<PAGE>
[LOGO]
[LOGO]
July 30, 1997
To Our Shareholders:
On July 18, 1997, CalEnergy Company, Inc. commenced an unsolicited tender
offer to purchase 9.9% of NYSEG's common stock for $24.50 per share in cash (the
"Stake-Out Tender Offer") as part of a stated plan to acquire all of NYSEG. In
your Board's view, CalEnergy is attempting to exploit the artificial depression
in our stock price caused by uncertainties surrounding NYSEG and other utilities
in New York due to the regulatory restructuring proceedings initiated by the New
York Public Service Commission.
In that regard, we are pleased to be able to announce separately today that
NYSEG has entered into an agreement in principle with the staff of the Public
Service Commission, which is an important milestone in achieving our goal of
putting an end to these uncertainties. We believe the terms of the agreement in
principle will benefit NYSEG and our customers and shareholders. Details of this
settlement are contained in a press release we are issuing this morning, a copy
of which is enclosed.
Your Board of Directors has determined by a unanimous vote that the
Stake-Out Tender Offer is not in the best interests of the Company or its
shareholders. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU REJECT THE STAKE-OUT TENDER OFFER AND NOT TENDER YOUR SHARES TO CALENERGY.
CalEnergy has also invited NYSEG to negotiate a merger in which CalEnergy
would acquire all of NYSEG at $27.50 per share. For the reasons described below,
your Board of Directors has decided to reject CalEnergy's proposal to commence
merger negotiations. Your Board intends to take all actions necessary to ensure
that the underlying value of NYSEG is preserved for the benefit of our
shareholders and not appropriated by CalEnergy.
We believe that the Stake-Out Tender Offer is part of CalEnergy's campaign
to mislead you, our shareholders, as well as our customers, employees and
communities into believing that a change in control in NYSEG is imminent. But,
for all of the smoke and mirrors CalEnergy has attempted to conjure, in reality
it has not even begun to put a real offer on the table. CalEnergy has provided
neither a regulatory plan, without which any proposal to take over a public
utility is meaningless, nor a financing plan.
CalEnergy has tried to promote itself as an agent for deregulation and
change. In fact, few companies in America have benefited from government
regulation as much as CalEnergy. A significant portion of CalEnergy's profits
are derived from power purchase agreements mandated by government regulations
under which utilities, such as NYSEG, are compelled to buy power from
independent power producers like CalEnergy at rates substantially above market.
NYSEG's customers currently bear the burden of several such contracts, the
largest of which is with CalEnergy's subsidiary, Saranac Power. Payments under
these contracts represent the second biggest element of our rate structure,
exceeded only by taxes. In 1997 we expect to pay approximately $315 million
under these contracts, of which nearly $145 million will go to CalEnergy's
Saranac Power subsidiary.
<PAGE>
As a result of the Saranac power purchase agreement, CalEnergy has
significant commercial interests relating to the Company which are different
from and adverse to those of our other shareholders. In reaching its decision to
oppose the Stake-Out Tender Offer, the Board was concerned that CalEnergy might
seek to exercise any influence associated with ownership of 9.9% of the Common
Stock in a manner that would be beneficial to its own commercial interests, but
adverse to the interests of other shareholders.
In reaching its decisions, the Board also received the opinions of the
Company's financial advisors, Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co., regarding the $27.50 per share price stated in CalEnergy's
invitation to negotiate a merger. Morgan Stanley has opined that the price is
inadequate from a financial point of view, and Goldman Sachs has opined that the
price is inadequate, to the holders of NYSEG's common stock (other than
CalEnergy). We urge you to read carefully the attached document in its entirety,
so that you will be fully informed as to the Board's recommendation.
We need to prepare ourselves for the possibility that this hostile takeover
battle with CalEnergy could be a very long and drawn out affair. Your Board of
Directors is prepared to take all steps necessary and appropriate to protect the
interests of the Company, its shareholders, customers, employees, communities
and other constituencies. We thank you in advance for your patience and support.
If you have any questions or need any assistance in withdrawing your shares
from the Stake-Out Tender Offer, please contact Innisfree M&A
Incorporated/Morrow & Co., Inc. at (800) 566-9061.
On behalf of the Board of Directors,
[LOGO]
Wesley W. von Schack
Chairman, President and
Chief Executive Officer
ii
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
SCHEDULE 14D-9
---------------------
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
NEW YORK STATE ELECTRIC & GAS CORPORATION
(NAME OF SUBJECT COMPANY)
NEW YORK STATE ELECTRIC & GAS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $6.66 2/3 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------------
649840105
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------------
DANIEL W. FARLEY, ESQ.
VICE PRESIDENT AND SECRETARY
NEW YORK STATE ELECTRIC & GAS CORPORATION
ITHACA-DRYDEN ROAD
P.O. BOX 3200
ITHACA, NEW YORK 14852-3200
(607) 347-2506
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
------------------------------
COPY TO:
SETH A. KAPLAN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is New York State Electric & Gas Corporation
(the "Company"). The address of the principal executive offices of the Company
is Ithaca-Dryden Road, P.O. Box 3287, Ithaca, New York 14852-3287. The title of
the class of equity securities to which this statement relates is the Company's
common stock, par value $6.66-2/3 per share (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement of the Company on Schedule 14D-9 (this "Statement") relates
to the tender offer by CE Electric (NY), Inc. ("CENY"), a wholly-owned
subsidiary of CalEnergy Company, Inc. ("CalEnergy"), to purchase 6,540,670
shares of outstanding Common Stock at $24.50 per share, net to the seller in
cash, on the terms and subject to the conditions set forth in the Offer to
Purchase, dated July 18, 1997 (the "Offer to Purchase"), and in the related
Letter of Transmittal (which together constitute the "Stake-Out Tender Offer").
The Stake-Out Tender Offer is disclosed in a Tender Offer Statement on Schedule
14D-1, dated July 18, 1997, as amended by Amendment No. 1 to the Tender Offer
Statement on Schedule 14D-1, dated July 24, 1997 (the "CalEnergy Schedule
14D-1"), as filed with the Securities and Exchange Commission (the "SEC").
The Offer to Purchase states that the principal executive offices of CENY
and CalEnergy are located at 302 South 36th Street, Suite 400, Omaha, Nebraska
68131.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b) The Company is a party to a long-term power purchase agreement (as
amended, the "Power Purchase Agreement") with Saranac Power Partners, L.P.
("Saranac"), the general partner of which is Saranac Energy Company, Inc., a
wholly-owned indirect subsidiary of CalEnergy. The Power Purchase Agreement
provides, among other things, that for a term of 15 years (until June 21, 2009),
the Company is required to purchase, subject to the terms of the Power Purchase
Agreement, all of the electricity produced at Saranac's Plattsburgh, New York
plant. During 1996, the Company made payments of approximately $140 million for
power under the Power Purchase Agreement.
During May and June of 1997, the Company and CalEnergy were engaged in
discussions and negotiations concerning a joint venture relationship to develop,
construct and operate a natural gas pipeline, and in connection with such
negotiations entered into a confidentiality agreement dated May 6, 1997 (the
"Confidentiality Agreement"). The parties exchanged certain information pursuant
to the Confidentiality Agreement and were in the process of negotiating a
memorandum of understanding regarding the joint venture when CalEnergy, for
reasons not disclosed to the Company, stopped pursuing the project.
The Power Purchase Agreement and Confidentiality Agreement are filed as
Exhibits to this Statement.
1
<PAGE>
Certain contracts, agreements, arrangements and understandings between the
Company and certain of its executive officers, directors and affiliates are
described in Annex A hereto, which description is incorporated herein by
reference.
Except as described herein or in Annex A hereto, to the knowledge of the
Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings (other than in the ordinary course of business),
or any actual or potential conflicts of interest, between the Company or its
affiliates and (i) the Company, its executive officers, directors or affiliates,
or (ii) CalEnergy, CENY or their executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATIONS. According to disclosures by CalEnergy, including in its
Offer to Purchase, the Stake-Out Tender Offer is the first stage of a plan by
CalEnergy to acquire all of the outstanding Common Stock of the Company.
CalEnergy has proposed to the Company that the parties enter into negotiations
with respect to a merger in which each outstanding share of Common Stock would
be converted into $27.50 in cash (the "Invitation to Negotiate").
The Company's Board of Directors (the "Board") met on July 24 and 29, 1997
to consider the Stake-Out Tender Offer, the Invitation to Negotiate and related
matters. During those meetings, the Board considered the Company's business,
financial condition, results of operations, current business strategy and future
prospects, regulatory environment, recent and historical market prices for the
Common Stock, the terms and conditions of the Stake-Out Tender Offer, available
information concerning the Invitation to Negotiate and other matters, including
presentations by management and by the Company's financial and legal advisors.
At the July 29 meeting, the Board unanimously determined that the Stake-Out
Tender Offer is not in the best interests of the Company or its shareholders.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS REJECT THE
STAKE-OUT TENDER OFFER AND NOT TENDER ANY OF THEIR SHARES OF COMMON STOCK TO
CALENERGY.
At the July 29 meeting, the Board also unanimously determined that the
Invitation to Negotiate is not in the best interests of the Company and its
shareholders, customers, employees, communities and other constituencies, and
that such interests would be best served if the Company were to continue to
pursue its business strategy.
(b) REASONS FOR THE RECOMMENDATION TO REJECT THE STAKE-OUT TENDER OFFER. In
reaching its conclusions with respect to the Stake-Out Tender Offer, the Board
considered a number of matters in addition to the factors set forth above,
including, but not limited to, the following:
(i) the Board's belief that CalEnergy's purpose in effecting the
Stake-Out Tender Offer is to increase its ability to apply pressure to the
Board so as to enhance the likelihood that the Company will accept the
Invitation to Negotiate, which the Board, for reasons described herein, has
determined to be not in the best interests of the Company and its
shareholders, customers, employees, communities and other constituencies;
(ii) the Board's concern that, because CalEnergy has significant
commercial interests relating to the Company which are different from and
adverse to those of other shareholders arising from the Power Purchase
Agreement, it might seek to exercise any influence associated with ownership
of 9.9%
2
<PAGE>
of the Common Stock in a manner that would be beneficial to its own
commercial interests, but adverse to the interests of the other shareholders
of the Company;
(iii) the Board's concern that, if the Company were to pursue any kind of
transaction that would require the approval under New York law and the
Company's charter of the holders of two-thirds of the outstanding shares of
Common Stock and CalEnergy were the owner of 9.9% of the outstanding Common
Stock, the Company would need to obtain the approval of 74% of the shares of
Common Stock not owned by CalEnergy to pursue such a transaction;
(iv) presentations to the Board by the Company's management relating to
the Company's financial performance and future prospects; and
(v) presentations to the Board by Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Goldman, Sachs & Co. ("Goldman Sachs"), financial
advisors to the Company, concerning the Company and the financial aspects of
the Stake-Out Tender Offer.
REASONS FOR REJECTION OF THE INVITATION TO NEGOTIATE. In addition to the
factors set forth above and considered by the Board in reaching its conclusions
with respect to the Stake-Out Tender Offer, the Board considered a number of
factors in reaching its decision to reject the Invitation to Negotiate,
including, but not limited to, the following:
(i) the Board's belief that (x) for a variety of reasons, especially the
uncertain regulatory environment affecting utilities operating in New York
State and the ongoing regulatory restructuring proceedings initiated by the
New York Public Service Commission, the market price of the Common Stock is
artificially depressed, (y) the price stated in the Invitation to Negotiate
does not reflect the current or long-term value inherent in the Company and
(z) shareholders' interests would be best served if the Company were to
continue to pursue its business strategy; in that regard, the Board took
note of the agreement in principle reached with the staff of the New York
Public Service Commission which the Board believes will form the basis for a
resolution of the restructuring proceedings in a manner that will be in the
best interests of the Company's shareholders and other constituencies;
(ii) the lack of substance to CalEnergy's Invitation to Negotiate,
including the absence of any regulatory plan, without which any proposal to
take over a public utility is meaningless, and the absence of commitments
for, or details regarding, CalEnergy's financing arrangements, which are an
integral part of any regulatory plan;
(iii) the significant regulatory hurdles and associated risks and delays
in connection with affecting a business combination transaction, including,
without limitation, seeking the approval of (A) the New York Public Service
Commission, under the New York Public Service Law, as amended, (B) the
Federal Energy Regulatory Commission, under the Federal Power Act, as
amended, (C) the Nuclear Regulatory Commission, under the Atomic Energy Act,
as amended, and (D) the SEC, under the Public Utility Holding Company Act of
1935, as amended (or structuring the transaction in a manner that would
obviate the need for the approval of the SEC);
(iv) the Board's belief that, as directors of a public utility, they are
stewards of a special public trust for the transmission and distribution of
power to every home, business, school and hospital in the communities served
by the Company, and that it would be a breach of that trust to enter into
serious discussions concerning a change in control of the Company without
any evidence of the ability of the
3
<PAGE>
proposed acquiror to assume those obligations and without any meaningful
disclosure of the proposed acquiror's plans or how those plans would affect
the performance of those obligations;
(v) CalEnergy's lack of experience as a manager of an electricity and
gas transmission and distribution system;
(vi) the distractions and uncertainties likely to arise among the
Company's employees, customers and suppliers in the event that the Company
were to announce that it was entering into negotiations relating to a
potential change in control of the Company;
(vii) the opinion of the Company's management that the consideration of
$27.50 per share stated by CalEnergy in the Invitation to Negotiate is
inadequate;
(viii) presentations by Morgan Stanley and Goldman Sachs, financial
advisors to the Company, concerning the financial aspects of CalEnergy's
Invitation to Negotiate; and
(ix) the oral opinions of Morgan Stanley and Goldman Sachs regarding the
$27.50 price per share of Common Stock set forth in the Invitation to
Negotiate. Morgan Stanley has opined that the price is inadequate from a
financial point of view to the holders of the Common Stock (other than
CalEnergy) and Goldman Sachs has opined that the price is inadequate to the
holders of the Common Stock (other than CalEnergy).
In view of the variety of factors considered in connection with its
evaluation of the Stake-Out Tender Offer and the Invitation to Negotiate, the
Board did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determinations and recommendation. In addition, individual members of the Board
may have given different weights to different factors.
BACKGROUND. As discussed in Item 3(b), the Company is a party to the Power
Purchase Agreement with Saranac, the general partner of which is a wholly-owned
indirect subsidiary of CalEnergy, and has for some time been attempting to
renegotiate the above-market price at which Saranac sells power to the Company
thereunder. During May and June of 1997, the Company and CalEnergy were engaged
in discussions and negotiations concerning a gas pipeline joint venture and in
connection with such negotiations (x) entered into the Confidentiality Agreement
and (y) were in the process of negotiating a memorandum of understanding
regarding the joint venture when CalEnergy, for reasons not disclosed to the
Company, stopped pursuing the project.
In early July 1997, Wesley W. von Schack, Chairman, President and Chief
Executive Officer of the Company, received a contact that David L. Sokol,
Chairman and Chief Executive Officer of CalEnergy, wished to meet with him. The
reason for the meeting was not disclosed.
Mr. von Schack met with Mr. Sokol on July 10, 1997. At the meeting, Mr.
Sokol indicated to Mr. von Schack that CalEnergy was interested in acquiring the
Company. Mr. Sokol indicated that he thought a price of $28.00 per share of
Common Stock in cash would be a full price for the Common Stock. Mr. Sokol and
Mr. von Schack discussed the terms upon which other companies in the utility
industry had combined. Mr. von Schack did not state what he believed would be an
acceptable price for the Company. Mr. Sokol stated that he would keep management
in place and would be willing to offer Mr. von Schack a management contract or
consulting arrangement. Mr. Sokol further commented that he did not intend to
run the combined companies indefinitely and that Mr. von Schack might assume
that role. Mr. von Schack
4
<PAGE>
indicated to Mr. Sokol that he might ask Mr. Sokol to consider some kind of
strategic alternative, such as a joint venture. Mr. von Schack said that he
would discuss Mr. Sokol's proposal with the Company's Board. At the meeting, Mr.
von Schack did not commit to further contact Mr. Sokol at any specific future
date and Mr. Sokol did not tell Mr. von Schack that he expected further contact
from Mr. von Schack by any specific future date.
At a meeting of the executive committee of the Company's Board on July 11,
1997, Mr. von Schack said that he had received a contact from CalEnergy
regarding a possible business combination with the Company. Mr. von Schack
stated to the committee that he thought the contact warranted further
exploration.
At a regular meeting of the Board on July 11, 1997, Mr. von Schack informed
the Board that he had received a contact from a third party whom he did not
identify concerning a possible business combination and that he thought it would
be desirable to explore the contact further.
On Saturday, July 12, 1997, Mr. von Schack received a message that Mr. Sokol
wanted Mr. von Schack to call him. When Mr. von Schack returned the call, Mr.
Sokol informed Mr. von Schack that he was in a CalEnergy board meeting regarding
the Company and requested a meeting with Mr. von Schack that week. Mr. von
Schack responded that he would be available to meet with Mr. Sokol during the
week of July 28. Mr. Sokol expressed disappointment that he could not meet with
Mr. von Schack earlier than that and indicated that Mr. von Schack might receive
a letter from him.
On July 15, 1997, Mr. Sokol delivered to Mr. von Schack and the Board a
letter which outlined CalEnergy's invitation to commence negotiations with
respect to a merger in which all of the outstanding Common Stock of the Company
would be exchanged for $27.50 per share in cash and stated its intent to
commence shortly thereafter the Stake-Out Tender Offer.
The letter was made public by CalEnergy later that day in a press release,
which also announced that CalEnergy intended to commence the Stake-Out Tender
Offer.
On July 15, 1997, the Company issued a press release stating that the Board
would consider CalEnergy's proposal in due course.
On July 18, 1997, CalEnergy commenced the Stake-Out Tender Offer.
On July 24 and 29 the Board met with its legal and financial advisors to
review the Stake-Out Tender Offer and the Invitation to Negotiate, resulting in
the recommendations set forth above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Morgan Stanley and Goldman Sachs as its financial
advisors (collectively, the "Financial Advisors") with respect to the Stake-Out
Tender Offer and the Invitation to Negotiate and other matters arising in
connection therewith. Pursuant to letter agreements with Morgan Stanley and
Goldman Sachs (collectively, the "Engagement Letters"), which have substantially
similar terms, the Company has agreed to pay each of the Financial Advisors as
follows: (i) a fee of $3,000,000 payable in the event such Financial Advisor's
involvement is publicly announced; (ii) if, during the term of the Financial
Advisors' engagement under their respective Engagement Letters, the Stake-Out
Tender Offer and the Invitation to Negotiate are withdrawn or, within 12 months
from the date of such Financial Advisor's Engagement Letter, do not result in
the acquisition of 50% or more of the Company's voting stock by CalEnergy or any
other party or a change in the majority of the members of the Board, the Company
will
5
<PAGE>
pay a fee to each Financial Advisor equal to $6,000,000 (against which any fees
paid pursuant to clause (i) will be credited); (iii) if, after 18 months from
the date of such Financial Advisor's Engagement Letter, the Stake-Out Tender
Offer and the Invitation to Negotiate are withdrawn or do not result in the
acquisition of 50% or more of the Company's voting stock by CalEnergy or any
other party or a change in the majority of the members of the Board, the Company
will pay a fee to each Financial Advisor equal to $3,000,000 and; (iv) in the
event the Company enters into a Business Combination (as defined below), the
Company will pay a fee to each Financial Advisor equal to $9,000,000 (against
which any fee paid pursuant to clauses (i) , (ii) and (iii) above will be
credited). In addition, the Company has agreed to pay the Financial Advisors an
additional transaction fee for acquisitions, asset sales or negotiated sales of
securities (other than a Business Combination or a transaction with an aggregate
value (as defined therein) of less than $100 million), which fee is calculated
as a declining percentage of the transaction's aggregate value. A "Business
Combination" is defined therein as (A) any business combination pursuant to
which the business of the Company is combined with that of another entity and
the Company's shareholders would own less than 75% of the surviving entity's
stock, (B) the acquisition of a majority of the voting stock of the Company, (C)
the acquisition of all or substantially all of the Company's assets or (D) the
acquisition of the Company other than through the acquisition of the Company's
capital stock.
The Company also has agreed to reimburse Morgan Stanley and Goldman Sachs
for their reasonable expenses (including, without limitation, professional and
legal fees and disbursements) incurred in connection with their engagement with
respect to the services to be rendered by them, and to indemnify Morgan Stanley
and Goldman Sachs against certain expenses and liabilities in connection with
their engagement, including liabilities arising under the federal securities
laws.
The Company has retained Innisfree M&A Incorporated and Morrow & Co., Inc.
to distribute information (including this Statement) on behalf of the Company in
connection with the Stake-Out Tender Offer, the Invitation to Negotiate and
related matters. The Company has also retained Kekst and Company, Inc. as public
relations advisor in connection with the Stake-Out Tender Offer and the
Invitation to Negotiate and related matters. Such firms will receive customary
compensation for services rendered and also will be reimbursed out-of-pocket
expenses.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to shareholders with respect to the Stake-Out Tender Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, except as set forth herein and
on Schedule 1 hereto, no transactions in the Common Stock have been effected
within the past 60 days by the Company or any executive officer, director,
affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, its executive officers,
directors, affiliates or subsidiaries currently do not intend to tender any
shares of Common Stock which are held of record or beneficially owned by such
persons pursuant to the Stake-Out Tender Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
The Company is not engaged in any negotiation in response to the Stake-Out
Tender Offer which relates to or would result in (i) an extraordinary
transaction, such as a merger or reorganization involving
6
<PAGE>
the Company or any of its subsidiaries, (ii) a purchase, sale or transfer of a
material amount of assets of the Company or any of its subsidiaries, (iii) a
tender offer for or other acquisition of securities by or of the Company or (iv)
any material change in the present capitalization or dividend policy of the
Company. In the opinion of the Board, premature disclosure of the possible terms
of any transactions of the types described above or the parties thereto might
jeopardize the initiation or continuation of any such discussions or
negotiations. Accordingly, the Board, on July 29, 1997, adopted a resolution
instructing management not to disclose the possible terms of any such
transactions, or the parties thereto, unless and until an agreement in principle
relating thereto has been reached.
Except as described pursuant to Item 3(b) above, there are no transactions,
Board resolutions, agreements in principle or signed contracts in response to
the Stake-Out Tender Offer which relate to or would result in one or more of the
matters referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
LITIGATION. The Company intends to commence on July 30, 1997 an action
against CalEnergy and CENY in the United States District Court for the Southern
District of New York. This action will seek preliminary and permanent injunctive
relief against the Stake-Out Tender Offer and planned takeover attempt of the
Company by CalEnergy and CENY, on the grounds, among other things, that
CalEnergy has breached and continues to violate the Confidentiality Agreement
and that the defendants' tender offer materials contain misleading and
inadequate disclosures, thereby violating the federal securities laws. In
addition, the Company seeks an order divesting any and all securities of the
Company acquired by CalEnergy and its affiliates while in possession of such
confidential information.
SHAREHOLDER LITIGATION. On July 17, 1997, a purported class action was
commenced in the Supreme Court of the State of New York, Broome County, against
the Company and its directors, entitled MORTIMER SCHULMAN, ET AL., V. WESLEY W.
VON SCHACK, ET AL., Index No. 1997001655 (the "Schulman Action"). On July 22,
1997, a purported class action was commenced in the Supreme Court of the State
of New York, New York County, against the Company and Mr. von Schack, entitled
MALCOLM ROSENWALD V. NEW YORK STATE ELECTRIC & GAS CORPORATION, ET AL., Index
No. 97-603715 (the "Rosenwald Action"). On July 24, 1997, a purported class
action was commenced in the Supreme Court of the State of New York, New York
County, against the Company and its directors, entitled CARMINE S. CASELLA V.
NEW YORK STATE ELECTRIC & GAS CORP., ET AL., Index No. 97-112854 (the "Casella
Action"). On July 25, 1997, a purported class action was commenced in the
Supreme Court of the State of New York, Kings County, against the Company and
its directors, entitled HOWARD LASKER, ET AL., V. WESLEY W. VON SCHACK, ET AL.,
Index No. 24812/1997 (the "Lasker Action" and, collectively with the Schulman
Action, the Rosenwald Action and the Casella Action, the "Shareholder Actions").
Each of the Shareholder Actions was purportedly brought on behalf of all of the
shareholders of the Company and alleges among other things, that the named
defendants have breached their fiduciary duties to those shareholders by
allegedly refusing to negotiate the possible acquisition of the Company by
CalEnergy without first adequately informing themselves with respect thereto.
The Shareholder Actions seek generally, among other things, declaratory and
injunctive relief requiring the named defendants to fulfill their fiduciary
duties to maximize shareholder value, and certain other matters. Two of the
shareholder actions also seek damages.
7
<PAGE>
The complaints filed in the Schulman Action, the Rosenwald Action, the
Casella Action and the Lasker Action are included as Exhibits to this Statement
and are incorporated by reference herein; the foregoing descriptions are
qualified in their entirety by reference to such Exhibits.
DIRECTOR REMOVAL IN NEW YORK CORPORATIONS WITH CUMULATIVE VOTING. The
Restated Certificate of Incorporation of the Company (the "Charter") provides
for cumulative voting in the election of directors. Article 5(F) of the Charter
provides that "at all elections of directors by the holders of the Common Stock,
each holder of Common Stock shall be entitled to as many votes as shall equal
the number of votes which (except for this provision as to cumulative voting) he
would be entitled to cast for the election of directors with respect to his
shares of Common Stock multiplied by the number of directors to be elected, and
he may cast all of such votes for a single director or may distribute them among
the number of directors to be voted for, or any two or more of them, as he may
see fit." Bylaw 6 of the Company's Bylaws contains a corresponding provision.
Section 706(c)(1) of the New York Business Corporation Law ("BCL") provides:
"In the case of a corporation having cumulative voting, no director may be
removed when the votes cast against his removal would be sufficient to elect him
if voted cumulatively in an election at which the same total number of votes
were cast and the entire board, or the entire class of directors of which he is
a member, were then being elected."
Article 2(C)(2) of the Charter provides: "Any director elected or appointed
by the stockholders or by the Board of Directors may be removed at any time,
with or without cause, by the affirmative vote or written consent of the holders
of a majority of the outstanding shares of stock at the time having full voting
power." Bylaw 12 of the Company's Bylaws contains a corresponding provision.
Because such provisions of Article 2(C)(2) of the Charter and Bylaw 12 of the
Bylaws are inconsistent with the New York BCL, it is the view of the Company
that such provisions of the Company's Charter and Bylaws are invalid and
inoperative.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
*Exhibit 1 -- Pages 8 through 23 of the Proxy Statement, dated April 11, 1997, relating
to the Company's 1997 Annual Meeting of Shareholders.
Exhibit 2 -- Amended and Restated Annual Executive Incentive Plan Amendment No. 1.
Exhibit 3 -- Long-Term Executive Incentive Share Plan Amendment No. 1.
Exhibit 4 -- Form of Severance Agreement for Senior Vice Presidents Amendment No. 2.
Exhibit 5 -- Form of Severance Agreement for Senior Vice Presidents Amendment No. 3.
**Exhibit 6 -- Form of Severance Agreement for Vice Presidents Amendment No. 2.
Exhibit 7 -- Form of Severance Agreement for Vice Presidents Amendment No. 3.
Exhibit 8 -- Form of Severance Agreement for Treasurer.
Exhibit 9 -- Employee Invention and Confidentiality Agreement (Existing Executive).
Exhibit -- Employee Invention and Confidentiality Agreement (Existing Executive)
10 Amendment No. 1.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Exhibit -- Employment Agreement for W. W. von Schack Amendment No. 2.
11
Exhibit -- Employment Agreement for W. W. von Schack Amendment No. 3.
12
Exhibit -- Employee Benefit Trust Agreement.
13
Exhibit -- First Amendment to Employee Benefit Trust Agreement.
14
Exhibit -- Second Amendment to Employee Benefit Trust Agreement.
15
Exhibit -- Third Amendment to Employee Benefit Trust Agreement.
16
Exhibit -- Director Benefit Trust Agreement.
17
Exhibit -- First Amendment to Director Benefit Trust Agreement.
18
Exhibit -- Second Amendment to Director Benefit Trust Agreement.
19
Exhibit -- 1997 Stock Option Plan.
20
Exhibit -- Non-Statutory Stock Option Award Agreement.
21
Exhibit -- Supplemental Executive Retirement Plan Amendment No. 12.
22
Exhibit -- Selected Employee Retention Plan.
23
***Exhibit -- Power Purchase Agreement, dated as of April 27, 1990, between the Company
24 and Saranac Power Partners, L.P.
***Exhibit -- Amendment No. 1 to the Power Purchase Agreement, dated August 29, 1991.
25
Exhibit -- Amendment No. 2 to the Power Purchase Agreement, dated February 24, 1994.
26
+Exhibit -- Confidentiality Agreement, dated May 6, 1997, between the Company and
27 CalEnergy.
Exhibit -- Complaint in MORTIMER SCHULMAN, ET AL., V. WESLEY W. VON SCHACK, ET AL.
28 (Supreme Court of the State of New York, Broome County).
Exhibit -- Complaint in MALCOLM ROSENWALD V. NEW YORK STATE ELECTRIC & GAS
29 CORPORATION, ET AL. (Supreme Court of the State of New York, New York
County).
Exhibit -- Complaint in CARMINE S. CASELLA V. NEW YORK STATE ELECTRIC & GAS CORP., ET
30 AL. (Supreme Court of the State of New York, New York County).
Exhibit -- Complaint in HOWARD LASKER, ET AL., V. WESLEY W. VON SCHACK, ET AL.
31 (Supreme Court of the State of New York, Kings County).
*Exhibit -- Letter to the shareholders of the Company, dated July 30, 1997, relating to
32 the recommendation of the Board of Directors of the Company with respect to
the Stake-Out Tender Offer.
*Exhibit -- Press Release of the Company, dated July 30, 1997.
33
*Exhibit -- Press Release of the Company, dated July 30, 1997, relating to the
34 agreement in principle between the Company and the staff of the New York
Public Service Commission.
</TABLE>
- ------------------------
* Included with this Statement on Schedule 14D-9 mailed to shareholders.
** Identical to the material included as Exhibit 4 hereto.
*** Incorporated by reference to Exhibit 10.1 of CalEnergy's Form 10-Q for the
Fiscal Quarter Ended September 30, 1996.
+ Confidential treatment has been requested with respect to portions contained
therein.
9
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
NEW YORK STATE ELECTRIC & GAS CORPORATION
BY: /S/ WESLEY W. VON SCHACK
-----------------------------------------
Wesley W. von Schack
(CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER)
Dated: July 30, 1997
10
<PAGE>
ANNEX A
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of the Company's executive officers,
directors and affiliates are described under the sections entitled "Security
Ownership of Management," "Executive Compensation," "Employment and Change in
Control Arrangements," "Directors' Compensation," "Compensation Committee
Interlocks and Insider Participation," "Report of Executive Compensation and
Succession Committee" and "Adoption of the 1997 Stock Option Plan" at pages 8
through 23 of the Company's Proxy Statement, dated April 11, 1997, relating to
its 1997 Annual Meeting of Shareholders (the "Proxy Statement"), which pages are
attached as Exhibit 1 hereto and are incorporated by reference.
The Company's 1997 Stock Option Plan was approved by the Company's
shareholders at the 1997 Annual Meeting of Shareholders. Subsequent to such
shareholder approval, the Company granted the following number of options and
tandem stock appreciation rights to the following executive officers: Wesley W.
von Schack, 69,000; Jack H. Roskoz, 30,000; Michael I. German, 30,000; Sherwood
J. Rafferty, 25,000; Gerald E. Putman, 20,000; Ralph R. Tedesco, 20,000; Jeffrey
K. Smith, 20,000; Daniel W. Farley, 13,000; Gary L. Sickles, 13,000; Gary J.
Turton, 13,000; Denis E. Wickham, 13,000; and Robert D. Kump 9,000. All options
and tandem stock appreciation rights granted in 1997 were granted on May 21,
1997 and the exercise price of all options and tandem stock appreciation rights
granted on such date is $21.75. The options were fully exercisable when granted
and the tandem stock appreciation rights become exercisable on November 21,
1997. As of the date of this Statement, no such options or tandem stock
appreciation rights have been exercised by any of the participating executive
officers. In order to preserve a participant's rights under an option and tandem
stock appreciation right in the event of a change in control (as determined by
the Executive Compensation and Succession Committee of the Board of Directors)
of the Company, the Committee in its discretion may, at the time an option and
tandem stock appreciation right is granted or any time thereafter, take one or
more of the following actions: (i) provide for the acceleration of any time
period relating to the exercise of an option and tandem stock appreciation
right; (ii) provide for the purchase of the option and tandem stock appreciation
right upon the participant's request for an amount of cash or other property
that could have been received upon the exercise or realization of the option and
tandem stock appreciation right had the option and tandem stock appreciation
right been currently exercisable or payable, (iii) adjust the terms of the
option and tandem stock appreciation right in a manner determined by the
Committee to reflect the change in control, or (iv) make such other provision as
the Committee may consider equitable and in the best interests of the Company.
The award agreements for the grants described above provide for the termination
of such awards in the event of certain corporate transactions, including a
merger or consolidation resulting in the exchange of the Company's Common Stock
for cash, property or securities not issued by the Company, the sale of all or
substantially all of the Company's assets, or the acquisition of shares
representing more than 75% of the voting power of the Company's then outstanding
shares by another corporation or person. The awards, however, do not terminate
if the transaction provides for the assumption of the awards or the substitution
of the awards with an award covering shares of the successor corporation.
The Company has entered into Employee Invention and Confidentiality
Agreements with certain employees, including executive officers, of the Company
in order to maintain the Company's confidential information, trade secrets and
rights to inventions and to restrict an employee from soliciting the Company's
clients, customers, suppliers or employees and from directly competing with the
Company. The
A-1
<PAGE>
agreements with respect to the Company's executive officers provide for, among
other things, certain payments (not in excess of one year's salary) and the
payment of certain health insurance premiums to be made in certain cases to the
individual in the event his or her employment is terminated, whether voluntarily
or involuntarily, and the noncompetition and nonsolicitation provisions of the
agreement prevent the executive from obtaining other appropriate employment, so
long as he or she is not entitled to receive payments under a change-in-control
severance agreement.
The change-in-control severance agreements between the Company and its
executive officers were amended, effective July 29, 1997, as follows: (i) the
multiple of annual compensation to be paid as severance was increased from 1.5
to 2.5 for the executive officers who are Executive Vice Presidents and Senior
Vice Presidents and from 1 to 2 for the executive officers who are Vice
Presidents; and (ii) a provision was added calling for an additional payment, if
necessary, to make the executives whole for any federal excise tax on excess
parachute payments. These severance agreements and Mr. von Schack's employment
agreement were also amended as follows: (i) the definition of "good reason" for
termination by the executive was amended to include substantial alterations in
an executive's status or duties that are attributable to the fact that the
Company is no longer a public company, as well as reductions in base salary or
non-payment of compensation even if such actions are pursuant to an
"across-the-board" policy; and (ii) the definition of the "change-in-control
protective period," which is the period following a change in control during
which the agreements remain in effect, was amended to provide that if the
agreements are triggered by shareholder approval of a merger, but the agreement
relating to the merger is subsequently terminated without consummation of the
merger, the change-in-control protective period will expire 90 days thereafter,
unless there has been a subsequent change-in-control event that has re-triggered
the agreements. In addition, the non-competition covenant in Mr. von Schack's
employment agreement was amended to apply only to competitors located in
Maryland, New Jersey, New York and Pennsylvania. This conforms the geographic
scope of Mr. von Schack's non-competition covenant to that of the non-
competition covenants applicable to other executive officers pursuant to the
Employee Invention and Confidentiality Agreements. Additionally, the Board has
authorized the Company to enter into with Mr. Kump and two other employees new
change-in-control severance agreements in form and substance identical to the
change-in-control severance agreements, as amended, with the Company's Vice
Presidents, each to be dated as of July 29, 1997.
The Board adopted, effective July 29, 1997, a Retention Program providing
for a pool of up to $2 million to be used to pay retention bonuses to key
employees who are not covered by change-in-control severance agreements. The
participants in the program, and the amounts and payment schedule for their
bonuses, will be determined by the Chief Executive Officer. No bonuses would be
paid unless a change in control (generally as defined in the severance
agreements) occurs. The bonuses would be paid in one or more installments, with
the earliest potential installment being paid upon a change in control. In
general, participants would have to remain employed until an installment's
scheduled payment date in order to receive it, unless they were terminated
without cause or terminated their own employment for good reason (generally as
defined in the severance agreements).
The Annual Executive Incentive Plan was amended, effective July 29, 1997, to
provide that after a change in control, an additional payment would be made to
each participant at the end of the year in which a change in control occurs, to
the extent that the bonus earned under the normal terms of the plan exceeds the
amount paid upon a change in control. The Long Term Executive Incentive Share
Plan was amended
A-2
<PAGE>
to provide: (i) that the payment of awards for all cycles in progress at the
time of a change in control be computed and paid out in full (rather than
pro-rata) and based on the assumption that the Company's performance was at the
50th percentile; (ii) that the plan does not terminate automatically upon a
change in control, and participants are entitled to receive any amounts earned
under the normal terms of the plan through the end of each performance cycle, to
the extent those amounts exceed the amounts paid at the time of a change in
control; and (iii) that all change-in-control payments under the plan are valued
based on the change-in-control price of the Company's common stock.
The Company has previously established grantor trusts to provide for the
payment of certain employee and director benefits, including any severance
benefits that might become payable after a change in control under Mr. von
Schack's employment agreement and the other severance agreements. As a result of
the announcement by CalEnergy of its tender offer, the Company is now required
to fund these trusts, and will be contributing approximately $48.6 million to
the employees' trust and will be contributing approximately $3.5 million to the
directors' trust. Effective July 29, 1997, the Board approved the amendment of
the employees' trust to require funding of the increased severance benefits, and
the bonuses payable under the Retention Program described above, to provide that
the amounts to be funded include all potential cash payments under the severance
agreements, and to clarify certain assumptions to be used in computing the
amount of funding for the employees' trust.
The Board also approved, effective July 29, 1997, an amendment to the
definition of "change in control" in the above arrangements and in the
Supplemental Executive Retirement Plan to include any change in a majority of
the Board that results from a proxy context.
A-3
<PAGE>
SCHEDULE 1
RECENT TRANSACTIONS IN SHARES
I. EMPLOYEE STOCK PURCHASE PLAN.
The following table sets forth purchases of shares of Common Stock under the
Employee Stock Purchase Plan (including Company contributions) within the last
60 days:
<TABLE>
<CAPTION>
DIRECTOR/OFFICER DATE NUMBER OF SHARES PRICE
- --------------------------------------------------------------------------- --------- --------------------- ---------
<S> <C> <C> <C>
Michael I. German.......................................................... 7/15/97 551 $ 22.15
Robert D. Kump............................................................. 7/15/97 90 $ 22.15
Gerald E. Putman........................................................... 7/15/97 90 $ 22.15
Jeffrey K. Smith........................................................... 7/15/97 18 $ 22.15
Ralph R. Tedesco........................................................... 7/15/97 45 $ 22.15
</TABLE>
II. DIRECTOR SHARE PLAN.
The following table sets forth the number of phantom shares of Common Stock
granted to directors under the Company's Director Share Plan within the last 60
days:
<TABLE>
<CAPTION>
DIRECTOR DATE NUMBER OF SHARES PRICE
- ---------------------------------------------------------------------------- --------- --------------------- ---------
<S> <C> <C> <C>
Richard Aurelio............................................................. 7/1/97 150 $ 21.00
James A. Carrigg............................................................ 7/1/97 150 $ 21.00
Alison P. Casarett.......................................................... 7/1/97 150 $ 21.00
Joseph J. Castiglia......................................................... 7/1/97 150 $ 21.00
Lois B. DeFleur............................................................. 7/1/97 150 $ 21.00
Paul L. Gioia............................................................... 7/1/97 150 $ 21.00
John M. Keeler.............................................................. 7/1/97 150 $ 21.00
Ben E. Lynch................................................................ 7/1/97 150 $ 21.00
Walter G. Rich.............................................................. 7/1/97 150 $ 21.00
</TABLE>
III. OTHER TRANSACTIONS.
In September 1996 the Company initiated a Common Stock repurchase program of
up to 4 million shares (the "Stock Repurchase Program"). The Stock Repurchase
Program was completed on June 18, 1997, with the acquisition of four million
shares at an average cost of $21.71 per share. In connection with the Stock
Repurchase Program, the Company purchased 498,400 shares at an average cost of
$21.58 per share from June 2, 1997 through June 18, 1997.
Over the last 60 days, the Company has in the ordinary course sold Common
Stock to several of the Company's directors and executive officers in connection
with their participation in one or more of the Company's 401(k) Plan, the
Company's TRASOP and the Company's DRIP Plan.
On July 2, 1997, Mr. von Schack purchased 3,000 shares of Common Stock on
the open market at an average price per share of $21.13 in a transaction
unrelated to any of the Company's employee benefit plans.
On July 10, 1997, Mr. Kump purchased 256 shares of Common Stock through an
intra-fund transfer within the Company's 401(k) Plan at an average price per
share of $21.59.
S-1
<PAGE>
EXHIBIT 1
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of equity securities of
the Company and Common Stock equivalent units beneficially owned as of February
14, 1997 by each director and nominee, each of the executive officers named in
the Summary Compensation Table included elsewhere herein, and by the 23 current
executive officers and directors as a group and the percent of the outstanding
securities so owned.
<TABLE>
<CAPTION>
COMMON STOCK TOTAL COMMON STOCK
BENEFICIALLY COMMON STOCK AND COMMON STOCK PERCENT
NAME OWNED EQUIVALENT UNITS(3) EQUIVALENT UNITS OF CLASS
- ------------------------------------------- ----------------- ------------------- ------------------- -----------
<S> <C> <C> <C> <C>
Richard Aurelio (1)........................ 1,000 0 1,000 (4)
James A. Carrigg........................... 13,767 15,694 29,461 (4)
Alison P. Casarett......................... 494 8,559 9,053 (4)
Joseph J. Castiglia........................ 5,000 1,219 6,219 (4)
Lois B. DeFleur............................ 300 1,219 1,519 (4)
Michael I. German.......................... 2,845 5,774 8,619 (4)
Everett A. Gilmour......................... 2,783 0 2,783 (4)
Paul L. Gioia.............................. 2,415 2,008 4,423 (4)
John M. Keeler............................. 1,103 4,749 5,852 (4)
Allen E. Kintigh........................... 1,042 0 1,042 (4)
Ben E. Lynch............................... 1,219 4,563 5,782 (4)
Alton G. Marshall.......................... 200 0 200 (4)
Gerald E. Putman........................... 3,899 5,197 9,096 (4)
Sherwood J. Rafferty....................... 3,830 5,173 9,003 (4)
Walter G. Rich (1)......................... 1,000 0 1,000 (4)
Jack H. Roskoz............................. 6,321 7,702 14,023 (4)
Wesley W. von Schack (1)................... 12,000 17,813 29,813 (4)
23 current executive officers and directors
as a group............................... 74,160(2) 91,235 165,395 (4)
</TABLE>
- ------------------------
(1) Includes the number of shares of equity securities of the Company and Common
Stock equivalent units beneficially owned by Messrs. Aurelio, Rich and von
Schack as of April 11, 1997.
(2) Includes 407 shares held by an officer as nominee for the Company's
Employees' Stock Purchase Plan.
(3) Includes Common Stock equivalent units granted under the Company's Long-Term
Executive Incentive Share Plan and the Director Share Plan for non-employee
directors for which the director, nominee or executive officer does not have
voting rights.
(4) Less than 1/4 of 1% of the outstanding Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons holding ten percent
or more of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
NYSE. Such reporting persons are also required to provide the Company with
copies of all Section 16(a) forms they file. Specific due dates for these
reports have been established by SEC regulations. Based
8
<PAGE>
solely on its review of the copies of the reports received by it and certain
written representations from certain reporting persons, the Company believes
that during 1996 all filing requirements were satisfied by its directors and
executive officers.
EXECUTIVE COMPENSATION
Compensation for services to the Company for each of the last three fiscal
years of the chief executive officer and the next four highest compensated
executive officers of the Company who served in such capacities on December 31,
1996, is shown by the following:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION (1)
- ------------------------------------------------- --------- ---------- --------- ------------- ----------------
Wesley W. von Schack (2)......................... 1996 $ 178,766 $ 72,033 0 $ 75,381
Chairman, President and 1995 0 0 0 0
Chief Executive Officer 1994 0 0 0 0
James A. Carrigg (3)............................. 1996 394,519 99,700 0 51,039
Chairman, President and 1995 472,048 46,147 0 2,490
Chief Executive Officer 1994 438,000 0 3,040 2,490
Jack H. Roskoz................................... 1996 308,250 67,440 0 2,250
Executive Vice President 1995 298,000 27,864 0 2,310
1994 259,250 0 1,392 2,310
Michael I. German................................ 1996 217,500 50,563 0 2,250
Senior Vice President 1995 207,500 20,891 53,076 0
1994 15,256 0 0 0
Gerald E. Putman................................. 1996 199,850 45,504 0 2,610
Senior Vice President 1995 173,300 18,801 0 2,670
1994 134,875 0 0 2,310
Sherwood J. Rafferty............................. 1996 174,414 41,998 0 2,145
Senior Vice President and 1995 141,725 10,108 0 1,799
Chief Financial Officer 1994 136,675 0 0 1,725
</TABLE>
- ------------------------
(1) In 1996, the Company contributed for Messrs. Carrigg, Roskoz, German,
Putman, and Rafferty $2,250, $2,250, $2,250, $2,250, and $2,145,
respectively, under the Tax Deferred Savings Plan. The Company contributed
for Messrs. Carrigg and Putman, $135 and $360, respectively, under the
Employees' Stock Purchase Plan. For Mr. von Schack, $2,610 represents the
dollar value of the term portion, and $72,771 represents the benefit,
projected on an actuarial basis, of the whole-life portion of a premium paid
for a life insurance policy. In addition, Mr. Carrigg received a payment of
$48,654 in lieu of vacation.
