
EMPLOYMENT
The Company has agreements with certain of its
executives, including those named in the Summary
Compensation Table, which provide severance benefits in
the event of certain terminations of employment
following a Change in Control of the Company (as
defined below). The terms of the agreements are for
three years with automatic annual extensions, unless
terminated by the Company. If, following a Change of
Control, the executive's employment is terminated other
than for cause (as defined) or if the executive
terminates employment for good reason (as defined), the
Company will pay to the executive a lump sum cash
payment equal to three times (two times for some
executives) the sum of the executive's most recent
annual base compensation and the average of his or her
bonus amounts for the prior three years. If Mr. Sergel
receives payments under his severance agreement that
would subject him to any federal excise tax due under
section 280G of the Internal Revenue Code, he will
receive a cash "gross-up" payment so he would be in the
same net after-tax position he would have been in had
<PAGE>
such excise tax not been applied. In addition, the
Company will provide disability and health benefits to
the executive for two to three years, provide such
post-retirement health and welfare benefits as the
executive would have earned within such two to three
years, and grant two or three additional years of
pension credit.
Change in Control, including potential change of
control, occurs (1) when any person becomes the
beneficial owner of 20% of the voting securities of the
Company, (2) when the prior members of the Board no
longer constitute a 2/3 majority of the Board, or (3)
the Company enters into an agreement that could result
in a Change in Control.
Upon a change in control a participant in the
deferred compensation plan has the option of receiving
a full distribution of the participant's cash and share
accounts and the actuarial value of future benefits
from the insurance related benefits under a prior plan,
all less 10%.
The Company's bonus plans, including the incentive
compensation plans described in the Compensation
Committee report, the Incentive Thrift Plan, and the
Goals Program, provide for payments equal to the
average of the bonuses for the three prior years in the
event of a Change of Control. These payments would be
made in lieu of the regular bonuses for the year in
which the Change in Control occurs. The Long-Term
Performance Share Award Plan provides for a cash
payment equal to the value of the performance shares in
the participant's account times the average
achievement percentage for the Incentive Thrift Plan
for the three prior years. The Company's Retirees
Health and Life Insurance Plan has provisions
preventing changes in benefits adverse to the
participants for three years following a Change in
Control. The Incentive Share Plan and related
Incentive Share Deferral Agreements provide that, upon
the occurrence of a change in control (defined more
narrowly than in the other plans), any restrictions on
shares and account balances would cease.
In light of the changes in the utility industry,
the Company has determined that executive officers
(including those listed in the Summary Compensation
Table, but excluding Messrs. Houston and Sergel) would
receive a benefit equal to one and one-half times
annual compensation, for a severance other than one for
cause or following a change in control.
<PAGE>
PLAN SUMMARIES
A brief description of the various plans through
which compensation and benefits are provided to the
named executive officers is presented below to better
enable shareholders to understand the information
presented in the tables shown earlier. The general
provisions of the incentive compensation plans are
described in the report of the Compensation Committee.
The amounts of compensation and benefits provided to
the named executive officers under the plans described
below are presented in the Summary Compensation Table.
Goals Program
The Goals Program establishes goals annually. For
1997, these goals related to earnings per share,
customer costs, safety, absenteeism, demand-side
management results, generating station availability,
transmission reliability, environmental and OSHA
compliance, and customer satisfaction. Some goals
apply to all employees, while others apply to
particular functional groups. Depending upon the
number of goals met, and provided the minimum earnings
goal is met, employees may earn a cash bonus of 1% to
4-1/2% of their compensation.
Incentive Thrift Plan
The Incentive Thrift Plan (a 401(k) program)
provides for a match of 40% of up to the first 5% of
base compensation contributed to the Company's
Incentive Thrift Plan (shown under Other Annual
Compensation in the Summary Compensation Table) and,
based on an incentive formula tied, in 1997, to
earnings per share, may fully match the first 5% of
base compensation contributed (the additional amount,
if any, is shown under Bonus in the Summary
Compensation Table). Under Federal law, contributions
to these plans are limited. In 1997, the contribution
amount was limited to $9,500.