(2) Compensation data for Mr. von Schack is provided only for a portion of 1996
because he was employed by the Company commencing September 9, 1996.
(3) Mr. Carrigg retired effective October 1, 1996.
9
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS(1) IN LAST FISCAL YEAR (1996)
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUT UNDER
OR OTHER NON-STOCK PRICE-BASED PLANS (2)
NUMBER OF PERIOD UNTIL -----------------------------------------
PERFORMANCE MATURATION OR THRESHOLD TARGET MAXIMUM
NAME AND PRINCIPAL POSITION SHARES PAYOUT SHARES (#) SHARES (#) SHARES (#)
- ----------------------------------------------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Wesley W. von Schack........................... 6,809 1996-1998 1,702 6,809 10,214
Chairman, President and
Chief Executive Officer
James A. Carrigg............................... 9,365 1996-1998 781 3,122 4,683
Chairman, President and
Chief Executive Officer
Jack H. Roskoz................................. 3,614 1996-1998 904 3,614 5,421
Executive Vice President
Michael I. German.............................. 2,710 1996-1998 678 2,710 4,065
Senior Vice President
Gerald E. Putman............................... 2,438 1996-1998 610 2,438 3,657
Senior Vice President
Sherwood J. Rafferty........................... 2,414 1996-1998 604 2,414 3,621
Senior Vice President and
Chief Financial Officer
</TABLE>
- ------------------------
(1) Pursuant to the Company's Long-Term Executive Incentive Share Plan,
participants were granted a certain number of Performance Shares in 1996
depending upon their position. Performance Shares granted earn dividend
equivalents in the form of additional Performance Shares. Payments
representing the cash value of a certain percentage of the Performance
Shares are made at the end of each three-year Performance Cycle and are
based on the Company's ranking with respect to its three-year average total
stockholder return as compared to the top 100 utilities by revenue. A new
Performance Cycle begins on January 1 of each year. Achievement of a ranking
of 65th will result in the payment of the cash value of 25% (threshold
amount) of the Performance Shares. Achievement of a ranking of 50th will
result in the payment of the cash value of 100% (target amount) of the
Performance Shares. Achievement of a ranking of 20th will result in the
payment of the cash value of 150% (maximum amount) of the Performance
Shares. There will be no payments, however, if the Company's ranking is
below 65th. The value of the Performance Shares will be measured by
reference to the average of the daily closing prices of a share of the
Company's Common Stock for the last five trading days of the Performance
Cycle.
(2) Amounts included in these columns for Mr. Carrigg represent a prorated
estimated future payout under the Company's Long-Term Executive Incentive
Share Plan based on his retirement effective October 1, 1996.
10
<PAGE>
The following table sets forth the maximum retirement benefits payable to
executive officers who retire at age 60 or later, in specified compensation and
years of service classifications, pursuant to the Company's Retirement Benefit
Plan and the Company's Supplemental Executive Retirement Plan ("SERP") as they
presently exist, and assuming no optional payment form is elected. The amounts
listed below reflect the deduction for Social Security benefits. There are no
other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
ANNUAL ----------------------------------------------------------------------------------
SALARY* 10 15 20 25 30 35 40**
- ---------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$700,000.................... $ 314,800 $ 351,600 $ 388,300 $ 425,100 $ 461,800 $ 498,600 $ 535,300
650,000.................... 291,200 325,300 359,500 393,600 427,700 461,800 496,000
600,000.................... 267,600 299,100 330,600 362,100 393,600 425,100 456,600
550,000.................... 244,000 272,800 301,700 330,600 359,500 388,300 417,200
500,000.................... 220,300 246,600 272,800 299,100 325,300 351,600 377,800
450,000.................... 196,700 220,300 244,000 267,600 291,200 314,800 338,500
400,000.................... 173,100 194,100 215,100 236,100 257,100 278,100 299,100
350,000.................... 149,500 167,800 186,200 204,600 223,000 241,300 259,700
300,000.................... 125,800 141,600 157,300 173,100 188,800 204,600 220,300
250,000.................... 102,200 115,300 128,500 141,600 154,700 167,800 181,000
200,000.................... 78,600 89,100 99,600 110,100 120,600 131,100 141,600
150,000.................... 55,000 62,800 70,700 78,600 86,500 94,300 102,200
</TABLE>
- ---------
* Average of the salaries (not including amounts listed under "Bonus," "Other
Annual Compensation," and "All Other Compensation" in the Summary
Compensation Table) for the five highest paid consecutive years during the
last ten years of employment service. The average of the highest three years
of salary within the last ten years of employment for the SERP was assumed
to be 5% higher than each salary shown.
** Maximum years of employment service for Retirement Benefit Plan and SERP
purposes.
The Company's Retirement Benefit Plan provides retirement benefits for its
hourly and salaried employees, including executive officers, based on length of
service and the average for the five highest paid consecutive years during the
last ten years of employment service. The Retirement Benefit Plan is non-
contributory and is funded under a trust arrangement and an insurance contract.
Amounts paid into the Retirement Benefit Plan are computed on an actuarial
basis. The Retirement Benefit Plan provides for normal or early retirement
benefits.
The Company's SERP provides that all salaried employees, including executive
officers, shall receive the full benefits of the Company's Retirement Benefit
Plan without regard to any limitations imposed by the federal tax law and by
including certain amounts deferred under the Company's Deferred Compensation
Plan for Salaried Employees. In addition, it provides that officers and certain
other key employees, who have at least ten years of service, who have served in
key capacities for at least five years and who retire at age 60 or later, shall
receive a total retirement benefit (including benefits under the Retirement
11
<PAGE>
Benefit Plan and Social Security), based on years of service, of up to 75% of
the average of their highest three years of salary within the last ten years of
employment with the Company.
Mr. von Schack and Mr. German each have an agreement with the Company which
provides that, for the purposes of the Retirement Benefit Plan and the SERP,
they each will be credited with two years of service for each year actually
worked at the Company for the first five years of employment, provided that they
each are employed by the Company for at least five years. Mr. von Schack was
employed by the Company commencing September 9, 1996 and Mr. German was employed
by the Company commencing December 5, 1994.
Messrs. von Schack, Carrigg, Roskoz, German, Putman and Rafferty have 1, 38,
34, 4, 26, and 16 credited years of service, respectively, under the Retirement
Benefit Plan and SERP.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an agreement with Mr. von Schack which provides
for his employment as Chairman, President and Chief Executive Officer for a term
ending on September 8, 1999, with automatic one-year extensions unless either
party gives notice that the agreement is not to be extended. The agreement was
unanimously approved by the Board of Directors and provides for, among other
things, a base salary, currently $575,000 subject to increase by the Board of
Directors, the payment of the annual premium on a life insurance policy (the
"Life Insurance Policy") on Mr. von Schack's life, and his eligibility for
participation in the Company's other compensation and benefit plans. The
agreement also provides for certain payments in the event of the termination of
his employment for cause due to disability or termination by the Company without
cause prior to a change in control.
The agreement also provides that, if within two years following a change in
control, or, if longer, within the two-year period following consummation of a
merger or consolidation, Mr. von Schack's employment is terminated either by the
Company without cause or by Mr. von Schack for good reason he will receive a
lump-sum payment equal to three times the sum of (i) his then-annual base
salary, (ii) an award under the Annual Executive Incentive Plan ("AEIP") for the
year in which the termination occurs, and (iii) the premium the Company agreed
to pay on the Life Insurance Policy. In the event of such termination, his life
(other than the Life Insurance Policy), disability, accident and health
insurance benefits will continue for a period of thirty-six months and he will
receive an amount equal to all earned but unpaid awards under the AEIP and a pro
rata portion of any award under the AEIP with respect to the year in which the
termination occurs, provided, however, that there will be no duplication of
payments made pursuant to the agreement and the AEIP. Also, in the event of such
termination, he will be given additional age and service credit under the SERP.
In the event that any payments made on account of a change in control, whether
under the agreement or otherwise, would subject him to federal excise tax or
interest or penalties with respect to such federal excise tax, he will be
entitled to be made whole for the payment of any such taxes, interest or
penalties.
The Company has entered into severance agreements with Messrs. Roskoz,
German, Putman, and Rafferty in order to provide for certain payments if within
two years following a change in control or, if longer, within the two-year
period following consummation of a merger or consolidation, the individual's
employment is terminated either by the Company without cause or by the
individual for good reason. The severance agreements have terms ending on
December 31, 1998, with automatic one-year extensions unless
12
<PAGE>
either the individual or the Company gives notice that the agreement is not to
be extended. The agreements were unanimously approved by the Board of Directors.
The benefits consist of a lump-sum severance payment equal to one and one-half
times the sum of (i) the individual's then-annual base salary, and (ii) an award
under the AEIP for the year in which the termination occurs. In the event of
such termination, the individual's life, disability, accident and health
insurance benefits will continue for a period of eighteen months and the
individual will receive an amount equal to all earned but unpaid awards under
the AEIP and a pro rata portion of any award under the AEIP with respect to the
year in which the termination occurs, provided, however, that there shall be no
duplication of payments made pursuant to the agreement and the AEIP. Also, in
the event of such termination, the individual will receive outplacement
counseling and will be given additional age and service credit under the SERP.
In the event of a change in control, participants in the AEIP will be paid
an amount which includes all earned but unpaid awards, and a pro rata portion of
any award with respect to the year in which the change in control occurs.
In the event of a change in control, participants in the Long-Term Executive
Incentive Share Plan will be paid an amount which includes all earned but unpaid
awards and awards with respect to all then existing three-year performance
cycles.
After a change in control, officers and certain other key employees, who
have at least ten years of service, who have served in key capacities for at
least five years, and whose employment is terminated at age 55 or later, other
than for cause, shall receive a total retirement benefit (including benefits
under the Retirement Benefit Plan and Social Security), based on years of
service, of up to 75% of the average of their highest three years of salary
during the last ten years of employment with the Company. However, in the case
of termination prior to age 60, such total retirement benefit will be determined
by applying the same reduction in benefits as is applied to benefits upon
retirement prior to age 60 under the Retirement Benefit Plan.
DIRECTORS' COMPENSATION
Directors of the Company, other than officers, receive an annual retainer of
$22,000, plus $1,000 for each directors' meeting attended. Members of the
Executive Committee, other than officers, receive compensation of $1,500
annually. Members of committees, including the Executive Committee, other than
officers, receive $1,000 for each committee meeting attended. If a directors'
meeting or committee meeting is held by means of a conference telephone, the fee
is $500. The Chairperson of each standing committee receives additional
compensation of $1,000 for serving as Chairperson of such committee. Under the
terms of the Company's Deferred Compensation Plan for Directors, directors can
elect to defer a portion or all of their compensation. Such deferred
compensation, together with interest thereon, is payable in a lump sum or over a
period of years following retirement as a director.
During 1996, with the assistance of outside consultants, the Company
reviewed its policy regarding director compensation. The overriding policy goal
remains to enhance stockholder value by attracting and retaining the most highly
qualified individuals as directors. The Company recognizes that aligning
directors' and stockholders' interests, as a principle of corporate governance,
is a goal that would serve to further stockholders' interests and enhance the
Company's flexibility in attracting and retaining the most highly qualified
individuals as directors of the Company. In addition, it is becoming more common
to tie
13
<PAGE>
directors' compensation to a corporation's performance by compensating directors
in stock or stock-based awards. Thus, effective January 1, 1997, the Company
adopted a Director Share Plan for Directors ("Director Share Plan") pursuant to
which persons who are non-employee directors on January 1, 1997 or thereafter
are eligible for certain benefits to be paid upon their ceasing to serve as
directors of the Company. Eligible directors first elected directors prior to
January 1, 1996, were given a one time irrevocable option to either remain in
the Retirement Plan for Directors ("Retirement Plan") and receive retirement
benefits pursuant to that plan or to cease participation in the Retirement Plan
and instead participate in the Director Share Plan as of January 1, 1997. An
eligible director who chose to remain in the Retirement Plan has no rights under
the Director Share Plan while an eligible director who chose to participate in
the Director Share Plan waived all rights under the Retirement Plan. An eligible
director who first becomes a non-employee director on or after January 1, 1997
automatically participates in the Director Share Plan upon becoming a
non-employee director.
An eligible director who chose to cease participation in the Retirement Plan
and to participate in the Director Share Plan received an initial grant of
phantom shares (the "Phantom Shares") based on the actuarial present value of
the vested accrued benefit earned by the director under the Retirement Plan
("Present Value"). The number of Phantom Shares granted was determined by
dividing the participant's Present Value by the average of the daily closing
prices of the Company's Common Stock for the five trading days preceding January
1, 1997. Commencing January 1, 1997 and on each April 1, July 1, October 1 and
January 1 thereafter, 150 Phantom Shares were and will be granted to each
director who participates in the Director Share Plan as of that date. Phantom
Shares granted earn dividend equivalents in the form of additional Phantom
Shares. Upon a director ceasing to serve as a director of the Company, cash
payments representing the value of the Phantom Shares held by the director are
to be made to the director. The value of the Phantom Shares is to be determined
by multiplying the number of Phantom Shares by the average of the daily closing
prices of the Company's Common Stock for the five trading days preceding the
date the director ceases to serve as a director. With the adoption of the
Director Share Plan, a major portion of directors' compensation is tied to the
performance of the Company's Common Stock. The Company has also adopted a
Deferred Compensation Plan for the Director Share Plan pursuant to which a
director may defer a portion or all of the cash payment to be made under the
Director Share Plan over a period of years following the director's ceasing to
serve as a director.
Pursuant to the Retirement Plan, eligible directors who opted to continue
participating in the Retirement Plan qualify for annual retirement benefits. The
Company amended the Retirement Plan in January 1996 to provide that any director
elected after December 31, 1995 will not participate in the Retirement Plan. An
eligible director who serves on the Board for at least five years qualifies for
annual retirement benefits equal to 50% of the highest annual retainer in effect
during such service. An eligible director who serves on the Board for ten years
or more qualifies for annual retirement benefits equal to 100% of the highest
annual retainer in effect during such service, while an eligible director with
between five and ten years of service qualifies for prorated amounts. Payments
of Retirement Plan benefits generally commence upon the later of the eligible
director's attaining age 65 or retirement from the Board and continue for a
period equal to the greater of the eligible director's life or ten years.
Eligible directors elected prior to the effective date of the Retirement Plan
will have such prior service included in establishing their eligibility and the
amount of their retirement benefits. An eligible director who was also an
officer of the Company would qualify for retirement benefits only if the
director served as a director after the director ceased to be an officer or
served as a director before election as an officer. In either case,
14
<PAGE>
the director's service as a director while also an officer will be included in
establishing the amount of the director's retirement benefits.
COMMITTEES
The Company's Board of Directors has an Audit Committee, a Nominating
Committee, and an Executive Compensation and Succession Committee.
The Audit Committee, which consists of Ben E. Lynch, Chairman, Alison P.
Casarett, Joseph J. Castiglia, and John M. Keeler, had four meetings in 1996.
The Audit Committee recommends the appointment of the independent accountants
and reviews with them the audit plan and results of the audit. It also meets
with the independent accountants, internal auditor, and management to discuss
the adequacy of the Company's system of internal controls and financial
reporting, meets with the internal auditor to discuss the results of completed
internal audits and meets with management to discuss the Company's Corporate
Compliance Program, including the adequacy of management's compliance and
enforcement efforts.
The Nominating Committee, which consists of Alton G. Marshall, Chairman,
Alison P. Casarett, Lois B. DeFleur, and Everett A. Gilmour had one meeting in
1996. The Nominating Committee is responsible for recommending candidates to
fill vacancies on the Board of Directors. The Committee makes recommendations to
the Board of Directors regarding criteria for nomination as a candidate to the
Board of Directors. Stockholders wishing to recommend candidates for
consideration by the Nominating Committee should submit to the Secretary of the
Company the name, a statement of qualifications and the written consent of the
candidate. Recommendations will be brought to the attention of the Nominating
Committee.
The Executive Compensation and Succession Committee, which consists of
Everett A. Gilmour, Chairman, Alison P. Casarett, Ben E. Lynch, and Alton G.
Marshall, had twelve meetings in 1996. That Committee, among other things,
recommends compensation for officers, awards under the Annual Executive
Incentive Plan, and candidates for election as officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John M. Keeler served on the Executive Compensation and Succession Committee
from May 10, 1996 until his resignation from that Committee effective as of
January 10, 1997. The law firm of which Mr. Keeler is a member provided legal
services to the Company in 1996 and is expected to provide legal services to the
Company in 1997.
REPORT OF EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE
The Executive Compensation and Succession Committee (the "Committee") is
composed entirely of independent outside directors. The Committee has the
responsibility for establishing and reviewing the compensation of senior
management of the Company, including the compensation of the Chairman and the
other named executive officers. The Committee actively advises the Board of
Directors on implementing policies designed to assure the selection, development
and retention of key personnel.
15
<PAGE>
Under the guidance of the Committee, the Company's general compensation
policies are designed to manage the Company towards overall enhanced
profitability and increased stockholder value. Accordingly, two principles
underlying the Company's compensation policy for all senior managers, including
the Chairman and the other named executive officers, are (i) aligning the
financial interests of senior managers with those of the Company's stockholders
and (ii) rewarding senior management for corporate and individual performance.
These principles are reflected in the structure of the Company's compensation
program for senior managers which consists of three basic components: base
salary, awards under the Annual Executive Incentive Plan, and awards under the
Long-Term Executive Incentive Share Plan. In creating this structure, the
Committee has consciously placed an increasing emphasis on the at risk elements
of compensation. The Committee believes that placing a portion of total
compensation at risk, by linking such compensation to performance, aligns senior
management's financial interests with those of the stockholders, which in turn
will support the Company's overall objective of enhancing stockholder value.
The Annual Executive Incentive Plan allows participants to qualify for cash
performance incentive awards if certain annual goals, which will create benefits
for stockholders and customers, are achieved. For 1996, annual performance
incentive awards were based on earnings targets and excellent customer service.
Performance goals were set for threshold, target and maximum performance levels
with respect to each performance measure. Awards ranged from approximately 14%
to 28% of the participant's salary grade midpoint, depending upon the
participant's position, and the performance levels achieved. See the Bonus
column in the Summary Compensation Table for performance incentive awards earned
for 1996.
The Committee believes that senior management compensation should also be
based on the Company's long-term financial performance. The Long-Term Executive
Incentive Share Plan permits key officers to qualify for cash incentive awards
if certain long-term performance goals are met. Awards are based on the
Company's long-term financial performance relative to the long-term financial
performance of companies in the same industry. See the Long-Term Incentive Plan
Awards table for a description of the plan and performance share grants made
under the plan.
In determining senior management base salaries for 1996, the Committee
considered its general policy that senior management compensation should be
competitive so as to attract and retain talented executives. To that end, the
Committee reviewed compensation data from certain utility and general industry
companies, as well as certain salary surveys to assist in its decision-making.
The Committee also subjectively considered the Company's financial and
operational achievements in 1995, the depth of the individual's experience and
responsibilities, the individual's effectiveness in performing those
responsibilities and in leading or helping the Company respond to changes in the
competitive, rapidly changing utility industry. The Committee noted the
Company's continued commitment to cost-effective improvements in customer
service and excellent reliability. The Committee also noted that the Company's
gas business provided natural gas to residential heating customers at among the
lowest prices in the Northeast region in 1995 and that steps were taken to
develop the Seneca Lake natural gas storage project, which represents a major
milestone in the Company's efforts to become a superior regional natural gas
company. The Committee also reviewed the Company's performance with respect to
the Annual Executive Incentive Compensation Plan for 1995 and the Performance
Share Plan for 1995. With respect to Mr. Carrigg's base salary for 1996, the
Committee also considered his employment agreement with the Company. Taking
these factors into consideration, and considering the general policy of the
Committee that senior management, including the Chief Executive Officer, should
be compensated at competitive levels, the
16
<PAGE>
Committee targeted base salary at a competitive level, subject to adjustment
depending on the individual's performance.
Mr. von Schack became Chairman, President and Chief Executive Officer of the
Company on September 9, 1996. In structuring Mr. von Schack's employment
agreement and base salary the Committee, with the assistance of an outside
consultant, considered his performance and compensation as Chief Executive
Officer of another company and the Company's policy of structuring competitive
compensation to support the Company's overall objective of enhancing stockholder
value by attracting and retaining talented executives.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a company for compensation in excess of $1 million paid to a
company's chief executive officer and each of the next four most highly
compensated executive officers unless certain criteria are met. This was not a
consideration for the Committee in 1996. The Committee will examine the issue of
deductibility of senior management compensation within the context of the
overall operation of the Company's compensation program and will consider what
actions should be taken, if any, to operate the compensation program in a tax
effective manner.
<TABLE>
<S> <C>
Executive Compensation and Succession Committee
EVERETT A. GILMOUR, CHAIRMAN BEN E. LYNCH
ALISON P. CASARETT ALTON G. MARSHALL
</TABLE>
17
<PAGE>
STOCK PERFORMANCE GRAPH
The yearly change in the cumulative total stockholder return on the
Company's Common Stock during the five years ending December 31, 1996, compared
with the cumulative total return on the Standard & Poor's Utilities Index and
Standard & Poor's 500 Index, assuming $100 was invested on December 31, 1991,
and assuming reinvestment of dividends, is shown by the following:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
NEW YORK STATE ELECTRIC & GAS CORPORATION, S&P UTILITIES, AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NYSEG S & P UTILITIES S & P 500
<S> <C> <C> <C>
12/31/91 $100.00 $100.00 $100.00
12/31/92 120.46 108.09 107.59
12/31/93 121.51 123.70 118.43
12/31/94 81.27 113.87 119.99
12/31/95 117.65 160.71 165.03
12/31/96 104.56 165.73 202.89
</TABLE>
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
New York State Electric & Gas Corporation ............ $ 100.00 $ 120.46 $ 121.51 $ 81.27 $ 117.65 $ 104.56
Standard & Poor's Utilities .......................... $ 100.00 $ 108.09 $ 123.70 $ 113.87 $ 160.71 $ 165.73
Standard & Poor's 500................................. $ 100.00 $ 107.59 $ 118.43 $ 119.99 $ 165.03 $ 202.89
</TABLE>
ADOPTION OF THE 1997 STOCK OPTION PLAN (Proposal 2 on Proxy Card)
On March 14, 1997, the Executive Compensation and Succession Committee
adopted the Company's 1997 Stock Option Plan (the "Plan"), effective May 21,
1997, subject to the approval of the Company's common stockholders. Approval of
the Plan requires the affirmative vote of a majority of the outstanding shares
of the Company's Common Stock entitled to vote at this Annual Meeting.
18
<PAGE>
The objective of the Plan is to provide senior management and certain other
key employees of the Company and its affiliates with options to purchase shares
of the Company's Common Stock ($6.66 2/3 Par Value). The Plan also provides for
the granting by the Company of stock appreciation rights. These options and
stock appreciation rights are intended to more closely align the financial
interests of management with those of the Company's stockholders by providing
long-term incentives to those individuals who can significantly affect the
future growth and success of the Company. In addition, the Plan will enhance the
Company's ability to attract and retain key individuals of superior ability.
Accordingly, the Board recommends that the stockholders approve adoption of
the Plan, the complete text of which is attached as Exhibit A to this Proxy
Statement. The following is a summary of the material features of the Plan and
is qualified in its entirety by reference to the complete text of the Plan.
ADMINISTRATION
The Plan will be administered by the Executive Compensation and Succession
Committee or such successor committee as may be appointed by the Board of
Directors to administer the Plan (the "Committee"). The Committee will be
composed of at least two non-employee members of the Board who shall be
qualified to administer the Plan as contemplated by both Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Committee will have the authority to interpret the Plan, to establish and revise
rules and regulations relating to the Plan, and to make any other determinations
that it believes necessary or advisable for the administration of the Plan.
Decisions and determinations by the Committee will be final and binding upon all
parties.
AWARDS
Awards granted under the Plan may consist of any combination of incentive
stock options within the meaning of Section 422 of the Code ("ISOs");
non-statutory stock options, which are not ISOs under Section 422 of the Code
("NSOs") (ISOs and NSOs are collectively referred to as "Options"); stock
appreciation rights ("Stock Appreciation Rights"); and any other awards
established by the Committee which are consistent with the purposes of the Plan
(collectively, "Awards").
ELIGIBILITY AND PARTICIPATION
The Committee will have the authority to grant Awards to such senior
management and other key employees of the Company and its affiliates as the
Committee may from time to time select. In determining the persons to whom
Awards are to be granted and the number of such Awards, the Committee will take
into consideration the individual's present and potential contribution to the
growth and success of the Company and such other factors as the Committee may
deem proper and relevant. The Committee may request recommendations for
individual Awards from the Chairman. The Committee may delegate to the Chairman
the authority to make Awards to any employees of the Company and its affiliates
who are not executive officers subject to Section 16 of the Exchange Act,
subject to a fixed maximum Award amount for such a group and a fixed maximum
Award amount for any one participant, as determined by the Committee. Any
employee of the Company and its affiliates is eligible to be selected for
Awards. While no participants have yet been selected, it is anticipated that
only a small fraction of the Company's and its affiliates' approximately 4,300
employees will be selected to receive Awards.
19
<PAGE>
SHARES AVAILABLE FOR AWARDS
The aggregate number of shares of the Company's Common Stock with respect to
which Awards may be granted is 3,300,000 shares, subject to adjustment by the
Committee in the event of a stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination, exchange of shares or
other similar corporate change. In the event of such a change, provision may be
made by the Committee for cash payments to a participant who has an outstanding
Option or other Award. For purposes of this calculation, shares of the Company's
Common Stock that relate to an Award which terminates by expiration, forfeiture,
cancellation or otherwise without the delivery of shares, or is settled in cash
in lieu of the Company's Common Stock, shall again be available for grant under
the Plan.
No individual may be granted, during any one calendar year of the Plan,
Awards that relate in total to more than 100,000 shares of the Company's Common
Stock. The number of shares to be covered by Awards granted to any individual or
class of persons under the Plan is not determinable as of the date of this Proxy
Statement because at this date no participants have been selected to receive
Awards under the Plan.
Shares of the Company's Common Stock delivered pursuant to the Plan may be
either authorized but unissued Common Stock or previously issued shares of
Common Stock reacquired by the Company, including shares purchased by the
Company in the open market and held as treasury shares, or both. The closing
market price per share of the Company's Common Stock on March 24, 1997 was
$22.375.
OPTIONS
Options issued under the Plan will entitle participants to purchase
specified numbers of shares of the Company's Common Stock at specified exercise
prices per share. The Committee will have the authority to determine the number
of shares of Common Stock to be covered by each Option, the terms of each
Option, the time or times when Options will be granted, and the exercise price
per share of the Company's Common Stock subject to the Option.
The exercise price of an Option may not be less than 100% of the fair market
value of a share of the Company's Common Stock determined on the date such
Option is granted. The exercise price may be payable in cash or its equivalent,
or, to the extent permitted by the Committee, by tendering previously acquired
shares of Common Stock or by a third party exercise procedure. In lieu of
delivering shares covered by an exercised Option, the Committee, at its sole
discretion, may settle the exercise of an Option by making a cash payment equal
to the difference between the fair market value of the Company's Common Stock
determined on the exercise date and the exercise price.
Each Option shall be exercisable at such time or times, upon such events,
and subject to such terms and conditions as the Committee may specify; provided,
however, that no Option may be exercisable after the expiration of ten years
from the date such Option is granted.
To the extent that all or any portion of the Option exercise price or taxes
incurred in connection with the exercise of Options granted under the Plan are
paid for by using other common shares of the Company or by the withholding by
the Company of shares, and subject to the provisions of the Plan, participants
will be granted replacement Options as additional Awards.
The Company, with the consent of the Committee and in compliance with
applicable laws and regulations, may lend money to a participant, guarantee a
loan to a participant or otherwise assist a participant to obtain the cash
necessary to exercise all or any portion of an Option granted under the Plan,
20
<PAGE>
including the payment by a participant of any or all applicable taxes due in
connection with the exercise of an Option under the Plan.
STOCK APPRECIATION RIGHTS
The Committee may, in its sole discretion, grant Stock Appreciation Rights
which are in tandem with Options or which are freestanding and unrelated to
Options. Stock Appreciation Rights granted in tandem with Options will entitle a
participant to receive from the Company, upon the exercise of the right, an
amount equal to the excess of the fair market value of a share of the Company's
Common Stock, determined on the date of the exercise of the right, over the
exercise price of the related Option. The exercise of a Stock Appreciation Right
issued in tandem with an Option will result in a corresponding cancellation of
the related Option. The exercise of an Option issued in tandem with a Stock
Appreciation Right will result in a cancellation of the related Stock
Appreciation Right.
A freestanding Stock Appreciation Right will entitle a participant, upon
exercise of the right, to receive an amount equal to the excess of the fair
market value of a share of the Company's Common Stock, determined on the date of
the exercise of the right, over the fair market value of a share of the
Company's Common Stock determined on the date of the grant of the Stock
Appreciation Right.
Stock Appreciation Rights will not be exercisable earlier than six months
after grant, and will not be exercisable after the expiration of ten years from
the date of grant. Upon their exercise, Stock Appreciation Rights will be
settled in cash.
NONTRANSFERABILITY AND OTHER TERMS AND CONDITIONS
No Awards granted to an individual under the Plan will be assignable or
transferable by the individual other than by will or the laws of descent and
distribution, except that the Committee may provide for the transferability of
Awards to certain parties. The Committee will provide in the agreements
embodying the Awards the terms and conditions applicable to the Awards in the
event of the participant's termination of employment due to retirement, death,
disability or for any other reason and the effect, if any, of a Change in
Control (as determined by the Committee) of the Company.
CHANGE IN CONTROL
In order to preserve a participant's rights under an Award in the event of a
Change in Control (as determined by the Committee) of the Company, the
Committee, in its sole discretion, may, at the time an Award is made or at any
time thereafter take one or more of the following actions: (i) provide for the
acceleration of any time period relating to the exercise of an Award, (ii)
provide for the purchase of the Award upon the participant's request for an
amount of cash or other property that could have been received upon the exercise
or realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the Change in Control, or (iv) make such other provision as the
Committee may consider equitable and in the best interests of the Company.
AMENDMENT AND TERMINATION OF PLAN
The Committee may, in its sole discretion, terminate the Plan and, from time
to time modify or amend the Plan for any reason; provided, however (i) the Plan
shall not be amended or modified without shareholder approval if and to the
extent shareholder approval is required under the applicable regulations
21
<PAGE>
under Sections 162(m) or 422 of the Code; (ii) the Plan shall not be amended or
modified without shareholder approval so as to increase the number of shares
which may be issued under the Plan; and (iii) the termination, modification or
amendment of the Plan, shall not, without consent of a participant, adversely
affect any rights under any Award previously granted to such participant. No
awards will be granted pursuant to the Plan after May 20, 2007.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal federal income tax consequences
under present law generally applicable to the grant and exercise of Options and
Stock Appreciation Rights under the Plan. This summary is not intended to be
complete and, among other things, does not describe state or local tax
consequences.
STOCK OPTIONS. The grant of an ISO or an NSO will not result in income for
the grantee or in a deduction for the Company.
The exercise of an NSO will result in ordinary income for the grantee and a
deduction for the Company measured by the difference between the Option exercise
price and the fair market value of the shares of Common Stock received (or which
would have been received had the Company not elected to settle the NSO in cash)
at the time of exercise. Income tax withholding will be required.
Generally, if the exercise price of an NSO is paid in whole or in part in
shares of Common Stock, no income, gain or loss is recognized on the receipt of
new shares of Common Stock equal in value on the date of exercise to the shares
delivered in payment of the exercise price, and such new shares will take over
the tax attributes (e.g., basis and holding period) of the shares delivered in
payment. Generally, the fair market value of the remainder of the shares
received by the Participant upon exercise, determined as of the date of
exercise, less the amount of cash, if any, paid upon exercise, is treated as
compensation income received on the date of exercise, resulting in such shares
having a basis equal to their fair market value and a holding period that begins
on the date of the exercise of the NSO.
The exercise of an ISO will not result in income for the grantee. Generally,
if the grantee (i) does not dispose of the shares within two years after the
date of grant or one year after the transfer of shares of Common Stock upon
exercise and (ii) is an employee of the Company from the date of grant until
three months before the exercise date, the basis of the shares of Common Stock
upon later disposition will be the Option exercise price, and any gain will be
taxed to the employee as a long-term capital gain and the Company will not be
entitled to a deduction. The excess of the fair market value of the shares of
Common Stock received, determined on the exercise date, over the Option exercise
price (the "Excess Amount") is an item of tax preference, potentially subject to
the alternative minimum tax.
Generally, if the grantee disposes of the shares of Common Stock prior to
the expiration of either of the two above holding periods, the grantee will
recognize ordinary income and the Company will be entitled to a deduction equal
to the lesser of the Excess Amount or the amount realized on the disposition
minus the Option exercise price. Any gain in excess of the ordinary income
portion will be taxable as a long-term or short-term capital gain, as the case
may be.
Generally, if the exercise price of an ISO is paid in whole or in part in
shares of Common Stock, rules analogous to those set forth above for NSOs are
applicable, with appropriate adjustment being made to the basis of the shares in
order to reflect the Excess Amount upon which ordinary income tax has not been
paid.
22
<PAGE>
STOCK APPRECIATION RIGHTS. The grant of a Stock Appreciation Right will not
result in income for the grantee or in a deduction for the Company. Upon the
exercise of a Stock Appreciation Right, the grantee will recognize ordinary
income and the Company will be entitled to a deduction measured by the cash
received. Income tax withholding will be required.
OTHER. Any payment, or acceleration of payment, of Awards under the Plan
because of a change in control of the Company may cause part or all of the
amount paid to be treated as an "excess parachute payment" under the Code which
will not be deductible by the Company and which will subject the employee to a
20% federal excise tax.
23
<PAGE>
Exhibit 2
Amendment No. 1 to
New York State Electric & Gas Corporation
Annual Executive Incentive Plan
<PAGE>
The New York State Electric & Gas Corporation Annual Executive
Incentive Plan, as amended and restated as of January 1, 1997 (the "Plan"), is
hereby further amended as follows:
1. Paragraph (iii) of Section A of Article XI of the Plan is hereby
amended to read in its entirety as follows:
iii) an incentive award with respect to the fiscal year of the
Company in which the Change in Control occurs which shall be calculated by
(x) assuming that the Threshold Earnings Level for such fiscal year has
been achieved and that a Participant's Level of Achievement for each
individual objective is one hundred percent, and (y) multiplying the result
so obtained by a fraction the numerator of which is the number of days
elapsed from the beginning of such fiscal year until the Change in Control
and the denominator of which is three hundred and sixty-five (365).
Notwithstanding anything contained herein to the contrary, following a
Change in Control, the Plan shall continue in full force and effect, and a
Participant shall be entitled to receive an additional incentive award with
respect to the fiscal year in which the Change in Control occurs, equal to
the excess (if any) of the amount of the incentive award for such year,
determined in accordance with Article VII hereof, over the amount paid
pursuant to the preceding provision of this paragraph (iii).
2. Paragraph (ii) of Section B of Article XI of the Plan is hereby
amended to read in its entirety as follows:
ii) during any period of two consecutive years (not including
any period prior to January 7, 1994), individuals who at the beginning of
such period constitute the Board of Directors and any new director (other
than a director designated by a Person who has entered into an agreement
with the Company to effect a transaction described in paragraph (i), (iii)
or (iv) of this Change in Control definition or a director whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitations of proxies or consents by or on behalf
of a Person other than the Board of Directors) whose election by the Board
of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or
<PAGE>
3. Except as expressly modified hereby, the terms and provisions of
the Plan remain in full force and effect.
<PAGE>
Exhibit 3
Amendment No. 1 to
New York State Electric & Gas
Corporation Long Term Executive
Incentive Share Plan
<PAGE>
The New York State Electric & Gas Corporation Long Term Executive
Incentive Share Plan (the "Plan") is hereby amended as follows:
1. The title of Article XV of the Plan is hereby amended by deleting
the words "and Forfeitures".
2. Paragraph (iii) of Section A of Article XV of the Plan is hereby
amended to read in its entirety as follows:
(iii) amounts, which might otherwise subsequently be determined by
the Committee to be payable for the Performance Cycles existing on the date
on which the Change in Control occurs, calculated based on an assumed
Percentile Ranking of 50%.
3. Section A of Article XV of the Plan is hereby amended by adding
the following paragraph (iv) after paragraph (iii) thereof.
(iv) For purposes of the incentive awards payable pursuant to
paragraph (iii) of this Section A, the calculation of the payments shall be
made using the "Change-in-Control Price" of the Company's common stock.
For this purpose, "Change-in-Control Price" means the higher of (x) the
highest reported sales price, regular way, of a share of the Company's
common stock in any transaction reported on the New York Stock Exchange
Composite Tape or other national exchange on which such shares are listed
or on the NASDAQ during the 60-day period prior to and including the date
of a Change in Control or (y) if the Change in Control is the result of a
tender or exchange offer or approval of a merger or consolidation, the
highest price per share of common stock paid or to be paid in such tender
or exchange offer or merger or consolidation. To the extent that the
consideration paid in any such transaction described above consists all or
in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined based on the
public trading value of such property or, if such property is not publicly
traded, by the Committee based on reasonable assumptions.
4. Section B of Article XV of the Plan is hereby amended to read in
its entirety as follows:
B. Notwithstanding anything contained herein to the contrary,
following a Change in Control, the Plan shall continue in full force and
effect, and a Participant shall be entitled to receive incentive award
payments for
<PAGE>
outstanding Performance Shares and Dividend Performance Shares with respect
to any Performance Cycle that begins before and ends after the Change in
Control, equal to the excess of (i) the amount determined in accordance
with Articles IX and X hereof over (ii) the amount previously paid with
respect to such Performance Cycle pursuant to paragraph (iii) of Section A
above.
5. Paragraph (ii) of Section C of Article XV of the Plan is hereby
amended to read in its entirety as follows:
(ii) during any period of two consecutive years (not including any
period prior to January 7, 1994), individuals who at the beginning of such
period constitute the Board of Directors and any new director (other than a
director designated by a Person who has entered into an agreement with the
Company to effect a transaction described in paragraph (i), (iii) or (iv)
of this Change in Control definition or a director whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitations of proxies or consents by or on behalf of a Person
other than the Board of Directors) whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or
6. Except as expressly modified hereby, the terms and provisions of
the Plan remain in full force and effect.
<PAGE>
Exhibit 4
SECOND AMENDMENT TO SEVERANCE AGREEMENT
THIS SECOND AMENDMENT TO SEVERANCE AGREEMENT ("Second Amendment")
dated as of the __ day of ________, 1997, is made and entered into by and
between New York State Electric & Gas Corporation, a New York corporation (the
"Company") and ______________________ ("Executive") amending certain provisions
of the Severance Agreement, dated as of , as amended ("Severance Agreement") by
and between the Company and Executive.
WHEREAS, the Company has, effective January 1, 1997, amended its
Annual Executive Incentive Plan and the parties hereto wish to amend the
Severance Agreement to reflect the amended Annual Executive Incentive Plan and
any successor executive incentive compensation plans adopted by the Company; and
WHEREAS, the Company and Executive have entered into an Employee
Invention and Confidentiality Agreement dated ____________, 1997 and the parties
hereto wish to amend the Severance Agreement to reflect and incorporate certain
terms of that agreement into the Severance Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 4 of the Severance Agreement is hereby amended by
denominating the existing paragraph as Section 4.1 and by adding a
new Section 4.2 which reads in its entirety as follows:
4.2 The Executive agrees to comply with the provisions of
Sections 2, 3, 4, 5, 6, 7, 8, and 9 of the Employee Invention
and Confidentiality Agreement in consideration for the rights
and benefits set forth in this Agreement; these Sections of
the Employee Invention and Confidentiality Agreement, along
with definitions of defined terms used in such Sections, are
incorporated into this Agreement by reference.
2. Section 6.1 (A)(ii) of the Severance Agreement is hereby
amended to read in its entirety as
<PAGE>
- 2 -
follows:
(ii) the higher of (x) the amount paid to the Executive
pursuant to the Company's Annual Executive Incentive
Compensation Plan, Annual Executive Incentive Plan, or any
successor annual executive incentive compensation plan, as the
case may be, in the fiscal year preceding that in which the
Date of Termination occurs, or (y) the average amount so paid
in the three fiscal years preceding that in which the Change
in Control occurs.
3. Section 6.1 (B) of the Severance Agreement is hereby
amended to read in its entirety as follows:
(B) Notwithstanding any provision of the Company's Annual
Executive Incentive Plan or successor annual executive
incentive compensation plan (but provided that there shall be
no duplication of the benefits under such plans), the Company
shall pay to the Executive a lump sum amount, in cash, equal
to the sum of (i) any incentive compensation which has been
allocated or awarded to the Executive for a completed fiscal
year preceding the Date of Termination under the Annual
Executive Incentive Plan, or any successor annual executive
incentive compensation plan, as the case may be, but has not
yet been either (x) paid (pursuant to Section 5.2 hereof or
otherwise) or (y) deferred pursuant to the Deferred
Compensation Plan for Salaried Employees, and (ii) a pro rata
portion to the Date of Termination of the aggregate value of
any contingent incentive compensation award to the Executive
for any uncompleted fiscal year under the Annual Executive
Incentive Plan, or any successor annual executive incentive
compensation plan, calculated as to
<PAGE>
- 3 -
each such award in accordance with Article XI (A) (iii) of the
Annual Executive Incentive Plan or any comparable provision in
any successor annual executive incentive compensation plan;
4. Section 14 of the Severance Agreement is hereby amended by
A) denominating the existing paragraph as Section 14.1; B) amending
the first two sentences of the existing paragraph to read as
follows: "Subject to Section 14.2, all claims by the Executive for
benefits under this Agreement shall be directed to and determined by
the Board and shall be in writing. Subject to Section 14.2, any
denial by the Board of a claim for benefits under this Agreement
shall be delivered to the Executive in writing and shall set forth
the specific reasons for the denial and the specific provisions of
this Agreement relied upon."; and C) adding a new Section 14.2 which
reads in its entirety as follows:
14.2 Section 14.1 and anything herein to the contrary
notwithstanding, the Executive agrees that any breach or
violation of Sections 2, 3, 4, 5, 6, 7, 8, and/or 9 of the
Employee Invention and Confidentiality Agreement will result
in immediate and irreparable injury to the Company in amounts
difficult to ascertain. Therefore, upon any breach of any of
these Sections by the Executive, the Company shall be entitled
to proceed directly to court to obtain the remedies of
specific performance and injunctive relief (including but not
limited to temporary restraining orders, preliminary
injunctions and permanent injunctions) without the necessity
of posting a bond or other undertaking, or otherwise first
using the dispute resolution and/or arbitration procedures set
forth in Section 14.1 above.
5. Section 15 of the Severance Agreement is hereby amended by
adding a new paragraph (U) which reads in its entirety as follows:
<PAGE>
- 4 -
(U) "Employee Invention and Confidentiality Agreement"
means the Employee Invention and Confidentiality Agreement
between the Company and the Executive attached hereto as
"Appendix A."
6. Except as expressly modified hereby, the terms and
provisions of the Severance Agreement remain in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to
be duly executed and delivered as of the date first above written.
NEW YORK STATE ELECTRIC
& GAS CORPORATION
By:
----------------------------- -----------------------------
Name: [Name of Executive]
Title:
<PAGE>
Exhibit 5
THIRD AMENDMENT TO SEVERANCE AGREEMENT
(Executive and Senior Vice Presidents)
THIS THIRD AMENDMENT TO SEVERANCE AGREEMENT ("Third Amendment"),
dated as of the ___ day of _______________, 1997, is made and entered into by
and between New York State Electric & Gas Corporation, a New York corporation
(the "Company"), and ________________ (the "Executive") amending certain
provisions of the Severance Agreement, dated as of ___________, as amended
("Employment Agreement"), and __________________ (the "Executive") ("Severance
Agreement") by and between the Company and the Executive.
WHEREAS, the Company, in consultation with outside advisors, has
determined that it is in the best interest of the Company and its shareholders
to amend the Severance Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 6.1 of the Severance Agreement is hereby amended and
restated to read in its entirety as follows:
6.1 The Company shall pay the Executive the payments described
in this Section 6.1 (the "Severance Payments") upon the termination of the
Executive's employment following a Change in Control and during the term of
this Agreement, in addition to the payments and benefits described in
Section 5 hereof, unless such termination is (i) by the Company for Cause,
(ii) by reason of death, Disability or Retirement, or (iii) by the
Executive without Good Reason. For purposes of the immediately preceding
sentence, if a termination of the Executive's employment occurs prior to a
Change in Control, but following a Potential Change in Control in which a
Person has entered into an agreement with the Company the consummation of
which will constitute a Change in Control, such termination shall be deemed
to have followed a Change in Control and to have been (i) by the Company
without Cause, if the Executive's employment is terminated without Cause at
the direction of such Person, or (ii) by the Executive with Good Reason, if
the Executive terminates his employment with Good Reason and the act (or
failure to act) which constitutes Good Reason occurs following such
Potential Change in Control and at the direction of such Person.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company
shall pay to
<PAGE>
the Executive a lump-sum severance payment, in cash, equal to two and
one-half (2-1/2) times the sum of (i) the higher of the Executive's
annual base salary in effect immediately prior to the occurrence of
the event or circumstance upon which the Notice of Termination is
based or the Executive's annual base salary in effect immediately
prior to the Change in Control, and (ii) the higher of (x) the amount
paid to the Executive pursuant to the Company's Annual Executive
Incentive Compensation Plan, Annual Executive Incentive Plan, or any
successor annual executive incentive compensation plan, as the case
may be, for the fiscal year preceding that in which the Date of
Termination occurs, or (y) the average amount so paid for the three
fiscal years preceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of the Company's Annual
Executive Incentive Plan or successor annual executive incentive
compensation plan (but provided that there shall be no duplication of
the benefits under any such plans), the Company shall pay to the
Executive a lump-sum amount, in cash, equal to the sum of (i) any
incentive compensation which has been allocated or awarded to the
Executive for a completed fiscal year preceding the Date of
Termination under the Annual Executive Incentive Plan, or any
successor annual executive incentive compensation plan, as the case
may be, but has not yet been either (x) paid (pursuant to Section 5.2
hereof or otherwise) or (y) deferred pursuant to the Deferred
Compensation Plan for Salaried Employees, and (ii) a pro-rata portion
to the Date of Termination of the aggregate value of any contingent
incentive compensation award to the Executive for any uncompleted
fiscal year under the Annual Executive Incentive Plan or any successor
annual executive incentive compensation plan, calculated as to each
such award in accordance with Article XI(A)(iii) of the Annual
Executive Incentive Plan or any comparable provision in any successor
annual executive incentive compensation plan;
(C) In determining the retirement benefits to which the
Executive is entitled under the Company's Supplemental Executive
Retirement Plan, the Executive shall be given an additional two and
one-half (2-1/2) years of service credit at the Executive's highest
annual rate of compensation during the twelve (12) months immediately
preceding the Date of Termination and shall be deemed to be two and
one-half (2-1/2) years older than he is; such benefits shall be
determined without
-2-
<PAGE>
regard to any amendment to the Supplemental Executive Retirement Plan
made subsequent to a Change in Control and on or prior to the Date of
Termination, which amendment adversely affects in any manner the
computation of retirement benefits thereunder.
(D) For a thirty (30) month period after the Date of
Termination, the Company shall arrange to provide the Executive with
life, disability, accident and health insurance benefits substantially
similar to those which the Executive is receiving immediately prior to
the Notice of Termination (without giving effect to any reduction in
such benefits subsequent to a Change in Control if such reduction
constitutes Good Reason). Benefits otherwise receivable by the
Executive pursuant to this Section 6.1(D) shall be reduced to the
extent comparable benefits are actually received by or made available
to the Executive without cost during the thirty (30) month period
following the Executive's termination of employment (and any such
benefits actually received by the Executive shall be reported to the
Company by the Executive). If the benefits provided to the Executive
under this Section 6.1(D) shall result in a Gross-Up Payment pursuant
to Section 6.2, and these Section 6.1(D) benefits are thereafter
reduced pursuant to the immediately preceding sentence because of the
receipt of comparable benefits, the Gross-Up Payment shall be
recalculated so as to reflect that reduction, and the Executive shall
refund to the Company an amount equal to any calculated reduction in
the Gross-Up Payment, but only if, and to the extent, the Executive
receives a refund of any Excise Tax previously paid by the Executive
pursuant to Section 6.2 hereof.
(E) For a period equal to the lesser of (i) the period from
the Date of Termination to the date on which the Executive commences
employment with another employer or (ii) the thirty (30) month period
immediately following the Date of Termination, the Company shall
arrange to provide the Executive with outplacement counseling;
provided, however, that the aggregate cost of such counseling shall
not exceed five percent (5%) of the Executive's annual base salary in
effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based.
2. Section 6.2 of the Severance Agreement is hereby amended to read
in its entirety as follows:
-3-
<PAGE>
6.2 (A) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive on
account of a Change in Control, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment ("Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(B) Subject to the provisions of Section 6.2(C) hereof, all
determinations required to be made under this Section 6.2, including
whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be used in arriving at such determinations,
shall be made by the Company's principal outside accounting firm (the
"Accounting Firm") which shall provide detailed supporting calculations
both to the Board and the Executive within fifteen (15) business days of
the Date of Termination and/or such earlier date(s) as may be requested by
the Company or the Executive (each such date and the Date of Termination
shall be referred to as a "Determination Date", for purposes of this
Section 6.2(B) and Section 6.3 hereof). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. The initial Gross-Up
Payment, if any, as determined pursuant to this Section 6.2(B), shall be
paid by the Company to the Executive within five (5) days of the receipt of
the Accounting Firm's determination. If the Accounting Firm determines
that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on
the Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination by
the Accounting Firm under this Section 6.2(B) shall be binding upon the
Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the
-4-
<PAGE>
Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 6.2(C) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(C) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of an Underpayment. Such notification shall be
given as soon as practicable but no later than ten (10) business days after
the Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which he
gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceeding relating to
such claim;
-5-
<PAGE>
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6.2(C), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(D) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 6.2(C) hereof, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
6.2(C) hereof) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Execu-
-6-
<PAGE>
tive of an amount advanced by the Company pursuant to Section 6.2(C)
hereof, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid.
3. Section 6.3 of the Severance Agreement is hereby amended to read in
its entirety as follows:
1. The payments provided for in Section 6.1 hereof (other than
Section 6.1(C) and (D)) shall be made not later than the fifth day
following each Determination Date, provided, however, that if the amounts
of such payments cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an estimate, as determined
by the Executive, of the minimum amount of such payments to which the
Executive is clearly entitled and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth (30th) day after each Determination Date. In the
event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a
loan by the Company to the Executive, payable on the fifth (5th) business
day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
4. The definition of Base Amount in Section 15(A) of the Severance
Agreement is hereby deleted in its entirety and replaced with the words
"Intentionally Omitted".
5. Paragraph (II) of Section 15(E) of the Severance Agreement is hereby
amended to read in its entirety as follows:
(II) during any period of two consecutive years (not
including any period prior to the date of this Agreement),
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by a
Person who has entered into an agreement with the Company to
effect a transaction described in paragraph (I), (III) or (IV) of
this Change in Control definition or a director whose initial
assumption of office occurs as a result of an actual
-7-
<PAGE>
or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitations
of proxies or consents by or on behalf of a Person other than the
Board) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or
6. Section 15(F) of the Severance Agreement is hereby amended to read in
its entirety as follows:
(F) "Change-in-Control Protective Period" shall mean the period from
the occurrence of a Change in Control until the later of (i) the second
anniversary of such Change in Control or, (ii) if such Change in Control
shall be caused by the shareholder approval of a merger or consolidation,
as described in Section 15(E)(III) hereof, the second anniversary of the
consummation of such merger or consolidation, provided, however, that in
the event that the agreement providing for such merger or consolidation,
as described in Section 15(E)(III) hereof, is terminated without
consummation of such merger or consolidation, the Change-in-Control
Protective Period shall expire 90 days following such termination, unless
there has occurred another event constituting a Change in Control, in which
case the Change-in-Control Protective Period shall expire upon the date
described herein with respect to such subsequent Change in Control.
7. Section 15(L) of the Severance Agreement is hereby amended to read in
its entirety as follows:
(L) "Excise Tax" shall have the meaning stated in Section 6.2(A)
hereof.
8. Section 15(N)(I) of the Severance Agreement is hereby amended to read
in its entirety as follows:
(I) the assignment to the Executive of any duties inconsistent with
the Executive's status as an executive officer of the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the Change in
Control (including, without limitation, any
-8-
<PAGE>
such alteration attributable to the fact that the Company may no longer be
a public company);
9. Section 15(N)(II) of the Severance Agreement is hereby amended to
read in its entirety as follows:
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time;
10. Section 15(N)(IV) of the Severance Agreement is hereby amended to
read in its entirety as follows:
(IV) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
11. The definition of Total Payments in Section 15(T) of the
Severance Agreement is hereby deleted in its entirety and replaced with the
words "Intentionally Omitted".
12. Except as expressly modified hereby, the terms and provisions of
the Severance Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Third Amendment to be
duly executed and delivered by their respective duly authorized representatives
as of the date first above written.
NEW YORK STATE ELECTRIC EXECUTIVE
& GAS CORPORATION
By: ________________________ _________________________
-9-
<PAGE>
Exhibit 7
THIRD AMENDMENT TO SEVERANCE AGREEMENT
(Vice Presidents)
THIS THIRD AMENDMENT TO SEVERANCE AGREEMENT ("Third Amendment") dated
as of the ___ day of _______________, 1997, is made and entered into by and
between New York State Electric & Gas Corporation, a New York corporation (the
"Company") and __________________ (the "Executive") amending certain provisions
of the Severance Agreement, dated as of ________________, as amended ("Severance
Agreement") by and between the Company and the Executive.
WHEREAS, the Company, in consultation with outside advisors, has
determined that it is in the best interest of the Company and its shareholders
to amend the Severance Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 6.1 of the Severance Agreement is hereby amended and
restated to read in its entirety as follows:
6.1 The Company shall pay the Executive the payments described
in this Section 6.1 (the "Severance Payments") upon the termination of the
Executive's employment following a Change in Control and during the term of
this Agreement, in addition to the payments and benefits described in
Section 5 hereof, unless such termination is (i) by the Company for Cause,
(ii) by reason of death, Disability or Retirement, or (iii) by the
Executive without Good Reason. For purposes of the immediately preceding
sentence, if a termination of the Executive's employment occurs prior to a
Change in Control, but following a Potential Change in Control in which a
Person has entered into an agreement with the Company the consummation of
which will constitute a Change in Control, such termination shall be deemed
to have followed a Change in Control and to have been (i) by the Company
without Cause, if the Executive's employment is terminated without Cause at
the direction of such Person, or (ii) by the Executive with Good Reason, if
the Executive terminates his employment with Good Reason and the act (or
failure to act) which constitutes Good Reason occurs following such
Potential Change in Control and at the direction of such Person.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company
shall pay to
<PAGE>
the Executive a lump-sum severance payment, in cash, equal to two (2)
times the sum of (i) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based or the
Executive's annual base salary in effect immediately prior to the
Change in Control, and (ii) the higher of (x) the amount paid to the
Executive pursuant to the Company's Annual Executive Incentive
Compensation Plan, Annual Executive Incentive Plan, or any successor
annual executive incentive compensation plan, as the case may be, for
the fiscal year preceding that in which the Date of Termination
occurs, or (y) the average amount so paid for the three fiscal years
preceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of the Company's Annual
Executive Incentive Plan or successor annual executive incentive
compensation plan (but provided that there shall be no duplication of
the benefits under any such plans), the Company shall pay to the
Executive a lump-sum amount, in cash, equal to the sum of (i) any
incentive compensation which has been allocated or awarded to the
Executive for a completed fiscal year preceding the Date of
Termination under the Annual Executive Incentive Plan, or any
successor annual executive incentive compensation plan, as the case
may be, but has not yet been either (x) paid (pursuant to Section 5.2
hereof or otherwise) or (y) deferred pursuant to the Deferred
Compensation Plan for Salaried Employees, and (ii) a pro-rata portion
to the Date of Termination of the aggregate value of any contingent
incentive compensation award to the Executive for any uncompleted
fiscal year under the Annual Executive Incentive Plan or any successor
annual executive incentive compensation plan, calculated as to each
such award in accordance with Article XI(A)(iii) of the Annual
Executive Incentive Plan or any comparable provision in any successor
annual executive incentive compensation plan;
(C) In determining the retirement benefits to which the
Executive is entitled under the Company's Supplemental Executive
Retirement Plan, the Executive shall be given an additional two (2)
years of service credit at the Executive's highest annual rate of
compensation during the twelve (12) months immediately preceding the
Date of Termination and shall be deemed to be two (2) years older than
he is; such benefits shall be determined without regard to any
amendment to
-2-
<PAGE>
the Supplemental Executive Retirement Plan made subsequent to a Change
in Control and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of retirement benefits
thereunder.
(D) For a twenty-four (24) month period after the Date of
Termination, the Company shall arrange to provide the Executive with
life, disability, accident and health insurance benefits substantially
similar to those which the Executive is receiving immediately prior to
the Notice of Termination (without giving effect to any reduction in
such benefits subsequent to a Change in Control if such reduction
constitutes Good Reason). Benefits otherwise receivable by the
Executive pursuant to this Section 6.1(D) shall be reduced to the
extent comparable benefits are actually received by or made available
to the Executive without cost during the twenty-four (24) month period
following the Executive's termination of employment (and any such
benefits actually received by the Executive shall be reported to the
Company by the Executive). If the benefits provided to the Executive
under this Section 6.1(D) shall result in a Gross-Up Payment pursuant
to Section 6.2, and these Section 6.1(D) benefits are thereafter
reduced pursuant to the immediately preceding sentence because of the
receipt of comparable benefits, the Gross-Up Payment shall be
recalculated so as to reflect that reduction, and the Executive shall
refund to the Company an amount equal to any calculated reduction in
the Gross-Up Payment, but only if, and to the extent, the Executive
receives a refund of any Excise Tax previously paid by the Executive
pursuant to Section 6.2 hereof.
(E) For a period equal to the lesser of (i) the period from
the Date of Termination to the date on which the Executive commences
employment with another employer or (ii) the twenty-four (24) month
period immediately following the Date of Termination, the Company
shall arrange to provide the Executive with outplacement counseling;
provided, however, that the aggregate cost of such counseling shall
not exceed five percent (5%) of the Executive's annual base salary in
effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based.
2. Section 6.2 of the Severance Agreement is hereby amended to read
in its entirety as follows:
-3-
<PAGE>
6.2 (A) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive on
account of a Change in Control, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment ("Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(B) Subject to the provisions of Section 6.2(C) hereof, all
determinations required to be made under this Section 6.2, including
whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be used in arriving at such determinations,
shall be made by the Company's principal outside accounting firm (the
"Accounting Firm") which shall provide detailed supporting calculations
both to the Board and the Executive within fifteen (15) business days of
the Date of Termination and/or such earlier date(s) as may be requested by
the Company or the Executive (each such date and the Date of Termination
shall be referred to as a "Determination Date", for purposes of this
Section 6.2(B) and Section 6.3 hereof). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. The initial Gross-Up
Payment, if any, as determined pursuant to this Section 6.2(B), shall be
paid by the Company to the Executive within five (5) days of the receipt of
the Accounting Firm's determination. If the Accounting Firm determines
that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on
the Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination by
the Accounting Firm under this Section 6.2(B) shall be binding upon the
Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the
-4-
<PAGE>
Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 6.2(C) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(C) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of an Underpayment. Such notification shall be
given as soon as practicable but no later than ten (10) business days after
the Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the twenty-four (24) day period following the date on which
he gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceeding relating to
such claim;
-5-
<PAGE>
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6.2(C), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(D) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 6.2(C) hereof, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
6.2(C) hereof) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Execu-
-6-
<PAGE>
tive of an amount advanced by the Company pursuant to Section 6.2(C)
hereof, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of twenty-four (24) days after such determination, then
such advance shall be forgiven and shall not be required to be repaid.
3. Section 6.3 of the Severance Agreement is hereby amended to read
in its entirety as follows:
6.3 The payments provided for in Section 6.1 hereof (other than
Section 6.1(C) and (D)) shall be made not later than the fifth day
following each Determination Date, provided, however, that if the
amounts of such payments cannot be finally determined on or before
such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Executive, of the minimum amount of
such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth
(30th) day after each Determination Date. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to the Executive, payable on the fifth (5th) business day
after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
4. The definition of Base Amount in Section 15(A) of the Severance
Agreement is hereby deleted in its entirety and replaced with the words
"Intentionally Omitted".
5. Paragraph (II) of Section 15(E) of the Severance Agreement is
hereby amended to read in its entirety as follows:
(II) during any period of two consecutive years (not
including any period prior to the date of this Agreement),
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by a
Person who has entered into an agreement with the Company to
effect a transaction described in paragraph (I), (III) or (IV) of
this Change in Control definition or a director whose initial as-
-7-
<PAGE>
sumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitations of proxies
or consents by or on behalf of a Person other than the Board)
whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or
6. Section 15(F) of the Severance Agreement is hereby amended to
read in its entirety as follows:
(F) "Change-in-Control Protective Period" shall mean the period
from the occurrence of a Change in Control until the later of (i)
the second anniversary of such Change in Control or, (ii) if such
Change in Control shall be caused by the shareholder approval of a
merger or consolidation, as described in Section 15(E)(III) hereof,
the second anniversary of the consummation of such merger or
consolidation, provided, however, that in the event that the agreement
providing for such merger or consolidation, as described in Section
15(E)(III) hereof, is terminated without consummation of such merger
or consolidation, the Change-in-Control Protective Period shall expire
90 days following such termination, unless there has occurred another
event constituting a Change in Control, in which case the
Change-in-Control Protective Period shall expire upon the date
described herein with respect to such subsequent Change in Control.
7. Section 15(L) of the Severance Agreement is hereby amended to
read in its entirety as follows:
(L) "Excise Tax" shall have the meaning stated in Section 6.2(A)
hereof.
8. Section 15(N)(I) of the Severance Agreement is hereby amended to
read in its entirety as follows:
(I) the assignment to the Executive of any duties inconsistent
with the Executive's status as an executive officer of the Company or
a substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the Change
in Control (including, without limitation, any
-8-
<PAGE>
such alteration attributable to the fact that the Company may no
longer be a public company);
9. Section 15(N)(II) of the Severance Agreement is hereby amended to
read in its entirety as follows:
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time;
10. Section 15(N)(IV) of the Severance Agreement is hereby amended to
read in its entirety as follows:
(IV) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
11. The definition of Total Payments in Section 15(T) of the
Severance Agreement is hereby deleted in its entirety and replaced with the
words "Intentionally Omitted".
12. Except as expressly modified hereby, the terms and provisions of
the Severance Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Third Amendment to be
duly executed and delivered by their respective duly authorized representatives
as of the date first above written.
NEW YORK STATE ELECTRIC & EXECUTIVE
& GAS CORPORATION
By:
---------------------------- ------------------------------
-9-
<PAGE>
Exhibit 8
FORM OF SEVERANCE AGREEMENT
THIS AGREEMENT, dated _________, 199_, is made by and between New York
State Electric & Gas Corporation, a New York corporation (the "Company"), and
___________ (the "Executive").
WHEREAS the Company considers it essential to the best interests of its
shareholders to foster the continuous employment of key management personnel;
and
WHEREAS the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly-held corporations, the possibility of
a Change in Control (as defined in the last Section hereof) exists and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS the Board has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 1998; provided, however,
that commencing on January 1, 1999 and each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company (upon
authorization by the Board) or the Executive shall have given notice not to
extend this Agreement or a Change in Control shall have occurred prior to
such January 1; provided, however, if a Change in Control shall have occurred
during the term of this Agreement, this Agreement shall continue in effect
until at least the end of the Change-in-Control Protective Period.
3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions
<PAGE>
described herein, to pay the Executive the "Severance Payments" described in
Section 6.1 hereof and the other payments and benefits described herein in
the event the Executive's employment with the Company is terminated following
a Change in Control and during the term of this Agreement. Except as provided
by the second sentence of Section 6.1 hereof or the last sentence of Section
9.1 hereof, no amount or benefit shall be payable under this Agreement unless
there shall have been a termination of the Executive's employment with the
Company following a Change in Control. This Agreement shall not be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the
Company.
4. The Executive's Covenants.
4.1. The Executive agrees that, subject to the terms and conditions
of this Agreement, in the event of a Potential Change in Control during the
term of this Agreement, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is two (2) years from the date
of such Potential Change of Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive's employment
for Good Reason, by reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive's employment for any reason.
4.2. The Executive agrees to comply with the provisions of Sections
2, 3, 4, 5, 6, 7, 8, and 9 of the Employee Invention and Confidentiality
Agreement in consideration for the rights and benefits set forth in this
Agreement; these Sections of the Employee Invention and Confidentiality
Agreement, along with definitions of defined terms used in such Sections, are
incorporated into this Agreement by reference.
5. Compensation Other Than Severance Payments.
5.1. Following a Change in Control and during the term of this
Agreement, during any period that the Executive fails to perform the Executive's
full-time duties with the Company as a result of incapacity due to physical or
mental illness, the Company shall pay the Executive's base salary to the
Executive at the rate in effect at the commencement of any such period, together
with all compensation and benefits payable to the Executive under the terms of
any compensation or benefit plan, program or arrangement maintained by the
Company during such period, until the Executive's employment is terminated by
the Company for Disability; provided, however, that such base
-2-
<PAGE>
salary payments shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such base salary payment under
disability benefit plans of the Company or under the Social Security disability
insurance program, which amounts were not previously applied to reduce any such
base salary payments.
5.2. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's base salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
5.3. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's normal post-termination compensation and benefits to
the Executive as such payments become due. Subject to Section 6.1 hereof, such
post-termination compensation and benefits shall be determined under, and paid
in accordance with, the Company's retirement, insurance and other compensation
or benefit plans, programs and arrangements (other than this Agreement).
6. Severance Payments.
6.1. The Company shall pay the Executive the payments described in
this Section 6.1 (the "Severance Payments") upon the termination of the
Executive's employment following a Change in Control and during the term of this
Agreement, in addition to the payments and benefits described in Section 5
hereof, unless such termination is (i) by the Company for Cause, (ii) by reason
of death, Disability or Retirement, or (iii) by the Executive without Good
Reason. For purposes of the immediately preceding sentence, if a termination of
the Executive's employment occurs prior to a Change in Control, but following a
Potential Change in Control in which a Person has entered into an agreement with
the Company the consummation of which will constitute a Change in Control, such
termination shall be deemed to have followed a Change in Control and to have
been (i) by the Company without Cause, if the Executive's employment is
terminated without Cause at the direction of such Person, or (ii) by the
Executive with Good Reason, if the Executive terminates his employment with Good
Reason and the act (or failure to act) which constitutes Good Reason occurs
following
-3-
<PAGE>
such Potential Change in Control and at the direction of such Person.
(A) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump-sum severance payment, in cash, equal to two (2) times the
sum of (i) the higher of the Executive's annual base salary in effect
immediately prior to the occurrence of the event or circumstance upon which
the Notice of Termination is based or the Executive's annual base salary in
effect immediately prior to the Change in Control, and (ii) the higher of
(x) the amount paid to the Executive pursuant to the Company's Annual
Executive Incentive Compensation Plan, Annual Executive Incentive Plan, or
any successor annual executive incentive compensation plan, as the case may
be, for the fiscal year preceding that in which the Date of Termination
occurs, or (y) the average amount so paid for the three fiscal years
preceding that in which the Change in Control occurs.
(B) Notwithstanding any provision of the Company's Annual
Executive Incentive Plan or successor annual executive incentive
compensation plan (but provided that there shall be no duplication of the
benefits under any such plans), the Company shall pay to the Executive a
lump-sum amount, in cash, equal to the sum of (i) any incentive
compensation which has been allocated or awarded to the Executive for a
completed fiscal year preceding the Date of Termination under the Annual
Executive Incentive Plan, or any successor annual executive incentive
compensation plan, as the case may be, but has not yet been either (x) paid
(pursuant to Section 5.2 hereof or otherwise) or (y) deferred pursuant to
the Deferred Compensation Plan for Salaried Employees, and (ii) a pro-rata
portion to the Date of Termination of the aggregate value of any contingent
incentive compensation award to the Executive for any uncompleted fiscal
year under the Annual Executive Incentive Plan or any successor annual
executive incentive compensation plan, calculated as to each such award in
accordance with Article XI(A)(iii) of the Annual Executive Incentive Plan
or any comparable provision in any successor annual executive incentive
compensation plan;
(C) In determining the retirement benefits to which the
Executive is entitled under the Company's Supplemental Executive Retirement
Plan, the Executive shall be given an additional two (2) years of service
-4-
<PAGE>
credit at the Executive's highest annual rate of compensation during the
twelve (12) months immediately preceding the Date of Termination and shall
be deemed to be two (2) years older than he is; such benefits shall be
determined without regard to any amendment to the Supplemental Executive
Retirement Plan made subsequent to a Change in Control and on or prior to
the Date of Termination, which amendment adversely affects in any manner
the computation of retirement benefits thereunder.
(D) For a twenty-four (24) month period after the Date of
Termination, the Company shall arrange to provide the Executive with life,
disability, accident and health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control if such reduction constitutes Good
Reason). Benefits otherwise receivable by the Executive pursuant to this
Section 6.1(D) shall be reduced to the extent comparable benefits are
actually received by or made available to the Executive without cost during
the twenty-four (24) month period following the Executive's termination of
employment (and any such benefits actually received by the Executive shall
be reported to the Company by the Executive). If the benefits provided to
the Executive under this Section 6.1(D) shall result in a Gross-Up Payment
pursuant to Section 6.2, and these Section 6.1(D) benefits are thereafter
reduced pursuant to the immediately preceding sentence because of the
receipt of comparable benefits, the Gross-Up Payment shall be recalculated
so as to reflect that reduction, and the Executive shall refund to the
Company an amount equal to any calculated reduction in the Gross-Up
Payment, but only if, and to the extent, the Executive receives a refund of
any Excise Tax previously paid by the Executive pursuant to Section 6.2
hereof.
(E) For a period equal to the lesser of (i) the period from the Date
of Termination to the date on which the Executive commences employment with
another employer or (ii) the twenty-four (24) month period immediately
following the Date of Termination, the Company shall arrange to provide the
Executive with outplacement counseling; provided, however, that the
aggregate cost of such counseling shall not exceed five percent (5%) of the
Executive's annual base salary in effect immediately prior to the
occurrence of the event
-5-
<PAGE>
or circumstance upon which the Notice of Termination is based.
6.2 (A) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive on account of a Change in
Control, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise (a "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment ("Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(B) Subject to the provisions of Section 6.2(C) hereof, all
determinations required to be made under this Section 6.2, including
whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be used in arriving at such determinations,
shall be made by the Company's principal outside accounting firm (the
"Accounting Firm") which shall provide detailed supporting calculations
both to the Board and the Executive within fifteen (15) business days of
the Date of Termination and/or such earlier date(s) as may be requested by
the Company or the Executive (each such date and the Date of Termination
shall be referred to as a "Determination Date", for purposes of this
Section 6.2(B) and Section 6.3 hereof). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. The initial Gross-Up
Payment, if any, as determined pursuant to this Section 6.2(B), shall be
paid by the Company to the Executive within five (5) days of the receipt of
the Accounting Firm's determination. If the Accounting Firm determines
that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on
the Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination by
the Accounting Firm under this Section 6.2(B) shall be binding upon
-6-
<PAGE>
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 6.2(C) and the Executive thereafter is required to make
a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(C) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of an Underpayment. Such notification shall be given as
soon as practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the twenty-four (24) day period following the date on which
he gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceeding relating to such
claim;
-7-
<PAGE>
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6.2(C), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(D) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 6.2(C) hereof, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
6.2(C) hereof) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt
-8-
<PAGE>
by the Executive of an amount advanced by the Company pursuant to Section
6.2(C) hereof, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of twenty-four (24) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid.
6.3 The payments provided for in Section 6.1 hereof (other than
Section 6.1(C) and (D)) shall be made not later than the fifth day following
each Determination Date, provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined by the Executive, of the
minimum amount of such payments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the thirtieth (30th) day after each
Determination Date. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth (5th)
business day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive as a result of a termination which entitles
the Executive to the Severance Payments (including all such fees and expenses,
if any, incurred in disputing any such termination or in seeking in good faith
to obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of the Code to any payment or benefit provided
hereunder). Such payments shall be made within five (5) business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures.
7.1 Notice of Termination. After a Change in Control and during the
term of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance
-9-
<PAGE>
with Section 10 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
Further, a Notice of Termination for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of
the Board which was called and held for the purpose of considering such
termination (after reasonable notice to the Executive and an opportunity for
the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive
was guilty of conduct set forth in clause (i) or (ii) of the definition of
Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment after a Change in
Control and during the term of this Agreement, shall mean (i) if the
Executive's employment is terminated by his death, the date of his death,
(ii) if the Executive's employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall
not have returned to the full-time performance of the Executive's duties
during such thirty (30) day period), and (iii) if the Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause)
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Termination is given).
8. No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated during the term of this Agreement,
the Executive is not required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the Company pursuant to
Section 6. Further, the amount of any payment or benefit provided for in
Section 6 (other than Section 6.1(D)) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
-10-
<PAGE>
9. Successors; Binding Agreement.
9.1. In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate
the Executive's employment for Good Reason after a Change in Control, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
-11-
<PAGE>
To the Company:
New York State Electric & Gas Corporation
Post Office Box 5224
Binghamton, NY 13902-5224
Attention: Corporate Secretary
To the Executive:
_______________________________
_______________________________
_______________________________
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
New York. All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. There
shall be withheld from any payments provided for hereunder any amounts
required to be withheld under federal, state or local law and any additional
withholding amounts to which the Executive has agreed. The obligations of the
Company and the Executive under Sections 6 and 7 shall survive the expiration
of the term of this Agreement.
12. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or same instrument.
enforceability of any other provision of this Agreement, which shall remain
in full force and effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1. Subject to Section 14.2, all claims by the Executive for
benefits under this Agreement shall be directed to
-12-
<PAGE>
and determined by the Board and shall be in writing. Subject to Section
14.2, any denial by the Board of a claim for benefits under this Agreement
shall be delivered to the Executive in writing and shall set forth the
specific reasons for the denial and the specific provisions of this Agreement
relied upon. The Board shall afford a reasonable opportunity to the
Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within
sixty (60) days after notification by the Board that the Executive's claim
has been denied. To the extent permitted by applicable law, any further
dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in Binghamton, New York in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
14.2. Section 14.1 and anything herein to the contrary
notwithstanding, the Executive agrees that any breach or violation of
Sections 2, 3, 4, 5, 6, 7, 8, and/or 9 of the Employee Invention and
Confidentiality Agreement will result in immediate and irreparable injury to
the Company in amounts difficult to ascertain. Therefore, upon any breach of
any of these Sections by the Executive, the Company shall be entitled to
proceed directly to court to obtain the remedies of specific performance and
injunctive relief (including but not limited to temporary restraining orders,
preliminary injunctions and permanent injunctions) without the necessity of
posting a bond or other undertaking, or otherwise first using the dispute
resolution and/or arbitration procedures set forth in Section 14.1 above.
15. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated below:
(A) Intentionally Omitted.
(B) "Beneficial Owner" shall have the meaning defined in Rule 13d3
under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment, after any Change in Control (or after any Potential Change in
Control under the circumstances described in the second sentence of Section
6.1 hereof), shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's incapacity due to
-13-
<PAGE>
physical or mental illness or any such actual or anticipated failure after
the issuance of a Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1) after a written demand for substantial performance
is delivered to the Executive by the Board, which demand specifically
identifies the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties, or (ii) the willful engaging
by the Executive in conduct which is demonstrably and materially injurious to
the Company or its subsidiaries, monetarily or otherwise. For purposes of
clauses (i) and (ii) of this definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that
the Executive's act, or failure to act, was in the best interest of the
Company.
(E) A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding
securities; or
(II) during any period of two consecutive years (not
including any period prior to the date of this Agreement), individuals
who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered
into an agreement with the Company to effect a transaction described
in paragraph (I), (III) or (IV) of this Change in Control definition
or a director whose initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitations of
proxies or consents by or on behalf of a Person other than the Board)
whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute a majority thereof; or
-14-
<PAGE>
(III) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no Person acquires more than 50% of the combined voting power
of the Company's then outstanding securities; or
(IV) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
(F) "Change-in-Control Protective Period" shall mean the period
from the occurrence of a Change in Control until the later of (i) the second
anniversary of such Change in Control or, (ii) if such Change in Control
shall be caused by the shareholder approval of a merger or consolidation, as
described in Section 15(E)(III) hereof, the second anniversary of the
consummation of such merger or consolidation, provided, however, that in the
event that the agreement providing for such merger or consolidation, as
described in Section 15(E)(III) hereof, is terminated without consummation of
such merger or consolidation, the Change-in-Control Protective Period shall
expire 90 days following such termination, unless there has occurred another
event constituting a Change-in-Control, in which case the Change-in-Control
Protective Period shall expire upon the date described herein with respect to
such subsequent Change in Control.
(G) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(H) "Company" shall mean New York State Electric & Gas Corporation
and any successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise (except in
determining, under Section 15(E) hereof, whether or not any Change in Control
of the Company has occurred in connection with such succession).
-15-
<PAGE>
(I) "Date of Termination" shall have the meaning stated in Section
7.2 hereof.
(J) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for the maximum number of months applicable to the Executive under
the Company's Disability Policy for Salaried Employees (but in no event for
less than six (6) consecutive months), the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30)
days after such Notice of Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's duties.
(K) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(L) "Excise Tax" shall have the meaning stated in Section 6.2(A)
hereof.
(M) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(N) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or after any Potential
Change in Control under the circumstances described in the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by
the Company to act, unless, in the case of any act or failure to act
described in paragraph (I), (V), (VI) or (VII) below, such act or failure to
act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent
with the Executive's status as an executive officer of the Company or
a substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change-in-Control (including, without limitation, any such alteration
attributable to the fact that the Company may no longer be a public
company);
-16-
<PAGE>
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time;
(III) the relocation of the Company's principal executive offices
to a location more than fifty (50) miles from the location of such
offices immediately prior to the Change in Control or the Company's
requiring the Executive to be based anywhere other than the Company's
principal executive offices except for required travel on the
Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(IV) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's Annual
Executive Incentive Plan, Long Term Executive Incentive Share Plan,
and Supplemental Executive Retirement Plan, or any substitute plans
adopted prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company
to continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of the Executive's participation relative to other participants,
as existed at the time of the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical,
health and accident, or disability plans in which the Executive was
participating at the time of the Change in Control, the taking of any
action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any
-17-
<PAGE>
material fringe benefit enjoyed by the Executive at the time of the
Change in Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the Executive
is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in effect at the
time of the Change in Control; or
(VII) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7.1; for purposes of this Agreement, no
such purported termination shall be effective. The Executive's right
to terminate the Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure
to act constituting Good Reason hereunder.
(O) "Notice of Termination" shall have the meaning stated in Section
7.1 hereof.
(P) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(Q) "Potential Change in Control" shall be deemed to have occurred
if the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(I) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an intention to
take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(III) any Person (x) is or becomes the Beneficial Owner, directly
or indirectly, (y) discloses directly or indirectly to the Company (or
publicly) a plan or
-18-
<PAGE>
intention to become the Beneficial Owner, directly or indirectly, or
(z) makes a filing under the Hart Scott Rodino Antitrust Improvements
Act of 1976, as amended, with respect to securities to become the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 9.9% or more of the combined voting power of the
Company's then outstanding securities; or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(R) "Retirement" shall be deemed the reason for the termination by
the Company or the Executive of the Executive's employment if such employment
is terminated in accordance with the Company's retirement policy, not
including early retirement, generally applicable to its salaried employees,
as in effect immediately prior to the Change in Control, or in accordance
with any retirement arrangement established with the Executive's consent with
respect to the Executive.
(S) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
(T) Intentionally Omitted.
(U) "Employee Invention and Confidentiality Agreement" means the
Employee Invention and Confidentiality Agreement between the Company and the
Executive attached hereto as "Appendix A."
NEW YORK STATE ELECTRIC &
GAS CORPORATION
By
------------------------------
Name:
Title:
--------------------------------
(the "Executive")
-19-
<PAGE>
Meeting Minutes _________________________________
Entered by: O.J. Wood Date: 06/06/97
Last modified by O.J. Wood on 06/06/97 at 10:39 AM
Major Category: Miscellaneous
Document Type: Severance Agreement
Date of Meeting: 01/01/97 - Vice President-eff. 1/1/97
(Includes Amendments Nos. 1 and 2)
-20-
<PAGE>
Exhibit 9
EMPLOYEE INVENTION AND CONFIDENTIALITY AGREEMENT
EXISTING EXECUTIVE
THIS EMPLOYEE INVENTION, AND CONFIDENTIALITY AGREEMENT (this
"Agreement," which includes all appendices and schedules) is made as of this
_____ day of ________________, 19__, by and between NEW YORK STATE ELECTRIC &
GAS CORPORATION (the "Company") and ____________________________ ("me" or "I").
WHEREAS, during the course of my employment, the Company will entrust to
me as a corporate executive highly sensitive confidential and proprietary
information and will make a substantial investment in developing my skills and
expertise as a Manager;
WHEREAS, the Company has a vital interest in maintaining its confidential
information and trade secrets, as well as rights to inventions, since doing so
allows the Company to compete fairly and enhances the value of the Company to
shareholders and job security for employees;
WHEREAS, the Company invests substantial resources in developing the
skills and expertise of its employees and in forging strong and profitable
relationships with its customers; and
WHEREAS, the Company desires to continue to procure my services and I am
willing to be employed with the Company upon the terms and subject to the
conditions set forth below;
NOW, THEREFORE, in consideration of my continued employment with the
Company and the other good and valuable consideration described in this
Agreement, I agree to be employed by the Company, upon the following terms and
conditions:
1. Definitions. The definitions of certain capitalized terms used in this
Agreement are provided in Section 17 hereof or parenthetically in the body of
this Agreement.
2. Disclosure and Assignment of Inventions. With respect to Inventions
made or conceived by me, whether or not during my hours of employment or with
the use of Company facilities, materials, or personnel, either solely or jointly
with another or others, during (i) my employment with the Company, or (ii)
within one (1) year after termination of my employment, without royalty or other
consideration to me therefor:
2.1. I shall inform the Company promptly and fully of such Invention
by a written report setting forth in detail the procedures employed and the
results achieved. I shall submit a report to the Company upon completion of any
and all studies or research projects undertaken on the Company's behalf, whether
or not a given project has, in my opinion, resulted in an Invention.
- 1 -
<PAGE>
2.2. I shall apply, at the Company's request and expense, for United
States and foreign letters patent or copyright registration either in my name or
otherwise as the Company shall desire.
2.3. I shall assign to the Company all of my rights to such
Inventions, and to applications for United States and/or foreign letters patent
and copyrights, and to United States and/or foreign letters patent and
copyrights granted upon or issued in respect of such Inventions.
2.4. I shall acknowledge and deliver promptly to the Company
(without charge to the Company but at its expense) such written instruments and
do such other acts, such as giving testimony in support of my inventorship or
original authorship, as may be necessary in the opinion of the Company to obtain
and maintain United States and/or foreign letters patent and copyright
registrations and to vest the entire right and title thereunto in the Company.
2.5 I will not disclose to any third party outside of the Company,
or otherwise publish, any Invention without the Company's prior written
permission. These restrictions will not apply to Inventions in the public domain
through disclosures authorized by the Company.
3. Rights in Other Matter. I agree that:
3.1. The Company shall have the royalty-free right to use in its
businesses, and to use, make, and sell products, processes, and/or services
derived from any inventions, discoveries, concepts, and ideas, whether or not
patentable or copyrightable, including but not limited to processes, methods,
formulas, and techniques, as well as improvements thereof or know-how related
thereto, which are not within the scope of Inventions but which are conceived or
made by me during the hours which I am employed by the Company or with the use
or assistance of the Company's facilities, materials, or personnel.
3.2. All Works created by me, both past and future, during my
employment by the Company will be and remain exclusively the property of the
Company. Each such Work is a "work made for hire" and the Company may file
applications to register copyright as author thereof. I assign to the Company
all rights, including all copyright rights throughout the world, including all
renewals and extensions thereof, in and to all Works created by me, both past
and future, during my employment by the Company. I will take whatever steps and
do whatever acts the Company requests, including but not limited to, placement
of the Company's proper copyright notice on such Works to secure or aid in
securing copyright protection and will assist the Company or its nominees in
filing applications to register claims of copyright in such Works. I will not
reproduce, distribute, display publicly, or perform publicly, alone or in
combination with any data processing or network system, any Works of the Company
without the written permission of the Company.
- 2 -
<PAGE>
4. Confidentiality. I acknowledge that all Confidential Information is and
shall at all times remain the property of the Company. I agree that, except as
required in my duties to the Company, I will never, directly, indirectly or
otherwise use, disseminate, disclose, lecture upon or publish articles
concerning, Confidential Information without having first obtained written
permission from the Company to do so. I will safeguard and maintain on Company
premises, to the extent possible in the performance of my work for the Company,
all documents and things that contain or embody Confidential Information. These
restrictions will not apply, however, to any information in the public domain
through disclosure authorized by the Company.
5. Return of Documents. Upon termination of my employment with the
Company, I will return to or leave with the Company all documents, records,
notebooks, and other repositories of or containing Confidential Information,
including all copies thereof, as well as all originals and all copies of Works,
or other tangible Company property, whether prepared by me or others, then in my
possession or under my control.
6. Nonassertion. Except for matters listed in Appendix A to this
Agreement, I will not assert any rights under any inventions, discoveries,
concepts, or ideas or improvements thereof, or know how related thereto, as
having been made or acquired by me prior to my being employed by the Company, or
since the date of my employment and not otherwise covered by the terms of this
Agreement.
7. Nonsolicitation. Subject to the provisions of Section 10 and
independent of any obligations I might have under Section 9, for a period of one
(1) year after termination of my employment with the Company for any reason or
for no reason, I will not, directly or indirectly, (a) divert or attempt to
divert any person, concern or entity which is furnished services by the Company
from doing business with the Company or otherwise to change its relationship
with the Company; or (b) induce or attempt to induce any customer or supplier of
the Company to cease being a customer or supplier of the Company or otherwise to
change its relationship with the Company; or (c) render services, directly or
indirectly, to any Conflicting Organization in connection with the sale,
merchandising, or promotion of a Conflicting Product to any customer or
supplier, or prospective customer or supplier, of the Company with whom I had
direct or indirect contact or about whom I may have acquired any knowledge
during the two (2) years prior to termination of my employment with the Company.
8. Solicitation of Employees. I agree that, during my employment with the
Company and for a period of one (1) year following termination of my employment
with the Company for any or no reason, I shall not, directly or indirectly,
solicit or induce, or attempt to solicit or induce, any employee of the Company
to leave the Company for any reason whatsoever, or hire or solicit the services
of any employee of the Company.
9. Restrictions on Competition. Subject to the provisions of Section 10
and independent of any obligations that I might have under Section 7, for a
period of one (1) year after termination of my employment with the Company for
any reason or for no reason, I will
- 3 -
<PAGE>
not render services, directly or indirectly, within the Territory to or for
any Conflicting Organization, whether as principal or as agent, officer,
director, employee, consultant, shareholder, or otherwise, alone or in
association with any other person, corporation, or entity. I may, however,
accept employment or perform services in the Territory to or for a
Conflicting Organization whose business is diversified, and which as to the
part of the business in which I am engaged is not a Conflicting Organization,
provided that the Company, prior to my accepting such employment or
performing such services, shall receive separate written assurances
satisfactory to the Company from such Conflicting Organization and from me,
that I will not render services directly or indirectly in connection with any
Conflicting Product. I recognize that the Company conducts or intends to
conduct business within the Territory, and therefore, I agree that this
restriction is reasonable and necessary to protect the Company's business.
Further, I agree that the Company may modify the Territory, upon advance
notice to me, in response to changes in the Company's business or as my
duties and responsibilities change or evolve.
10. Consideration And Wage Maintenance.
10.1. In consideration for my agreements as contained herein, the
Company agrees to pay to me a one-time cash payment of One Thousand Five Hundred
Dollars ($1,500.00).
10.2 If I am entitled to receive Severance Payments as defined in
the Severance Agreement based upon the circumstances surrounding termination of
my employment with the Company, then such Severance Payments, and other rights
and benefits to which I am entitled under the Severance Agreement, shall
constitute additional consideration for my covenants, obligations and agreements
contained in this Agreement and I will not be entitled to receive any payments
set forth in Section 10.3 or 10.3.1, below.
10.3 If I am not entitled to receive Severance Payments as defined
in the Severance Agreement based upon the circumstances surrounding termination
of my employment with the Company, then as additional consideration for entering
into this Agreement, should the Company terminate my employment for any or no
reason, the Company will pay me upon termination of my employment, severance
benefits calculated using the table set forth in Appendix C, attached hereto and
incorporated herein (the "Separation Payments"). The Separation Payments will be
paid in installments equal to my Company Monthly Base Pay until paid in full
(the "Severance Period").
10.3.1 If my employment terminates, whether voluntarily or
involuntarily, and if I shall be unable to obtain employment consistent with my
training and education because of Sections 7 and/or 9 of this Agreement, the
Company shall, except as provided in Section 10.2 above, make payments to me
equal to my Company Monthly Base Pay at termination for each month, or pro rata
periods less than a month, of unemployment (the "Special Severance Payments").
The Special Severance Payments shall be paid monthly commencing the month after
the Severance Period ends or, if I am not eligible for Separation
- 4 -
<PAGE>
Payments under Section 10.3, then upon my termination of employment. The
Special Severance Payments will cease on the date of the earlier of: (a) the
date one year after the date of my termination of employment; or (b) the date
on which I obtain new employment not in conflict with this Agreement (the
"Special Severance Period"). The Special Severance Payments shall be made
subject to the terms and conditions of this Agreement.