Deferred Compensation Plan
The Deferred Compensation Plan offers executives
the opportunity to defer base pay and bonuses. The
plan offers the option of investing at the prime rate
or in Company shares; however, share bonuses may only
be deferred in a share account. Under Federal law, the
Incentive Thrift Plan, described above, is required to
limit participant base compensation to $160,000 in
calculating the Company match. Under the Deferred
Compensation Plan, the Company will make a contribution
<PAGE>
to an executive's share account equivalent to the
resultant reduction in his match under the Incentive
Thrift Plan.
Life Insurance
The Company has established for the named
executive officers life insurance plans funded by
individual policies. The combined death benefit under
these insurance plans is three times the participant's
annual salary. These plans are structured so that,
over time, the Company should recover the cost of the
insurance premiums.
After termination of employment, Messrs. Rowe and
Houston may elect, commencing at age 55 or later, to
receive an annuity income equal to 40% of final annual
salary for Mr. Rowe and 22.5% of 1998 annual salary
plus 40% of final annual salary for Mr. Houston. In
that event, the life insurance is reduced over fifteen
years to an amount equal to the participant's final
annual salary. Due to changes in the tax law, this
plan was closed to new participants, and an alternative
was established with only a life insurance benefit.
Financial Counselling
The Company pays for personal financial
counselling for senior executives. As required by the
IRS, a portion of the amount paid is reported as
taxable income for the executive. Financial
counselling is also offered to other employees through
seminars conducted at various locations each year.
Other
The Company does not have any share option plans.
LONG TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
The following table shows the potential awards,
for those executive officers named in the Summary
Compensation Table, under the Long-Term Performance
Share Award Plan (more fully described in the
Compensation Committee Report on page ___) for the
performance cycle commencing January 1, 1997. The
Company's performance will be measured over the three-
year period ending December 31, 1999.
<PAGE>
Estimated Future Payouts
under Non-Stock Price-Based Plans
----------------------------------
Number of
Common
Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
- ---- ----------- --------- --------- ------
Richard P. Sergel 3,266 3 years 20 3,266
John W. Rowe (d) 8,617 3 years 0 0
Alfred D. Houston 4,976 3 years 30 4,976
Cheryl A. LaFleur 2,543 3 years 15 2,543
Michael E. Jesanis 1,188 3 years 7 1,188
(a) Amounts are denominated in common share units. No dividends
are attributable to share units. At the end of the cycle,
awards are paid either in shares or in cash (valued at the
five-day average price prior to the January 15 following the
close of the performance cycle).
(b) The awards in this column represent the threshold number of
shares that could be earned if the minimum attainment level is
reached for one factor. The minimum payout upon failure to
achieve any of the goals would be 0.
(c) The awards in this column represent the target (and maximum)
number of shares that could be earned if the maximum
performance is achieved for all factors.
(d) Upon Mr. Rowe's resignation in February 1998, he became
ineligible to receive any award under the Long-Term
Performance Share Award Plan.
The Long-Term Performance Share Award Plan provides awards
based on various measures of Company performance over a three-year
period. Each award factor functions independently. The
performance targets for each cycle are set by the Compensation
Committee. The measures of performance for the cycle commencing
January 1, 1997 are as follows: total shareholder return compared
to the national group (60th-75th percentile); total shareholder
return compared to the regional group (50th-75th percentile);
maintenance or improvement of bond ratings; new business
development; growth of transmission and distribution business; and
system service levels, measured by system reliability and
regulatory compliance. The national grouping is composed of
approximately 80 electric utilities. The regional grouping is
composed of New England/New York regional utilities.
<PAGE>
RETIREMENT PLANS
The following chart shows estimated annual benefits payable to
executive officers under the qualified pension plan and the
supplemental retirement plan, assuming retirement at age 65 in
1998.