10.3.2 Before the close of each month of the Special Severance
Period, I will give to the Company a written account of my employment status
substantially in the form of Appendix D, attached hereto and incorporated
herein, and such account shall include a statement by me that I was unable to
obtain employment because of the provisions of Sections 7 and/or 9 of this
Agreement. Such statement shall be binding on the Company absent a showing by
the Company of bad faith by me.
10.3.3 The Company shall, at its option, be relieved of making
any Special Severance Payment for any month during which I have failed to
account to the Company in accordance with Section 10.3.2.
10.3.4 If the Company so authorizes, I may accept employment
not necessarily consistent with my training and education, and my Special
Severance Payment shall be the difference between the New Monthly Base Pay
earned thereby and my Company Monthly Base Pay at termination, and shall be paid
for whichever of the following periods shall be the shortest: (i) the period of
time that I shall be so employed, or (ii) the Special Severance Period.
10.3.5 If the Company so authorizes, I may accept available
employment consistent with my training and education and the Company shall
not be obligated to make Special Severance Payments if the Company gives me
written permission to accept such available employment.
11. Assignability. All my obligations under this Agreement shall be
binding upon my heirs, assigns, and legal representatives and all of the
obligations of the Company shall be binding upon its successors and assigns. The
Company shall have the right to assign this Agreement to a successor to all or
substantially all of the business or assets of the Company or any division or
part of the Company with which I shall be employed.
12. Obligations Survive Termination of Employment. Termination of my
employment, whether voluntary or involuntary, whether for any or no reason,
shall not impair or relieve me of my obligations hereunder.
13. Governing Law. This Agreement shall be construed in accordance with
and governed for all purposes by the law of the state of New York. The parties
believe that the restrictions and covenants in this Agreement are, under the
circumstances, reasonable and enforceable. However, if any one or more of the
provisions contained in this Agreement shall, for any reason under the law as it
shall then be construed, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
- 5 -
<PAGE>
other provisions of this Agreement, but this Agreement shall be construed as if
such invalid, illegal, or unenforceable provision had never been contained
herein. Moreover, if any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to time,
duration, geographical scope, activity, or subject, it shall be construed by
limiting and reducing it, so as to be enforceable to the extent compatible with
the applicable law as it shall then appear.
14. At-Will Employment. I shall be employed at the pleasure of the
Company, for no definite term, unless otherwise provided by a separate writing
authorized by me and the Company. This means that either party may terminate the
employment relationship at any time for any or no reason.
15. Merger. This Agreement is duly signed by the authorized
representatives of the parties and supersedes and replaces any existing
Agreement, written or otherwise, entered into by me and the Company relating
generally to the same subject matter. This Agreement does not supersede or
modify our respective rights and obligations under the Severance Agreement. If I
am entitled to receive Separation Payments and/or Special Severance Payments
pursuant to this Agreement, I will not be eligible for severance or termination
payments under any other company plan. However, nothing in this Agreement shall
affect any post-termination compensation and benefits to which I am entitled
under the Company's retirement, insurance and/or benefit plans.
16. Remedy. Any breach or violation by me of the Agreement, including but
not limited to Sections 7 and 9, will result in immediate and irreparable injury
to the Company in amounts difficult to ascertain. Therefore, should I breach any
portion of this Agreement, I agree that the Company shall be entitled to proceed
directly to court to obtain the remedies of specific performance and injunctive
relief (including but not limited to temporary restraining orders, preliminary
injunctions and permanent injunctions) without the necessity of posting a bond
or other undertakings therewith.
17. Definitions. In this Agreement, the following terms shall have the
meanings here supplied. Terms may be used in the singular or plural.
17.1. "Company" means New York State Electric & Gas Corporation with
offices at Ithaca-Dryden Road (no street address), Dryden, New York, its
successors and assigns, and any of its current or future subsidiaries, or
organizations controlled by, controlling, or under common control with it.
17.2. "I" means the captioned employee, who is also referred to by
the use of first person pronouns, such as "me" and "my."
17.3. "Confidential Information" means information disclosed to me
or known by me as a consequence of, or through, my employment with the Company
(including information conceived, originated, discovered, or developed in whole
or in part by me), not
- 6 -
<PAGE>
generally known in the relevant trade or industry, about
the Company's business, products, processes, and services, including but not
limited to information relating to research, development, inventions, computer
program designs, flow charts, source and object codes, products and services
under development, pricing and pricing strategies, marketing and selling
strategies, power generating, servicing, purchasing, accounting, engineering,
cost and costing strategies, sources of supply, customer lists, customer
requirements, business methods or practices, training and training programs, and
the documentation thereof.
17.4. "Inventions" means discoveries, concepts, and ideas, whether
or not patentable, copyrightable, or protectable as a mask work, including but
not limited to processes, methods, formulas, and techniques, as well as
improvements thereof or know-how related thereto, relating to any current or
prospective activities of the Company with which activities I am acquainted as a
consequence of my employment by the Company.
17.5. "Conflicting Product" means any product, process, or service
of any person or organization other than the Company, in existence or under
development, which substantially resembles and competes with a product, process,
or service upon or with which I work during the one (1) year prior to the
termination of my employment by the Company or about which I acquire (at any
time) Confidential Information.
17.6. "Conflicting Organization" means any person or organization or
any person or organization controlled by, controlling, or under common control
with such person or organization, which is engaged in, or is about to become
engaged in, research on or development, production, marketing, or selling of, a
Conflicting Product.
17.7. "Company Monthly Base Pay" means the average monthly stated
remuneration for the period in the twelve (12) months prior to termination of my
employment with the Company computed before federal, state, and/or local taxes
and other withholding, and exclusive of extra compensation, such as that
attributable to bonuses or overtime, or employee benefits, such as retirement or
pension benefits.
17.8. "New Monthly Base Pay" means my initial monthly remuneration
with a subsequent employer. If I shall then be a salesperson paid by my
subsequent employer entirely or partially on a commission basis, my New Monthly
Base Pay shall be estimated, and adjusted thereafter, quarterly to conform to my
average monthly remuneration from the subsequent employer actually earned for
the initial six (6) months in that employ.
17.9. "Works" means all material and information created by me in
the course of or as a result of my employment by the Company which is fixed
in a tangible medium of expression, including, but not limited to, notes,
drawings, memoranda, correspondence, documents, records, notebooks, flow
charts, computer programs, and source and object codes, regardless of the
medium in which they are fixed.
17.10 "Severance Payments" shall have the meaning set forth in the
Severance
- 7 -
<PAGE>
Agreement (defined below).
17.11 "Severance Agreement" shall mean that Agreement titled
"Severance Agreement" between the Company and me describing our respective
rights and obligations in the event of a Change In Control (as defined therein).
17.12 "Territory" shall mean the states of the United States of
America set forth in Appendix B, attached hereto and incorporated herein.
18. Employee Acknowledgments. I acknowledge that I have read and
understand the provisions of this Agreement, that I have been given an
opportunity for my legal counsel to review this Agreement, that the provisions
of this Agreement are reasonable, and that I have received a copy of this
Agreement.
WITNESS our hands this ______ day of _______________, 1997, at
Binghamton, New York.
--------------------------------
EMPLOYEE
NEW YORK STATE ELECTRIC & GAS CORPORATION
By:
--------------------------
Title:
--------------------------
- 8 -
<PAGE>
APPENDIX A
List any unpatented or uncopyrighted inventions, discoveries, concepts, ideas,
improvements, and developments, whether patentable or unpatentable, copyrighted
or uncopyrightable, made or conceived prior to the date of execution of this
Agreement which are excluded from this Agreement.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
NOTE: If none, state "NONE." Also, it is not necessary to record issued patents
or copyrights, pending patent or copyright applications, or prior
inventions previously assigned or agreed to be assigned to others.
Signed:
----------------------------
NEW YORK STATE ELECTRIC & GAS CORPORATION
By:
-------------------------------
Title:
-------------------------------
<PAGE>
APPENDIX B
The territory shall be the states of:
Maryland
New Jersey
New York
Pennsylvania
Signed:
------------------------------
NEW YORK STATE ELECTRIC & GAS CORPORATION
By:
----------------------------------
Title:
------------------------------
<PAGE>
APPENDIX C
Separation Payments will be based on the following schedule:
Service Separation Payment
------- ------------------
less than 2 years 1/2 months' base pay
2 but less than 4 years 1 months' base pay
4 but less than 6 years 1-1/2 months' base pay
6 but less than 8 years 2 months' base pay
8 but less than 10 years 2-1/2 months' base pay
10 but less than 12 years 3 months' base pay
12 but less than 15 years 3-1/2 months' base pay
15 or more 3-1/2 months' base pay,
plus one additional weeks'
base pay for each full year
of service beyond 14 years
Separation Payments will be computed as of the termination date. Monthly
allowances will be determined by dividing the employee's current annual base pay
by 12 and weekly allowances by dividing the annual base pay by 52.
Signed:
------------------------------
NEW YORK STATE ELECTRIC & GAS CORPORATION
By:
------------------------------
Title:
------------------------------
<PAGE>
APPENDIX D
Special Severance Payment Notice Letter
New York State Electric & Gas Corporation
[ ]
[ ]
Attn.: Vice President - [ ]
Re: Special Severance Payment Notice Letter
Dear ________________:
By this letter I request that NEW YORK STATE ELECTRIC & GAS CORPORATION (NYSEG)
issue to me a Special Severance Payment as set forth in my agreement with NYSEG
titled "Employee Invention and Confidentiality Agreement" dated
__________________ (the "Agreement"). In support of this request, and as
required by Section 10 of the Agreement, I hereby certify that I am currently
unemployed and that:
(a) during the month of ________, 199___, I made the following efforts
to obtain employment:
[Describe efforts made and steps taken to obtain employment.]; and
(b) I was unable to obtain employment because of the provisions of
Sections 7 and/or 9 of the Agreement.
Please direct the Special Severance Payment to the address printed beneath my
signature.
Very truly yours,
--------------------------
[Name]
[Address]
[Phone]
<PAGE>
Exhibit 10
FIRST AMENDMENT TO
EMPLOYEE INVENTION AND CONFIDENTIALITY AGREEMENT
THIS FIRST AMENDMENT (the "First Amendment") dated as of the 1st day of
July, 1997, is made and entered into by and between NEW YORK STATE ELECTRIC &
GAS CORPORATION (the "Company") and _______________ ("me" or "I") to that
agreement between the Company and me dated as of the 28th day of May, 1997
titled the "EMPLOYEE INVENTION AND CONFIDENTIALITY AGREEMENT, EXISTING
EXECUTIVE" (the "Agreement").
WHEREAS, the Company and I entered into the Agreement, effective as of May
28, 1997; and
WHEREAS, the Company and I wish to amend the Agreement as provided below;
NOW, THEREFORE, in consideration of my continued employment with the
Company and other good and valuable consideration described herein, the Company
and I do hereby amend the Agreement as follows:
(A) Section 9 of the Agreement is amended to delete the last sentence as
follows:
"Further, I agree that the Company may modify the Territory, upon
advance notice to me, in response to changes in the Company's
business or as my duties and responsibilities change or evolve."
(B) Section 10.3.1 of the Agreement is amended to add the following
paragraph immediately following the first paragraph:
"The Company will pay premiums and other payments required for
continuation coverage, in accordance with the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended (hereinafter "COBRA")
for the duration of the Severance Period and Special Severance
Period. Thereafter, premiums and other payments required for any
further continuation coverage, in accordance with COBRA, shall be my
sole reponsibility."
(C) All other terms and conditions of the Agreement remain unchanged. This
Amendment will be effective as of the date first set forth above.
WITNESS our hands this ________ day of July, 1997, at Binghamton, New
York.
NEW YORK STATE ELECTRIC &
GAS CORPORATION
- ----------------------------- By:
EXECUTIVE --------------------------------
Title: Vice President & Secretary
<PAGE>
Exhibit 11
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT ("Second Amendment"),
dated as of the ____ day of ___________, 1997, is made and entered into by and
between New York State Electric & Gas Corporation, a New York corporation (the
"Company"), and Wesley W. von Schack ("Executive") and amends certain provisions
of the Employment Agreement, dated as of August 7, 1996, as amended ("Employment
Agreement") by and between the Company and the Executive.
WHEREAS, the Company has, effective January 1, 1997, amended its
Annual Executive Incentive Plan and the parties hereto wish to amend the
Employment Agreement to reflect the amended Annual Executive Incentive Plan and
any successor executive incentive compensation plans adopted by the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 10.1 (A) (ii) of the Employment
Agreement is hereby amended to read in its entirety as
follows:
(ii) the incentive compensation award the Executive would
have received under the Annual Executive Incentive Plan,
or any successor annual executive incentive compensation
plan, for the year in which the Date of Termination
occurs, calculated in accordance with Article XI (A)
(iii) of the Annual Executive Incentive Plan or any
comparable provision in any successor annual executive
incentive compensation plan, without, however, giving
effect to any pro-rata adjustments contained in said
provisions.
2. Section 10.1 (B) of the Employment Agreement is hereby
amended to read in its entirety as follows:
(B) Notwithstanding any provision of the Company's
Annual Executive Incentive Plan, or any successor annual
executive incentive compensation plan, the Company shall
pay to the Executive a lump sum amount, in cash, equal
to the sum of (i) any incentive compensation which has
been allocated or awarded to the Executive for a
completed fiscal
<PAGE>
- 2 -
year preceding the Date of Termination under the Annual
Executive Incentive Plan, or any successor annual
executive incentive compensation plan, but has not yet
been either (x) paid (pursuant to Section 6.2 hereof or
otherwise) or (y) deferred pursuant to the Deferred
Compensation Plan for Salaried Employees, and (ii) a
pro-rata portion to the Date of Termination of the
aggregate value of any contingent incentive compensation
award to the Executive for any uncompleted fiscal year
under the Annual Executive Incentive Plan or any
successor annual executive incentive compensation plan,
calculated as to each such award in accordance with
Article XI (A) (iii) of the Annual Executive Incentive
Plan or any comparable provision in any successor annual
executive incentive compensation plan.
3. Except as expressly modified hereby, the terms and
provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to
be duly executed and delivered as of the date first above written.
NEW YORK STATE ELECTRIC &
GAS CORPORATION
By:
-------------------------------- --------------------------------
Sherwood J. Rafferty Wesley W. von Schack
Senior Vice President
and Chief Financial Officer
<PAGE>
Exhibit 12
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
THIS THIRD AMENDMENT TO EMPLOYMENT AGREEMENT ("Third Amendment"),
dated as of the ___ day of _______________, 1997, is made and entered into by
and between New York State Electric & Gas Corporation, a New York corporation
(the "Company"), and Wesley W. von Schack (the "Executive") and amends certain
provisions of the Employment Agreement, dated as of August 7, 1996, as amended
("Employment Agreement"), by and between the Company and the Executive.
WHEREAS, the Company, in consultation with outside advisors, has
determined that it is in the best interest of the Company and its shareholders
to amend the Employment Agreement to clarify and to modify certain provisions.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 10.1(D) of the Employment Agreement is hereby amended by
adding the following words after the word "Payment" at the end of the last
sentence thereof: ", but only if, and to the extent, the Executive receives a
refund of any Excise Tax previously paid by the Executive pursuant to Section
10.2 hereof".
2. The first sentence of Section 10.2(B) of the Employment Agreement
is hereby amended to read in its entirety as follows:
Subject to the provisions of Section 10.2(C) hereof, all
determinations required to be made under this Section 10.2, including
whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be used in arriving at such determinations,
shall be made by the Company's principal outside accounting firm (the
"Accounting Firm") which shall provide detailed supporting calculations
both to the Board and the Executive within fifteen (15) business days of
the Date of Termination and/or such earlier date(s) as may be requested by
the Company or the Executive (each such date and the Date of Termination
shall be referred to as a "Determination Date", for purposes of this
Section 10.2(B) and Section 10.3 hereof).
3. Section 10.3 is hereby amended by replacing the words "the Date
of Termination," wherever they may appear in such Section, with the words "each
Determination Date".
<PAGE>
4. Section 13.2 of the Employment Agreement is hereby amended to
read in its entirety as follows:
13.2 If, at any time prior to the end of the Term (or, if later, the
end of the Change-in-Control Protective Period), the Executive terminates
his own employment without Good Reason (and not in connection with his
Disability, Retirement or death) or the Company terminates his employment
with Cause, then for a twelve-month period immediately following his Date
of Termination, the Executive shall not, except as permitted by the Company
upon its prior written consent, enter, directly or indirectly, into the
employ of or render or engage in, directly or indirectly, any services to
any person, firm or corporation within the "Restricted Territory," which is
a major competitor of the Company with respect to products which the
Company is then producing or services the Company is then providing (a
"Competitor"). However, it shall not be a violation of the immediately
preceding sentence for the Executive to be employed by, or render services
to, a Competitor, if the Executive renders those services only in lines of
business of the Competitor which are not directly competitive with the
primary lines of business of the Company or are outside of the Restricted
Territory. For purposes of this Section 13.2, the "Restricted Territory"
shall be the states of Maryland, New Jersey, New York and Pennsylvania.
5. Paragraph (II) of Section 20(E) of the Employment Agreement is
hereby amended to read in its entirety as follows:
(II) during any period of two consecutive years (not including any
period prior to the date of this Agreement), individuals who at the
beginning of such period constitute the Board and any new director (other
than a director designated by a Person who has entered into an agreement
with the Company to effect a transaction described in paragraph (I), (III)
or (IV) of this Change-in-Control definition or a director whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitations of proxies or consents by or on behalf
of a Person other than the Board) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so
-2-
<PAGE>
approved, cease for any reason to constitute a majority thereof; or
6. Section 20(F) of the Employment Agreement is hereby amended to
read in its entirety as follows:
(F) "Change-in-Control Protective Period" shall mean the period from
the occurrence of a Change-in-Control until the later of (i) the second
anniversary of such Change-in-Control or, (ii) if such Change-in-Control
shall be caused by the shareholder approval of a merger or consolidation,
as described in Section 15(E)(III) hereof, the second anniversary of the
consummation of such merger or consolidation, provided, however, that in
the event that the agreement providing for such merger or consolidation, as
described in Section 15(E)(III) hereof, is terminated without consummation
of such merger or consolidation, the Change-in-Control Protective Period
shall expire 90 days following such termination, unless there has occurred
another event constituting a Change-in-Control, in which case the
Change-in-Control Protective Period shall expire upon the date described
herein with respect to such subsequent Change-in-Control.
7. Section 20(N)(I) of the Employment Agreement is hereby amended to
read in its entirety as follows:
(I) the assignment to the Executive of any duties inconsistent with
the Executive's status as an executive officer of the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change-in-Control (including, without limitation, any such alteration
attributable to the fact that the Company may no longer be a public
company);
8. Section 20(N)(II) of the Employment Agreement is hereby amended
to read in its entirety as follows:
(II) a reduction by the Company in the Executive's annual base salary
as in effect on the date hereof or as the same may be increased from time
to time;
9. Section 20(N)(IV) of the Employment Agreement is hereby amended
to read in its entirety as follows:
(IV) the failure by the Company, without the Executive's consent, to
pay to the Executive any portion of the Executive's current compensation,
or to pay to the Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
-3-
<PAGE>
Company, within seven (7) days of the date such compensation is due.
10. The Employment Agreement is hereby further amended by deleting
Exhibit I thereto in its entirety.
11. Except as expressly modified hereby, the terms and provisions of
the Employment Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Third Amendment to be
duly executed and delivered as of the date first above written.
NEW YORK STATE ELECTRIC EXECUTIVE
& GAS CORPORATION
By:
------------------------------ -----------------------------
-4-
<PAGE>
EXHIBIT 13
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 12 day of July, in the year one thousand nine hundred and
ninety-four, before me personally came Marjorie Greenspan to me known, who being
by me duly sworn, did depose and say: that he/she resides in New York; that
he/she is the Vice President of BANKERS TRUST COMPANY, the corporation described
in and which executed the above instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation,
and he/she signed his/her name thereto by like order.
/s/ Allison O. Taylor
-----------------------
Notary Public
Allison O. Taylor
Notary Public, State of New York
No. 31-5008595
Qualified in New York County
Commission Expires February 22, 1995
<PAGE>
NEW YORK STATE ELECTRIC & GAS CORPORATION
-----------------------------------------
EMPLOYEE BENEFIT TRUST AGREEMENT
--------------------------------
AGREEMENT made as of July 1, 1994, by and between NEW YORK STATE
ELECTRIC & GAS CORPORATION (the "Corporation"), as Grantor, and BANKERS TRUST
COMPANY, a New York Banking Corporation, as Trustee. As used in the Agreement,
"Corporation" shall include New York State Electric & Gas Corporation and any
successor thereto.
WITNESSETH:
-----------
WHEREAS, the Corporation adopted a Deferred Compensation Plan for
Salaried Employees, effective as of January 1, 1978, for the benefit of certain
employees to permit deferral of their compensation, which plan was subsequently
amended to also permit deferral of awards under the Corporation's Annual
Executive Incentive Compensation Plan ("AEICP"); and
WHEREAS, the Corporation adopted a Performance Share Deferred
Compensation Plan, effective as of August 2, 1991, for the benefit of employees
who participate in the Corporation's Performance Share Plan to permit the
deferral of cash awards made pursuant to said plan; and
WHEREAS, the Corporation has entered into, and intends to enter into,
certain deferred compensation agreements with past, existing and future
employees
<PAGE>
pursuant to the Deferred Compensation Plan for Salaried Employees and
the Performance Share Deferred Compensation Plan (collectively, the "Deferred
Compensation Agreements"); the deferred compensation agreements covering
deferred compensation (but not AEICP awards) under the Deferred Compensation
Plan for Salaried Employees are hereinafter referred to as "Salaried Employee
Deferred Compensation Agreements"; and
WHEREAS, the Corporation adopted a Supplemental Executive Retirement
Plan, effective as of September 7, 1984, to provide certain retirement benefits
to eligible employees; and
WHEREAS, the Corporation has entered into an Employment Agreement
dated January 19, 1994 with James A. Carrigg (hereinafter, the "Carrigg
Employment Agreement"), which provides in Section 10.1(A) thereof for certain
severance payments to be made by the Corporation to Mr. Carrigg in the event of
certain terminations of his employment by the Corporation (hereinafter, the
"Carrigg Severance Benefits"); and
WHEREAS, the Corporation has entered into, and intends to enter into,
certain severance agreements (hereinafter, the "Officer Severance Agreements")
with existing and future Senior Vice Presidents and Vice
2
<PAGE>
Presidents of the Corporation, which provide (or will provide) in Section
6.1(A) for severance payments in the event of certain terminations of
employment (hereinafter, collectively with the Carrigg Severance Benefits,
the "Severance Benefits"); and
WHEREAS, the Deferred Compensation Plan for Salaried Employees, the
Performance Share Deferred Compensation Plan, the Deferred Compensation
Agreements, the Supplemental Executive Retirement Plan, the Carrigg Employment
Agreement and the Officer Severance Agreements (such plans and agreements each
as amended and as may be amended from time to time being sometimes hereinafter
called, collectively, the "Plans") provide for the payment of certain deferred
compensation, retirement benefits and Severance Benefits (together, hereinafter,
the "Benefits") to participating employees (or their beneficiaries in the event
of their death before full payment of the Benefits); and
WHEREAS, the Corporation has incurred and will incur liability under
the terms of the Plans with respect to the participating employees (sometimes
called, until their respective Benefits have been completely paid, the
"Participants");
3
<PAGE>
WHEREAS, the amount and timing of payment of the Benefits to
Participants and their beneficiaries are specified in the Plans and other
documents executed by the Participants pursuant to the Plans designating
beneficiaries and/or timing of payment of Benefits ("Participant Designations");
and
WHEREAS, the Corporation is hereby establishing a trust (the "Trust")
for the purpose of accumulating assets to assist it in fulfilling its
obligations under the Plans, to which Trust the Corporation is transferring, and
will in the future transfer, cash and/or other property acceptable to the
Trustee, and any such contributions together with earnings (including income
and appreciation) thereon (hereinafter called the "Trust Fund") shall be held
in trust, subject only to the claims of the Corporation's creditors in the
event of the Corporation's becoming Insolvent (as defined in Section 5.1
hereof), until the entire Trust Fund has been paid to Participants (or their
beneficiaries) in such manner and at such times as specified in the Plans and
Participant Designations; and
WHEREAS, the Corporation desires that the Trustee hold and administer
all assets transferred to the Trust by the Corporation and the Trustee is
willing to
4
<PAGE>
hold, administer and dispose of such assets pursuant to the terms of
this Agreement; and
WHEREAS, it is the intention of the parties that this Trust shall not
affect the status of the Plans as unfunded plans (within the meaning of Revenue
Procedure 92-64) maintained to provide deferred compensation (including
retirement benefits) for salaried employees and certain severance benefits for a
select group of management or highly compensated employees; and
WHEREAS, it is the intention of the Corporation to make contributions
to the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Plans;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Corporation and the Trustee hereby agree as
follows:
I.
ESTABLISHMENT OF TRUST
1.1 The Trust hereby established is revocable by the Corporation; it
shall become irrevocable upon a Change in Control, as defined herein.
1.2 The Trust is intended to be a grantor trust, of which the
Corporation is the grantor, within the meaning of subpart E, part I, subchapter
J, Chapter
5
<PAGE>
1, subtitle A of the Internal Revenue Code of 1986, as amended from
time to time (the "Code"), and shall be construed accordingly.
1.3 The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Corporation by the Trustee in
trust and shall be used exclusively for the uses and purposes of Participants
(and their beneficiaries) and the Corporation's general creditors as herein set
forth. Participants and their beneficiaries shall have no preferred claim on
any assets of the Trust. Any rights created under the Plans shall be mere
unsecured contractual rights of Participants and their beneficiaries against the
Corporation. Any assets held by the Trust will be subject to the claims of the
Corporation's general creditors under federal and state law, if the Corporation
shall become Insolvent, as defined in Section 5.1 hereof.
1.4 ADMINISTRATOR. (a) The Corporation hereby designates Towers,
Perrin, Forster & Crosby, Inc., subject to its acceptance, at the Administrator
under this Trust (the "Administrator"). Except for records dealing solely with
the Trust, contributions to the Trust, and its investments, earnings and
disbursements,
6
<PAGE>
which shall be maintained by the Trustee, the Administrator shall
maintain all the records contemplated by the Plans and Participant Designations,
and make all determinations of Benefits to be paid from the Trust to any
Participant.
(b) Upon the establishment of the Trust or as soon thereafter
as practicable, the Corporation shall report to the Administrator all of the
information necessary to determine the Benefits payable to or with respect to
each Participant (which, in the case of the Severance Benefits, shall be the
Benefits payable in the event of an assumed immediate qualifying termination of
employment) in accordance with the Plans and Participant Designations, including
any Benefits payable after each Participant's death and the properly designated
beneficiary (if any) of any Benefits payable hereunder with respect to any such
deceased Participant. Thereafter, and until the occurrence of any Change in
Control (as defined in Section 2.5 hereof) of the Corporation, the Corporation
shall regularly (at least annually as of the end of each calendar year) revise
and update such information and report it to the Administrator. After the
occurrence of a Change in Control, the Corporation shall promptly revise and
update such information (i) as
7
<PAGE>
of the date of such Change in Control and (ii) as of the end of each calendar
year following such Change in Control. The Corporation shall report such
revised and updated information to the Administrator within the twenty (20)
days following the date of the Change in Control or the respective calendar
year-end, as the case may be. In the event that the Administrator fails to
receive revised and updated information from the Corporation as provided in
this paragraph (b), the Administrator may rely and act upon the latest
information received from the Corporation, without any duty of further
inquiry. However, if the Administrator has reason to believe that any part
or all of the existing information is no longer accurate and decides in good
faith not to rely and act upon such information, the Administrator shall be
under no obligation to take any action with respect to such information or
with respect to acquiring updated information.
(c) If Towers, Perrin, Forster & Crosby, Inc. or any
subsequently designated Administrator does not accept its designation as
Administrator or accepts such designation and subsequently resigns, a new
Administrator shall be designated. If the need for such a designation arises
prior to a Change in Control, the
8
<PAGE>
Corporation shall make the designation. If the need for such a designation
arises after a Change in Control, the designation shall be made by the
Corporation with the written consent of at least forty percent (40%) of the
Participants (or in the event of the death of a Participant, his or her
beneficiary). An Administrator may resign by written notice to the
Corporation and the Trustee, which resignation shall be effective ninety (90)
days after receipt of such notice by both the Corporation and the Trustee,
unless both the Corporation and the Trustee agree otherwise. Notwithstanding
the foregoing provisions of this paragraph (c), any Administrator which
resigns shall continue to serve until its successor Administrator accepts the
appointment. Any successor Administrator shall be independent of the
Corporation and its actuarial expertise, stature and reputation shall be at
least substantially similar to that of Towers, Perrin, Forster & Crosby, Inc.
The Administrator shall be reimbursed by the Trustee for its reasonable
expenses incurred in connection with the performance of its duties hereunder
(and the Trustee shall use the assets of the Trust Fund for such purpose
unless the Trustee has been promptly reimbursed by the Corporation for such
expenses) and shall be paid reasonable fees determined in accor-
9
<PAGE>
dance with Section 8.2 from the Trust Fund for the performance of such duties,
to the extent such expenses and fees are not paid directly by the Corporation
to the Administrator.
(d) The Administrator shall not be liable for any act taken or
omitted to be taken hereunder if taken or omitted to be taken by it in good
faith. The Administrator shall also be fully protected in relying upon any
notice given hereunder which it in good faith believes to be genuine and
executed and delivered in accordance with this Trust.
(e) The Administrator may consult with legal counsel to be
selected by it, and the Administrator shall not be liable for any action taken
or suffered by it in accordance with the advice of such counsel.
(f) The Corporation agrees to indemnify and hold harmless on an
after-tax basis the Administrator from and against any and all damages, losses,
claims or expenses (including expenses of investigation and reasonable fees and
disbursements of counsel to the Administrator) arising out of or in connection
with the performance by the Administrator of its duties hereunder, unless it is
determined, in a final adjudication, to have been guilty of willful misconduct
or gross negligence in the
10
<PAGE>
performance (or non-performance) of such duties. Any amount payable to the
Administrator under this paragraph (f) and not previously paid directly by
the Corporation shall be paid by the Trustee from the Trust Fund promptly
upon demand therefor by the Administrator. In the event that payment is made
hereunder to the Administrator from the Trust Fund, the Trustee shall
promptly notify the Corporation in writing of the amount of such payment. The
Corporation agrees that, upon receipt of such notice, it will deliver to the
Trustee to be held in the Trust an amount in cash (or in marketable
securities or in some combination thereof) equal to any payments made from
the Trust Fund to the Administrator pursuant to this paragraph (f). The
failure of the Corporation to transfer any such amount shall not in any way
impair the right of the Administrator to indemnification, reimbursement and
payment pursuant to this paragraph (f).
II.
FUNDING OF TRUST
2.1 The Corporation hereby deposits with Trustee in trust the sum of
One Thousand Dollars ($1,000), which becomes the initial principal of the Trust
to be held, administered and disposed of by Trustee as provided in this
Agreement. The Corporation, in its
11
<PAGE>
sole discretion, may at any time, or from time to time, make additional
deposits of cash or other property acceptable to the Trustee with the Trustee
in trust to augment the principal to be held, administered and disposed of by
Trustee as provided in this Agreement. Neither Trustee nor any Participant or
beneficiary shall have any right to compel such additional deposits.
2.2 Upon a Change in Control, the Corporation shall, as soon as
possible, but in no event later than forty-five (45) business days following the
Change in Control, make a contribution (which contribution shall be, except as
otherwise provided in Section 6.2 hereof, an irrevocable contribution) to the
Trust in an amount which (when aggregated with the assets then held by the
Trust, valued at their then fair market value) is equal to (i) the present value
of the Benefits to which Participants or their beneficiaries would be entitled
pursuant to the terms of the Plans and Participant Designations as of the date
on which the Change in Control occurred (which, in the case of the Severance
Benefits, shall be deemed to be the Benefits payable in the event of an assumed
immediate qualifying termination of employment), plus (ii) a reasonable
estimated amount for the Trust's expenses during its term (such estimate not
to exceed one
12
<PAGE>
percent (1%) of such present value). The sum of the amounts described in
items (i) and (ii) of the immediately preceding sentence is hereinafter
called the "Required Funding Amount." The Corporation hereby authorizes and
directs its chief executive officer, and its chief financial officer, or
either of them acting alone, to contribute the Required Funding Amount
without the further approval of the Board of Directors (the "Board").
Immediately after the Corporation makes such contribution, the Corporation
shall provide the Administrator with copies of all Plans and Participant
Designations, to the extent not previously provided, and other information
used in the Corporation's calculation of the Required Funding Amount, as well
as its worksheets for such calculation.
2.3 Following the end of each calendar year which ends after a Change
in Control has occurred, unless Trust Fund assets shall have previously been
returned to the Corporation pursuant to Section 6.2 hereof or the Trust shall
have previously terminated pursuant to Section 6.1 or Article XIII hereof, the
Administrator shall recalculate the Required Funding Amount as if such Change in
Control had occurred at the end of such calendar year. Not later than sixty
(60)
13
<PAGE>
days after each such calendar year-end, the Trustee shall give notice to the
Corporation and the Administrator as to the fair market value of assets then
held in the Trust as of such calendar year-end. Not later than the later
of (i) seventy-five (75) days after each such calendar year-end or (ii) thirty
(30) days after the delivery of all reasonably required, revised and updated
information by the Trustee and the Corporation, the Administrator shall give
notice to the Trustee and the Corporation of (i) such recalculated Required
Funding Amount, (ii) the additional payment to the Trustee (if any) required
from the Corporation by the following sentence, and (iii) all information
required to be set forth in any currently-required Payment Schedule described
in Section 4.2 hereof. If such recalculated Required Funding Amount exceeds
the fair market value of the assets then held in the Trust, the Corporation
shall promptly (and in no event later than the later of ninety (90) days from
the respective calendar year-end or five days after receipt of information
from the Administrator pursuant to the preceding sentence) pay to the Trustee
an amount in cash (or marketable securities or any combination thereof) equal
to such excess. The Corporation hereby authorizes and directs its chief
executive officer, and its chief finan-
14
<PAGE>
cial officer, or either of them acting alone, to make such additional
contributions without the further approval of the Board.
2.4 For the purpose of determining the amount of the Corporation's
contributions under Sections 2.2 and 2.3 hereof, the present value of Benefits
under the Supplemental Executive Retirement Plan and Section 7 of the Salaried
Employee Deferred Compensation Agreements shall be determined using the 1983
Group Annuity Mortality Table and an interest rate equal to the yield on a
l0-Year Treasury Constant Maturity Bond. For purposes of the preceding
sentence, the applicable yield on a 10-Year Treasury Constant Maturity Bond
shall be the yield published by the Federal Reserve for the last business day
immediately preceding (a) the Change in Control or (b) the most recent January 1
following such Change in Control, whichever produces the higher present value.
The present value of Benefits under the Deferred Compensation Plan for Salaried
Employees and the Performance Share Deferred Compensation Plan and related
Deferred Compensation Agreements (other than Benefits under Section 7 of the
Salaried Employee Deferred Compensation Agreements) shall be the total amount of
each deferred compensation account, including accrued interest. The present
value
15
<PAGE>
of Severance Benefits shall be the total Severance Benefits payable upon n
assumed immediate qualifying termination of employment as of the Change in
Control, in the case of a determination under Section 2.2 hereof, or the most
recent December 31, in the case of a determination under Section 2.3 hereof.
2.5 CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall
be deemed to have occurred if the conditions set forth in any one of the
following paragraphs (i), (ii), (iii) or (iv) shall have been satisfied:
(i) the Corporation enters into an agreement, the
consummation of which would result in the occurrence of a
"Transfer" (as defined in Section 2.5(b) hereof);
(ii) the Corporation or any Person (as defined in Section
2.5 (c) hereof) publicly announces an intention to take or to consider
taking actions which, if consummated, would constitute a Transfer;
(iii) any Person (x) is or becomes the "Beneficial Owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as
16
<PAGE>
amended from time to time (the "Exchange Act"), directly or
indirectly, (y) discloses directly or indirectly to the Corporation
(or publicly) a plan or intention to become the Beneficial Owner,
directly or indirectly, or (z) makes a filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with
respect to securities to become the Beneficial Owner, directly or
indirectly, of securities of the Corporation representing 9.9% or more
of the combined voting power of the Corporation's then outstanding
securities; or
(iv) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Change in Control has occurred.
(b) A "Transfer" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraph (i), (ii), (iii) or
(iv) shall have been satisfied:
(i) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Corporation (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Cor-
17
<PAGE>
poration or its affiliates) representing 25% or more of the combined
voting power of the Corporation's then outstanding securities; or
(ii) during any period of two consecutive years (not
including any period prior to the date of this Agreement), individuals
who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered
into an agreement with the Corporation to effect a transaction
described in paragraph (i), (iii) or (iv) of this Section 2.5(b))
whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or
(iii) the shareholders of the Corporation approve a merger
or consolidation of the Corporation with any other corporation, other
than (i) a merger or consolidation which would re-
18
<PAGE>
sult in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities
of the surviving entity), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit
plan of the Corporation, at least 60% of the combined voting power
of the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or (ii)
a merger or consolidation effected to implement recapitalization of the
Corporation (or similar transaction) in which no Person acquires more
than 50% of the combined voting power of the Corporation's then
outstanding securities; or
(iv) the shareholders of the Corporation approve a plan
of complete liquidation of the Corporation or an agreement for the
sale or disposition by the Corporation of all or substantially all the
Corporation's assets.
(c) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used
19
<PAGE>
in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i)
the Corporation or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Corporation or any
of its subsidiaries, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Corporation in
substantially the same proportions as their ownership of stock of the
Corporation.
(d) The Corporation shall notify the Trustee of the occurrence
of a Change in Control or Transfer, and the Trustee may rely on such notice or
on any other actual notice, satisfactory to the Trustee, of such a change or
transfer which the Trustee may receive.
2.6 Notwithstanding anything else to the contrary contained herein,
the Trustee shall be responsible only for contributions actually received by it
hereunder, and shall have no responsibility for determining the sufficiency,
amount or calculation of any contribution required hereunder.
III.
DISPOSITION OF INCOME
During the term of this Trust, all income
20
<PAGE>
received by the Trust, net of expenses and taxes, shall be accumulated and
reinvested, to the extent that it is not used by Trustee to make payments or
distributions required by this Agreement.
IV.
PAYMENTS TO PLAN PARTICIPANTS
4.1 After the Trust Fund is funded pursuant to Section 2.2 and/or the
second sentence of Section 2.1 hereof, the Trustee shall from time to time, in
accordance with the Payment Schedules then in effect (and, in the event of
funding pursuant to the second sentence of Section 2.1 hereof, written
instructions of the Corporation given prior to any Change in Control), make
distributions or payments out of the Trust Fund, in cash or in property, to such
persons, in such manner and in such amounts as are set forth in the most recent
Payment Schedule provided to the Trustee under Section 4.2 hereof (or such
written instructions), but only to the extent that there are sufficient assets
in the Trust Fund to make such distributions or payments.
4.2 Concurrently with each delivery of the Corporation's contribution
pursuant to Section 2.3 hereof (and as soon as possible, but not later than 30
days, after delivery of the Corporation's contribution
21
<PAGE>
pursuant to Section 2.2 hereof), the Administrator shall deliver to the
Trustee a schedule (the "Payment Schedule") that indicates the amounts
payable in respect of each Participant (and his or her beneficiaries), the
form in which such amounts are to be paid and the time for payment of such
amounts. Concurrently, the Administrator shall also deliver a copy of such
Payment Schedule to the Corporation and shall deliver a copy of the portion
thereof relating to each respective Participant to such Participant.
Additionally, whenever a Participant's death, a Participant's termination of
employment, a Participant's revision of his or her Participant Designations
or other circumstances require a change in the portion of the Payment
Schedule respecting such Participant, the Corporation and the affected
Participant shall each have the right to notify the Administrator of such
circumstances. Upon receiving such notice from either the Corporation or
such Participant, the Administrator shall within ten (10) days deliver to the
Trustee, the Corporation and such Participant, an appropriately revised
Payment Schedule. Upon the receipt of such revised Payment Schedule, except
as otherwise provided in Article V hereof, the Trustee shall make payments to
the Participants and their beneficiaries in accordance with the
22
<PAGE>
Payment Schedule (or relevant portion thereof) most recently received,
provided, however, that any revised Payment Schedule delivered to the Trustee
shall not be effective until ten (10) days after such Payment Schedule has
been received by the Trustee. The Trustee may rely on any Payment Schedule
or withholding instructions delivered to Trustee by the Administrator. The
Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that the Administrator instructs the Trustee in
writing to withhold from any distribution or payment to a Participant or
beneficiary hereunder, and shall pay amounts so withheld to the appropriate
taxing authorities.
4.3 In the event that a Participant (or a beneficiary in the event of
a Participant's death) or the Corporation reasonably believes that the most
recent Payment Schedule does not properly reflect the amount payable to such
Participant or beneficiary (or the time or form of payment), such Participant
(or beneficiary) or the Corporation shall be entitled to deliver to the
Administrator a written notice of any objections to the Payment Schedule (the
"Notice of Objections") within ten (10) business days of receipt thereof;
provided, however, that the objector shall also deliver (within the same
23
<PAGE>
time period) a copy of such Notice of Objections (i) to the Trustee and (ii)
if the objector is the Participant, to the Corporation, or, if the objector
is the Corporation, to the Participant. Any Notice of Objections shall set
forth payment instructions including the amounts believed to be due under the
terms of the Plans and Participant Designations. If such Participant or
beneficiary (but not the Corporation) delivers a Notice of Objections to the
Administrator pursuant to the first sentence of this Section 4.3 (together
with satisfactory proof of delivery of said Notice of Objections to
the Corporation) and the Corporation does not deliver to the Administrator and
the Trustee a responsive Notice of Objections to the Participant's Notice of
Objections within ten (10) business days after receipt by the Administrator of
the Participant's Notice of Objections and the Participant after consultation
with the Administrator does not rescind its Notice of Objections within said ten
(10) business day period, the Administrator shall certify to the Trustee and the
Corporation the payment instructions with respect to such Participant's Benefits
as set forth in the Participant's Notice of Objections and the Trustee shall
make payment in accordance therewith, to the extent that there are sufficient
assets in the Trust
24
<PAGE>
Fund to make such payments. Except as otherwise provided herein, if the
Corporation either delivers an initial Notice of Objections to the
Administrator pursuant to the first sentence of this Section 4.3 or delivers
a responsive Notice of Objections during the ten (10) business days referred
to in the immediately preceding sentence, the Trustee shall initially make
payments to such Participant in accordance with the Corporation's Notice of
Objections (to the extent that there are sufficient assets in the Trust Fund
to make such payments), which payments shall be on account of Benefits
finally determined under the respective Plans and Participant Designations in
accordance with Article XIV hereof. In the event that the Administrator
reasonably determines that any Notice of Objection submitted by the
Corporation has not been made in good faith, the Administrator shall
promptly, but no later than ten (10) days after receipt of said Notice of
Objection, inform the affected Participant or Participants, the Corporation
and the Trustee of this determination, and the Trustee shall make payments to
each affected Participant in accordance with the provisions of this Section
as if the Corporation's Notice of Objection had not been filed, subject to
final deter-
25
<PAGE>
mination of Benefits in accordance with Article XIV hereof.
4.4 Nothing in this Agreement shall relieve the Corporation of its
obligation to pay the Benefits as and when due under the Plans. The Corporation
may make payment of Benefits directly to Participants or their beneficiaries as
they become due under the terms of the Plans. The Corporation shall notify the
Trustee and the Administrator of its decision to make payment of Benefits
directly by delivering a revised Payment Schedule to the Trustee and the
Administrator at least ten (10) days prior to the time amounts are payable to
Participants or their beneficiaries (or, in the case of Severance Benefits, no
later than the fifth (5th) day after the relevant qualifying termination of
employment). In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of Benefits in accordance with the
terms of the Plans, the Corporation shall make the balance of each such payment
as it falls due. The Trustee shall notify the Corporation when, principal and
earnings are not sufficient, and shall only make payments or distributions to
the extent that there are sufficient assets in the Trust Fund. Distributions
made from the Trust Fund to Participants (or their beneficia-
26
<PAGE>
ries) shall, to the extent of such distributions, satisfy the Corporation's
obligation to pay Benefits to such Participants (or their beneficiaries)
under the Plans.
4.5 In the event that either (i) the Corporation or the Administrator
delivers a written notice to the Trustee that there has been a final
determination by the Internal Revenue Service or a court of competent
jurisdiction, which determination in not appealable or the time for appeal or
protest of which has expired, or (ii) the Administrator, having received
written requests for such action from three or more Participants (or their
beneficiaries), makes a written request to the Trustee that the Trustee obtain
an opinion of tax counsel and the Trustee receives a substantially unqualified
opinion of tax counsel selected by the Trustee, (the reasonable fees and
disbursements of such tax counsel to be paid by the Corporation or, if not
promptly paid by the Corporation, to be paid by the Trustee with assets of the
Trust Fund) which determination determines, or which opinion opines, that any
Participant (or beneficiary) is subject to Federal income taxation on amounts
held in Trust hereunder prior to the distribution to the Participant (or
beneficiary) of such amounts, the Trustee shall, on receipt by the Trustee of
such opinion or notice of such
27
<PAGE>
determination, pay to such Participant (or beneficiary) the portion of the
Trust Fund allocable to the Benefits (other than Severance Benefits which
have not yet become due and payable) of such Participant (or beneficiary),
and, to the extent of such payment, the Corporation's obligation to the
Participant (or beneficiary) for his or her Benefits under the Plans shall be
cancelled. The Trustee shall be advised in writing by the Administrator as
to the amount(s) to be allocated and paid to each such Participant (or
beneficiary), the time(s) of the payment of such amount(s), and the valuation
date(s) to be used in determining the assets then remaining in the Trust
Fund, which amount(s), time(s) and date(s) shall be determined in the
discretion and good faith of the Administrator, in order to provide as prompt
a distribution of such Participant's (or beneficiary's) total Benefits (other
than Severance Benefits which have not yet become due and payable) as is
practicable. The Corporation and the Trustee shall co-operate fully and
promptly with the Administrator to provide the information needed for the
Administrator's determinations (and which, in the case of the Trustee, is in
the Trustee's possession). The aggregate amount paid to each such
Participant (or beneficiary) shall be the lesser of (i) the present value of
the
28
<PAGE>
Benefits of such Participant (or beneficiary) which then remain unpaid (other
than Severance Benefits which have not yet become due and payable) or (ii)
such Participant's (or beneficiary's) pro-rata portion of the assets of the
Trust Fund then remaining, based on the ratio of the present value of the
Participant's (or beneficiary's) Benefits which then remain unpaid to the
present value of all such unpaid Benefits (excluding from such ratio all
Severance Benefits which have not yet become due and payable). Such present
values shall be determined in accordance with Section 2.4 hereof.
Notwithstanding anything else contained herein to the contrary, Trustee shall
have no duty or obligation to make any determinations as to whether amounts
held in the Trust are taxable to any Participant (or beneficiary) other than
requesting an opinion of tax counsel pursuant to the terms of this Section 4.5.
V.
TRUSTEE RESPONSIBILITY
IF THE CORPORATION BECOMES INSOLVENT
5.1 Trustee shall cease payment of Benefits to Participants and their
beneficiaries if the Corporation becomes Insolvent. The Corporation shall be
considered to be "Insolvent" for purposes of this Agreement if (i)
29
<PAGE>
the Corporation is unable to pay its debts as they become due, or (ii) the
Corporation is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
5.2 At all times during the continuance of this Trust, the principal
and income of the Trust shall be subject to claims of general creditors of the
Corporation under federal and state law as set forth below.
(a) The Chief Executive Officer of the Corporation shall have
the duty to inform Trustee in writing of the Corporation's Insolvency. If a
person claiming to be a creditor of the Corporation alleges in writing to
Trustee that the Corporation has become Insolvent, Trustee shall determine
whether the Corporation is Insolvent and, pending such determination, Trustee
shall discontinue payment of Benefits to Participants or their beneficiaries.
(b) Unless Trustee has actual knowledge of the Corporation's
Insolvency, or has received notice from the Corporation or a person claiming to
be a creditor alleging that the Corporation is Insolvent, Trustee shall have no
duty to inquire whether the Corporation is insolvent. Trustee may in all events
rely on such evidence concerning the Corporation's solvency as may be
30
<PAGE>
furnished to Trustee which provides Trustee with a reasonable basis for
making a determination concerning the Corporation's solvency.
(c) If at any time Trustee has determined that the Corporation
is Insolvent, Trustee shall discontinue payments to Participants (and their
beneficiaries) and shall hold the assets of the Trust for the benefit of the
Corporation's general creditors, to be distributed only as a court of competent
jurisdiction, or duly appointed receiver or other person authorized to act by
such a court, may direct. Nothing in this Agreement shall in any way diminish
any rights of Participants or their beneficiaries to pursue their rights as
general creditors of the Corporation with respect to Benefits due under the
Plans or otherwise.
(d) Trustee shall resume the payment of Benefits to Participants
(and their beneficiaries) in accordance with Article IV of this Agreement only
after Trustee has determined that the Corporation in not Insolvent (or is no
longer Insolvent).
5.3 Provided that there are sufficient assets, if Trustee
discontinues the payment of Benefits from the Trust pursuant to Section 5.2
hereof and subsequently determined that the Corporation is not Insolvent (or is
31
<PAGE>
no longer Insolvent), then, upon request, the Administrator shall prepare (and
the Corporation shall promptly comply with the Administrator's reasonable
requests for information in connection with such preparation) and deliver a
revised Payment Schedule to the Trustee which shall take into account the
aggregate amount of all payments due to Participants (and their beneficiaries)
under the terms of the Plans for the period of such discontinuance, less the
aggregate amount of any payments made to Participants and their beneficiaries by
the Corporation in lieu of the payments provided for hereunder during any such
period of discontinuance.
VI.
PAYMENTS TO THE CORPORATION
6.1 Except as provided in this Article, and Articles V and XIII,
after the Trust has become irrevocable, the Corporation shall have no right
to receive, and no power to direct Trustee to return to the Corporation or to
divert to others, any of the Trust assets before the later to occur of (i)
the data on which payment of all Benefits under the Plans to Participants and
their beneficiaries has been completed pursuant to the terms of the Plans and
(ii) the date the "Change in Control Protective Period" (to defined in the
Carrigg
32
<PAGE>
Employment Agreement and the officer Severance Agreements) expires. Upon
receipt by Trustee of a notice under Section 13.1 hereof that (i) the
Participants (and their beneficiaries) are no longer entitled to receive
Benefits pursuant to the Plans (all payments of such Benefits having been
completed) and (ii) the Change in Control Protective Period has expired, this
Agreement and Trust shall terminate and any remaining Trust Fund assets shall
be returned to the Corporation. With respect to the calculation by the
Administrator of the revised Required Funding Amount as of the end of any
year which occurs before the expiration of the Change in Control Protective
Period, if any Participant whose employment with the Corporation was
terminated during such year and who had previously entered into an Officer
Severance Agreement (or the Carrigg Employment Agreement, in the case of
James A. Carrigg) shall have confirmed to the Administrator by a signed
writing that such Participant no longer has any claim or right to his or her
Severance Benefits, the Administrator shall delete such Severance Benefits
from the calculation of the revised Required Funding Amount. In the event
that termination of employment was by reason of death of the Participant,
said confirmation shall be made by a representative of the es-
33
<PAGE>
tate. As soon an practicable after receipt by Trustee of the calculation of
the revised Required Funding Amount, the Trustee shall return any Trust Fund
assets which exceed the revised Required Funding Amount to the Corporation.
As soon as practicable after the expiration of the Change in Control
Protective Period, the Administrator (i) shall request all necessary
information from the Corporation and the Trustee to calculate a revised
Required Funding Amount as of the day immediately following such expiration
(and the Corporation and the Trustee shall promptly provide such
information), and (ii) shall advise the Trustee of such revised Required
Funding Amount. As soon as practicable after receipt of such advice, the
Trustee shall return any Trust Fund assets which exceed the revised Required
Funding Amount to the Corporation.
6.2 In the event the Corporation delivers an amount to the Trustee
upon a Change in Control pursuant to Section 2.2 hereof, the Trust Fund (except
for the initial $1,000 contribution by the Corporation) may (in the Trustee's
sole discretion) be returned to the Corporation one (1) year after such delivery
to the Trustee unless a Transfer shall have occurred during such one (1) year
period; provided, however, that in the event that the Transfer would require
that the Corporation's shareholders approve a merger or consolidation described
in Section 2.5(b)(iii) hereof, such Trust Fund may (in the Trustee's sole
discretion) be returned to the Corporation three (3) years after such delivery
to the Trustee unless the merger or consolidation
34
<PAGE>
shall have been consummated during such three (3) year period. Such one (1) or
three (3) year period shall be begun anew (thus postponing any such
discretionary return of Trust Fund assets) in the event of any subsequent Change
in Control occurring during such initial period or any subsequent period.
VII.
POWERS, DUTIES AND RESPONSIBILITY OF TRUSTEES
7.1 All rights associated with assets of the Trust shall be exercised
by Trustee or the person designated by Trustee, and shall in no event be
exercisable by or rest with Participants or their beneficiaries.
7.2 Notwithstanding any other provision hereof, the Trust Fund shall
be held, invested and reinvested by the Trustee only in cash or marketable
securities in accordance with this Section 7.2. The Trustee shall use its good
faith efforts to invest or reinvest from time to time all or such part of the
Trust Fund as it believes prudent under the circumstances (taking into account,
35
<PAGE>
among other things, anticipated cash requirements for the payment of Plan
Benefits) in either one or a combination of the following investments:
(i) investments in direct obligations of the United States of
America or agencies of the United States of America or obligations
unconditionally and fully guaranteed as to principal and interest by the
United States of America; and
(ii) investments in negotiable certificates of deposit issued by
a commercial bank organized and existing under the laws of the United
States of America or any state thereof having a combined capital and
surplus of at least $1,000,000,000;
provided, however, that the Trustee shall not be liable for any failure to
maximize the income earned on that portion of the Trust Fund as is from time to
time invested or reinvested as set forth above, nor for any loss of income or
principal due to liquidation of any investment which the Trustee, in its sole
discretion, believes necessary to make payments or to reimburse expenses under
the terms of this Agreement.
7.3 Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity
36
<PAGE>
and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Corporation or the Administrator
which is in conformity with the terms of this Agreement and is given in writing
by the Corporation or Administrator. In the event of a dispute, Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
7.4 If Trustee undertakes or defends any litigation arising in
connection with this Trust, the Corporation agrees to indemnify Trustee on an
after-tax basis against Trustee's costs, expenses and liabilities (including,
without limitation, reasonable attorneys' fees and expenses) relating thereto
and to be primarily liable for such payments unless the Trustee is
determined, in a final adjudication, to have been guilty of willful
misconduct or gross negligence in the performance (or non-performance) of its
duties under the Trust. If the Corporation does not pay such costs, expenses
and liabilities in a reasonably timely manner, Trustee may pay such costs,
expenses and liabilities with assets of the Trust.
37
<PAGE>
7.5 Trustee may consult with legal counsel (who may also be counsel
for the Corporation generally) with respect to any of its duties or obligations
hereunder, and the reasonable fees and expenses of such legal counsel will be
paid by the Corporation, provided that if the Corporation does not promptly pay
such fees and expenses, the Trustee may pay such fees and expenses with assets
of the Trust.
7.6 Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder, and the reasonable fees
and expenses of such professionals shall be paid by the Corporation, provided
that if such fees and expenses are not promptly paid by the Corporation, the
Trustee may pay such fees and expenses with assets of the Trust.
7.7 Subject to Sections 7.1 and 7.2 hereof, the Trustee shall have,
without exclusion, all powers conferred on Trustees by applicable law, unless
expressly provided otherwise herein.
7.8 Subject to Sections 7.1 and 7.2 hereof, but in amplification of
(and not in limitation of) the powers given in Section 7.7 hereof, the Trustee
shall
38
<PAGE>
have the following powers and authority in the administration of the Trust
Fund:
(a) To invest all contributions, investments, and reinvestments
thereof and all additions thereto by way of contributions, earnings and
increments.
(b) To sell for cash or on credit, to grant options, convert,
redeem, exchange for other securities or other property, or otherwise to dispose
of any securities or other property at any time held.
(c) To settle, compromise or submit to arbitration, any claims,
debts or damages, due or owing to or from the Trust, to commence or defend
suits or legal proceedings and to represent the Trust in all suits or legal
proceedings.
(d) To exercise any conversion privilege and/or subscription
right available in connection with any securities or other property at any time
held; to oppose or to consent to the reorganization, consolidation, merger, or
readjustment of the finances of any corporation, company or association or to
the sale, mortgage, pledge or lease of the property of any corporation,
company or association any of the securities of which may at any time be held
and to do any act with reference thereto, including the exercise of options, the
39
<PAGE>
making of agreements or subscriptions, which may be deemed necessary or
advisable in connection therewith, and to hold and retain any securities or
other property so acquired.
(e) To exercise, personally or by general or by limited power
of attorney, any right, including the right to vote, appurtenant to any
securities or other property held at any time.
(f) To borrow money from any lender in such amounts and upon
such terms and conditions as shall be deemed advisable or proper to carry out
the purposes of the Trust and to pledge any securities or other property for the
repayment of any such loan.
(g) To hold cash uninvested for a reasonable period of time
under the circumstances without liability for interest, pending investment
thereof or the payment of expenses or making distributions therewith.
(h) To register any securities held hereunder in the name of
the Trustee or in the name of a nominee with or without the addition of words
indicating that such securities are held in a fiduciary capacity and to hold any
securities in bearer form.
(i) To make, execute and deliver, as Trustee, any and all
conveyances, contracts, waivers,
40
<PAGE>
releases or other instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers.
(j) Subject to the express provisions of this Agreement, to
invest and reinvest all or any portion of the Trust Fund collectively through
the medium of any common, collective or commingled trust fund that may be
established and maintained by the Trustee, subject to the instrument or
instruments establishing such trust fund or funds and with the terms of such
instrument or instruments, as from time to time amended, being incorporated into
this Agreement to the extent of the equitable share of the Trust Fund in any
such common, collective or commingled trust fund.
VIII.
TAXES, TRUSTEE AND ADMINISTRATOR COMPENSATION
8.1 The Trustee shall pay out of the Trust Fund all taxes of any and
all kinds levied or assessed under existing or future laws against the Trustee
in its capacity as such or against the Trust Fund.
8.2 The Trustee and the Administrator shall be paid such reasonable
compensation as shall from time to time be agreed upon by each of them with the
Corporation; provided, however, that, after the occurrence of a Change
41
<PAGE>
in Control, the Corporation shall not withhold its consent and agreement to
any reasonable fee arrangement requested by the Trustee or the Administrator.
Such compensation and all expenses of administration of the Trust, including
(without limitation) recordkeeping and reasonable counsel fees, shall be
withdrawn by the Trustee out of the Trust Fund unless paid by the Corporation
in a reasonably timely manner.
IX.
ACCOUNTING BY TRUSTEE AFTER FUNDING
9.1 The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements and all other transactions hereunder, and
all accounts, books and records relating thereto shall be open to inspection and
audit at all reasonable times by any person designated by the Corporation.
Within 90 days after the close of each fiscal year (or such other date as may be
agreed upon in writing among the Corporation, the Administrator and the
Trustee), and within 120 days after the effective date of the resignation (or
other termination of service) of the Trustee, the Trustee shall file with the
Corporation and the Administrator a written account of its administration of the
Trust during such year (or during the period from the close of the last
42
<PAGE>
preceding year to the effective date of such termination of service) setting
forth all investments, receipts, disbursements and all other transactions
effected by it, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the end of such year
or as of the effective date of such resignation. Such account may incorporate
by reference any and all schedules and other statements setting forth
investments, receipts, disbursements and other transactions effected during the
period for which such account is rendered which the Trustee has furnished to the
Corporation and the Administrator prior to the filing of such account. Each
account so filed (and copies of any schedules and statements incorporated
therein by reference as aforesaid) shall be open to inspection at the offices of
the Corporation during business hours by any Participant (or in the event of any
Participant's death, his or her beneficiary) for a period of 60 days immediately
following the date on which the accounts are filed with the Corporation. In the
absence of the filing in writing with the Trustee by the Corporation or a
Participant (or benefici-
43
<PAGE>
ary) of exceptions or objections to any such account within 90 days of the
date the accounts are filed with the Corporation and Administrator, the
Corporation and all Participants (or their beneficiaries) shall be deemed to
have approved such account; and in such case, or upon the signed written
approval of the Corporation and all Participants (or beneficiaries) of any
such account, the, Trustee shall be released, relieved and discharged with
respect to all matters and things set forth in such account as though such
account had been settled by the decree of a court of competent jurisdiction.
9.2 Notwithstanding Article XIV hereof or any approval (or lack of
approval) of an account pursuant to Section 9.1 hereof, the Trustee may at any
time initiate an action or proceeding for the settlement of its accounts or for
the determination of any question of construction which may arise or for
instructions.
9.3 The Trustee will maintain such books, records and accounts as may
be necessary for the proper administration of the Trust Fund. The Trustee will
at all times maintain (and will provide promptly to the Administrator on an
annual basis, no later than April 1 of each year and also upon any written
request) a record of each amount delivered by the Corporation to the Trust-
44
<PAGE>
ee and each amount paid by the Trustee to a Participant in accordance with a
Payment Schedule. On or prior to each May 1 which occurs after the initial
transfer of the Required Funding Amount to the Trustee and during the term of
this Trust, the Administrator shall deliver to each Participant and the
Corporation a current written report (as of the immediately preceding
December 31st) setting forth (a) the present value of such Participant's
unpaid Plan Benefits; (b) the aggregate present value of all unpaid Plan
Benefits; (c) the aggregate fair market value of the Trust Fund (plus the
value of any contributions made by the Corporation within the ninety (90)
days immediately following such December 31st, as of the date of any such
contribution); and (d) a record of any amounts paid by the Trustee to such
Participant (or beneficiary) in accordance with a Payment Schedule.
X.
TRUSTEE PROTECTION
10.1 The Corporation shall indemnify and hold harmless the Trustee for
any action, or failure to take action, in reliance in good faith upon any
certification, instruction, direction or approval of the Corporation (or
Administrator).
45
<PAGE>
10.2 The Corporation shall indemnify and hold harmless the Trustee for
acting upon any instrument, certificate, or paper believed by it to be genuine
and to be signed or presented by the proper person or persons, and the Trustee
shall be under no duty to make any investigation or inquiry as to any statement
contained in any such writing but may accept the same as conclusive evidence of
the truth and accuracy of the statements therein contained.
10.3 The Trustee shall not be liable for the proper application of
any part of the Trust Fund if distributions are made in accordance with the
terms of Payment Schedules or other written instructions furnished to the
Trustee by the Corporation or Administrator in accordance with this
Agreement. All persons dealing with the Trustee are released from inquiry
into the decision or authority of the Trustee and from seeing to the
application of any moneys, securities or other property paid or delivered to
the Trustee.
10.4 The Trustee shall not be liable hereunder for any loss or
diminution of the Trust Fund resulting from any action taken or omitted unless
caused by Trustee's gross negligence or willful misconduct.
46
<PAGE>
10.5 The Corporation shall indemnify and hold harmless on an after-tax
basis the Trustee for any liability or expenses, including without limitation
reasonable attorney's fees, incurred by the Trustee with respect to keeping
records with respect to the administration of the Trust Fund and otherwise
carrying out its obligations under this Agreement, other than those resulting
from the Trustee's gross negligence or willful misconduct.
10.6 The duties and obligations of the Trustee acting as Trustee
hereunder shall be strictly limited to those expressly imposed upon the
Trustee by this Agreement and by the applicable laws of the State of New
York. Notwithstanding anything else to the contrary contained herein, the
Trustee shall have no duty to review the Plans or Participant Designations,
have no responsibility for providing for the proper administration of the
Plans, for calculating any Benefits payable to Participants (or
beneficiaries), for calculating any contributions required to be made by the
Corporation under the Plans or Participant Designations, or for insuring that
the provisions of this Agreement are consistent with the provisions of the
Plans and Participant Designations.
47
<PAGE>
XI.
RESIGNATION OR REMOVAL OF TRUSTEE
11.1 At any time prior to the occurrence of any Change in Control, the
Trustee may be removed by the Corporation on thirty (30) days notice or upon
shorter notice accepted by the Trustee. After a Change in Control, the Trustee
may be removed by the combined action of the Corporation and Participants (or in
the event of the death of a Participant, his or her beneficiaries) then having
unpaid Benefits equal to at least sixty-five percent (65%) of all amounts then
held in the Trust hereunder on thirty (30) days notice or upon shorter notice
accepted by the Trustee. A Trustee may resign at any time (whether before or
after a Change in Control) by written notice to the Corporation, which
resignation shall be effective ninety (90) days after receipt of such notice by
the Corporation unless the Corporation agrees otherwise. Notwithsttanding the
foregoing provisions of this Section 11.1, any Trustee which is removed or
resigns shall continue to serve until its successor Trustee accepts the
appointment and receives delivery of the Trust Fund.
48
<PAGE>
XII.
APPOINTMENT OF SUCCESSOR TRUSTEE
12.1 If notice is given that the Trustee is being removed or is
resigning, the Corporation (or, if a Change in Control shall have occurred
prior to the effective appointment of a successor Trustee, the Corporation
and the Participants (or in the event of the death of a Participant, his or
her beneficiaries) then having unpaid Benefits equal to at least sixty-five
percent (65%) of all amounts then held in the Trust) shall appoint a
successor Trustee hereof prior to the effective date of the Trustee's
resignation or removal. The appointment of a successor Trustee shall be by a
written instrument delivered to the Trustee then acting hereunder and the
successor Trustee being appointed.
12.2 If notice of resignation or removal has been given, and the
applicable notice period has expired without any successor Trustee having been
appointed, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor bank Trustee having trust powers or for instructions.
All expenses of Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust. Any successor Trustee appointed hereunder
shall be a commercial bank which is
49
<PAGE>
not an affiliate of the Corporation, but which is a national banking
association or is established under the laws of one of the states of the
United States.
12.3 The appointment of a successor Trustee shall be effective when
accepted in writing by the new Trustee. The new Trustee shall have all the
rights, powers and duties of the prior Trustee, including ownership rights in
Trust Fund assets.
12.4 A successor Trustee need not examine the records and acts of any
prior Trustee. The successor Trustee shall not be responsible for, and
Corporation shall indemnify and defend the successor Trustee from any claim or
liability resulting from, any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes successor
Trustee.
12.5 If the Trustee ceases to act as Trustee and appointment of a
successor Trustee is made, all Trust Fund assets shall subsequently be
transferred to the successor Trustee. The transfer shall be completed within
thirty (30) days after the appointment of the successor Trustee becomes
effective, unless the Corporation extends the time limit.
50
<PAGE>
XIII.
AMENDMENT OR TERMINATION
13.1 The Trust under this Agreement shall terminate on the date on
which the Corporation, with the concurrence of the Administrator, certifies
to the Trustee that Participants and their beneficiaries are no longer
entitled to Benefits pursuant to the terms of the Plans (all payments of such
Benefits having been completed) and the Change in Control Protective Period
has expired. Any amendment which purports to terminate the Trust at any
earlier date shall be effective only if made in accordance with Section 13.2
or 13.3 hereof. Promptly upon termination of the Trust, any remaining Trust
Fund assets shall be paid to the Corporation.
13.2 Prior to a Change in Control, the Corporation may amend this
Agreement (including making an amendment which terminates the Trust), without
the consent of the Participants by written instrument executed by the
Corporation and approved in writing by the Trustee; provided, however, that the
written approval of the Trustee shall not be required for any termination of the
Trust.
13.3 On and after the occurrence of a Change in Control, this
Agreement may be amended only by an in-
51
<PAGE>
strument in writing signed on behalf of
the parties hereto, together with the written consent of Participants (or in the
event of their deaths, their beneficiaries) then having unpaid Benefits equal to
at least sixty-five percent (65%) of all amounts then held in the Trust;
provided, however, that the signature and approval of the Trustee shall not be
required for any termination of the Trust or for any amendment required by law.
Notwithstanding the foregoing, any such amendment may be made by written
agreement of the parties hereto without obtaining the consent of the
Participants or their beneficiaries, if such amendment does not adversely affect
the rights of the Participants or their beneficiaries hereunder. No amendment
made on or after the Change in Control may make the Trust revocable solely by
the Corporation.
XIV.
ARBITRATION
14.1 Except an otherwise provided herein, any dispute between the
Participants (or their beneficiaries), the Corporation, the Administrator and/or
the Trustee as to the interpretation or application of the provisions of this
Agreement, and, after any Change in Control, any question concerning
distributions or payments hereunder, shall be determined in Binghamton, New
52
<PAGE>
York, exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect. Such determination shall be final,
conclusive and binding upon the parties. Judgment may be entered on the
arbitrator's award in any court of competent jurisdiction. All fees and
expenses of such arbitration (including, without limitation, those incurred by
the Participants or their beneficiaries) shall be paid by the Corporation,
provided that if the Corporation does not promptly pay such fees and expenses,
the Trustee may pay such fees and expenses out of the assets of the Trust.
XV.
NOTICES
Any notice or communication which the Corporation, the Trustee, the
Administrator, or a Participant (or Participant's beneficiary) may be
required or may desire to give to another entity or individual under any
provision of this Agreement shall be: (a) given in writing and personally
delivered to, or mailed or delivered by overnight courier service to the
address (or addresses) given below for, the entity or individual to whom such
notice or communication is directed, or (b) with respect to notices or
communications to the Corpora-
53
<PAGE>
tion, the Trustee or the Administrator, made by telecopy, delivered or
transmitted to the address given below.
To the Corporation: New York State Electric & Gas
Corporation
Post Office Box 3607
Binghamton, NY 13902-3607
Attention: Corporate Secretary
To Trustee: Bankers Trust Company
280 Park Avenue
New York, NY
Attention: Marjorie Greenspan
To Administrator: Towers, Perrin, Forster &
Crosby, Inc.
Centre Square East
1500 Market Street
Philadelphia, PA 19102-4790
Attention: William J. Murdoch, Jr.
To Any Participant
or beneficiary: From time to time, as stated on
the Payment Schedule most re
cently delivered to the Trustee.
Any notice which is personally delivered shall be deemed to have been given
on the date it is personally delivered. Any notice which is mailed shall be
deemed to have been given on the third business day after deposit in the
mail, registered or certified mail, postage prepaid and return receipt
requested. Any notice which is delivered by overnight courier service shall
be deemed to have been
54
<PAGE>
given on the business day after deposit with such courier service. Any notice
which is transmitted by telex or telecopy shall be deemed to have been given on
the day that such notice is transmitted.
The Corporation, the Trustee, the Administrator, or a Participant (or
beneficiary) may change the address to which notices, requests and other
communications are to be sent to it, him or her by giving written notice of such
address change to the other entities and individuals in conformity with this
Article, but such change shall not be effective until notice of such change has
been received by the other entities and individuals.
XVI.
MISCELLANEOUS
16.1 Any provision of this Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
16.2 Amounts payable to Participants and their beneficiaries under
this Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
55
<PAGE>
IN WITNESS WHEREOF, this instrument has been executed as of the day
and year first above written.
NEW YORK STATE ELECTRIC & GAS
CORPORATION
By: /s/ R P Fagan
-------------------------
Title: Senior Vice President
BANKERS TRUST COMPANY,
as Trustee
By: /s/ [Illegible]
--------------------------
Title: Vice President
57
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF TOMPKINS )
On the 11th day of July, in the year one thousand nine hundred and
ninety-four, before me personally came Richard P. Fagan to me known, who being
by me duly sworn, did depose and say: that he resides in Dryden, Now York; that
he is a Senior Vice President of NEW YORK STATE ELECTRIC & GAS CORPORATION, the
corporation described in and which executed the above instrument; and that he
signed his name thereto by order of the Board of Directors and said corporation.
/s/ Renee C. Neiderman
--------------------------------
Notary Public
RENEE C. NEIDERMAN
Notary Public, State of New York
Qualified in Cortland Co. 4682541
My Commission Expires November 30, 1994
<PAGE>
Exhibit 14
FIRST AMENDMENT
TO EMPLOYEE BENEFIT TRUST AGREEMENT
First Amendment to Employee Benefit Trust Agreement dated as of the
1st day of January, 1996 (the "First Amendment") by and between New York State
Electric & Gas Corporation (the "Corporation") and Bankers Trust Company, a New
York Banking Corporation, as Trustee ("Trustee") amending certain provisions of
the Employee Benefit Trust Agreement, dated as of July 1, 1994, (the "Trust
Agreement") by and between the Corporation and the Trustee.
WHEREAS, the Corporation has, effective January 1, 1996, adopted i)
an Annual Executive Incentive Plan ("AEIP") which replaces the Corporation's
Annual Executive Incentive Compensation Plan, ii) a Long Term Executive
Incentive Share Plan ("LTEISP") which replaces the Corporation's Performance
Share Plan, iii) an amendment to the Corporation's Deferred Compensation Plan to
allow deferral of awards under the AEIP, and iv) a Long Term Executive Incentive
Share Deferred Compensation Plan to allow deferral of awards under the LTEISP.
WHEREAS, the parties hereto wish to amend the Trust Agreement to
reflect the new incentive compensation and deferred compensation plans adopted
by the Corporation.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The first WHEREAS clause of the Trust Agreement is hereby amended
by inserting the following immediately before the semicolon:
and was also subsequently amended to permit deferral of awards
under the Corporation's Annual Executive Incentive Plan
("AEIP")
2. The second WHEREAS clause of the Trust Agreement is hereby
amended by inserting the following immediately before the semicolon:
and has also adopted a Long Term Executive Incentive Share
Deferred Compensation Plan, effective as of January 1, 1996
("LTEIS Deferred Compensation Plan") for the benefit of
employees who participate in the Corporation's Long Term
Executive Incentive Share Plan to permit the deferral of cash
awards made pursuant to said plan
3. The third WHEREAS clause of the Trust Agreement is hereby amended
to read in its entirety as follows:
WHEREAS, the Corporation has entered into, and intends to
enter into, certain deferred compensation agreements with
past, existing and future employees pursuant to the Deferred
Compensation Plan for Salaried Employees, the Performance
Share Deferred Compensation Plan and
<PAGE>
- 2 -
the LTEIS Deferred Compensation Plan (collectively, the
"Deferred Compensation Agreements"); the deferred
compensation agreements covering deferred compensation (but
not AEICP or AEIP awards) under the Deferred Compensation
Plan for Salaried Employees are hereinafter referred to as
"Salaried Employee Deferred Compensation Agreements"; and
4. The seventh WHEREAS clause of the Trust Agreement is hereby
amended by inserting "LTEIS Deferred Compensation Plan," immediately
after "Performance Share Deferred Compensation Plan,"
5. The third sentence of Section 2.4 of the Trust Agreement is
hereby amended to read in its entirety as follows:
The present value of Benefits under the Deferred Compensation
Plan for Salaried Employees, the Performance Share Deferred
Compensation Plan and the LTEIS Deferred Compensation Plan and
related Deferred Compensation Agreements (other than Benefits
under Section 7 of the Salaried Employee Deferred Compensation
Agreements) shall be the total amount of each deferred
compensation account, including accrued interest.
6. Except as expressly modified hereby, the terms and provisions of
the Trust Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed by their respective duly authorized
representatives as of the date first above written.
NEW YORK STATE ELECTRIC & BANKERS TRUST COMPANY
GAS CORPORATION
By: By:
------------------------- ---------------------------
<PAGE>
Exhibit 15
SECOND AMENDMENT
TO EMPLOYEE BENEFIT TRUST AGREEMENT
Second Amendment to Employee Benefit Trust Agreement dated as of the
9th day of September, 1996 (the "Second Amendment") by and between New York
State Electric & Gas Corporation (the "Corporation") and Bankers Trust Company,
a New York Banking Corporation, as Trustee ("Trustee") amending certain
provisions of the Employee Benefit Trust Agreement, dated as of July 1, 1994, as
amended, (the "Trust Agreement") by and between the Corporation and the Trustee.
WHEREAS, the Employment Agreement, dated January 19, 1994, as
amended, previously entered into between the Corporation and James A. Carrigg
("Carrigg Employment Agreement") terminated on September 9, 1996.
WHEREAS, the Corporation has entered into an Employment Agreement,
dated August 7, 1996, with Wesley W. von Schack ("von Schack Employment
Agreement") which provides in Section 10 thereof for certain payments to be made
by the Corporation to Mr. von Schack in the event of certain terminations of his
employment.
WHEREAS, the parties hereto wish to amend the Trust Agreement to
reflect the termination of the Carrigg Employment Agreement and the entering
into by the Corporation of the von Schack Employment Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The fifth WHEREAS clause of the Trust Agreement is hereby amended
to read in its entirety as follows:
"WHEREAS, the Corporation has entered into an Employment Agreement
dated August 7, 1996 with Wesley W. von Schack (hereinafter, the
"von Schack Employment Agreement"), which provides in Section
10.1(A) thereof for certain severance payments to be made by the
Corporation to Mr. von Schack in the event of certain terminations
of his employment (such severance payments, as grossed up pursuant
to Section 10.2 of the von Schack Employment Agreement, are
hereinafter referred to as the "von Schack Severance Benefits");and"
2. The sixth WHEREAS clause of the Trust Agreement is hereby amended
by deleting the phrase "Carrigg Severance Benefits" and inserting in
its place the phrase "von Schack Severance Benefits".
3. The seventh WHEREAS clause of the Trust Agreement is hereby
<PAGE>
amended by deleting the phrase "Carrigg Employment Agreement" and
inserting in its place the phrase "von Schack Employment Agreement".
4. The first sentence of Section 6.1 of the Trust Agreement is
hereby amended by deleting the phrase "Carrigg Employment Agreement"
and inserting in its place the phrase "von Schack Employment
Agreement".
5. The third sentence of Section 6.1 of the Trust Agreement is
hereby amended by deleting the parenthetical "(or the Carrigg
Employment Agreement, in the case of James A. Carrigg)" and
inserting in its place the parenthetical "(or the von Schack
Employment Agreement, in the case of Wesley W. von Schack)".
6. This Second Amendment is effective as of the date first above
written.
7. Except as expressly modified hereby, the terms and provisions of
the Trust Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their respective duly authorized
representatives as of the date first above written.
NEW YORK STATE ELECTRIC & BANKERS TRUST COMPANY
GAS CORPORATION
By: By:
------------------------- ------------------------
<PAGE>
Exhibit 16
THIRD AMENDMENT
TO EMPLOYEE BENEFIT TRUST AGREEMENT
Third Amendment to Employee Benefit Trust Agreement dated as of the
___ day of July, 1997 (the "Third Amendment") by and between New York State
Electric & Gas Corporation (the "Corporation") and Bankers Trust Company, a New
York Banking Corporation, as Trustee ("Trustee") amending certain provisions of
the Employee Benefit Trust Agreement, dated as of July 1, 1994, as amended, (the
"Trust Agreement") by and between the Corporation and the Trustee.
WHEREAS, the Employment Agreement, dated August 7, 1996, as amended,
previously entered into between the Corporation and Wesley W. von Schack (the
"von Schack Employment Agreement"), which provides in Section 10.1(A), Section
10.1(B) and Section 10.2 thereof for certain cash payments to be made by the
Corporation to Mr. von Schack in the event of certain terminations of
employment, was further amended to clarify and to modify certain provisions.
WHEREAS, the Severance Agreements, as amended, previously entered into
between the Corporation and the Executive and Senior Vice Presidents and the
Vice Presidents of the Corporation (the "Officer Severance Agreements"), which
provide in Section 6.1(A) and Section 6.1(B) thereof for certain cash payments
to be made by the Corporation to the officers in the event of certain
terminations of employment, were further amended to provide for certain
additional payments in connection with such terminations of employment.
WHEREAS, the Corporation has entered into, and intends to enter into,
certain severance agreements, with certain key employees of the Corporation,
including Messrs. Benson, Kump and Rude (the "Key Employee Severance
Agreements"), which provide (or will provide) in Section 6.1(A), Section 6.1(B)
and Section 6.2 thereof for certain cash payments to be made by the Corporation
to the key employees in the event of certain terminations of employment.
WHEREAS, the Corporation has adopted, effective July 29, 1997, the
New York State Electric & Gas Corporation Selected Employee Retention Plan (the
"Retention Plan"), which provides (or will provide) for certain cash payments to
be made by the Corporation to certain selected employees in the event of certain
transactions involving the Corporation and certain terminations of employment.
<PAGE>
WHEREAS, the parties hereto wish to amend the Trust Agreement to
reflect the amendments to the von Schack Employment Agreement and the Officer
Severance Agreements, the entering into by the Corporation of the Key Employee
Severance Agreements and the adoption of the Retention Plan, and to clarify the
assumptions used in Section 2.4 thereof and to modify the definition of Transfer
in Section 2.5(b) thereof.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The fifth WHEREAS clause of the Trust Agreement is hereby
amended to read in its entirety as follows:
"WHEREAS, the Corporation has entered into an Employment Agreement
dated August 7, 1996 with Wesley W. von Schack (hereinafter, as
amended and as it may be amended from time to time, the "von
Schack Employment Agreement"), which provides in Section 10.1(A) and
Section 10.1(B) thereof for certain cash severance payments to be made
by the Corporation to Mr. von Schack in the event of certain
terminations of his employment and in Section 10.2 for a "Gross-Up
Payment" (as defined in the von Schack Employment Agreement) in
certain circumstances (such severance payments and Gross-Up Payment
are hereinafter referred to as the "von Schack Severance Benefits");
and"
2. The sixth WHEREAS clause of the Trust Agreement is hereby amended
to read in its entirety as follows:
"WHEREAS, the Corporation has entered into, and intends to enter into,
certain severance agreements (hereinafter, as amended and as they
may be amended from time to time, the "Officer Severance Agreements")
with existing and future Senior Vice Presidents and Vice Presidents of
the Corporation and existing and future select key employees of the
Corporation (hereinafter, the "Key Employee Severance Agreements"),
which provide (or will provide) in Section 6.1(A) and Section 6.1(B)
for certain cash severance payments to be made by the Corporation to
the officers and the key employees in the event of certain
terminations of employment and in Section 6.2 for a "Gross-Up Payment"
(as defined in the Officer Severance Agreements and the Key Employee
Severance Agreements) in certain circumstances (such severance
payments and Gross-Up Payments are hereinafter, collectively with the
von Shack Severance Benefits, referred to as the "Severance
Benefits"); and"
-2-
<PAGE>
3. The following language is hereby added immediately after the
sixth WHEREAS clause of the Trust Agreement and is hereinafter considered to be
the seventh WHEREAS clause:
"WHEREAS, the Corporation has adopted, effective July __, 1997, the
New York State Gas & Electric Corporation Selected Employee Retention
Plan (the "Retention Plan"), which provides for certain cash payments
to be made by the Corporation to certain selected employees in the
event of certain transactions involving the Corporation and certain
terminations of employment (such retention payments are hereinafter
referred to as the "Retention Payments"); and"
4. The seventh WHEREAS clause of the Trust Agreement is
hereinafter considered to be the eighth WHEREAS clause and is amended to read
in its entirety as follows:
"WHEREAS, the Deferred Compensation Plan for Salaried Employees, the
Performance Share Deferred Compensation Plan, the LTEIS Deferred
Compensation Plan, the Deferred Compensation Agreements, the
Supplemental Executive Retirement Plan, the von Schack Employment
Agreement, the Officer Severance Agreements, the Key Employee
Severance Agreements and the Retention Plan (such plans and
agreements, each as amended and as may be amended from time to time,
being sometimes hereinafter called, collectively, the "Plans") provide
for the payment of certain deferred compensation, retirement benefits,
Severance Benefits and Retention Payments (together, hereinafter, the
"Benefits") to participating employees (or their beneficiaries in the
event of their death before full payment of the Benefits); and"
5. Section 2.2 of the Trust Agreement is hereby amended to read
in its entirety:
"Upon a Change in Control, the Corporation shall, as soon as possible,
but in no event later than forty-five (45) business days following the
Change in Control, make a contribution (which contribution shall be, except
as otherwise provided in Section 6.2 hereof, an irrevocable contribution)
to the Trust in an amount which (when aggregated with the assets then held
by the Trust, valued at their fair market value) is equal to (i) the
present value of the Benefits to which Participants or their beneficiaries
would be entitled pursuant to the terms of the Plans and Participant
-3-
<PAGE>
Designations as of the date on which the Change in Control occurred (which
in the case of the Severance Benefits, shall be deemed to be the Benefits
payable in the event of an assumed immediate qualifying termination of
employment), plus (ii) the aggregate maximum amount of Retention Payments
payable under the Retention Plan, plus (iii) a reasonable estimated amount
for the Trust's expenses during its term (such estimate not to exceed one
percent (1%) of the present value). The sum of the amounts described in
items (i), (ii) and (iii) of the immediately preceding sentence is
hereinafter called the "Required Funding Amount." The Corporation hereby
authorizes and directs its chief executive officer, and its chief financial
officer, or either of them acting alone, to contribute the Required Funding
Amount without the further approval of the Board of Directors (the
"Board"). Immediately after the Corporation makes such contribution, the
Corporation shall provide the Administrator with copies of all Plans and
Participant Designations, to the extent not previously provided, and other
information used in the Corporation's calculation of the Required Funding
Amount, as well as its worksheets for such calculations. In computing the
Required Funding Amount pursuant to this Section 2.2 with respect to the
Change in Control event occurring on July 15, 1997, the Administrator shall
take into account the amendments made by the Third Amendment to this
Agreement."
6. The first sentence of Section 2.4 of the Trust Agreement is
hereby amended to read as follows:
"For the purpose of determining the amount of the Corporation's
contributions under Section 2.2 and 2.3 hereof, the present value of the
Benefits under the Supplemental Executive Retirement Plan and Section 7 of
the Salaried Employee Deferred Compensation Agreements shall be determined
using the 1983 Group Annuity Mortality Table and an interest rate equal to
the after-tax yield on a 10-Year Treasury Constant Maturity Bond."
7. Paragraph (ii) of Section 2.5(b) of the Trust Agreement is
hereby amended to read as follows:
"during any period of two consecutive years (not including any
period prior to the date of this Agreement), individuals who at the
beginning of such period constitute the Board and any new director (other
than a director designated by a Person who has entered into an agreement
with the Corporation to effect a
-4-
<PAGE>
transaction described in paragraph (i), (iii) or (iv) of this Section
2.5(b) or a director whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitations of proxies
or consents by or on behalf of a Person other than the Board) whose
election by the Board or nomination for election by the Corporation's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof; or"
8. The first sentence of Section 6.1 of the Trust Agreement is
hereby amended to read as follows:
"Except as provided in this Article, and Articles V and XIII, after the
Trust has become irrevocable, the Corporation shall have no right to
receive, and no power to direct Trustee to return to the Corporation or to
divert to others, any of the Trust assets before the later to occur of (i)
the date on which payment of all Benefits under the Plans to Participants
and their beneficiaries has been completed pursuant to the terms of the
Plans and (ii) the date the "Change in Control Protective Period" (as
defined in the von Schack Employment Agreement, the Officer Severance
Agreements and the Key Employee Severance Agreements) expires."
9. The third sentence of Section 6.1 of the Trust Agreement is
hereby amended to read as follows:
"With respect to the calculation by the Administrator of the revised
Required Funding Amount as of the end of any year which occurs before the
expiration of the Change in Control Protective Period, if any Participant
whose employment with the Corporation was terminated during such year and
who had previously entered into an Officer Severance Agreement or Key
Employee Severance Agreement (or the von Schack Employment Agreement, in
the case of Wesley W. von Schack) shall have confirmed to the Administrator
by a signed writing that such Participant no longer has any claim or right
to his or her Severance Benefits, the Administrator shall delete such
Severance Benefits from the calculation of the revised Required Funding
Amount."
-5-
<PAGE>
10. This Third Amendment is effective as of the date first above
written.
11. Except as expressly modified hereby, the terms and
provisions of the Trust Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed by their respective duly authorized
representatives as of the date first above written.
NEW YORK STATE ELECTRIC & BANKERS TRUST COMPANY
GAS CORPORATION
By: __________________________ By: __________________________
<PAGE>
EXHIBIT 17
NEW YORK STATE ELECTRIC & GAS CORPORATION
-----------------------------------------
DIRECTOR BENEFIT TRUST AGREEMENT
--------------------------------
AGREEMENT made as of July 1, 1994, by and between NEW YORK STATE
ELECTRIC & GAS CORPORATION (the "Corporation"), as Grantor, and BANKERS TRUST
COMPANY, a New York Banking Corporation, as Trustee. As used in the Agreement,
"Corporation" shall include New York State Electric & Gas Corporation and any
successor thereto.
WITNESSETH:
-----------
WHEREAS, the Corporation adopted a Deferred Compensation Plan for
Directors, effective as of October 12, 1979, for the benefit of the non-employee
members (the "Directors") of its Board of Directors (the "Board") to permit
deferral of a Director's compensation (including compensation as a committee
member); and
WHEREAS, the Corporation adopted a Retirement Plan for Directors
effective as of January 1, 1992 to provide a retirement benefit to eligible
Directors (hereinafter the Deferred Compensation Plan for Directors and the
Retirement Plan for Directors, each as amended and as may be amended from time
to time, are called the "Plans"); and
WHEREAS, the Plans provide for the payment of certain deferred
compensation and retirement benefits
<PAGE>
(together, hereinafter the "Benefits") to participating Directors (or their
beneficiaries in the event of their death before full payment of the
Benefits); and
WHEREAS, the Corporation has incurred and will incur liability under
the terms of the Plans with respect to the individuals participating in the
Plans (sometimes called, until their respective Benefits have been completely
paid, the "Participants");
WHEREAS, the amount and timing of payment of the Benefits to
Participants and their beneficiaries are specified in the Plans and documents
executed by the Participants pursuant to the Plans designating beneficiaries
and/or timing of payment of Benefits ("Participant Designations"); and
WHEREAS, the Corporation is hereby establishing a trust (the "Trust")
for the purpose of accumulating assets to assist it in fulfilling its
obligations under the Plans, to which Trust the Corporation is transferring, and
will in the future transfer, cash and/or other property acceptable to the
Trustee, and any such contributions together with earnings (including income and
appreciation) thereon (hereinafter called the "Trust Fund") shall be held in
trust, subject only to the claims of the Corporation's creditors in the event of
the
-2-
<PAGE>
Corporation's becoming Insolvent (as defined in Section 5.1 hereof), until
the entire Trust Fund has been paid to Participants (or their beneficiaries) in
such manner and at such times as specified in the Plans and Participant
Designations; and
WHEREAS, the Corporation desires that the Trustee hold and administer
all assets transferred to the Trust by the Corporation and the Trustee is
willing to hold, administer and dispose of such assets pursuant to the terms of
this Agreement; and
WHEREAS, it is the intention of the parties that this Trust shall not
affect the status of the Plans as unfunded plans (within the meaning of Revenue
Procedure 92-64) maintained to provide deferred compensation, including
retirement benefits, for Directors; and
WHEREAS, it is the intention of the Corporation to make contributions
to the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Plans;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Corporation and the Trustee hereby agree as
follows:
-3-
<PAGE>
I.