<TABLE>
PENSION PLAN TABLE
<CAPTION>
FIVE-YEAR 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
AVERAGE SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
COMPENSATION
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 60,300 87,500 114,700 141,100 167,500 184,100
$ 400,000 81,000 117,500 154,000 189,600 225,100 241,600
$ 500,000 101,700 147,600 193,500 238,100 282,700 311,000
$ 600,000 122,400 177,600 232,900 286,600 340,300 374,500
$ 700,000 143,100 207,700 272,300 335,100 397,900 437,900
$ 800,000 163,800 237,700 311,700 383,600 455,500 501,400
$ 900,000 184,500 267,800 351,100 432,100 513,100 564,800
$1,000,000 205,200 297,800 390,500 480,600 570,700 628,300
$1,100,000 225,900 327,900 429,900 529,100 628,300 691,700
$1,200,000 246,600 357,900 469,300 577,600 685,900 755,200
$1,300,000 267,300 388,000 508,700 626,100 743,500 818,700
$1,400,000 288,000 418,000 548,100 674,600 801,100 882,100
</TABLE>
For purposes of the retirement plans, Mr. Sergel, Mr. Rowe,
Mr. Houston, Ms. LaFleur, and Mr. Jesanis currently have 19, 20,
35, 12, and 15 credited years of service, respectively.
Benefits under the pension plans are computed using formulae
based on percentages of highest average compensation computed over
five consecutive years. The compensation covered by the pension
plan includes salary, bonus, and incentive share awards. Long-Term
Performance Share Awards will not be included. The benefits listed
in the pension table are not subject to deduction for Social
Security and are shown without any joint and survivor benefits. If
the participant elected at age 65 a 100% joint and survivor benefit
with a spouse of the same age, the benefit shown would be reduced
by approximately 16%.
The pension plan table above does not include annuity payments
to be received in lieu of life insurance for Messrs. Rowe and
Houston. Those payments are described above under Plan Summaries.
<PAGE>
The Company covers the full cost of post-retirement health
benefits for the senior executives listed in the Summary
Compensation Table.
3. SHAREHOLDER PROPOSAL REGARDING SPLITTING OF SHARES
Mr. Robert A. Ritchie, 116 Castletown Road, Timonium,
Maryland 21093, beneficial owner of 2,028 shares of the Company,
has stated his intention to present a proposal concerning the
splitting of the Company's shares for consideration by the
shareholders at the Annual Meeting.
The Board of Directors is opposed to Mr. Ritchie's proposal
for the reasons set forth below.
The following are the text of the proposal and supporting
statement supplied by Mr. Ritchie:
Resolved:
That the shareholders of New England Electric System recommend
that the Board of Directors take the necessary action to authorize
a split of outstanding NEES common shares.
Supporting Statement:
Recently, Ford Investor Services of San Diego studied the
effects of stock splits on underlying stock prices over a 20-year
time period. They discovered that stocks split two-for-one showed
excess performance over both six-month and one year holding periods
compared with stocks that were not split. This finding is not
surprising in view of the fact that a two-for-one stock split would
reduce the then current price of NEES common shares by about 50%,
thus making the stock more attractive and affordable to all
potential investors -- particularly to individual investors who
directly hold about 46 percent of all stocks. Current
shareholders, of course, would benefit by receiving one additional
common share from NEES for each share owned before the effective
date of a two-for-one split.
As previously stated by NEES in its mailing of February 21,
1986, which dealt with its last (1986) two-for-one stock split:
"The share split will not alter the proportionate ownership
interest of any shareholder, as each such shareholder now owns
twice as many shares." In addition, NEES noted: "The share split
will not result in any gain or loss for federal income tax
purposes."
Finally, most investors view stock splits positively as an
indication that the Board of Directors of a company is a
progressive one -- striving to increase investors' interest and
stockholders' equity in the company.