Establishment of Trust
----------------------
1.1 The Trust hereby established is revocable by the Corporation;
it shall become irrevocable upon a Change in Control, as defined herein.
1.2 The Trust is intended to be a grantor trust, of which the
Corporation is the grantor, within the meaning of subpart E, part I, subchapter
J, Chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended from
time to time (the "Code"), and shall be construed accordingly.
1.3 The principal of the Trust, and any earnings thereon, shall
be held separate and apart from other funds of the Corporation by the Trustee
in trust and shall be used exclusively for the uses and purposes of
Participants (and their beneficiaries) and the Corporation's general
creditors as herein set forth. Participants and their beneficiaries shall
have no preferred claim on any assets of the Trust. Any rights created under
the Plans shall be mere unsecured contractual rights of Participants and
their beneficiaries against the Corporation. Any assets held by the Trust
will be subject to the claims of the Corporation's general creditors under
federal and state law, if the Corpora
-4-
<PAGE>
tion shall become Insolvent, as defined in Section 5.1 hereof.
1.4 Administrator. (a) The Corporation hereby designates Towers,
Perrin, Forster & Crosby, Inc., subject to its acceptance, as the Administrator
under this Trust (the "Administrator"). Except for records dealing solely with
the Trust, contributions to the Trust, and its investments, earnings and
disbursements, which shall be maintained by the Trustee, the Administrator shall
maintain all the records contemplated by the Plans and Participant Designations,
and make all determinations of Benefits to be paid from the Trust to any
Participant.
(b) Upon the establishment of the Trust or as soon
thereafter as practicable, the Corporation shall report to the Administrator
all of the information necessary to determine the Benefits payable to or with
respect to each Participant in accordance with the Plans and Participant
Designations, including any Benefits payable after each Participant's death
and the properly designated beneficiary (if any) of any Benefits payable
hereunder with respect to any such deceased Participant. Thereafter, and
until the occurrence of any Change in Control (as defined in Section 2.5
hereof) of
-5-
<PAGE>
the Corporation, the Corporation shall regularly (at least
annually as of the end of each calendar year) revise and update such
information and report it to the Administrator. After the occurrence of a
Change in Control, the Corporation shall promptly revise and update such
information (i) as of the date of such Change in Control and (ii) as of the
end of each calendar year following such Change in Control. The Corporation
shall report such revised and updated information to the Administrator within
the twenty (20) days following the date of the Change in Control or the
respective calendar year-end, as the case may be. In the event that the
Administrator fails to receive revised and updated information from the
Corporation as provided in this paragraph (b), the Administrator may rely and
act upon the latest information received from the Corporation, without any
duty of further inquiry. However, if the Administrator has reason to believe
that any part or all of the existing information is no longer accurate and
decides in good faith not to rely and act upon such information, the
Administrator shall be under no obligation to take any action with respect to
such information or with respect to acquiring updated information.
-6-
<PAGE>
(c) If Towers, Perrin, Forster & Crosby, Inc. or any
subsequently designated Administrator does not accept its designation as
Administrator or accepts such designation and subsequently resigns, a new
Administrator shall be designated. If the need for such a designation arises
prior to a Change in Control, the Corporation shall make the designation. If
the need for such a designation arises after a Change in Control, the
designation shall be made by the Corporation with the written consent of at
least forty percent (40%) of the Participants (or in the event of the death
of a Participant, his or her beneficiary). An Administrator may resign by
written notice to the Corporation and the Trustee, which resignation shall be
effective ninety (90) days after receipt of such notice by both the
Corporation and the Trustee, unless both the Corporation and the Trustee
agree otherwise. Notwithstanding the foregoing provisions of this paragraph
(c), any Administrator which resigns shall continue to serve until its
successor Administrator accepts the appointment. Any successor Administrator
shall be independent of the Corporation and its actuarial expertise, stature
and reputation shall be at least substantially similar to that of Towers,
Perrin, Forster & Crosby, Inc. The Administrator shall be reim
-7-
<PAGE>
bursed by the Trustee for its reasonable expenses incurred in connection with
the performance of its duties hereunder (and the Trustee shall use the assets
of the Trust Fund for such purpose unless the Trustee has been promptly
reimbursed by the Corporation for such expenses) and shall be paid reasonable
fees determined in accordance with Section 8.2 from the Trust Fund for the
performance of such duties, to the extent such expenses and fees are not paid
directly by the Corporation to the Administrator.
(d) The Administrator shall not be liable for any act taken
or omitted to be taken hereunder if taken or omitted to be taken by it in good
faith. The Administrator shall also be fully protected in relying upon any
notice given hereunder which it in good faith believes to be genuine and
executed and delivered in accordance with this Trust.
(e) The Administrator may consult with legal counsel to be
selected by it, and the Administrator shall not be liable for any action taken
or suffered by it in accordance with the advice of such counsel.
(f) The Corporation agrees to indemnify and hold harmless
on an after-tax basis the Administrator from and against any and all damages,
losses, claims or
-8-
<PAGE>
expenses (including expenses of investigation and reasonable fees and
disbursements of counsel to the Administrator) arising out of or in
connection with the performance by the Administrator of its duties hereunder,
unless it is determined, in a final adjudication, to have been guilty of
willful misconduct or gross negligence in the performance (or
non-performance) of such duties. Any amount payable to the Administrator
under this paragraph (f) and not previously paid directly by the Corporation
shall be paid by the Trustee from the Trust Fund promptly upon demand
therefor by the Administrator. In the event that payment is made hereunder
to the Administrator from the Trust Fund, the Trustee shall promptly notify
the Corporation in writing of the amount of such payment.
The Corporation agrees that, upon receipt of such notice, it will deliver to the
Trustee to be held in the Trust an amount in cash (or in marketable securities
or in some combination thereof) equal to any payments made from the Trust Fund
to the Administrator pursuant to this paragraph (f). The failure of the
Corporation to transfer any such amount shall not in any way impair the right of
the Administrator to indemnification, reimbursement and payment pursuant to this
paragraph (f).
-9-
<PAGE>
II.
Funding of Trust
2.1 The Corporation hereby deposits with Trustee in trust the sum
of One Thousand Dollars ($1,000), which becomes the initial principal of the
Trust to be held, administered and disposed of by Trustee as provided in this
Agreement. The Corporation, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other property acceptable to
the Trustee with the Trustee in trust to augment the principal to be held,
administered and disposed of by Trustee as provided in this Agreement. Neither
Trustee nor any Participant or beneficiary shall have any right to compel such
additional deposits.
2.2 Upon a Change in Control, the Corporation shall, as soon as
possible, but in no event later than forty-five (45) business days following
the Change in Control, make a contribution (which contribution shall be,
except as otherwise provided in Section 6.2 hereof, an irrevocable
contribution) to the Trust in an amount which (when aggregated with the
assets then held by the Trust, valued at their then fair market value) is
equal to (i) the present value of the Benefits to which Participants or their
beneficiaries would be entitled pursuant
-10-
<PAGE>
to the terms of the Plans and Participant Designations as of the date on
which the Change in Control occurred, plus (ii) a reasonable estimated amount
for the Trust's expenses during its term (such estimate not to exceed one
percent (1%) of such present value). The sum of the amounts described in
items (i) and (ii) of the immediately preceding sentence is hereinafter
called the "Required Funding Amount." The Corporation hereby authorizes and
directs its chief executive officer, and its chief financial officer, or
either of them acting alone, to contribute the Required Funding Amount
without the further approval of the Board. Immediately after the Corporation
makes such contribution, the Corporation shall provide the Administrator with
copies of all Plans and Participant Designations, to the extent not
previously provided, and other information used in the Corporation's
calculation of the Required Funding Amount, as well as its worksheets for
such calculation.
2.3 Following the end of each calendar year which ends after a
Change in Control has occurred, unless Trust Fund assets shall have
previously been returned to the Corporation pursuant to Section 6.2 hereof or
the Trust shall have previously terminated pursuant to Section 6.1 or Article
XIII hereof, the
-11-
<PAGE>
marketable securities or any combination thereof) equal to such excess. The
Corporation hereby authorizes and directs its chief executive officer, and
its chief financial officer, or either of them acting alone, to make such
additional contributions without the further approval of the Board.
2.4 For the purpose of determining the amount of the Corporation's
contributions under Sections 2.2 and 2.3 hereof, the present value of Benefits
under the Retirement Plan for Directors shall be determined using the 1983 Group
Annuity Mortality Table and an interest rate equal to the yield on a 10-Year
Treasury Constant Maturity Bond. For purposes of the preceding sentence, the
applicable yield on a 10-Year Treasury Constant Maturity Bond shall be the yield
published by the Federal Reserve for the last business day immediately preceding
(a) the Change in Control or (b) the most recent January 1 following such Change
in Control, whichever produces the higher present value. The present value of
Benefits under the Deferred Compensation Plan for Directors shall be the total
amount of each deferred compensation account, including accrued interest, as of
the Change in Control, in the case of a determination under Section
-12-
<PAGE>
2.2, or the most recent December 31, in the case of a determination under
Section 2.3.
2.5 Change in Control.
(a) For purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred if the conditions set forth in any one of the
following paragraphs (i), (ii), (iii) or (iv) shall have been satisfied:
(i) the Corporation enters into an agreement, the
consummation of which would result in the occurrence of a
"Transfer" (as defined in Section 2.5(b) hereof);
(ii) the Corporation or any Person (as defined in Section
2.5(c) hereof) publicly announces an intention to take or to
consider taking actions which, if consummated, would
constitute a Transfer;
(iii) any Person (x) is or becomes the "Beneficial Owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended from time to time (the "Exchange Act"),
directly or indirectly, (y) discloses directly or indirectly
to the Corporation (or publicly) a plan or intention to become
the Beneficial
-13-
<PAGE>
Owner, directly or indirectly, or (z) makes a filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, with respect to securities to become the Beneficial
Owner, directly or indirectly, of securities of the
Corporation representing 9.9% or more of the combined voting
power of the Corporation's then outstanding securities; or
(iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Change in Control has occurred.
(b) A "Transfer" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs (i), (ii), (iii) or
(iv) shall have been satisfied:
(i) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Corporation (not including
in the securities beneficially owned by such Person any
securities acquired directly from the Corporation or its
affiliates) representing 25% or more of the combined voting
power of the Corporation's then outstanding securities; or
-14-
<PAGE>
(ii) during any period of two consecutive years (not
including any period prior to the date of this Agreement),
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated
by a Person who has entered into an agreement with the
Corporation to effect a transaction described in paragraph
(i), (iii) or (iv) of this Section 2.5(b)) whose election by
the Board or nomination for election by the Corporation's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or
(iii) the shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation,
other than (i) a merger or consolidation which would result in
the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by
remaining
-15-
<PAGE>
outstanding or by being converted into voting securities of
the surviving entity), in combination with the ownership of
any trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation, at least 60% of the
combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no Person
acquires more than 50% of the combined voting power of the
Corporation's then outstanding securities; or
(iv) the shareholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation of all or
substantially all the Corporation's assets.
(c) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof; however, a Person shall not include (i) the Corporation or any of its
subsidiaries, (ii) a trustee or other fiduciary holding
-16-
<PAGE>
securities under an employee benefit plan of the Corporation or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation.
(d) The Corporation shall notify the Trustee of the
occurrence of a Change in Control or Transfer, and the Trustee may rely on such
notice or on any other actual notice, satisfactory to the Trustee, of such a
change or transfer which the Trustee may receive.
2.6 Notwithstanding anything else to the contrary contained
herein, the Trustee shall be responsible only for contributions actually
received by it hereunder, and shall have no responsibility for determining the
sufficiency, amount or calculation of any contribution required hereunder.
III.
Disposition of Income
---------------------
During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be accumulated and reinvested, to the extent that
it is not
-17-
<PAGE>
used by Trustee to make payments or distributions required by this Agreement.
IV.
Payments to Plan Participants
-----------------------------
4.1 After the Trust Fund is funded pursuant to Section 2.2
and/or the second sentence of Section 2.1 hereof, the Trustee shall from time
to time, in accordance with the Payment Schedules then in effect (and, in the
event of funding pursuant to the second sentence of Section 2.1 hereof,
written instructions of the Corporation given prior to any Change in
Control), make distributions or payments out of the Trust Fund, in cash or in
property, to such persons, in such manner and in such amounts as are set
forth in the most recent Payment Schedule provided to the Trustee under
Section 4.2 hereof (or such written instructions), but only to the extent
that there are sufficient assets in the Trust Fund to make such distributions
or payments.
4.2 Concurrently with each delivery of the Corporation's
contributions pursuant to Section 2.3 hereof (and as soon as possible, but not
later than 30 days, after delivery of the Corporation's contribution pursuant to
Section 2.2 hereof), the Administrator shall deliver to the Trustee a schedule
(the "Payment Sched-
-18-
<PAGE>
ule") that indicates the amounts payable in respect of each Participant (and
his or her beneficiaries), the form in which such amounts are to be paid and
the time for payment of such amounts. Concurrently, the Administrator shall
also deliver a copy of such Payment Schedule to the Corporation and shall
deliver a copy of the portion thereof relating to each respective Participant
to such Participant. Additionally, whenever a Participant's death, a
Participant's revision of his or her Participant Designations or other
circumstances require a change in the portion of the Payment Schedule
respecting such Participant, the Corporation and the affected Participant
shall each have the right to notify the Administrator of such circumstances.
Upon receiving such notice from either the Corporation or such Participant,
the Administrator shall within ten (10) days deliver to the Trustee, the
Corporation and such Participant, an appropriately revised Payment Schedule.
Upon the receipt of such revised Payment Schedule, except as otherwise
provided in Article V hereof, the Trustee shall make payments to the
Participants and their beneficiaries in accordance with the Payment Schedule
(or relevant portion thereof) most recently received, provided, however, that
any revised Payment Schedule delivered to the Trustee shall not be
-19-
<PAGE>
effective until ten (10) days after such Payment Schedule has been
received by the Trustee. The Trustee may rely on any Payment Schedule or
withholding instructions delivered to Trustee by the Administrator. The Trustee
shall make provision for the reporting and withholding of any federal, state or
local taxes that the Administrator instructs the Trustee in writing to withhold
from any distribution or payment to a Participant or beneficiary hereunder, and
shall pay amounts so withheld to the appropriate taxing authorities.
4.3 In the event that a Participant (or a beneficiary in the event
of a Participant's death) or the Corporation reasonably believes that the most
recent Payment Schedule does not properly reflect the amount payable to such
Participant or beneficiary (or the time or form of payment), such Participant
(or beneficiary) or the Corporation shall be entitled to deliver to the
Administrator a written notice of any objections to the Payment Schedule (the
"Notice of Objections") within ten (10) business days of receipt thereof;
provided, however, that the objector shall also deliver (within the same time
period) a copy of such Notice of Objections (i) to the Trustee and (ii) if the
objector is the Participant, to the Corporation, or, if the objector is the
Corpora-
-20-
<PAGE>
tion, to the Participant. Any Notice of Objections shall set forth
payment instructions including the amounts believed to be due under the terms of
the Plans and Participant Designations. If such Participant or beneficiary (but
not the Corporation) delivers a Notice of Objections to the Administrator
pursuant to the first sentence of this Section 4.3 (together with satisfactory
proof of delivery of said Notice of Objections to the Corporation) and the
Corporation does not deliver to the Administrator and the Trustee a responsive
Notice of Objections to the Participant's Notice of Objections within ten (10)
business days after receipt by the Administrator of the Participant's Notice of
Objections and the Participant after consultation with the Administrator does
not rescind its Notice of Objections within said ten (10) business day period,
the Administrator shall certify to the Trustee and the Corporation the payment
instructions with respect to such Participant's Benefits as set forth in the
Participant's Notice of Objections and the Trustee shall make payment in
accordance therewith, to the extent that there are sufficient assets in the
Trust Fund to make such payments. Except as otherwise provided herein, if the
Corporation either delivers an initial Notice of Objections to the Administrator
pursuant to the
-21-
<PAGE>
first sentence of this Section 4.3 or delivers a responsive Notice of
Objections during the ten (10) business days referred to in the immediately
preceding sentence, the Trustee shall initially make payments to such
Participant in accordance with the Corporation's Notice of Objections (to the
extent that there are sufficient assets in the Trust Fund to make such
payments), which payments shall be on account of Benefits finally determined
under the respective Plans and Participant Designations in accordance with
Article XIV hereof. In the event that the Administrator reasonably
determines that any Notice of Objection submitted by the Corporation has not
been made in good faith, the Administrator shall promptly, but no later than
ten (10) days after receipt of said Notice of Objection, inform the affected
Participant or Participants, the Corporation and the Trustee of this
determination, and the Trustee shall make payments to each affected
Participant in accordance with the provisions of this Section as if the
Corporation's Notice of Objection had not been filed, subject to final
determination of Benefits in accordance with Article XIV hereof.
4.4 Nothing in this Agreement shall relieve the Corporation of its
obligation to pay the Benefits as
-22-
<PAGE>
and when due under the Plans. The Corporation may make payment of Benefits
directly to Participants or their beneficiaries as they become due under the
terms of the Plans. The Corporation shall notify the Trustee and the
Administrator of its decision to make payment of Benefits directly by
delivering a revised Payment Schedule to the Trustee and the Administrator at
least ten (10) days prior to the time amounts are payable to Participants or
their beneficiaries. In addition, if the principal of the Trust, and any
earnings thereon, are not sufficient to make payments of Benefits in
accordance with the terms of the Plans, the Corporation shall make the
balance of each such payment as it falls due. The Trustee shall notify the
Corporation when principal and earnings are not sufficient, and shall only
make payments or distributions to the extent that there are sufficient assets
in the Trust Fund. Distributions made from the Trust Fund to Participants
(or their beneficiaries) shall, to the extent of such distributions, satisfy
the Corporation's obligation to pay Benefits to such Participants (or their
beneficiaries) under the Plans.
4.5 In the event that either (i) the Corporation or the
Administrator delivers a written notice to the Trustee that there has been a
final determination by
-23-
<PAGE>
the Internal Revenue Service or a court of competent jurisdiction, which
determination is not appealable or the time for appeal or protest of which
has expired, or (ii) the Administrator, having received written requests for
such action from three or more Participants (or their beneficiaries), makes a
written request to the Trustee that the Trustee obtain an opinion of tax
counsel and the Trustee receives a substantially unqualified opinion of tax
counsel selected by the Trustee, (the reasonable fees and disbursements of
such tax counsel to be paid by the Corporation or, if not promptly paid by
the Corporation, to be paid by the Trustee with assets of the Trust Fund)
which determination determines, or which opinion opines, that any Participant
(or beneficiary) is subject to Federal income taxation on amounts held in
Trust hereunder prior to the distribution to the Participant (or beneficiary)
of such amounts, the Trustee shall, on receipt by the Trustee of such opinion
or notice of such determination, pay to such Participant (or beneficiary) the
portion of the Trust Fund allocable to the Benefits of such Participant (or
beneficiary), and, to the extent of such payment, the Corporation's
obligation to the Participant (or beneficiary) for his or her Benefits under
the Plans shall be cancelled. The Trustee shall be
-24-
<PAGE>
advised in writing by the Administrator as to the amount(s) to be allocated
and paid to each such Participant (or beneficiary), the time(s) of the
payment of such amount(s), and the valuation date(s) to be used in
determining the assets then remaining in the Trust Fund, which amount(s),
time(s) and date(s) shall be determined in the discretion and good faith of
the Administrator, in order to provide as prompt a distribution of such
Participant's (or beneficiary's) total Benefits as is practicable. The
Corporation and the Trustee shall co-operate fully and promptly with the
Administrator to provide the information needed for the Administrator's
determinations (and which in the case of the Trustee, is in the Trustee's
possession). The aggregate amount paid to each such Participant (or
beneficiary) shall be the lesser of (i) the present value of the Benefits of
such Participant (or beneficiary) which then remain unpaid or (ii) such
Participant's (or beneficiary's) pro-rata portion of the assets of the Trust
Fund then remaining, based on the ratio of the present value of the
Participant's (or beneficiary's) Benefits which then remain unpaid to the
present value of all such unpaid Benefits. Such present values shall be
determined in accordance with Section 2.4 hereof. Notwithstanding anything
else contained herein
-25-
<PAGE>
to the contrary, Trustee shall have no duty or obligation to make any
determinations as to whether amounts held in the Trust are taxable to any
Participant (or beneficiary) other than requesting an opinion of tax counsel
pursuant to the terms of this Section 4.5.
V.
Trustee Responsibility
----------------------
If the Corporation Becomes Insolvent
------------------------------------
5.1 Trustee shall cease payment of Benefits to Participants and
their beneficiaries if the Corporation becomes Insolvent. The Corporation shall
be considered to be "Insolvent" for purposes of this Agreement if (i) the
Corporation is unable to pay its debts as they become due, or (ii) the
Corporation is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
5.2 At all times during the continuance of this Trust, the
principal and income of the Trust shall be subject to claims of general
creditors of the Corporation under federal and state law as set forth below.
(a) The Chief Executive Officer of the Corporation shall
have the duty to inform Trustee in writing of the Corporation's Insolvency. If
a person claiming to be a creditor of the Corporation alleges in
-26-
<PAGE>
writing to Trustee that the Corporation has become Insolvent, Trustee shall
determine whether the Corporation is Insolvent and, pending such
determination, Trustee shall discontinue payment of Benefits to Participants
or their beneficiaries.
(b) Unless Trustee has actual knowledge of the
Corporation's Insolvency, or has received notice from the Corporation or a
person claiming to be a creditor alleging that the Corporation is Insolvent,
Trustee shall have no duty to inquire whether the Corporation is Insolvent.
Trustee may in all events rely on such evidence concerning the Corporation's
solvency as may be furnished to Trustee which provides Trustee with a reasonable
basis for making a determination concerning the Corporation's solvency.
(c) If at any time Trustee has determined that the
Corporation is Insolvent, Trustee shall discontinue payments to Participants
(and their beneficiaries) and shall hold the assets of the Trust for the benefit
of the Corporation's general creditors, to be distributed only as a court of
competent jurisdiction, or duly appointed receiver or other person authorized to
act by such a court, may direct. Nothing in this Agreement shall in any way
diminish any rights of Participants or
-27-
<PAGE>
their beneficiaries to pursue their rights as general creditors of the
Corporation with respect to Benefits due under the Plans or otherwise.
(d) Trustee shall resume the payment of Benefits to
Participants (and their beneficiaries) in accordance with Article IV of this
Agreement only after Trustee has determined that the Corporation is not
Insolvent (or is no longer Insolvent).
5.3 Provided that there are sufficient assets, if Trustee
discontinues the payment of Benefits from the Trust pursuant to Section 5.2
hereof and subsequently determines that the Corporation is not Insolvent (or is
no longer Insolvent), then, upon request, the Administrator shall prepare (and
the Corporation shall promptly comply with the Administrator's reasonable
requests for information in connection with such preparation) and deliver a
revised Payment Schedule to the Trustee which shall take into account the
aggregate amount of all payments due to Participants (and their beneficiaries)
under the terms of the Plans for the period of such discontinuance, less the
aggregate amount of any payments made to Participants and their beneficiaries by
the Corporation in lieu of the payments provided for hereunder during any such
period of discontinuance.
-28-
<PAGE>
VI.
Payments to the Corporation
---------------------------
6.1 Except as provided in this Article, and Articles V and XIII,
after the Trust has become irrevocable, the Corporation shall have no right
to receive, and no power to direct Trustee to return to the Corporation or to
divert to others, any of the Trust assets before payment of all Benefits
under the Plans has been made to Participants and their beneficiaries
pursuant to the terms of the Plans. On the date on which the Trustee
receives notice under Section 13.1 hereof that Participants (and their
beneficiaries) are no longer entitled to receive Benefits pursuant to the
Plans (all payments of such Benefits having been completed), this Agreement
and Trust shall terminate and any remaining Trust Fund assets shall be
returned to the Corporation.
6.2 In the event the Corporation delivers an amount to the Trustee
upon a Change in Control pursuant to Section 2.2 hereof, the Trust Fund (except
for the initial $1,000 contribution by the Corporation) may (in the Trustee's
sole discretion) be returned to the Corporation one (1) year after such delivery
to the Trustee unless a Transfer shall have occurred during such one (1) year
period; provided, however, that in the event that
-29-
<PAGE>
the Transfer would require that the Corporation's shareholders approve a
merger or consolidation described in Section 2.5(b)(iii) hereof, such Trust
Fund may (in the Trustee's sole discretion) be returned to the Corporation
three (3) years after such delivery to the Trustee unless the merger or
consolidation shall have been consummated during such three (3) year period.
Such one (1) or three (3) year period shall be begun anew (thus postponing
any such discretionary return of Trust Fund assets) in the event of any
subsequent Change in Control occurring during such initial period or any
subsequent period.
VII.
Powers, Duties and Responsibility of Trustee
--------------------------------------------
7.1 All rights associated with assets of the Trust shall be
exercised by Trustee or the person designated by Trustee, and shall in no event
be exercisable by or rest with Participants or their beneficiaries.
7.2 Notwithstanding any other provision hereof, the Trust Fund
shall be held, invested and reinvested by the Trustee only in cash or marketable
securities in accordance with this Section 7.2. The Trustee shall use its good
faith efforts to invest or reinvest from time to time all or such part of the
Trust Fund as it believes prudent under the circumstances (taking into account,
-30-
<PAGE>
among other things, anticipated cash requirements for the payment of Plan
Benefits) in either one or a combination of the following investments:
(i) investments in direct obligations of the United States
of America or agencies of the United States of America or
obligations unconditionally and fully guaranteed as to
principal and interest by the United States of America; and
(ii) investments in negotiable certificates of deposit
issued by a commercial bank organized and existing under the
laws of the United States of America or any state thereof
having a combined capital and surplus of at least
$1,000,000,000;
provided, however, that the Trustee shall not be liable for any failure to
maximize the income earned on that portion of the Trust Fund as is from time to
time invested or reinvested as set forth above, nor for any loss of income or
principal due to liquidation of any investment which the Trustee, in its sole
discretion, believes necessary to make payments or to reimburse expenses under
the terms of this Agreement.
7.3 Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity
-31-
<PAGE>
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall
incur no liability to any person for any action taken pursuant to a
direction, request or approval given by the Corporation or the Administrator
which is in conformity with the terms of this Agreement and is given in
writing by the Corporation or Administrator. In the event of a dispute,
Trustee may apply to a court of competent jurisdiction to resolve the dispute.
7.4 If Trustee undertakes or defends any litigation arising in
connection with this Trust, the Corporation agrees to indemnify Trustee on an
after-tax basis against Trustee's costs, expenses and liabilities (including,
without limitation, reasonable attorneys' fees and expenses) relating thereto
and to be primarily liable for such payments unless the Trustee is
determined, in a final adjudication, to have been guilty of willful
misconduct or gross negligence in the performance (or non-performance) of its
duties under the Trust. If the Corporation does not pay such costs, expenses
and liabilities in a reasonably timely manner, Trustee may pay such costs,
expenses and liabilities with assets of the Trust.
-32-
<PAGE>
7.5 Trustee may consult with legal counsel (who may also be
counsel for the Corporation generally) with respect to any of its duties or
obligations hereunder, and the reasonable fees and expenses of such legal
counsel will be paid by the Corporation, provided that if the Corporation does
not promptly pay such fees and expenses, the Trustee may pay such fees and
expenses with assets of the Trust.
7.6 Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder, and the reasonable fees
and expenses of such professionals shall be paid by the Corporation, provided
that if such fees and expenses are not promptly paid by the Corporation, the
Trustee may pay such fees and expenses with assets of the Trust.
7.7 Subject to Sections 7.1 and 7.2 hereof, the Trustee shall
have, without exclusion, all powers conferred on Trustees by applicable law,
unless expressly provided otherwise herein.
7.8 Subject to Sections 7.1 and 7.2 hereof, but in amplification
of (and not in limitation of) the powers given in Section 7.7 hereof, the
Trustee shall
-33-
<PAGE>
have the following powers and authority in the administration of
the Trust Fund:
(a) To invest all contributions, investments, and
reinvestments thereof and all additions thereto by way of contributions,
earnings and increments.
(b) To sell for cash or on credit, to grant options,
convert, redeem, exchange for other securities or other property, or otherwise
to dispose of any securities or other property at any time held.
(c) To settle, compromise or submit to arbitration, any
claims, debts or damages, due or owing to or from the Trust, to commence or
defend suits or legal proceedings and to represent the Trust in all suits or
legal proceedings.
(d) To exercise any conversion privilege and/or
subscription right available in connection with any securities or other
property at any time held; to oppose or to consent to the reorganization,
consolidation, merger, or readjustment of the finances of any corporation,
company or association or to the sale, mortgage, pledge or lease of the
property of any corporation, company or association any of the securities of
which may at any time be held and to do any act with reference thereto,
including the exercise of options, the
-34-
<PAGE>
making of agreements or subscriptions, which may be deemed necessary or
advisable in connection therewith, and to hold and retain any securities or
other property so acquired.
(e) To exercise, personally or by general or by limited
power of attorney, any right, including the right to vote, appurtenant to any
securities or other property held at any time.
(f) To borrow money from any lender in such amounts and
upon such terms and conditions as shall be deemed advisable or proper to carry
out the purposes of the Trust and to pledge any securities or other property for
the repayment of any such loan.
(g) To hold cash uninvested for a reasonable period of time
under the circumstances without liability for interest, pending investment
thereof or the payment of expenses or making distributions therewith.
(h) To register any securities held hereunder in the name
of the Trustee or in the name of a nominee with or without the addition of words
indicating that such securities are held in a fiduciary capacity and to hold any
securities in bearer form.
(i) To make, execute and deliver, as Trustee, any and all
conveyances, contracts, waivers,
-35-
<PAGE>
releases or other instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers.
(j) Subject to the express provisions of this Agreement, to
invest and reinvest all or any portion of the Trust Fund collectively through
the medium of any common, collective or commingled trust fund that may be
established and maintained by the Trustee, subject to the instrument or
instruments establishing such trust fund or funds and with the terms of such
instrument or instruments, as from time to time amended, being incorporated into
this Agreement to the extent of the equitable share of the Trust Fund in any
such common, collective or commingled trust fund.
VIII.
Taxes, Trustee and Administrator Compensation
---------------------------------------------
8.1 The Trustee shall pay out of the Trust Fund all taxes of any
and all kinds levied or assessed under existing or future laws against the
Trustee in its capacity as such or against the Trust Fund.
8.2 The Trustee and the Administrator shall be paid such
reasonable compensation as shall from time to time be agreed upon by each of
them with the Corporation; provided, however, that, after the occurrence of a
Change
-36-
<PAGE>
in Control, the Corporation shall not withhold its consent and agreement to
any reasonable fee arrangement requested by the Trustee or the Administrator.
Such compensation and all expenses of administration of the Trust, including
(without limitation) recordkeeping and reasonable counsel fees, shall be
withdrawn by the Trustee out of the Trust Fund unless paid by the Corporation
in a reasonably timely manner.
IX.
Accounting by Trustee After Fundinq
-----------------------------------
9.1 The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements and all other transactions hereunder, and
all accounts, books and records relating thereto shall be open to inspection and
audit at all reasonable times by any person designated by the Corporation.
Within 90 days after the close of each fiscal year (or such other date as may be
agreed upon in writing among the Corporation, the Administrator and the
Trustee), and within 120 days after the effective date of the resignation (or
other termination of service) of the Trustee, the Trustee shall file with the
Corporation and the Administrator a written account of its administration of the
Trust during such year (or during the period from the close of the last
-37-
<PAGE>
preceding year to the effective date of such termination of service) setting
forth all investments, receipts, disbursements and all other transactions
effected by it, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the end of such year
or as of the effective date of such resignation. Such account may
incorporate by reference any and all schedules and other statements setting
forth investments, receipts, disbursements and other transactions effected
during the period for which such account is rendered which the Trustee has
furnished to the Corporation and the Administrator prior to the filing of
such account. Each account so filed (and copies of any schedules and
statements incorporated therein by reference as aforesaid) shall be open to
inspection at the offices of the Corporation during business hours by any
Participant (or in the event of any Participant's death, his or her
beneficiary) for a period of 60 days immediately following the date on which
the accounts are filed with the Corporation. In the absence of the filing in
writing with the Trustee by the Corporation or a Participant (or benefi-
-38-
<PAGE>
ciary) of exceptions or objections to any such account within 90 days of the
date the accounts are filed with the Corporation and Administrator, the
Corporation and all Participants (or their beneficiaries) shall be deemed to
have approved such account; and in such case, or upon the signed written
approval of the Corporation and all Participants (or beneficiaries) of any
such account, the Trustee shall be released, relieved and discharged with
respect to all matters and things set forth in such account as though such
account had been settled by the decree of a court of competent jurisdiction.
9.2 Notwithstanding Article XIV hereof or any approval (or lack of
approval) of an account pursuant to Section 9.1 hereof, the Trustee may at any
time initiate an action or proceeding for the settlement of its accounts or for
the determination of any question of construction which may arise or for
instructions.
9.3 The Trustee will maintain such books, records and accounts as
may be necessary for the proper administration of the Trust Fund. The Trustee
will at all times maintain (and will provide promptly to the Administrator on an
annual basis, no later than April 1 of each year and also upon any written
request) a record of each amount delivered by the Corporation to the Trust-
-39-
<PAGE>
ee and each amount paid by the Trustee to a Participant in accordance with a
Payment Schedule. On or prior to each May 1 which occurs after the initial
transfer of the Required Funding Amount to the Trustee and during the term of
this Trust, the Administrator shall deliver to each Participant and the
Corporation a current written report (as of the immediately preceding
December 31st) setting forth (a) the present value of such Participant's
unpaid Plan Benefits; (b) the aggregate present value of all unpaid Plan
Benefits; (c) the aggregate fair market value of the Trust Fund (plus the
value of any contributions made by the Corporation within the ninety (90)
days immediately following such December 31st, as of the date of any such
contribution); and
(d) a record of any amounts paid by the Trustee to such Participant (or
beneficiary) in accordance with a Payment Schedule.
X.
Trustee Protection
------------------
10.1 The Corporation shall indemnify and hold harmless the Trustee
for any action, or failure to take action, in reliance in good faith upon any
certification, instruction, direction or approval of the Corporation (or
Administrator).
-40-
<PAGE>
10.2 The Corporation shall indemnify and hold harmless the Trustee
for acting upon any instrument, certificate, or paper believed by it to be
genuine and to be signed or presented by the proper person or persons, and the
Trustee shall be under no duty to make any investigation or inquiry as to any
statement contained in any such writing but may accept the same as conclusive
evidence of the truth and accuracy of the statements therein contained.
10.3 The Trustee shall not be liable for the proper application of
any part of the Trust Fund if distributions are made in accordance with the
terms of Payment Schedules or other written instructions furnished to the
Trustee by the Corporation or Administrator in accordance with this Agreement.
All persons dealing with the Trustee are released from inquiry into the decision
or authority of the Trustee and from seeing to the application of any moneys,
securities or other property paid or delivered to the Trustee.
10.4 The Trustee shall not be liable hereunder for any loss or
diminution of the Trust Fund resulting from any action taken or omitted unless
caused by Trustee's gross negligence or willful misconduct.
-41-
<PAGE>
10.5 The Corporation shall indemnify and hold harmless on an
after-tax basis the Trustee for any liability or expenses, including without
limitation reasonable attorney's fees, incurred by the Trustee with respect to
keeping records with respect to the administration of the Trust Fund and
otherwise carrying out its obligations under this Agreement, other than those
resulting from the Trustee's gross negligence or willful misconduct.
10.6 The duties and obligations of the Trustee acting as Trustee
hereunder shall be strictly limited to those expressly imposed upon the Trustee
by this Agreement and by the applicable laws of the State of New York.
Notwithstanding anything else to the contrary contained herein, the Trustee
shall have no duty to review the Plans or Participant Designations, have no
responsibility for providing for the proper administration of the Plans, for
calculating any Benefits payable to Participants (or beneficiaries), for
calculating any contributions required to be made by the Corporation under the
Plans or Participant Designations, or for insuring that the provisions of this
Agreement are consistent with the provisions of the Plans and Participant
Designations.
XI.
Resignation or Removal of Trustee
---------------------------------
11.1 At any time prior to the occurrence of any Change in Control,
the Trustee may be removed by the Corporation on thirty (30) days notice or upon
shorter notice accepted by the Trustee. After a Change in Control, the Trustee
may be removed by the combined action of the Corporation and Participants (or in
the event of the death of a Participant, his or her beneficiaries) then having
unpaid Benefits equal to at least sixty-five percent (65%) of all amounts then
held in the Trust hereunder on thirty (30) days notice or upon shorter notice
accepted by the Trustee. A Trustee may resign at any time (whether before or
after a Change in Control) by written notice to the Corporation, which
resignation shall be effective ninety (90) days after receipt of such notice by
the Corporation unless the Corporation agrees otherwise. Notwithstanding the
foregoing provisions of this Section 11.1, any Trustee which is removed or
resigns shall continue to serve until its successor Trustee accepts the
appointment and receives delivery of the Trust Fund.
-42-
<PAGE>
XII.
Appointment of Successor Trustee
--------------------------------
12.1 If notice is given that the Trustee is being removed or is
resigning, the Corporation (or, if a Change in Control shall have occurred
prior to the effective appointment of a successor Trustee, the Corporation
and the Participants (or in the event of the death of a Participant, his or
her beneficiaries) then having unpaid Benefits equal to at least sixty-five
(65%) of all amounts then held in the Trust) shall appoint a successor
Trustee hereof prior to the effective date of the Trustee's resignation or
removal. The appointment of a successor Trustee shall be by a written
instrument delivered to the Trustee then acting hereunder and the successor
Trustee being appointed.
12.2 If notice of resignation or removal has been given, and the
applicable notice period has expired without any successor Trustee having been
appointed, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor bank Trustee having trust powers or for instructions.
All expenses of Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust. Any successor Trustee appointed hereunder
shall be a commercial bank which is
-43-
<PAGE>
not an affiliate of the Corporation, but which is a national banking
association or is established under the laws of one of the states of the
United States.
12.3 The appointment of a successor Trustee shall be effective when
accepted in writing by the new Trustee. The new Trustee shall have all the
rights, powers and duties of the prior Trustee, including ownership rights in
Trust Fund assets.
12.4 A successor Trustee need not examine the records and acts of
any prior Trustee. The successor Trustee shall not be responsible for, and
Corporation shall indemnify and defend the successor Trustee from any claim
or liability resulting from, any action or inaction of any prior Trustee or
from any other past event, or any condition existing at the time it becomes
successor Trustee.
12.5 If the Trustee ceases to act as Trustee and appointment of a
successor Trustee is made, all Trust Fund assets shall subsequently be
transferred to the successor Trustee. The transfer shall be completed within
thirty (30) days after the appointment of the successor Trustee becomes
effective, unless the Corporation extends the time limit.
-44-
<PAGE>
XIII.
Amendment or Termination
------------------------
13.1 The Trust under this Agreement shall terminate on the date on
which the Corporation, with the concurrence of the Administrator, certifies to
the Trustee that Participants and their beneficiaries are no longer entitled to
Benefits pursuant to the terms of the Plans (all payments of such Benefits
having been completed). Any amendment which purports to terminate the Trust at
any earlier date shall be effective only if made in accordance with Section 13.2
or 13.3 hereof. Promptly upon termination of the Trust, any remaining Trust
Fund assets shall be paid to the Corporation.
13.2 Prior to a Change in Control, the Corporation may amend this
Agreement (including making an amendment which terminates the Trust), without
the consent of the Participants by written instrument executed by the
Corporation and approved in writing by the Trustee; provided, however, that
the written approval of the Trustee shall not be required for any termination
of the Trust.
13.3 On and after the occurrence of a Change in Control, this
Agreement may be amended only by an instrument in writing signed on behalf of
the parties
-45-
<PAGE>
hereto, together with the written consent of Participants (or in the
event of their deaths, their beneficiaries) then having unpaid Benefits equal to
at least sixty-five percent (65%) of all amounts then held in the Trust;
provided, however, that the signature and approval of the Trustee shall not be
required for any termination of the Trust or for any amendment required by law.
Notwithstanding the foregoing, any such amendment may be made by written
agreement of the parties hereto without obtaining the consent of the
Participants or their beneficiaries, if such amendment does not adversely affect
the rights of the Participants or their beneficiaries hereunder. No amendment
made on or after the Change in Control may make the Trust revocable solely by
the Corporation.
XIV.
Arbitration
-----------
14.1 Except as otherwise provided herein, any dispute between the
Participants (or their beneficiaries), the Corporation, the Administrator
and/or the Trustee as to the interpretation or application of the provisions
of this Agreement, and, after any Change in Control, any question concerning
distributions or payments hereunder, shall be determined in Binghamton, New
York, exclusively by arbitration in accordance with the
-46-
<PAGE>
rules of the American Arbitration Association then in effect. Such
determination shall be final, conclusive and binding upon the parties.
Judgment may be entered on the arbitrator's award in any court of competent
jurisdiction. All fees and expenses of such arbitration (including, without
limitation, those incurred by the Participants or their beneficiaries) shall
be paid by the Corporation, provided that if the Corporation does not
promptly pay such fees and expenses, the Trustee may pay such fees and
expenses out of the assets of the Trust.
XV.
Notices
-------
Any notice or communication which the Corporation, the Trustee, the
Administrator, or a Participant (or Participant's beneficiary) may be required
or may desire to give to another entity or individual under any provision of
this Agreement shall be: (a) given in writing and personally delivered to, or
mailed or delivered by overnight courier service to the address (or addresses)
given below for, the entity or individual to whom such notice or communication
is directed, or (b) with respect to notices or communications to the
Corporation, the Trustee or the Administrator, made by telecopy, delivered or
transmitted to the address given below.
To the Corporation: New York State Electric & Gas
Corporation
Post Office Box 3607
Binghamton, NY 13902-3607
Attention: Corporate Secretary
To Trustee: Bankers Trust Company
280 Park Avenue
New York, New York
Attention: Marjorie Greenspan
To Administrator: Towers, Perrin, Forster &
Crosby, Inc.
Centre Square East 1500 Market Street
Philadelphia, PA 19102-4790
Attention: William J. Murdoch, Jr.
To Any Participant
or beneficiary: From time to time, as stated on the Payment
Schedule most recently delivered to the Trustee.
Any notice which is personally delivered shall be deemed to have been given on
the date it is personally delivered. Any notice which is mailed shall be deemed
to have been given on the third business day after deposit in the mail,
registered or certified mail, postage prepaid and return receipt requested. Any
notice which is delivered by overnight courier service shall be deemed to have
been given on the business day after deposit with such courier service. Any
notice which is transmitted by telex or
-47-
<PAGE>
telecopy shall be deemed to have been given on the day that such notice is
transmitted.
The Corporation, the Trustee, the Administrator, or a Participant (or
beneficiary) may change the address to which notices, requests and other
communications are to be sent to it, him or her by giving written notice of
such address change to the other entities and individuals in conformity with
this Article, but such change shall not be effective until notice of such
change has been received by the other entities and individuals.
XVI.
Miscellaneous
-------------
16.1 Any provision of this Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
16.2 Amounts payable to Participants and their beneficiaries under
this Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
16.3 This Agreement and the Trust created herein shall be governed
by and construed in accordance
-48-
<PAGE>
with the laws of the State of New York, unless such laws are preempted by the
laws of the United States.
16.4 Each Participant and his or her beneficiaries are intended
beneficiaries under this Trust, and shall be entitled to enforce all terms and
provisions hereof with the same force and effect as if each such person had been
a party hereto.
16.5 This Agreement and the obligations of the Corporation
hereunder shall be binding upon the Corporation and its successors and assigns.
16.6 Nothing contained in this Agreement shall limit the
Corporation's ability to take any action allowed pursuant to the terms of the
Plans.
IN WITNESS WHEREOF, this instrument has been executed as of the day
and year first above written.
NEW YORK STATE ELECTRIC &
GAS CORPORATION
By:_________________________
Title: Senior Vice President
BANKERS TRUST COMPANY,
as Trustee
By:__________________________
Title:
-49-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF TOMPKINS )
On the 11th day of July, in the year one thousand nine hundred and
ninety-four, before me personally came Richard P. Fagan to me known, who being
by me duly sworn, did depose and say: that he resides in Dryden, New York; that
he is a Senior Vice President of NEW YORK STATE ELECTRIC & GAS CORPORATION, the
corporation described in and which executed the above instrument; and that he
signed his name thereto by order of the Board of Directors and said corporation.
____________________________
Notary Public
-50-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the _____ day of ________ the year one thousand nine hundred and
ninety-four, before me personally came _____________ ________________ to me
known, who being by me duly sworn, did depose and say: that he/she resides in
______________________ that he/she is the __________________ of BANKERS TRUST
COMPANY, the corporation described in and which executed the above instrument;
that he/she knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he/she signed his/her name thereto by
like order.
____________________________
Notary Public
-51-
<PAGE>
EXHIBIT 18
FIRST AMENDMENT
TO DIRECTOR BENEFIT TRUST AGREEMENT
First Amendment to Director Benefit Trust Agreement dated as of the
1st day of January, 1997 (the "First Amendment") by and between New York State
Electric & Gas Corporation (the "Corporation") and Bankers Trust Company, a New
York Banking Corporation, as Trustee ("Trustee") amending certain provisions of
the Director Benefit Trust Agreement, dated as of July 1, 1994, (the "Trust
Agreement") by and between the Corporation and the Trustee.
WHEREAS, the Corporation has, effective January 1, 1997, adopted a
Director Share Plan which provides for the payment to non-employee directors of
certain benefits upon their ceasing to serve as directors and a related Deferred
Compensation Plan - Director Share Plan which allows non-employee directors to
defer the payment of said benefits over a period of time after ceasing to serve
as directors.
WHEREAS, the parties hereto wish to amend the Trust Agreement to
include the benefits provided under the Director Share Plan and the deferred
compensation benefits provided under the Deferred Compensation Plan - Director
Share Plan as benefits subject to the Trust Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The second WHEREAS clause of the Trust Agreement is hereby
amended to read in its entirety as follows:
WHEREAS, the Corporation has adopted a Retirement Plan for
Directors effective as of January 1, 1992 ("Retirement Plan
for Directors") to provide a retirement benefit to eligible
Directors, a Director Share Plan effective as of January 1,
1997 ("Director Share Plan") to provide a benefit to eligible
Directors upon their ceasing to serve as directors and a
Deferred Compensation Plan - Director Share Plan effective
as of January 1, 1997 ("Director Share Deferred Compensation
Plan") to permit deferral of benefits under the Director
Share Plan (hereinafter the Deferred Compensation Plan for
Directors, the Retirement Plan for Directors, the Director
Share Plan and the Director Share Deferred Compensation Plan,
each as amended and as may be amended from time to time, are
called the "Plans"); and
<PAGE>
- 2 -
2. Section 2.4 of the Trust Agreement is hereby amended by inserting
the following paragraph at the end of the section:
For the purpose of determining the amount of the Corporation's
contributions under Sections 2.2 and 2.3 hereof, the present
value of Benefits under the Director Share Plan and the
Director Share Deferred Compensation Plan shall be calculated
as follows: (a) with respect to directors participating in the
Director Share Plan (regardless of whether they also
participate in the Director Share Deferred Compensation Plan)
who as of the Change in Control or the applicable December 31,
as the case may be, continue to be directors of the
Corporation, the present value of Benefits shall be calculated
(i) in the case of a determination under Section 2.2 hereof,
by multiplying the number of Phantom Shares and Dividend
Phantom Shares (as defined in the Director Share Plan)
credited to each Director as of the Change in Control by the
average closing price of the Corporation's common stock for
the five trading days immediately preceding the Change in
Control, and (ii) in the case of a determination under Section
2.3 hereof, by multiplying the number of Phantom Shares and
Dividend Phantom Shares credited to each Director as of the
most recent December 31 by the average closing price of the
Corporation's common stock for the five trading days
immediately preceding that December 31; and (b) with respect
to participants in the Director Share Deferred Compensation
Plan who as of the Change in Control or the applicable
December 31 are no longer directors of the Corporation, the
present value of Benefits shall be the total of all amounts
deferred for each director under the Director Share Deferred
Compensation Plan, together with applicable interest already
accrued, less all payments previously made pursuant to the
Director Share Deferred Compensation Plan, as of the Change in
Control, in the case of a determination under Section 2.2
hereof, or as of the most recent December 31, in the case of a
determination under Section 2.3 hereof.
<PAGE>
- 3 -
3. Except as expressly modified hereby, the terms and provisions of
the Trust Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed by their respective duly authorized
representatives as of the date first above written.
NEW YORK STATE ELECTRIC & BANKERS TRUST COMPANY
GAS CORPORATION
By: By:
--------------------- --------------------
<PAGE>
EXHIBIT 19
SECOND AMENDMENT
TO DIRECTOR BENEFIT TRUST AGREEMENT
Second Amendment to Director Benefit Trust Agreement dated as of the
___ day of July, 1997 (the "Second Amendment") by and between New York State
Electric & Gas Corporation (the "Corporation") and Bankers Trust Company, a New
York Banking Corporation, as Trustee ("Trustee") amending certain provisions of
the Director Benefit Trust Agreement, dated as of July 1, 1994, as amended, (the
"Trust Agreement") by and between the Corporation and the Trustee.
WHEREAS, the parties hereto wish to amend the Trust Agreement to
clarify the assumptions used in Section 2.4 thereof and to modify the definition
of Transfer in Section 2.5(b) thereof.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The first sentence of Section 2.4 of the Trust Agreement is
hereby amended to read as follows:
"For the purpose of determining the amount of the Corporation's
contributions under Section 2.2 and 2.3 hereof, the present value of
the Benefits under the Retirement Plan for Directors shall be
determined using the 1983 Group Annuity Mortality Table and an
interest rate equal to the after-tax yield on a 10-Year Treasury
Constant Maturity Bond."
2. Paragraph (ii) of Section 2.5(b) of the Trust Agreement is
hereby amended to read as follows:
"during any period of two consecutive years (not including any
period prior to the date of this Agreement), individuals who at the
beginning of such period constitute the Board and any new director
(other than a director designated by a Person who has entered into an
agreement with the Corporation to effect a transaction described in
paragraph (i), (iii) or (iv) of this Section 2.5(b) or a director
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitations of proxies or
consents by or on behalf of a Person other than the Board) whose
election by the Board or nomination for election by the
<PAGE>
Corporation's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or"
3. This Second Amendment is effective as of the date first
above written.
4. Except as expressly modified hereby, the terms and
provisions of the Trust Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their respective duly authorized
representatives as of the date first above written.
NEW YORK STATE ELECTRIC & BANKERS TRUST COMPANY
GAS CORPORATION
By: __________________________ By: __________________________
<PAGE>
EXHIBIT 20
New York State Electric & Gas Corporation
1997 Stock Option Plan
I. Plan Objective
The objective of the 1997 Stock Option Plan (the "Plan") is to provide
executives and certain other key employees of New York State Electric &
Gas Corporation (hereinafter referred to as the "Company") and its
Affiliates with options to purchase shares of the Company's Common Stock.
The Plan also provides for the granting by the Company of stock
appreciation rights to these employees. These options and stock
appreciation rights are intended to more closely align the financial
interests of management with those of the Company's stockholders by
providing long-term incentives to those individuals who can significantly
affect the future growth and success of the Company. In addition, the Plan
will enhance the Company's ability to attract and retain executives and
other key individuals of superior ability.
II. Definitions
"Affiliate" shall mean any company which qualifies as a "subsidiary
corporation" or "parent corporation" of the Company under Section 424 of
the Code, or any successor provision, or any other entity in which the
Company owns, directly or indirectly, fifty percent (50%) or more of the
equity.
<PAGE>
"Award" shall mean an Option granted to a Participant pursuant to Article
VI hereof, a Stock Appreciation Right granted to a Participant pursuant to
Article VII hereof or any other award established by the Committee which
is consistent with the purposes of the Plan.
"Award Agreement" shall mean a written agreement (including any amendment
or supplement thereto) between the Company and a Participant which
specifies the terms and conditions of an Award granted to such
Participant.
"Board" shall mean the Board of Directors of New York State Electric & Gas
Corporation.
"Cashless Exercise" shall mean the exercise of an Option by a Participant
through the use of a brokerage firm to make payment to the Company of the
exercise price either from the proceeds of a loan to the Participant from
the brokerage firm or from the proceeds of the sale of the Company's
Common Stock issued pursuant to the exercise of the Option, and whereby,
upon receipt of such payment, the Company delivers the exercised shares to
the brokerage firm.
"Chairman" shall mean the Chairman of New York State Electric & Gas
- 2 -
<PAGE>
Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" shall mean, with respect to any given date, the
closing price of the Company's Common Stock on the last trading day prior
to that date, as reported by such responsible reporting service as the
Committee may select.
"Incentive Stock Option" shall mean a stock option granted under Article
VI hereof which is intended to qualify as an incentive stock option under
Section 422 of the Code.
"Key Employee" shall mean an officer or other employee whose efforts and
initiative have significantly contributed or are expected to significantly
contribute to the future growth and success of the Company or its
Affiliates.
"Non-Statutory Stock Option" shall mean a stock option granted under
Article
- 3 -
<PAGE>
VI hereof which is not intended to qualify as an incentive stock
option under Section 422 of the Code. "Option" shall mean an Incentive
Stock Option or a Non-Statutory Stock Option.
"Participant" shall mean an individual who is selected pursuant to Article
IV hereof to receive an Award under the Plan.
"Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the Exchange
Act, or any successor provision, as amended from time to time.
"Section 162(m)" shall mean Section 162(m) of the Code, or any successor
provision, as amended from time to time, and any regulations thereunder.
"Section 422" shall mean Section 422 of the Code, or any successor
provision, as amended from time to time, and any regulations thereunder.
"Stock Appreciation Right" shall mean (i) in the case of a Stock
Appreciation Right issued in tandem with an Option pursuant to Article VII
hereof, the right to receive an amount equal to the excess of the Fair
Market Value of a share of the Company's Common Stock (determined on the
date of the exercise of
- 4 -
<PAGE>
the Stock Appreciation Right) over the exercise price of the related
Option or (ii) in the case of a freestanding Stock Appreciation Right
issued pursuant to Article VII hereof, the right to receive an amount
equal to the excess of the Fair Market Value of a share of the Company's
Common Stock (determined on the date of the exercise of the Stock
Appreciation Right) over the Fair Market Value of a share of the
Company's Common Stock determined on the date of the grant of the Stock
Appreciation Right.
III. Administration
The Plan shall be administered by the Executive Compensation and
Succession Committee of the Board or such successor committee as may be
appointed by the Board to administer the Plan (the "Committee"). The
Committee shall be composed of at least two non-employee members of the
Board who shall be qualified to administer the Plan as contemplated by
both Rule 16b-3 and Section 162(m). The Committee shall have the
authority to exercise all of the powers and authorities specifically
granted to it under the Plan or necessary or desirable in the
administration of the Plan, including, without limitation, the authority
to select the employees to be granted Awards, the authority to determine
the size and terms of the Awards to be granted to each employee and the
authority to prescribe the form of Award Agreement embodying the Awards
granted under the Plan. The Committee
- 5 -
<PAGE>
shall have the authority to interpret the Plan, to establish and revise
rules and regulations relating to the Plan, and to make any other
determinations that it believes necessary or advisable for the
administration of the Plan. Decisions and determinations by the
Committee shall be final and binding upon all parties.
IV. Eligibility and Participation
Awards may be granted to such Key Employees of the Company as the
Committee may from time to time select. In determining the individuals to
whom Awards are to be granted and the number of such Awards, the Committee
shall take into consideration the individual's present and potential
contribution to the growth and success of the Company and such other
factors as the Committee may deem proper and relevant. The Committee may
request recommendations for individual Awards from the Chairman. The
Committee may delegate to the Chairman the authority to make Awards to
any employees of the Company who are not executive officers subject to
Section 16 of the Exchange Act, subject to a fixed maximum Award amount
for such a group and a fixed maximum Award amount for any one
Participant, as determined by the Committee. Determinations as to Awards
made to executive officers who are subject to Section 16 of the Exchange
Act shall be made solely by the Committee. For purposes of participation
in the Plan, the
- 6 -
<PAGE>
term "Company" includes the Company and its affiliates.
- 7 -
<PAGE>
V. Shares Available for Awards
A. Amount of Stock
Subject to adjustment as provided in Section C. of this Article V., the
aggregate number of shares of the Company's Common Stock with respect to
which Awards may be granted is 3,300,000 shares. Shares of Common Stock
delivered by the Company pursuant to the Plan may be either authorized but
unissued Common Stock or previously issued shares of Common Stock
reacquired by the Company, including shares purchased by the Company in
the open market and held as treasury shares, or both. Awards may be made
under the Plan in any combination of Incentive Stock Options,
Non-Statutory Stock Options, Stock Appreciation Rights, or any other
awards established by the Committee which are consistent with the purposes
of the Plan.
For purposes of this Section A., shares of the Company's Common Stock that
relate to an Award which terminates by expiration, forfeiture,
cancellation or otherwise without the delivery of shares, or is settled in
cash in lieu of the Company's Common Stock, shall thereafter again be
available for grant pursuant to the Plan.
- 8 -
<PAGE>
B. Individual Limitations
No individual may be granted, during any one calendar year of the Plan,
Awards that relate in total to more than 100,000 shares of the Company's
Common Stock.
C. Dilution and Other Adjustments
In the event of any change in the number of outstanding shares of the
Company's Common Stock or the Common Stock price by reason of any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination, exchange of shares or other similar corporate
change, if the Committee shall determine, in its sole discretion, that
such change requires an adjustment in the number and kind of shares that
may be issued under the Plan, including the number and kind of shares
which are subject to outstanding Options, or any other Award established
by the Committee, or in the exercise price with respect to any of the
foregoing, such adjustments shall be made by the Committee and shall be
conclusive and binding for all purposes of the Plan. If deemed appropriate
by the Committee, provision may be made for the cash payment to a
Participant who has an outstanding Option or other Award; provided,
however, that the number of shares subject to any Option or other Award
shall always be a whole number.
- 9 -
<PAGE>
VI. Terms and Conditions of Options
A. Grant of Options
Subject to the other provisions of the Plan, the Committee shall have sole
authority to determine the employees to whom Options shall be granted, the
time or times when Options shall be granted, the number of shares to be
covered by each Option, the terms of each Option, the Option Price (as
defined in Section B. of this Article VI.) therefor, and the conditions
and limitations applicable to the exercise of each Option. The Committee
shall have the authority to grant Incentive Stock Options, or to grant
Non-Statutory Stock Options, or to grant both types of Options. In the
case of Incentive Stock Options, the terms and conditions of such grants
shall be subject to and comply with such rules as may be prescribed by
Section 422.
B. Option Price
The Committee shall, in its sole discretion, establish the exercise price
per share of the Company's Common Stock covered by an Option ("Option
Price") at the time each Option is granted, which exercise price shall not
be less than 100% of the Fair Market Value of the Company's Common Stock
determined on the date of grant.
- 10 -
<PAGE>
C. Exercise of Options and Grant of Replacement Options
Each Option shall be exercisable at such time or times, upon such events,
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement; provided, however,
that in no event may any Option granted hereunder be exercisable after
the expiration of ten years from the date of such grant. The Committee
may impose such conditions with respect to the exercise of Options,
including without limitation, any conditions relating to the application
of federal or state securities laws, as it may deem necessary or
advisable.
Unless otherwise provided by the Committee, Options shall be exercised by
the delivery of a written notice from the Participant to the Secretary of
the Company in the form prescribed by the Committee which sets forth the
number of shares with respect to which the Option is exercised and which
is accompanied by full payment for the shares. Unless otherwise provided
by the Committee, no shares shall be delivered pursuant to any exercise of
an Option until payment in full of the Option Price therefor is received
by the Company. Such payment may be made in cash, or its equivalent, or,
if and to the extent permitted by the Committee, by tendering (either
actually or by attestation) shares of the Company's Common Stock owned by
the holder of the Option (which are not subject to any pledge or other
security interest), or
- 11 -
<PAGE>
by combination of the foregoing, provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such Common
Stock so tendered to the Company, valued as of the date of such tender,
is at least equal to the Option Price times the number of shares with
respect to which the Option is being exercised. In addition, at the
request of the Participant, and subject to applicable laws and
regulations, the Company may (but shall not be required to) cooperate in
a "Cashless Exercise" of the Option. As soon as practicable after
receipt of the written notice and payment, the Company shall deliver to
the Participant stock certificates based upon the number of shares
with respect to which the Option is exercised and which are issued in the
Participant's name. A Participant shall have the rights of a stockholder
only with respect to shares for which such stock certificates have been
issued to such Participant.
To the extent that all or any portion of the Option Price, or taxes
incurred in connection with the exercise of an Option, are paid by
delivery of the common shares of the Company (or, in the case of the
payment of taxes, by the withholding of shares) then, concurrently with
such delivery or withholding, the Participant shall be granted, as
additional Awards, replacement Options, subject to the other provisions of
the Plan, including, but not limited to Article V. The replacement
Options, to the extent permissible, shall cover the number of common
shares surrendered to pay the Option Price plus the
- 12 -
<PAGE>
number of shares surrendered or withheld to satisfy the Participant's
tax liability, shall have an exercise price equal to 100% of the Fair
Market Value of such common shares determined on the date such
replacement Option is granted, shall first be exercisable no earlier
than six months from the date of the grant of the replacement Option,
shall have an expiration date equal to the expiration date of the
original Option and shall contain such other terms and conditions as
determined by the Committee. A replacement Option shall be granted in
connection with the exercise of an Option which is itself a replacement
Option.
The Committee, in its sole discretion, may, in lieu of delivering shares
covered by an exercised Option, settle the exercise of the Option by means
of a cash payment to the Participant equal to the difference between the
Fair Market Value of the Company's Common Stock determined on the
exercise date and the Option Price. At the same time, the Committee
shall return to the Participant the Participant's payment, if any, for
the shares covered by the Option.
With the consent of the Committee, and subject to compliance with
applicable laws and regulations, the Company, in its sole discretion, may
lend money to a Participant, guarantee a loan to a Participant or
otherwise assist a Participant to obtain the cash necessary to exercise
all or any portion of an
- 13 -
<PAGE>
Option granted under the Plan, including the payment by a Participant of
any or all applicable taxes due in connection with the exercise of an
Option granted under the Plan.
VII. Stock Appreciation Rights
The Committee may, with sole and complete authority, grant Stock
Appreciation Rights which are in tandem with an Option or which are
freestanding and unrelated to an Option. A Stock Appreciation Right
granted in tandem with an Option shall be granted at the same time as the
Option is granted. Stock Appreciation Rights shall be exercisable, in
whole or in part, at such time or times, and subject to such other terms
and conditions, as shall be prescribed by the Committee, provided that
Stock Appreciation Rights shall not be exercisable earlier than six months
after grant and shall not be exercisable after the expiration of ten years
from the date of grant.
Stock Appreciation Rights granted in tandem with Options shall entitle a
Participant to receive from the Company, upon exercise of the right, an
amount equal to the excess of the Fair Market Value of a share of the
Company's Common Stock, determined on the date of the exercise of the
right, over the exercise price of the related Option. A freestanding
Stock Appreciation Right shall entitle a Participant to receive from the
Company,
- 14 -
<PAGE>
upon exercise of the right, an amount equal to the excess of the
Fair Market Value of a share of the Company's Common Stock, determined on
the date of the exercise of the right, over the Fair Market Value of a
share of the Company's Common Stock, determined on the date of the grant
of the Stock Appreciation Right.
The exercise of a Stock Appreciation Right granted in tandem with an
Option shall result in a corresponding cancellation of the related Option
to the extent of the number of shares of the Company's Common Stock as to
which the Stock Appreciation Right is exercised. The exercise of an Option
associated with a tandem Stock Appreciation Right shall result in a
cancellation of the related Stock Appreciation Right to the extent of the
number of shares of the Company's Common Stock as to which the Option is
exercised. Notwithstanding any such cancellations, the number of shares
subject to any such cancelled Option or Stock Appreciation Right shall not
become available for grant under Article V. Section A. hereof.
VIII. Amendments and Termination
The Committee may, in its sole discretion, at any time terminate the Plan
and from time to time modify or amend the Plan, or any part hereof, for
any reason; provided, however: (i) the Plan shall not be amended or
modified
- 15 -
<PAGE>
without shareholder approval if and to the extent shareholder approval
is required under the applicable regulations under Section 162(m) or
Section 422; (ii) the Plan shall not be amended or modified without
shareholder approval so as to increase the number of shares which may be
issued under the Plan; and (iii) the termination, modification or
amendment of the Plan shall not, without the consent of a Participant,
adversely affect any rights under any Award previously granted to such
Participant. No Awards shall be granted pursuant to this Plan after
May 20, 2007.
IX. Withholding Taxes
A. Whenever the Company is to issue or transfer shares of Common Stock
under the Plan, the Company shall have the right to require the
Participant to remit to the Company an amount sufficient to satisfy any
federal, state and local withholding tax requirements prior to the
delivery of any certificates for such shares.
B. Whenever payments under the Plan are to be made in cash, such payments
shall be net of an amount sufficient to satisfy any federal, state and
local withholding tax requirements.
C. The Committee, in its sole discretion, may provide that a Participant
may satisfy, totally or in part, the Participant's obligations pursuant to
Section A.
- 16 -
<PAGE>
hereof by electing to have shares withheld, to redeliver shares
acquired under an Award, or to deliver previously owned shares having a
Fair Market Value equal to the amount required to be withheld, provided
that the election is made in writing on or prior to the date of exercise
of the Option. The Fair Market Value of any shares of Common Stock
to be withheld or delivered shall be determined as of the date that the
taxes are required to be withheld.
X. Miscellaneous Provisions
A. Each Award hereunder shall be evidenced in writing by an Award
Agreement. The Committee shall provide in the Award Agreement the
terms and conditions applicable to an Award in the event of the
Participant's termination of employment by reason of retirement,
death, disability or any other reason and the effect thereon, if
any, of a change in control (as determined by the Committee) of the
Company.
B. Nothing in the Plan or in any Award Agreement entered into pursuant
to the Plan shall confer upon any Participant the right to continue
in the employment of the Company or affect any right which the
Company may have to terminate the employment of such Participant.
C. No Award shall be assignable or transferable otherwise than by will
or the
- 17 -
<PAGE>
laws of descent and distribution, except that the Committee
may provide in an Award Agreement for the transferability of an
Award:
(a) by gift to (i) a spouse or other immediate relative, or (ii) a
trust or an estate in which the original Participant or the
Participant's spouse or other immediate relative has a substantial
interest; and
(b) pursuant to a domestic relations order as defined in Section 414
of the Code, or any successor provision; provided, however, that
any Award so transferred shall continue to be subject to all terms
and conditions contained in the Award Agreement. If so permitted
by the Committee, a Participant may designate a beneficiary or
beneficiaries to exercise the rights of the Participant under the
Plan upon the death of the Participant.
No right or interest of any Participant shall be subject to any
lien, obligation or liability of the Participant.
D. The Plan shall be submitted to the common stockholders of the
Company for approval. Options may not be granted, and Shares may not
be delivered, under the Plan unless and until such time as such
approval and
- 18 -
<PAGE>
authorization has been received. The common stockholders of the
Company shall be deemed to have approved the Plan only if it is
approved at a meeting of the common stockholders duly held by vote
taken in the manner required by law.
E. Notwithstanding anything to the contrary contained in the Plan or
any Award Agreement, the Company shall not be required to issue
shares of Common Stock until all applicable legal, listing,
registration and regulatory requirements or approvals relating to
the issuance have been satisfied or obtained.
F. The Plan and all Award Agreements entered into pursuant to Award
grants shall be governed by the laws of the State of New York,
other than its conflicts of laws provisions. In the event of an
inconsistency between any term of the Plan and any term of any
Award Agreement, the terms of the Plan shall govern.
G. It is the intent of the Company that this Plan comply in all
respects with Rule 16b-3 in connection with any Award granted to a
person who is subject to Section 16 of the Exchange Act.
Accordingly, if any provision of this Plan or any Award Agreement
does not comply with the requirements of Rule 16b-3 as then
applicable to any such person, such
- 19 -
<PAGE>
provision shall be construed or deemed amended to the extent
necessary to conform to such requirements with respect to such
person.
XI. Effective Date
Subject to the approval of the common stockholders, the Plan shall be
effective as of May 21, 1997.
XII. Change in Control
In order to preserve a Participant's rights under an Award in the event of
a change in control (as determined by the Committee) of the Company, the
Committee in its discretion may, at the time an Award is made or any time
thereafter, take one or more of the following actions: (i) provide for the
acceleration of any time period relating to the exercise of the Award,
(ii) provide for the purchase of the Award upon the Participant's request
for an amount of cash or other property that could have been received upon
the exercise or realization of the Award had the Award been currently
exercisable or payable, (iii) adjust the terms of the Award in a manner
determined by the Committee to reflect the change in control, or (iv) make
such other provision as the Committee may consider equitable and in the
best interests of the Company.
- 20 -
<PAGE>
EXHIBIT 21
NEW YORK STATE ELECTRIC & GAS CORPORATION
NON-STATUTORY STOCK OPTION AWARD AGREEMENT
1. Pursuant to the provisions of the 1997 Stock Option Plan, as it may be
amended from time to time (hereinafter called the "Plan"), of New York State
Electric & Gas Corporation (hereinafter called the "Company"), the Company
hereby grants to ________________ (hereinafter called the "Optionee"), subject
in all respects to the terms and conditions of the Plan and subject further to
the terms and conditions herein set forth, the right and option to purchase from
the Company all or any part of an aggregate of _______ shares of Common Stock
($6.66 2/3 Par Value) of the Company at the purchase price of $_____ per share
(hereinafter called the "Option"). Capitalized terms not defined herein shall
have the same definitions as in the Plan.
2. The Option is a Non-Statutory Stock Option and is intended not to qualify
as an Incentive Stock Option under Section 422 of the Code.
3. The Option may be exercised, except as otherwise provided herein, in whole
or in part at any time after its grant date, May 21, 1997 ("Option Grant Date")
and prior to May 21, 2007 ("Option Expiration Date"). Partial exercises of the
Option shall be made only with respect to whole shares of the Company's Common
Stock.
4. In addition to the grant of the Option hereunder, the Optionee is hereby
granted Stock Appreciation Rights in tandem with the Option which entitle the
Optionee to receive from the Company, upon the exercise of such Stock
Appreciation Rights, an amount equal to the excess of the Fair Market Value of a
share of the Company's Common Stock, determined on the date of the exercise,
over the exercise price of the Option. Stock Appreciation Rights shall not be
<PAGE>
exercisable earlier than November 21, 1997 and shall expire on the Option
Expiration Date. Upon their exercise, Stock Appreciation Rights shall be settled
in cash. The exercise of Stock Appreciation Rights granted shall result in the
corresponding cancellation of the Option to the extent of the number of shares
of the Company's Common Stock as to which Stock Appreciation Rights are
exercised. The exercise of the Option shall result in the corresponding
cancellation of the Stock Appreciation Rights to the extent of the number of
shares of the Company's Common Stock as to which the Option is exercised. The
Option and the Stock Appreciation Rights are collectively referred to
hereinafter as "Awards".
5. Neither the Option nor any right hereunder shall be assignable or
transferrable by the Optionee or be subject to any lien, obligation or liability
of the Optionee, except that the Option may be transferred:
(a) by the Optionee by will or the laws of descent and distribution;
(b) by the Optionee, with the prior written consent of the committee
administering the Plan ("Committee"), by gift to (i) the Optionee's
spouse or a child or grandchild of the Optionee or of the Optionee's
spouse, or (ii) a trust or an estate in which the Optionee or the
Optionee's spouse or a child or grandchild of the Optionee or of the
Optionee's spouse has a substantial interest; and
(c) by the Optionee, with the prior written consent of the Committee,
pursuant to a domestic relations order as defined in Section 414 of
the Code, or any successor provision.
- 2 -
<PAGE>
In the event of a transfer, the Option shall continue to be subject to all the
terms and conditions contained herein and the Optionee shall remain obligated to
pay to the Company, upon the exercise of the Option by the Optionee's
transferee, amounts sufficient to satisfy any applicable federal, state and
local withholding tax requirements. The Option may not be further transferred by
the Optionee's transferee, except by will or the laws of
descent and distribution. Moreover, the Committee may require a transferee who
acquires the Option pursuant to Subsections (b) or (c) above to furnish to the
Company, as a condition to the issuance of shares upon the exercise of the
Option, an agreement (in such form as the Committee may specify) that is
executed by the transferee and that contains such provisions, including
representations and restrictions as to the transferability of the shares, as are
required by the Committee.
In the event of the termination of the employment of the Optionee, the Option
shall be exercisable by the Optionee's transferee only to the extent specified,
and during the applicable periods set forth, in Section 11 hereof.
A transfer of all or any portion of the Option shall result in the concurrent
transfer of the related tandem Stock Appreciation Rights. Stock Appreciation
Rights may not be transferred by themselves.
6. Unless otherwise provided by the Committee, the Option, or any portion
thereof, shall be exercised by a written notice (in such form as the Committee
may specify) that is addressed to the Secretary of the Company and that
specifies the number of shares with respect to which it is being exercised and
the total exercise price. The written notice shall be accompanied by the payment
of the exercise price in cash or the equivalent payable to the Company, or,
unless otherwise provided by the Committee, by tendering (either actually or by
delivery of a Committee-approved form attesting to stock ownership) previously
acquired shares of the Company's Common Stock which are owned by the Optionee
(or the
- 3 -
<PAGE>
Optionee's transferee) and which are not subject to any pledge or other
security interest, or by any combination of the foregoing. With respect to
shares tendered in lieu of the payment of cash or cash equivalents, such shares
shall be valued on the basis of their Fair Market Value on the date of exercise.
Unless otherwise provided by the Committee, an Option shall not be deemed
exercised until the date ("Exercise Date") that both a written notice of
exercise and the payment of the exercise price in the form required herein is
provided to the Company in accordance with the provisions of Section 10 hereof.
The Committee, in its sole discretion, may, in lieu of delivering shares
covered by the exercised Option, settle the exercise of the Option by means of a
cash payment to the Optionee (or the Optionee's transferee) equal to the
difference between the Fair Market Value of the Company's Common Stock
determined on the Exercise Date and the Option Price. The Committee shall at the
same time return to the Optionee (or the Optionee's transferee) any payment for
the shares covered by the Option.
Unless otherwise provided by the Committee, (i) the Stock Appreciation Rights
shall be exercised by delivery of a written notice that is addressed to the
Secretary of the Company and that specifies the number of shares with respect to
which the Stock Appreciation Right is being exercised, and (ii) the Exercise
Date with respect to a Stock Appreciation Right shall be the date the written
notice of exercise of the Stock Appreciation Right is provided to the Company
in accordance with the provisions of Section 10 hereof.
7. As a condition to the issuance of shares of Common Stock of the Company
under the Option, the Optionee shall remit (or cause to be remitted) to the
Company an amount sufficient to satisfy any applicable federal, state and local
withholding tax requirements. An Optionee may, totally or in part, satisfy this
obligation by electing to have shares withheld (with the consent of the
Optionee's
- 4 -
<PAGE>
transferee, in the event the Option is exercised by a transferee) or
by delivering other shares having a Fair Market Value equal to the amount
required to be withheld, provided that this election is made in writing on or
prior to the date of the exercise of the Option. The Fair Market Value of any
shares so withheld or delivered shall be determined as of the date the taxes are
required to be withheld.
8. Except as otherwise provided herein, to the extent that all or any portion
of the exercise price, or taxes incurred in connection with the exercise of the
Option, are paid by the Optionee by surrendering shares of the Company's Common
Stock (or, in the case of the payment of taxes, by the withholding of shares)
then, concurrently with such surrender or withholding, the Optionee shall be
granted as an additional option a replacement option, subject in all respects to
the provisions of the Plan, including but not limited to Article V
thereof. The replacement option, to the extent permissible, shall cover the
number of shares of the Company's Common Stock surrendered to pay the exercise
price plus the number of shares surrendered or withheld to satisfy the
Optionee's tax liability and shall have an exercise price equal to 100% of the
Fair Market Value of the Company's Common Stock determined on the date such
replacement option is granted. The replacement option shall not be exercisable
for six months from the date of its grant and shall expire on the Option
Expiration Date. No replacement option shall be issued after November 21, 2006.
Replacement options shall be issued with respect to options which are themselves
replacement options. Notwithstanding the foregoing, neither the surrender of
shares in connection with the exercise of the Option (or a replacement option)
by the Optionee's transferee, nor the surrender or withholding of shares in
connection with the payment of any taxes incurred with respect to such an
exercise, shall result in the grant of a replacement option to any party.
9. The Company shall, on or as soon as practicable after the date of the
exercise of all or a portion of the Option, deliver to the Optionee (or the
Optionee's
- 5 -
<PAGE>
transferee) a certificate or certificates for the appropriate number
of shares of the Company's Common Stock (or in the event that the Company is
using a book entry system, make the appropriate book entry). Notwithstanding
anything to the contrary contained in the Plan or this Agreement, the Company
shall not be required to issue shares of Common Stock until all applicable
legal, listing, registration and regulatory requirements or approvals relating
to the issuance have been satisfied or obtained. The shares of the Company's
Common Stock issued upon the exercise of an Option may not be transferred except
in accordance with all applicable federal and state securities laws, rules and
regulations. Certificates issued to transferees of the Optionee may contain
legends reflecting any restrictions on transferability imposed by the Company in
order to comply with such laws, rules and regulations. The Company shall not be
required to register any shares issued to any transferees of the Optionee.
- 6 -
<PAGE>
10. All notices under this Agreement shall be in writing. Notices, other
communications and payments provided for in this Agreement shall be deemed to
have been duly given or made when delivered in person or when mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the Company at the address set forth below or to the Optionee at the address set
forth on the signature page of this Agreement or to such substitute address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon actual
receipt:
Corporate Secretary
New York State Electric & Gas Corporation
Corporate Drive
Kirkwood Industrial Park
P.O. Box 5224
Binghamton, New York 13902-5224
11. Termination of Employment.
(a) In the event that the Optionee ceases to be an employee of the
Company by reason of death or total disability, the Awards may be
exercised by the Optionee or by the Optionee's legal representative
or representatives or by the persons entitled to do so under the
Optionee's will or the laws of descent and distribution, to the
extent the Awards are then otherwise exercisable, during the one-year
period following the date of the Optionee's death or total
disability, but not after the expiration of such period.
(b) In the event that the Optionee ceases to be an employee of the
Company by reason of termination by the Company of the Optionee's
employment for cause (as determined in the sole discretion of the
Committee), the
- 7 -
<PAGE>
Awards shall expire to the extent that they are unexercised at the
time of such termination of employment.
(c) In the event that the Optionee ceases to be an employee of the
Company for any reason other than death, total disability or
termination of employment by the Company for cause, the Optionee may
exercise the Awards, to the extent the Awards are then otherwise
exercisable, during the ninety-day period following the date of such
cessation of employment, but not after the expiration of such
period.
12. In the event of any change in the number of outstanding shares of the
Company's Common Stock or the Common Stock price by reason of any stock dividend
or split, recapitalization, merger, consolidation, spin-off, reorganization,
combination, exchange of shares or other similar corporate change, then in any
such event the number and kind of shares subject to the Awards and the exercise
price per share may be appropriately adjusted consistent with such change in
such manner as the Committee in its sole discretion may deem equitable. Any
adjustments made by the Committee shall be conclusive and binding for all
purposes of the Plan.
In the event of the dissolution or complete liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company which results in
the outstanding shares of the Company's Common Stock subject to this Option
being changed into or exchanged for property (including cash), rights or
securities not issued by the Company, or any combination thereof, or the sale of
all or substantially all of the Company's assets to, or the acquisition of
shares of the Company representing more than seventy-five percent (75%) of the
voting power
- 8 -
<PAGE>
of the stock of the Company then outstanding by, another corporation or
person, the Awards shall terminate, unless provision is made in writing in
connection with such transaction for the assumption of the Awards, or the
substitution for the Awards of an award covering the shares of a successor
employer corporation, or a parent or a subsidiary thereof, with appropriate
adjustments in accordance with the provisions hereinabove as to the number
and kind of shares awarded and their exercise price, in which event the
Awards shall continue in the manner and under the terms so provided.
13. The Awards shall not confer upon the Optionee any right with respect to
the continuance of employment with the Company, nor shall it affect any right
which the Company may have to terminate the employment of the Optionee.
14. The Optionee (or Optionee's transferee) shall not be entitled to the
rights of a stockholder with respect to any shares of the Company's Common Stock
subject to the Option prior to the date of issuance of a certificate or
certificates for such shares (or in the event that the Company is using a book
entry system, the date the Company makes the appropriate book entry). No
adjustment shall be made for dividends or distributions or other rights with
respect to such shares for which the record date is prior to the date the stock
certificate or certificates are issued (or appropriate book entry is made).
15. A copy of the Plan has been delivered to the Optionee prior to the
execution hereof and is on file at the Company's corporate offices in Binghamton
and Ithaca, New York.
16. This Agreement shall be governed by the laws of the State of New York,
other than its conflicts of laws provisions. In the event of an inconsistency
between any term of the Plan and any term of this Agreement, the terms of the
Plan shall govern.
- 9 -
<PAGE>
NEW YORK STATE ELECTRIC & GAS CORPORATION
By:
--------------------------------------
Vice President and Secretary
Dated: May 21, 1997
- 10 -
<PAGE>
ACCEPTED AND AGREED TO:
Optionee acknowledges receipt of a copy of the Plan and represents that Optionee
is familiar with the terms and provisions contained therein. Optionee hereby
accepts the Awards subject to all of the terms and provisions of the Plan.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
and interpretations of the Committee as to any questions arising under the Plan,
the Option and the Stock Appreciation Rights.
--------------------------
- 11 -
<PAGE>
EXHIBIT 22
AMENDMENT NO. 12 TO
NEW YORK STATE ELECTRIC & GAS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
The New York State Electric & Gas Corporation Supplemental Executive
Retirement Plan as amended (the "Plan") is hereby further amended as follows:
1. Paragraph (ii) of the definition of Change in Control set forth
in Section 7 of the Plan is hereby amended to read in its entirety as follows:
(ii)during any period of two consecutive years (not including any period
prior to January 7, 1994), individuals who at the beginning of such period
constitute the Board of Directors and any new director (other than a
director designated by a Person who has entered into an agreement with the
Corporation to effect a transaction described in paragraph (i), (iii) or
(iv) of this Change in Control definition or a director whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitations of proxies or consents by or on behalf
of a Person other than the Board of Directors) whose election by the Board
of Directors or nomination for election by the Corporation's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
2. Except as expressly modified hereby, the terms and provisions of
the Plan remain in full force and effect.
<PAGE>
EXHIBIT 23
NEW YORK STATE ELECTRIC & GAS CORPORATION
SELECTED EMPLOYEE RETENTION PLAN
I. PURPOSES. The Board of Directors (the "Board") of New York State
Electric & Gas Corporation (the "Company") has determined that the possibility
of the occurrence of a Change in Control (as defined below) of the Company
exists, and that such possibility, and the uncertainty and questions which it
may raise among certain key employees, may result in the departure or
distraction of such key employees to the detriment of the Company and its
shareholders. The Board has determined that it is in the best interests of the
Company and its shareholders that appropriate steps be taken to reinforce and
encourage the continued attention and dedication of the Participants (as defined
below), and to retain their services, during this period of uncertainty and
transition. If a Change in Control of the Company occurs, the skills and
knowledge of the Participants will be essential during the transition period
preceding and following such Change in Control, in order for the Company to
continue to provide its services to consumers and to enable the other party to
the Change in Control (the "Other Party") to effect a prompt and successful
integration of the Company's and the Other Party's businesses. Therefore, in
order to accomplish these objectives, this Selected Employee Retention Plan (the
"Plan") has been adopted by the Board, effective July 29, 1997.
<PAGE>
II. ELIGIBILITY. The "Participants" shall be those individual
officers and employees of the Company and its subsidiaries designated by the
Chief Executive Officer of the Company (the "CEO") for participation in the
Plan, who shall be key employees of the Company and shall not be parties to a
Severance Agreement. Each of the Participants shall be eligible to receive a
cash bonus (the "Retention Bonus") equal to a specified percentage of his or her
Base Salary (as defined in Section IV.D. below), payable in one or more
installments as provided below. The CEO shall notify each individual who is
designated as a Participant in writing of his or her designation and the amount
of the Retention Bonus for which he or she is eligible and the schedule of
installment payments thereof, if any. The aggregate amount of Retention Bonuses
that are potentially payable shall not exceed $2 million.
III. DEFINITION OF CHANGE IN CONTROL.
(A) For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred if the conditions set forth in any one of the following
paragraphs (i), (ii), (iii), (iv) or (v) shall have been satisfied:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding
securities; or
-2-
<PAGE>
(ii) during any period of two consecutive years (not including
any period prior to the date of this Agreement), individuals who at
the beginning of such period constitute the Board and any new director
(other than a director designated by a Person who has entered into an
agreement with the Company to effect a transaction described in
paragraph (i), (iii) or (iv) of this Section III.A. or a director
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the
-3-
<PAGE>
surviving entity), in combination with the ownership of any trustee
or other fiduciary holding securities under an employee benefit plan
of the Company, at least 75% of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (b) a
merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no Person acquires
more than 50% of the combined voting power of the Company's then
outstanding securities;
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets; or
(v) the Board adopts a resolution to the effect that, for
purposes of this Plan, a Change in Control has occurred.
(B) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially
-4-
<PAGE>
the same proportions as their ownership of stock of the Company.
IV. CONDITIONS TO PAYMENT OF BONUSES. A. No Retention Bonuses shall
be payable unless a Change in Control occurs before the termination of this Plan
pursuant to Section VI.E. below. In addition, an individual Participant shall
receive a particular scheduled installment of his or her Retention Bonus only if
such Participant is an employee of the Company, or of an affiliate thereof, on
the Retention Date (as defined in Section V. below) for such installment, or if
his or her employment is terminated before the Retention Date (i) by the Company
for any reason other than for Cause (as defined in Section IV.B. below) before a
Change in Control at the request of the Other Party intending to consummate a
Change in Control or (ii) after the occurrence of a Change in Control, by the
Participant for Good Reason (as defined in Section IV.C. below) or by the
Company for any reason other than Cause (as defined in Section IV.B. below).
B. For the purposes of this Plan, a termination of a Participant's
employment for "Cause" means a termination that takes place as a result of (i)
the willful and continued failure by the Participant to substantially perform
the Participant's duties with the Company (other than any such failure resulting
from the Participant's incapacity due to physical or mental illness or any such
actual or anticipated failure after
-5-
<PAGE>
a termination for Good Reason by the Participant) after a written demand for
substantial performance is delivered to the Participant by the Company, which
demand specifically identifies the manner in which the Company believes that
the Participant has not substantially performed the Participant's duties, or
(ii) the willful engaging by the Participant in conduct which is demonstrably
and materially injurious to the Company or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, no act,
or failure to act, on the Participant's part shall be deemed "willful" unless
done, or omitted to be done, by the Participant not in good faith and without
reasonable belief that the Participant's act, or failure to act, was in the
best interest of the Company.
C. For purposes of this Plan, the termination of a Participant's
employment by the Participant shall be considered to be for "Good Reason" if
such termination occurs within 90 days after the occurrence of any one of the
following events after a Change in Control:
(i) the assignment to the Participant of any duties materially
inconsistent with the Participant's position at the Company as in
effect immediately prior to the Change in Control or a substantial
adverse alteration in the nature or status of the Participant's
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) a reduction by the Company in the Participant's annual Base
Salary as in effect immediately prior to the Change in Control;
(iii) a change in the location of the Participant's job or
office, so that he or she will be based at a location more than fifty
(50) miles from the location of his or her job or office as in effect
immediately prior to the Change in Control;
-6-
<PAGE>
(iv) the failure by the Company, without the Participant's
consent, to pay to the Participant any portion of the Participant's
current compensation or to pay to the Participant any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which the Participant participates immediately
prior to the Change in Control which is material to the Participant's
total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue the Participant's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the Participant's participation
relative to other participants, as existed at the time of the Change
in Control; or
(vi) the failure by the Company to continue to provide the
Participant with benefits substantially similar to those enjoyed by
the Participant under any of the Company's pension, life insurance,
medical, health and accident, or disability plans in which the
Participant was participating at the time of the Change in Control,
the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the
Participant of any material fringe benefit enjoyed by the Participant
at the time of the Change in Control, or the failure by the Company to
provide the Participant with the number of paid vacation days to which
the Participant is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control.
The Participant's right to terminate the Participant's employment for
Good Reason shall not be affected by the Participant's incapacity due to
physical or mental illness. The Participant's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or failure
to act constituting Good Reason hereunder.
-7-
<PAGE>
D. "Base Salary" means the aggregate amount a Participant is
entitled to receive as wages or salary on an annualized basis, payable by the
Company and/or any affiliate of the Company, as consideration for the
Participant's services (regardless of whether the Participant elects or has
elected to defer receipt of all or any portion thereof).
V. PAYMENT OF RETENTION BONUSES. Retention Bonuses shall be payable
in one or more installments following the Change in Control, on such date or
dates as shall be determined by the CEO for each Participant (the "Retention
Dates"); provided, however, that if a Participant's employment with the Company
is terminated under the circumstances described in the second sentence of
Section IV.A. hereof, before the applicable Retention Date for any such
installment, all then-unpaid installments of the Retention Bonus shall be paid
immediately or, if later, upon the Change in Control.
VI. MISCELLANEOUS. A. Nothing in the adoption of this Plan shall
confer on any Participant the right to continued employment with the Company or
any of its affiliates, or affect in any way the right of the Company or any of
its affiliates to terminate his or her employment at any time or change his or
her responsibilities or affect in any way the rights of a Participant under any
other plan or agreement with the Company.
B. All amounts payable hereunder shall be subject to applicable
federal, state and local tax withholding.