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote AGAINST the proposal.
The Board of Directors periodically considers whether to split
the Company's common shares. In fact, the Board did take the
necessary actions to split the Company's shares in 1986. The
Company notes that a share split may not always result in increased
liquidity and market price of shares. In addition, while a stock
split may lower the brokerage costs for new shareholders, existing
shareholders may have to pay higher brokerage fees to carry out
transactions in the split shares. A share split is also costly to
carry out.
With the pending sale of its nonnuclear generation business,
the Board feels that a share split would be unwise at this time.
The Company is in the process of transforming itself from an
electric utility system offering generation, transmission and
distribution services to a "wires" company delivering electricity
and entering new unregulated businesses. The Company monitors
all the relevant financial information and will continue to
evaluate if and when it is appropriate to split the shares.
4. SHAREHOLDER PROPOSAL REGARDING CHARITABLE CONTRIBUTIONS
Mr. John Jennings Crapo, P. O. Box 151, Cambridge,
Massachusetts 02140-0002, the owner of 70 common shares of the
Company, has stated that he intends to present a proposal
concerning charitable contributions for consideration by the
shareholders at the Annual Meeting.
The Board of Directors is opposed to Mr. Crapo's proposal for
the reasons set forth below.
The following is the text of the proposal supplied by Mr.
Crapo:
Resolved:
The Stockholders of the New England Electric System ("The
Holding Company") request the Board of Directors (The "Board") of
the Holding Company publish in the proxy statement of the next two
successive Shareholder Annual Meetings an appendix concerning the
charitable donations program of the Holding Company for the
immediate past calendar year with the following information:
(i) An explanation of at least five hundred words explaining
the standards of the Holding Company and the procedures
of the Holding Company governing its donations to
Internal Revenue Service ("IRS") approved private
foundations to include standards for rejection of such
help.
<PAGE>
(ii) An enumeration of IRS qualifying charities and IRS
approved foundations which our Board plans to help in the
ensuing calendar year, included with each charity and
foundation an elucidation of at least twenty-six words
how it complied with the standards and procedures
enumerated in (i).
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote AGAINST the proposal.
The Company believes the appendix proposed to be added to the
Company's proxy statement on charitable contributions would be
lengthy, expensive to produce and mail, and of little utility to
most shareholders, singling out an item that represents less than
one-tenth of one percent of operating expenses to more
comprehensive examination than is allotted to other much more
significant items of expense.
The first part of the proposal provides for an explanation of
at least 500 words of the standards and procedures the Company uses
in evaluating requests. The Company's policies with respect to
charitable giving are fairly standard in the business community.
The Company and its subsidiaries receive many requests for giving
and generally make contributions that support the communities in
and near the subsidiaries' service territories. The majority of
decisions made with respect to individual charitable donations are
made in the local offices of the Company's subsidiaries. These
local offices can best evaluate the charitable organizations and
their respective contributions to the community. They generally
give to non-profit organizations in the areas of health and human
services, civics, arts/culture, and education. The Company does
not believe that its proxy statement is the proper forum for
discussion of its charitable giving activities.
The second part of the proposal would require at least 26
words to be written on each charitable organization expected to
receive a donation from the Company in the following year. The
Company receives literally hundreds of requests for donations each
year. It is impossible to predict in advance which organizations
will apply for a contribution. Furthermore, the proposed appendix
to the proxy statement would be extremely lengthy. Not including
contributions made through the Company's employee matching gifts
program, the Company made contributions to over 500 organizations
in 1997. Assuming a twenty-six word explanation for each
organization, this would add approximately 25 pages to the proxy
statement each year. The Company estimates that the additional
printing and postage would cost the Company approximately $30,000
each year.
<PAGE>
In sum, the Company believes that it has a modest, responsible
charitable giving policy and practice that is in the best interest
of the shareholders and that most shareholders would not be
interested in receiving a lengthy report each year on the subject.
Further, management will respond openly to any specific shareholder
inquiries concerning charitable contributions.
OTHER MATTERS
The Company is not aware of any matter that may properly be
presented for action at the meeting other than the matters set
forth herein. If any other matter should be presented at the
meeting upon which a vote properly may be taken, the proxies in the
accompanying form confer upon the persons named therein, or their
substitutes, discretionary authority to vote in respect of any such
matter in accordance with their judgment.
The firm of Coopers & Lybrand L.L.P. is the independent
certified public accountant appointed by the Board of Directors for
the Company for the current calendar year. Representatives of
Coopers & Lybrand L.L.P. are expected to be present at the Annual
Meeting and available to respond to appropriate questions on the
financial statements of the Company and may make a statement if
they so desire.
The expense of preparing and mailing this proxy statement and
other incidental expenses of solicitation will be paid by the
Company. Arrangements will be made with brokerage houses and other
custodians, nominees, and fiduciaries to send proxies and proxy
material to their principals, and the Company will reimburse them
for the expense of doing so. Officers and regular employees of a
subsidiary of the Company may solicit proxies through the use of
the mails or by telephone, facsimile, or electronic mail.
Georgeson & Company Inc., New York, New York has been retained to
assist the Company in the solicitation of proxies, primarily from
brokers, banks, and other nominees, at an estimated initial cost
of $11,000 plus reimbursement of reasonable out-of-pocket expenses.
By completing the enclosed proxy you are voting the shares of
the Company held in your name and, in the event you are
participating therein, those held by you under the dividend
reinvestment and common share purchase plan and restricted shares
under the Incentive Share Plan. In the event common shares are
held in trust for you as a participant in one or more thrift plans,
you will receive a separate form for instructing the trustee how to
vote those shares.
SHAREHOLDER PROPOSALS
From time to time shareholders present proposals which may be
proper subjects for inclusion in the proxy statement and for
consideration at the annual meeting. In order for a shareholder
<PAGE>
proposal to be considered for inclusion in the proxy statement for
the Company's next regularly scheduled annual meeting of
shareholders, it must be received by the Company on or before
November 9, 1998. Please forward any proposal to the Secretary of
the Company.
The name "New England Electric System" means the trustee or
trustees for the time being (as trustee or trustees but not
personally) under an agreement and declaration of trust dated
January 2, 1926, as amended, which is hereby referred to, and a
copy of which as amended has been filed with the Secretary of The
Commonwealth of Massachusetts. Any agreement, obligation or
liability made, entered into or incurred by or on behalf of New
England Electric System binds only its trust estate, and no
shareholder, director, trustee, officer or agent thereof assumes or
shall be held to any liability therefor.
By order of the Board of Directors,
(Facsimile Signature)
Cheryl A. LaFleur,
Secretary
March 9, 1998
For shareholder information or assistance, write or call
Shareholder Services at: New England Electric System, Shareholder
Services, P. O. Box 770, Westborough, MA 01581, toll-free number
(800) 466-7215, fax (508) 836-0276, or e-mail [email protected].
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NEW ENGLAND ELECTRIC SYSTEM
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS ON APRIL 28, 1998
The Shareholder(s) listed on the reverse side appoints JOAN
T. BOK, CHERYL A. LAFLEUR, and RICHARD P. SERGEL, and each of
them, Proxies, with full power of substitution, to represent the
Shareholder(s) at the above annual meeting, and at any and all
adjournments thereof, and to vote thereat the number of shares
which the Shareholder(s) would be entitled to vote if then
personally present, with all the powers the Shareholder(s) would
then possess, but especially, without limiting the foregoing, to
vote as specified herein on the proposals set forth in the proxy
statement:
Election of Directors--The thirteen nominees are J. T. Bok,
W. M. Bulger, A. D. Houston, P. L. Joskow, J. M. Kucharski,
E. H. Ladd, J. A. McClure, G. M. Sage, R. P. Sergel, C. E.
Soule, A. Wexler, J. Q. Wilson, and J. R. Winoker.
To withhold authority to vote for any nominee, print that
nominee's name in the space provided below:
_____________________________________________________________
(PLEASE SIGN and DATE ON REVERSE SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2
1. Fix the number of Directors at 13.
FOR AGAINST ABSTAIN
/ / / / / /
2. Election of the Nominees (except those I have
listed on the reverse side).
FOR WITHHOLD AUTHORITY
/ / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEMS 3 and 4
3. Shareholder proposal regarding the splitting of
shares.
FOR AGAINST ABSTAIN
/ / / / / /
<PAGE>
4. Shareholder proposal regarding charitable
contributions.
FOR AGAINST ABSTAIN
/ / / / / /
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NOT SPECIFIED ABOVE,
THE PROXIES WILL VOTE "FOR" ITEMS 1 AND 2 AND "AGAINST" ITEMS 3
AND 4.
A majority of the Proxies present and acting at the meeting
in person or by substitute (or, if only one shall be so
present, then that one) shall have and may exercise all of
the powers of said Proxies hereunder.
Dated: ___________, 1998
Signed: __________________
Signed:___________________
(Sign exactly as name
appears to the left.)
When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. If more than one name
is shown, including the case of joint tenants, each party should
sign.
IMPORTANT: WE URGE YOU TO VOTE, SIGN, DATE AND MAIL THIS PROXY
PROMPTLY TO ASSURE YOUR REPRESENTATION AT THE MEETING.
<PAGE>
THIS VOTING INSTRUCTION CARD IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
NEW ENGLAND ELECTRIC SYSTEM
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON APRIL 28, 1998
To: T. ROWE PRICE, Trustee under the Thrift Plans.
As a participant in one or more of the thrift plans, I
hereby direct T. Rowe Price, Trustee, to vote or to give a proxy
to vote, in accordance with my directions on the reverse side,
the common shares of New England Electric System which are
allocated to my account (also a proportionate number of those
shares which have not been allocated to participants or for
which no instruction cards are received) at the above annual
meeting, and at any and all adjournments thereof, and in the
Trustee's discretion it is authorized to vote or to give a proxy
to vote upon such other business as may properly come before the
meeting.
Election of Directors -- The thirteen nominees are J. T.
Bok, W. M. Bulger, A. D. Houston, P. L. Joskow, J. M. Kucharski,
E. H. Ladd, J. A. McClure, G. M. Sage, R. P. Sergel, C. E.
Soule, A. Wexler, J. Q. Wilson, and J. R. Winoker.
To withhold authority to vote for any nominee, print that
nominee's name in the space provided below:
(PLEASE SIGN and DATE ON REVERSE SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2
1. Fix the number of Directors at 13.
FOR AGAINST ABSTAIN
/ / / / / /
2. Election of the Nominees (except those I have listed
on the reverse side).
FOR WITHHOLD AUTHORITY
/ / / /
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEMS 3 and 4
3. Shareholder proposal regarding the splitting of
shares.
FOR AGAINST ABSTAIN
/ / / / / /
4. Shareholder proposal regarding charitable
contributions.
FOR AGAINST ABSTAIN
/ / / / / /
THIS INSTRUCTION CARD WILL BE VOTED AS SPECIFIED. IF NOT
SPECIFIED ABOVE, THE SHARES REPRESENTED BY THIS CARD WILL BE
VOTED "FOR" ITEMS 1 AND 2 AND "AGAINST" ITEMS 3 AND 4.
________________________________________________________________
Dated: , 1998
Signed:
(Sign exactly as name
appears to the left.)
When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such.
IMPORTANT: WE URGE YOU TO VOTE, SIGN, DATE AND MAIL THIS CARD
PROMPTLY TO ASSURE YOUR REPRESENTATION AT THE MEETING.