-8-
<PAGE>
C. The Board may amend this Plan at any time, except as provided in
this Section VI.C. From and after the date written notice is given to a
Participant in accordance with Section II above, the Participant's status as
such may not be revoked, the amount of the Retention Bonus for which the
Participant is eligible may not be decreased, nor may the Plan be amended in any
manner adverse to the Participant, in each case without the express written
consent of the Participant.
D. There will be no funding of any amounts to be paid pursuant to
this Plan; provided, however, that the Company, in its discretion, may establish
a trust to pay such amounts, which trust shall be subject to the claims of the
Company's creditors in the event of the Company's bankruptcy or insolvency; and
provided, further, that the Company shall remain responsible for the payment of
any such amounts which are not so paid by any such trust.
E. This Plan shall terminate by its terms at midnight on December
31, 2000, unless a Change in Control has previously occurred or the Board
extends the Plan.
-9-
<PAGE>
EXHIBIT 26
CONFIDENTIAL MATTER
-------------------
AMENDMENT NO. 2 TO
POWER PURCHASE AGREEMENT
BETWEEN
NEW YORK STATE ELECTRIC & GAS CORPORATION
AND
SARANAC POWER PARTNERS, L.P.
----------------------------
THIS AMENDMENT made this 24th day of February 1994, by and between New
York State Electric & Gas Corporation, a New York corporation having an office
for the transaction of business in Binghamton, N.Y. ("Buyer"), and Saranac Power
Partners, L.P., a Delaware limited partnership having an office for the
transaction of business in Houston, Texas ("Seller"), amends that power purchase
agreement between Buyer and Seller dated April 27, 1990 and amended August 29,
1991 (the "Agreement").
WITNESSETH:
WHEREAS, Buyer submitted to Seller a proposal for the amendment of the
Agreement to provide for, among other things, Buyer's ability to schedule the
operation of Seller's cogeneration facility to be located in Plattsburgh, New
York (the "Plant"); and
WHEREAS, it is the objective of Buyer to obtain, among other ratepayer
benefits, increased operating flexibility associated with the ability to
schedule the Plant; and
<PAGE>
WHEREAS, Buyer and Seller, pursuant to a letter of intent dated March
1, 1993, as amended, have met to negotiate the terms of such an amendment to the
Agreement; and
WHEREAS, as a result of those successful negotiations, Buyer and
Seller desire to amend hereby the Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration given by one party to the other, the sufficiency of which
each party acknowledges, Buyer and Seller agree as follows:
1. A new article, designated as Article XXI, is added to the
Agreement and shall read as follows:
ARTICLE XXI - SCHEDULING OF PLANT
(1) SCHEDULING. Beginning with the latter of (a) the effective date
of Amendment No. 2 to this Agreement or (b) the Commercial Operation
Date, through the remaining term of this Agreement, and
notwithstanding anything in this Agreement to the contrary, Buyer
shall have the right to schedule the operation of the Plant in
accordance with the scheduling instructions and operating procedures
contained in Exhibit I to this Agreement; provided, however, that in
no event shall Seller be required to operate the Plant in a manner
inconsistent with (i) maintaining the Plant's status as a qualifying
facility, as required by Section 1.1(b) of Article I hereof, and (ii)
operating the Plant in conformity with all laws and governmental
rules, regulations and permits applicable to the Plant and Seller
during the term of this Agreement; provided further, however, that if
Seller's operation of the Plant consistent with constraints (i) and
(ii) above, or Sel-ler's failure to comply with the scheduling
directions given by Buyer pursuant to this Article XXI, results in
Seller failing to reduce the electric generation of the Plant in any
Gas Supply Year for less than the number of megawatt hours scheduled
by Buyer for that Gas Supply Year in accordance with the terms hereof
(the "Requested Scheduling"), then Seller shall credit Buyer with the
difference between the Requested Scheduling and the number of megawatt
hours of electric generation reduction provided by Seller for that Gas
Supply Year, which credit shall be applied toward the following
-2-
<PAGE>
Gas Supply Year, and Buyer shall be permitted to schedule the
generation of the Plant in the following Gas Supply Year for 200,000
megawatt hours plus the number of megawatt hours credited from the
prior Gas Supply Year. In the event that the number of megawatt
hours available for scheduling by Buyer in any Gas Supply Year
exceeds 240,000 megawatt hours, Buyer shall provide written notice
of said exceedance on or before that date which is sixty (60) days
after the commencement of a Gas Supply Year. Upon Seller's receipt
of said written notice, Seller and Buyer shall engage in good faith
negotiations for a period of sixty (60) days in order to finalize an
amendment to this Agreement restoring to Buyer scheduling and other
rights commensurate with those embodied in Amendment No. 2 to this
Agreement. If Seller and Buyer fail to so finalize such an
amendment within such sixty (60) day period, then Buyer shall have
the option, in addition to other remedies and rights under this
Agreement, to rescind Amendment No. 2 to this Agreement and, upon
such rescission, Buyer's right to curtail the electric generation of
the Plant shall be reinstated to the extent said right was waived
under Amendment No. 2 to this Agreement; provided, however, that
such option shall only apply if Buyer notifies Seller within sixty
(60) days of the expiration of the sixty (60) day period for
finalizing an amendment of its intent to rescind Amendment No. 2;
provided, further, that any notice to rescind Amendment No. 2
pursuant to this Article XXI shall be in writing and any such notice
shall state that the rescission of Amendment No. 2 shall be
effective as of the last day of the first month that ends at least
ten (10) business days after Seller receives such written notice.
(2) WAIVER OF CURTAILMENT RIGHTS. Buyer shall not curtail Seller
during the term of this Agreement pursuant to Article X hereof, or
otherwise, due to the existence of conditions satisfying the
requirements of section 292.304(f) of the PURPA regulations or
pursuant to any order issued by the Commission in Cases 92-E-0814 and
88-E-081 that (i) interprets said section 292.304(f) and (ii) permits
(utility-specific) curtailment. Neither Buyer nor Seller shall
commence or join any judicial or regulatory proceeding seeking to
overturn Amendment No. 2 to this Agreement.
2. A new exhibit is added to the Agreement, and is attached hereto
as Appendix A. This exhibit shall be entitled "Exhibit I - Operating
Procedures," and shall be incorporated into and made a part of the Agreement.
-3-
<PAGE>
3. The first full paragraph of Article III of the Agreement is
deleted in its entirety and is replaced with the following text:
Seller agrees to deliver and make available to Buyer, and Buyer agrees
to purchase from Seller, except as otherwise provided in this
Agreement, all of the electric energy and capacity produced or made
available by the Plant at the delivery point during the term of this
Agreement, including any extension or renewal thereof, at the
following rates:
(a) the purchase price for "Actual Generation" (as defined in Exhibit
J) shall be the applicable rate set forth in Exhibit B to this
Agreement.
(b) the purchase price for "Available Generation" (as defined in
Exhibit J) shall be the applicable rate set forth in Exhibit J to
this Agreement.
(c) to the extent that Seller delivers to the delivery point an
amount of energy associated with more than 240 MW of capacity, as
averaged over a five (5) minute period ("Excess Energy"), then
Buyer shall pay for said Excess Energy at a rate equal to the
lower of (i) ninety-five percent (95%) of Seller's Variable Cost
at the time said energy was delivered, or (ii) eighty percent
(80%) of Buyer's avoided energy cost as designated in Buyer's
Service Classification No. 10 tariff, as the same may be amended
or superseded ("SC-10"), which avoided energy cost shall not
include the minimum rate referenced in Section 66-c of the New
York Public Service Law. Buyer's avoided energy cost shall be
calculated at a Transmission level (115 kV) and shall be
time-differentiated (namely, separated into on-peak and off-peak
rates). Seller shall not receive, and Seller hereby waives, any
capacity payment for said Excess Energy and any energy payment
for said Excess Energy greater than that rate provided under this
subparagraph (c); provided, however, that if Buyer requests that
Seller deliver Excess Energy to the delivery point, then
Buyer shall pay a rate for such Excess Energy equal to the
greater of (i) one hundred and five percent (105%) of Seller's
Variable Cost at the time said energy is delivered, and (ii)
eighty percent (80%) of Buyer's avoided energy cost as designated
in SC-10.
-4-
<PAGE>
4. The first paragraph of Article IV of the Agreement is revised to
read as follows:
Buyer shall pay Seller via wire transfer, or such other agreed upon
payment method, for the electric energy and capacity delivered or made
available during the preceding calendar month, applying the price
terms set forth in Article III. Buyer shall make said payment to
Seller's account at such bank as Seller may from time to time
designate in writing on or before the twenty-fifth (25th) day of each
month. Buyer shall make said payment provided that Seller shall
notify Buyer in writing, at least thirty (30) days in advance of a
required payment hereunder, of any change in the account to which such
payment is to be directed, and that, during any period that the
Lenders (as defined in Exhibit B) hold a security interest in the
Plant, such notice shall not be effective unless accompanied by a
written authorization signed by a representative of the Lenders.
Along with this payment, Buyer shall enclose a statement explaining
how the payment amount was calculated.
5. The text of the Article V entitled "Price for Electricity Sold to
Buyer" is deleted in its entirety and replaced by "Reserved."
6. The third paragraph of Article XI of the Agreement is deleted in
its entirety.
7. A new exhibit is added to the Agreement, and is attached hereto
as Appendix B. This exhibit shall be entitled "Exhibit J - Payment for
Available Generation," and shall be incorporated into and made a part of the
Agreement.
8. A new exhibit is added to the Agreement, and is attached hereto
as Appendix C. This exhibit shall be entitled "Exhibit K - Payment for Start-Up
Costs," and shall be incorporated into and made a part of the Agreement.
-5-
<PAGE>
9. A new article, designated Article XXII, is added to the Agreement
and shall read as follows:
ARTICLE XXII - REACTIVE POWER SUPPORT
Seller shall provide to Buyer, upon Buyer's request, up to 40,000 MVAR
- hours of reactive power support during each Gas Supply Year during
the term of this Agreement. Buyer understands that, while the Plant's
VAR capability varies with ambient temperature, in no event shall
Seller be able to provide reactive power support from each of Seller's
three (3) generators in excess of a power factor of 0.85 in the lag
(namely, providing reactive power support to Buyer's system) and unity
in the lead; provided, however, that in no case shall Seller be
required to provide to Buyer MVAR in excess of the maximum level the
Plant can generate without reducing the Plant's ability to generate
240 MW net output as measured at the delivery point, as said maximum
level is designated in the D-curve provided by Seller hereunder. As
part of the monthly statement provided by Buyer to Seller pursuant to
Article IV of this Agreement, Buyer shall provide a written report of
the amount of reactive power support provided by Seller during the
prior month. Seller shall provide to Buyer, no later than thirty (30)
days prior to the Date of Commercial Operation, the D-curve for each
of the Plant's generators, which D-curves shall be updated by Seller
and provided to Buyer on or before each January 1 during the term of
this Agreement. Seller shall provide said reactive power support (a)
upon Buyer's telephonic request to the Plant control room, followed by
a confirming facsimile notice, the form of which facsimile notice
shall be finalized by Seller and Buyer within ten (10) days following
the execution by Seller and Buyer of Amendment No. 2 to this
Agreement, and (b) without compensation from Buyer. Buyer's requests
for reactive power support shall specify the magnitude of the VAR
support to be provided by Seller. Unless Seller determines that, for
Plant security reasons, the Plant must operate at some other power
factor, Seller shall operate the Plant at the power factor capability
requested by Buyer until otherwise notified by Buyer.
-6-
<PAGE>
10. A new article, designated Article XXIII, is added to the
Agreement and shall read as follows:
ARTICLE XXIII - COORDINATION OF MAINTENANCE
Notwithstanding any other provision of this Agreement to the contrary,
Seller shall provide to Buyer, on or before September 1st of each year
during the term of this Agreement, a five-year schedule of maintenance
outages for the Plant, which schedule shall provide (a) the duration
of each outage and (b) the extent to which said maintenance outage(s)
for the first year of said schedule may be rescheduled by Buyer,
either earlier or later. Should the extent to which said maintenance
outage can be rescheduled, either earlier or later, be equal to or
less than one and one-half (1/1/2) months, Seller shall provide all
documentation and information reasonably requested by Buyer supporting
Seller's inability to reschedule the maintenance outage more than one
and one-half (1/1/2) months. Seller shall schedule and coordinate
these planned outages with Buyer and shall use reasonable efforts to
conduct all deferable maintenance during Buyer's off-peak periods,
which shall be defined as (a) those periods other than 7:00 am to
10:00 pm, Monday through Friday, and (b) the following holidays: New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day.
Subject to the limitations in rescheduling as specified by Seller in
accordance with the above paragraph, Buyer shall have the right to
modify the first-year of the five-year schedule of maintenance outages
submitted by Seller, without compensation to Seller, by providing
written notice to Seller no later than sixty (60) days prior to the
earlier of (a) the date the outage is being rescheduled by Buyer to
commence, and (b) the date the outage was scheduled by Seller to
commence. If Buyer provides less than sixty (60) days' written notice
to Seller of its intent to modify Seller's maintenance schedule, Buyer
shall compensate Seller for any incremental charges reasonably
incurred by Seller under its fuel supply agreements and for Seller's
other reasonably incurred incremental costs; provided, however, that
Seller shall provide to Buyer, by facsimile transmission, a statement
detailing these incremental charges within two (2) business days of
Seller's receipt of Buyer's written notice. Seller's failure to
provide this statement timely shall be deemed as an acceptance by
Seller of Buyer's direction to modify the maintenance schedule without
-7-
<PAGE>
compensation from Buyer. Buyer shall have the right to rescind the
notice to Seller within two (2) business days of Buyer's receipt of
Seller's statement of incremental charges. In no event shall Seller
be required to take any action to implement a revision to the
maintenance schedule until Buyer's right to rescind has expired.
Seller may modify its schedule of planned outages at any time subject
to Buyer's consent, which consent shall not be unreasonably withheld.
Seller shall provide to Buyer in writing the expected duration of a
forced outage within forty-eight (48) hours after the start of the
outage.
11. A new article, designated as Article XXIV, is added to the
Agreement and shall read as follows:
ARTICLE XXIV - RIGHT OF FIRST REFUSAL
Buyer shall have a right of first refusal with respect to the sale by
Seller of any additional capacity, and associated energy, produced by
the Plant above 240 MW (the "Additional Capacity"). Seller shall
notify Buyer in writing of its receipt of any acceptable, bona fide
offer from a third party for the purchase of all or part of the
Additional Capacity. Within thirty (30) days from the date of its
receipt of said notice from Seller, Buyer may provide written notice
to Seller that it will purchase the Additional Capacity pursuant to
the terms of said third party offer. If Buyer provides said notice to
Seller, Buyer and Seller shall immediately commence negotiations for a
power purchase agreement to memorialize the terms of said third party
offer. If Buyer does not provide said notice to Seller, Seller may
accept said third party offer and Buyer shall be deemed to have
provided any written approval of such sale of power to a third party
that might otherwise be required under Articles XII and XIII of this
Agreement. Seller shall not sell any Additional Capacity to a third
party unless Buyer has failed to exercise its right of first refusal
hereunder.
-8-
<PAGE>
12. A new article, designated Article XXV, is added to the Agreement
and shall read as follows:
ARTICLE XXV - FUEL REMARKETING OBLIGATIONS
Seller hereby acknowledges and agrees that, to the extent that
Seller's fuel supplies exceed that amount of fuel that is needed (a)
to operate the Plant consistent with maintaining its status as a
qualifying facility, as required by Section 1.1(b) of Article 1
hereof, (b) to operate the Plant in compliance with its various
governmental permits and authorizations (as in effect from time to
time) and good utility and engineering practices, and (c) to operate
the Plant so as to comply with Seller's obligations to supply steam to
Seller's steam host, either party may undertake the exploration of
various means for utilizing such excess fuel supplies for purposes
other than consumption at the Plant for the mutual benefit of Seller
and Buyer. Buyer hereby acknowledges and agrees that any means of
utilizing Seller's fuel supplies that would require Seller to become a
gas corporation under the New York State Public Service Law or would
subject Seller to regulation by the New York State Public Service
Commission or other federal or state governmental agency, or result in
a reduction of net revenue to Seller, would not be to the mutual
benefit of the Seller and Buyer and will not be undertaken under this
Article XXV. Both parties agree to cooperate in good faith in
exploring such mutually beneficial endeavors, which cooperation shall
include (a) subject to any confidentiality restrictions or provisions,
Seller providing to Buyer all information and documents pertaining to
Seller's existing fuel supply and transportation arrangements
reasonably required by Buyer and (b) the negotiation and execution of
all necessary documents and agreements as reasonably requested by
either party in connection with the exploration of such alternatives.
Seller and Buyer agree that the expenses either party incurs to
consummate the ultimate transaction(s) contemplated hereunder, along
with the benefits of the transaction(s) hereunder, shall be subject to
negotiation by the parties as to their allocation. The parties hereto
acknowledge and agree that the consummation of any transaction that
may be contemplated by this Article XXV, and the obligation of the
parties with regard thereto, is subject to and specifically
conditioned upon (aa) the negotiation and execution of acceptable
agreements in form and content acceptable to each party, in their
respective reasonable discretion, (bb) the receipt of any required
-9-
<PAGE>
governmental approval(s), and (cc) the receipt of necessary
consents, in form and content acceptable to Seller and its counsel,
of Seller's constituent partners, Seller's Lenders, Seller's fuel
suppliers (currently Shell Canada Limited) and, if required, the
consent of Seller's gas transporter and steam host. Nothing in this
Article XXV shall be construed so as to require Seller to violate
the confidentiality provisions of its fuel supply and transportation
arrangements with third parties.
13. A new article, designated XXVI, is added to the Agreement and
shall read as follows:
ARTICLE XXVI - NO PARTNERSHIP OR AGENCY RELATIONSHIP
This Agreement shall not be interpreted or construed to create an
association, joint venture or partnership between the parties hereto
or to impose any partnership obligations or liability upon either
party. Further, neither party (nor such party's employees,
representatives, agents and subcontractors) shall have any right,
power or authority to enter into any agreement or undertaking for or
on behalf of, to act as or be an agent or representative of, or to
otherwise bind the other party. It is covenanted and agreed that
neither party shall act or make any representation to any person or
persons whomsoever to the effect that such party, its agents,
representatives, or subcontractors is the agent or agents of the other
party.
14. The second to last sentence of the second paragraph of Exhibit B
- - Performance Guarantee, which appears on page B-25 of the Agreement, shall be
revised to read as follows:
The capacity factor calculation will exclude curtailments made in
accordance with Article X by subtracting the curtailed MWHRS from
the maximum possible MWHRS, and will be performed using Potential
Generation (as defined in Exhibit J) as the numerator in the
appropriate formula(s). To the extent that the unavailability of
the Plant would, absent this provision, result in (a) the Plant
failing a capacity factor test under this Exhibit B - Performance
Guarantee, with the attendant reduction in the rate paid by Buyer
for electricity and (b) the Seller not receiving payment for
Available Generation, then Buyer may be compensated for such
-10-
<PAGE>
unavailability in an amount equal to the greater of either (a) the
payments withheld to Seller pursuant to Article XXI due to said
unavailable generation for such unavailability or (b) the reduction
in the rate payable by Buyer for electricity pursuant to Exhibit B -
Performance Guarantee, but not both. Upon performing the capacity
factor tests pursuant to Exhibit B - Performance Guarantee of the
Agreement, Buyer shall compare any resulting reduction in rates that
Buyer is permitted to initiate as a result of Seller's failure, if
any, to satisfy said capacity factor test against the amount of
payments withheld from Seller during the period over which the
capacity factor test was performed. If the capacity factor test
rate reduction is greater than the amount of withheld payments, then
Buyer may initiate a reduction in the rates payable to Seller for
electricity for that period of time necessary to recover the
positive difference between the reduction allowed under Exhibit B
and the withheld payments for unavailable generation. If the
capacity factor test reduction is less than the amount of withheld
payments, then Buyer shall not be permitted to initiate any
reduction in rates payable to Seller for electricity.
15. The third through seventh paragraphs of Exhibit B - Pricing
Description are revised to read as provided in Appendix D hereto.
16. The third paragraph of Exhibit B - security language - 8.
SECURITY FOR FRONT LOAD is revised by inserting the parenthetical "(assuming the
Plant's power was sold under a must-run contract)" after "such payments", where
it appears in the second sentence.
17. This Amendment, and each of the new articles and exhibits added
to the Agreement, shall become effective when executed by Buyer and Seller,
subject to a condition subsequent of Seller's constituent limited partners
("Limited Partners") and Lenders' consents. In the event that the Limited
Partners' and Lenders' consents are not obtained within ninety (90) days
after the effective date of this Amendment, or the Limited Partners or
Lenders insist on any material modification to
-11-
<PAGE>
this Amendment as a condition to its consent, Buyer may terminate this
Amendment upon written notice to Seller without any liability by Buyer to
Seller. Seller shall submit this Amendment to the Limited Partners and
Lenders promptly after the Amendment is fully executed and Seller shall use
its reasonable efforts (a) to obtain the Limited Partners' and Lenders'
consents and (b) to keep Buyer apprised of Seller's discussions with such
entities regarding requests for such consents.
The Limited Partners and Lenders may consent to all or part of this
Agreement, and this Amendment shall survive to the extent to which the Limited
Partners' and Lenders grant their consents, provided, however, that the Limited
Partners and Lenders must consent, to (a) the entirety of proposed Article XXI
of the Agreement, and related provisions, as proposed in paragraphs 1, 2, 4, 5,
6, 7, 8 and 9 of this Amendment, and (b) identical terms.
18. Notwithstanding Article XIX of the Agreement, Buyer and Seller
hereby agree that the effectiveness of this Amendment is not contingent upon, or
otherwise subject to, the approval of the New York State Public Service
Commission.
19. Except as otherwise modified by this Amendment, the terms of the
Agreement remain unchanged and in full force and effect.
20. Seller and Buyer agree that this Agreement constitutes
Confidential Matter as defined in the Confidentiality Agreement between Seller
and Buyer, and Seller agrees to support any request for trade secret protection
for this Amendment made by Buyer to the New York Public Service Commission.
-12-
<PAGE>
IN WITNESS WHEREOF, Buyer and Seller have caused this Amendment to be
executed as of the day and year first above written.
NEW YORK STATE ELECTRIC & GAS
CORPORATION
/s/ JACK H. ROSKOZ
---------------------------------
Jack H. Roskoz
Senior Vice President -
Electric Business Unit
SARANAC POWER PARTNERS, L.P.
By: Saranac Energy Company, Inc.
------------------------------
Its General Partner
By: /s/ MARTIN H. YOUNG
------------------------------
Name: Martin H. Young
Title: Senior Vice President
and Chief Financial
Officer
-13-
<PAGE>
State of New York )
) ss.:
County of Broome )
On this 8th day of March 1994, before me personally came Jack H.
Roskoz, to me personally known, who, being by me duly sworn, did depose and say
that he resides at 32 Cresmont Road, Binghamton, N.Y., that he is the Senior
Vice President - Electric Business Unit of New York State Electric & Gas
Corporation, the corporation described in and which executed the foregoing
document; and that he acknowledged to me that he executed the foregoing document
by authority of the Board of Directors or By-Laws of New York State Electric &
Gas Corporation.
/s/ JOANNE M. WHALEN
---------------------------
Notary Public
State of Texas )
) ss.:
County of Harris )
On this 24th day of February 1994, before me personally came Martin H.
Young to me personally known, who, being by me duly sworn, did depose and say
that he resides at 3 Red Sable Point; The Woodlands, Texas; that he is the
Senior Vice President & CFO of Saranac Energy Company, Inc., the corporation
described in and which executed the foregoing document as a general partner of
Saranac Power Partners, L.P.; and that he acknowledged to me that he executed
the foregoing document by authority of the Board of Directors or By-Laws of
Saranac Energy Company, Inc.
/s ANNA GARCIA
--------------------------
Notary Public
-14-
<PAGE>
APPENDIX A
----------
<PAGE>
EXHIBIT I - OPERATING PROCEDURES
A. INFORMATION TO BE SUPPLIED BY SELLER TO BUYER
a. At least thirty (30) days prior to the Commercial Operation Date, and
on or before each January 15 thereafter during the term of this Agreement,
Seller shall provide to Buyer in writing an estimate of the Variable Cost for
that calendar year. Following the Commercial Operation Date, on or before the
fifteenth (15th) day of each month during the term of this Agreement, Seller
shall provide to Buyer in writing an updated estimate of the Variable Cost for
the upcoming month. Seller shall furnish to Buyer, with the estimates provided
to Buyer hereunder, those documents and data used by Seller to calculate the
estimate of the yearly or monthly Variable Cost.
b. Within ninety (90) days after the effective date of this Amendment,
Seller shall provide to Buyer a heat rate curve designating the Plant's heat
rate for the following load levels based on the average monthly ambient
temperatures expected at the Plant site: operation at 100% of the maximum net
output that can safely and reliably be achieved under expected operating
conditions (but in no event greater than 240 MW), 75% of such level, 100% of the
maximum net output that can safely and reliably be achieved under expected
operating conditions with one of the Plant's gas-fired turbines shut down, and
75% of such level (such outputs correspond to the
I-1
<PAGE>
following nominal outputs: 240, 187, 115 and 90 MW based on the average
ambient temperatures expected at the Plant site). The set of heat rate
curves shall identify a heat rate curve applicable to each month of the
calendar year taking into account the expected average ambient temperature
for each month. On or before each January 15 after the Commercial Operation
Date and before the expiration of the term of this Agreement, Seller shall
provide updated versions of said heat rate curves based on testing of the
Plant's heat rate during the prior calendar year and, as appropriate, revised
estimates of expected average monthly ambient temperatures. The Plant's heat
rate shall be tested during normal Plant operating conditions. Buyer shall be
afforded the opportunity to have a representative present at any heat rate
test of the Plant. Seller shall provide to Buyer a two (2) week written
notice of any heat rate test of the Plant. Buyer shall have the right to
review the data used by Seller to create the heat rate curves provided to
Buyer hereunder.
B. BUYER'S SCHEDULING INSTRUCTIONS
a. Commencing on the date that Seller receives the consent of its Lenders
and Limited Partners to this Amendment, by no later than the Scheduling Deadline
(as defined herein) for each Gas Day (as defined herein), Buyer shall notify
Seller of the expected schedule for the Plant for such Gas Day (the
"Schedule"). For the purposes of this Agreement: (1) a Gas Day shall be the
twenty-four (24) hour period beginning at the time specified for the
commencement of a "day" by the tariff issued
I-2
<PAGE>
by Seller's gas transporter (for gas delivered to the United States' border
with Canada at a point near Napierville, Quebec, Canada and applicable to
Seller's gas supply) and ending at the same time on the following day; (2)
the Scheduling Deadline for any particular Gas Day shall be 11:00 A.M.
Eastern Time of the business day prior to the Gas Nomination Deadline for
such Gas Day, adjusted forward or back in concert with any changes in the Gas
Nomination Deadline; provided, however, that adjustments related to a change
in the Gas Nomination Deadline shall not increase the time span between the
Gas Nomination Deadline and the start of the associated Gas Day by more than
six (6) hours; and (3) the Gas Nomination Deadline for any particular Gas Day
shall be the deadline for notifying Seller's gas transporter of the amount of
gas to be transported during such Gas Day, as such deadline is established in
the tariff issued by Seller's gas transporter for gas delivered to the United
States border with Canada at a point near Napierville, Quebec, Canada and
applicable to Seller's gas supply. Currently, Seller's gas transporter is
TransCanada PipeLines Limited; a Gas Day commences each day at 8 A.M. Eastern
Standard Time and ends at 8 A.M. the following day; and the Gas Nomination
Deadline is 11 A.M. Mountain Time of the day prior to the day on which a Gas
Day commences. Seller agrees to promptly notify Buyer in the event that
Seller's gas transporter amends its tariff in a manner that affects the
Scheduling Deadline or the period covered by a Gas Day.
I-3
<PAGE>
b. The Schedule shall be transmitted by Buyer to Seller by facsimile,
and receipt of which shall be confirmed by telephonic message from Seller to
Buyer. The Schedule shall be transmitted to Seller on a form to be finalized
by Seller and Buyer within ten (10) days following the execution of Amendment
No. 2 to the Agreement by Seller and Buyer. The Schedule shall include the
operating levels for the applicable period (Gas Day), which shall be either
100% of the maximum net output that can safely and reliably be achieved under
actual operating conditions (but in no event greater than 240 MW), 75% of
such level, 100% of the maximum net output that can safely and reliably be
achieved under actual operating conditions with one of the Plant's gas-fired
turbines shut down, and 75% of such level (such output levels correspond to
the following nominal outputs: 240, 187, 115 and 90 MW, based on the average
ambient temperatures expected at the Plant site). The Schedule shall be
consistent with the provisions of this Exhibit I. Should Buyer fail to
provide a Schedule to Seller, Seller shall operate the Plant at its
discretion (not to exceed 240 MW) until such period (Gas Day) as Seller
receives a timely Schedule from Buyer. On the twentieth (20th) day of each
month during the term of this Agreement, Buyer shall provide to Seller in
writing a preliminary schedule for operation of the Plant for the upcoming
month. Buyer shall have the right to modify this preliminary monthly
schedule pursuant to this section b.
c. Buyer shall have the right to request a modification of the previously
scheduled operating level of the Plant for any particular period (Gas Day), or
remaining
I-4
<PAGE>
part thereof, by providing telephonic notice to Seller no later than five and
one-quarter (5 1/4) hours prior to the commencement of the hour for which the
change in the Schedule is being requested by Buyer, provided that said
scheduling directive is consistent with the provisions of this Exhibit I.
Buyer may make its request in the form of a direction to Seller to implement
the modification to the schedule for said Gas Day provided that the
incremental costs to be incurred by Seller are equal to or less than an
amount specified by Buyer.
d. In the event Buyer requests a modification to a scheduled operating
level of the Plant pursuant to subparagraph c above, Seller shall promptly
use reasonable efforts to obtain the approval of its non-affiliated gas
suppliers and transporters (currently, Shell Canada Limited and TransCanada
PipeLines Limited, respectively) and determine its costs of complying with
such a request. If Seller succeeds in obtaining the consent of its
non-affiliated gas suppliers and transporters and Seller reasonably
determines that its cost of complying with such request would not exceed the
upper bound on costs, if any, previously specified by Buyer, then Seller
shall modify the Plant's operation to match Buyer's request and promptly
notify Buyer of the same. Buyer shall reimburse Seller for all incremental
costs reasonably incurred by Seller as a result of such change, but in no
event shall those costs exceed the ceiling on incremental costs, if any,
specified by Buyer and furnished to Seller in writing in advance of such
modification as provided for by subparagraph c above. If Seller is unable to
obtain the consent of its non-affiliated gas suppliers and transporters or
I-5
<PAGE>
Seller reasonably determines that its cost of complying with such request
would exceed the upper bounds on costs, if any, previously specified by
Buyer, then (i) Seller shall promptly so notify Buyer, (ii) Seller shall not
be required to modify its operation to match Buyer's request, and (iii) any
megawatt-hours included in any such request shall not be used in determining
Requested Scheduling and the number of megawatthours Buyer requested for the
purposes of Article XXI(1), except to the extent that such MWHs were
scheduled by Buyer prior to such request.
e. Upon one (1) hours' telephonic notice to Seller, Buyer may request a
modification in the scheduled operating level of the Plant from 240 MW to 187
MW, or from 187 MW to 240 MW, for a particular hour in a Gas Day provided said
scheduling change(s) do not result in a modification of the volume of gas
nominated for Seller for said Gas Day, and Seller shall comply with that request
without requiring reimbursement from Buyer for incremental costs, and provided
further that said rescheduling does not eliminate the required eight (8)
consecutive hour operating period of the Plant at 240 MW.
f. Buyer's scheduling directions to Seller shall be subject to the
following parameters:
i. Buyer may schedule the Plant to operate at any of the following
levels: 100% of the maximum net output that can safely and reliably be
achieved under actual operating conditions (but in no event greater than 240
MW), 75% of such level, 100% of the maximum net output that can safely and
reliably be achieved
I-6
<PAGE>
under actual operating conditions with one of the Plant's gas-fired turbines
shut down, and 75% of such level (such output levels correspond to the
following nominal outputs: 240 MW, 187 MW, 115 MW, and 90 MW based on average
ambient temperatures expected at the Plant site); provided, however, that
during any Gas Day, Buyer may schedule the Plant to operate at either 240 or
187 MW for each hour of that Gas Day provided the Plant operates at 240 MW
during said Gas Day for a period of at least eight (8) consecutive hours;
ii. the start-up time for a gas turbine shall be TWO (2) hours if a
cold start (which is defined as after a shutdown of FOUR (4) hours or more) is
scheduled, and ONE (1) hour if a hot start (which is defined as after a shutdown
of less than FOUR (4) hours) is scheduled;
iii. in the event that (1) Seller's gas transporter's tariff(s)
covering the transportation of Seller's fuel is amended, revised or otherwise
changed, and (2) Seller notifies Buyer in writing of such amendment, revision
or change, Buyer thereafter shall not schedule the Plant in a manner that
would cause Seller to violate or breach any nomination requirement(s)
contained in the tariff of Seller's transporter, as in effect from time to
time; provided, however, that if said amendment, revision or change to the
tariff of Seller's fuel transporter has a material and adverse impact on
Buyer's ability to schedule the operation of the Plant, Buyer and Seller
shall commence good faith negotiations, upon Seller's receipt of written
notice from Buyer requesting same, and continue same for a period of sixty
(60) days for an amendment to this
I-7
<PAGE>
Agreement restoring to Buyer scheduling and other rights commensurate with those
embodied in Amendment No. 2 to this Agreement. If Seller and Buyer fail to so
finalize such an amendment within said sixty (60) day period, then Buyer shall
have the option to, in addition to other remedies and rights under this
Agreement, to rescind Amendment No. 2 to this Agreement, and upon such
rescission Buyer's right to curtail the electric generation of the Plant shall
be reinstated to the extent said right was waived under Amendment No. 2 to this
Agreement; provided, however, that such option shall only apply if Buyer
notifies Seller within sixty (60) days of the expiration of the sixty (60) day
period for finalizing an amendment of its intent to rescind Amendment No. 2;
provided, further, that any notice to rescind Amendment No. 2 pursuant to this
Exhibit I shall be in writing and any such notice shall state that the
rescission of Amendment No. 2 shall be effective as of the last day of the first
month that ends at least ten (10) business days after Seller receives such
written notice;
iv. the minimum scheduled downtime for a gas turbine shall be eight
(8) hours, and the minimum run time between gas turbine start and stop shall
be eight (8) hours;
v. Seller shall endeavor to transition between operating states as
quickly as is reasonably feasible, based on equipment specifications,
operating conditions, project contracts and other relevant limiting factors.
The expected average minimum ramp rate shall be 1,000 KW per minute (up or
down) except that for transitions between generating states that do not
require a gas turbine start, the
I-8
<PAGE>
expected ramp rate will be up to 5,000 KW per minute (up or down), as
requested by Buyer;
vi. provided that Seller's auxiliary boiler has not been unavailable
for more than ten (10) days in the Gas Supply Year in which Buyer schedules the
Plant hereunder, which unavailability shall be verified by Buyer through its
inspection of Seller's documents relating to the outages of its auxiliary
boiler, Buyer shall not schedule the Plant so as to require Seller to take a
turbine off-line during periods in which Seller's auxiliary boiler is
temporarily unavailable for operation, whether due to maintenance or otherwise
for reasons beyond Seller's reasonable control;
vii. the maximum number of gas turbine starts during any calendar
year shall be 50; provided, however, that a start of a gas turbine following a
forced outage or scheduled outage shall not constitute a start for purposes of
this section vii; and
viii. except as provided in Article XXI(1) of this Agreement, the
maximum reduction in the Plant's electric output that can be scheduled by
Buyer during any gas supply year ("Gas Supply Year") is 200,000 megawatt
hours. For the purposes of this Agreement, a Gas Supply Year shall mean (1)
in the case of the first Gas Supply Year, the period commencing at 12:00:01
a.m. on the Commercial Operation Date and concluding with the last day of the
calendar month that encompasses a period of at least twelve (12) full,
consecutive calendar months but less than thirteen (13) full, consecutive
calendar months, and (2) thereafter, the period
I-9
<PAGE>
commencing at 12:00:01 a.m. on the first day immediately following the last
day of the prior Gas Supply Year and continuing for twelve (12) full,
consecutive calendar months.
The amount of reduction in electric output scheduled by Buyer shall
be calculated by determining the difference, in each hour that the Plant is
available for scheduling, between 240 megawatts (or such lower maximum
operating state that the Plant could have achieved during said hour if the
Plant had not been scheduled by Buyer) and the output scheduled by Buyer for
that hour; provided that Plant's scheduled output shall never be deemed to
exceed 240 megawatts and that, in any hour that the Plant was available for
scheduling but was not scheduled by Buyer, the scheduled output shall be
deemed to have been 240 megawatt hours. The sum of all such calculations for
each hour since the start of the current Gas Supply Year shall represent the
total amount of reduction to which the 200,000 megawatt hour (or such higher
number as provided in Article XXI(I) upper limit applies.
g. (i) If Buyer schedules the Plant at a level below 240 MW (the
"Initial Level"), and then schedules the Plant to achieve a higher generating
level (the "Requested Level") and the Plant (aa) cannot comply with this
subsequent direction, the Plant will be deemed to have been unavailable at an
operating level above the Initial Level for the time period from the hour the
Plant was scheduled to commence operating at the Requested Level to the hour
the Requested Level is achieved and no compensation shall be paid by Buyer
for Available Generation above the Initial Level of operation
I-10
<PAGE>
during that deemed period of unavailability, or (bb) is able to return only
to an operating level less than the Requested Level but more than the Initial
Level (the "Interim Level"), the Plant will be deemed to have been
unavailable at an operating level above the Interim Level for the time period
from the hour the Plant was scheduled to commence operating at the Requested
Level to the hour the Requested Level is achieved and no compensation shall
be paid by Buyer for Available Generation above the Interim Level during that
deemed period of unavailability.
(ii) If Seller is unable to comply with Buyer's scheduling directions
involving a Requested Level of 240 MW and an Initial Level of 187 MW, as such
inability is described in subparagraphs (aa) and (bb) of paragraph (i), more
than twenty percent (20%) of the time such directions have been given in the
twelve (12) month period preceding a failure to follow such a direction, then
the period of unavailability for such failure shall be deemed to have
commenced at the hour that the Plant was scheduled to operate at the Initial
Level of 187 MW.
(iii) If Seller is unable to comply with Buyer's scheduling directions
involving an Initial Level less than 187 MW (namely, involving the complete
shut-down of one of the Plant's gas-fired generators), as such inability is
described in subparagraphs (aa) and (bb) of paragraph (i), more than twenty
percent (20%) of the time such directions have been given in the twelve (12)
month period preceding a failure to follow such a direction or, if less than
ten (10) such directions have been given in said twelve (12) month period,
more than twenty percent (20%) of the last ten (10) such directions
I-11
<PAGE>
given to Seller, then the period of unavailability for such failure shall be
deemed to have commenced at the hour that the Plant was scheduled to operate
at the Initial Level.
h. Seller shall immediately notify Buyer if (i) Seller elects to
perform maintenance that would interfere with Buyer's ability to schedule the
Plant within the bounds of this Agreement, or (ii) the Plant is otherwise
unavailable, during any period that Buyer has directed the Plant to operate
at a level other than 240 MW. If the Plant is derated by Seller for any
reason, Seller shall notify Buyer immediately via facsimile transmission to
Buyer's chief system dispatcher or such person's designee of the commencement
and cessation hour for such derating period. To the extent that such
derating is not the result of force majeure, or otherwise excused under the
terms of this Agreement, and such derating conflicts with Buyer's ability to
schedule the Plant as otherwise provided for by this Agreement, the Potential
Generation (as defined in Exhibit J) of the Plant during this period shall be
adjusted by Buyer accordingly.
i. Notwithstanding any other provision of this Amendment, Seller shall
not be required to comply with any Schedule supplied by Buyer to the extent
that such Schedule would interfere with: (a) EPC performance testing for
establishing project completion during the first six (6) months following the
Commercial Operation Date; (b) DMNC testing, as required by this Agreement,
as amended; and (c) testing in accordance with industry practices following
major Plant overhauls and repairs;
I-12
<PAGE>
provided however, that (aa) with respect to subparagraph (a) above, Seller
shall provide prompt telephonic and written notice to Buyer upon the
completion of such EPC performance testing, and (bb) with respect to
subparagraph (c) above, Seller shall (aaa) provide prompt telephonic and
written notice to Buyer upon the commencement and completion of all such
major Plant overhauls and repairs, (bbb) limit such testing to no more than
three (3) months, and (ccc) provide prompt telephonic and written notice to
Buyer upon the completion of such testing.
I-13
<PAGE>
APPENDIX B
----------
<PAGE>
EXHIBIT J - PAYMENT FOR AVAILABLE GENERATION
--------------------------------------------
Provided that Buyer scheduled the operation of the Plant for said
monthly billing pursuant to Article XXI of this Agreement, Buyer shall make a
monthly payment to Seller for Available Generation equal to the monthly
summation of the following formula calculated for each hour during the said
billing period:
Payment for Available Generation = AVG x (CR - (.95 x VC)) where
AVG = Available Generation, shall be equal to PG - AG.
PG = Potential Generation, is the number of KWH the Plant could
have produced for said hour had the Plant been available and
operated at the Potential Capacity (as defined on page J-2).
AG = Actual Generation, shall be the number of KWH that are both
scheduled for delivery by Buyer (based on the output state
chosen by Buyer) and actually produced by the Plant and
delivered to the delivery point for said hour, which amount
shall not exceed 240 MW net when averaged over a five (5)
minute period.
CR = Contract Rate, shall be the rate specified in Exhibit B of
this Agreement.
J-1
<PAGE>
VC = Variable Cost, designated in $/MWH, shall be defined for any
hour during the billing period as the lesser of 105 percent of CR
and the result of the following computation:
(DFC x (PHFC - SHFC))/AVG, where
DFC = Delivered Variable Fuel Cost ($/BTU);
PHFC = Potential Hourly Fuel
Consumption (BTU/hour) = PC x HRPC;
PC = Potential Capacity = The number of MW the Plant was
available to produce, which amount shall not exceed 240
MW;
HRPC = The heat rate of the Plant at the Potential Capacity
(BTU/MW); as indicated on the appropriate heat rate
curve provided by Seller to Buyer in accordance with
Exhibit I;
SHFC = Scheduled Hourly Fuel
Consumption (BTU/hour) = SC x HRSC;
SC = Scheduled Capacity = The number of MW the Plant was
directed by Buyer to produce based on the output state
chosen by Buyer to produce pursuant to Article XXI; and
HRSC = The heat rate of the Plant at the Scheduled Capacity
(BTU/MW) as indicated on the appropriate heat rate
curve provided by Seller to Buyer in accordance with
Exhibit I.
J-2
<PAGE>
No payment shall be made by Buyer for electric energy delivered by Seller
to the extent such energy exceeds the amounts scheduled for delivery by
Buyer; provided that, if Buyer fails to provide a Schedule to Seller for a
particular period, Buyer shall be deemed to have scheduled the Plant to
operate at its maximum safe and reliable output under actual operating
conditions (not to exceed 240 MW net when averaged over any five (5) minute
period) until a Schedule consistent with Exhibit I is timely delivered by
Buyer to Seller. For those periods during which the Plant is ramping up or
ramping down to an operating level scheduled by Buyer, the number of KWH
metered by Buyer at the delivery point shall be considered Actual Generation
for purposes of this Agreement.
J-3
<PAGE>
APPENDIX C
----------
<PAGE>
EXHIBIT K
---------
PAYMENT FOR START-UP COSTS
--------------------------
In addition to payments for Actual Generation and Available Generation,
Buyer shall pay Seller an amount for each start-up of a gas turbine requested by
Buyer pursuant to Article XXI of this Agreement equal to five thousand dollars
($5,000.00) for calendar year 1994, which amount shall escalate at a compounded
rate of four (4) percent each calendar year as set forth below:
Calendar Year Start-Up Cost
------------- -------------
1994 $ 5,000.00
1995 5,200.00
1996 5,408.00
1997 5,624.32
1998 5,849.29
1999 6,083.26
2000 6,326.60
2001 6,579.66
2002 6,842.85
2003 7,116.56
2004 7,401.22
2005 7,697.27
2006 8,005.16
2007 8,325.37
2008 8,658.38
2009 9,004.72
2010 9,364.91
2011 9,739.50
<PAGE>
APPENDIX D
----------
<PAGE>
With regard to Period A, all electricity delivered by Seller to Buyer
during peak hours shall constitute Class I electricity. In addition, all
electricity delivered by Seller to Buyer during off-peak hours shall constitute
Class I electricity up to a maximum number of off-peak KWh such that the ratio
of peak to off-peak hours in the then current billing period shall equal the
ratio of Potential Peak Generation to Class I off-peak KWh delivered during the
same period. (Kilowatt hours of Potential Peak Generation shall be calculated by
summing the Potential Generation (as defined in Exhibit J) in each peak hour of
the relevant billing period). Except as otherwise as provided below, any
electricity delivered during off-peak in excess of that maximum number of
off-peak KWh shall be considered Class II electricity and shall be paid for at a
rate equal to Buyer's off-peak short-run avoided cost as defined in Exhibit H.
If the number of KWh delivered during the off-peak hours in any
billing period is less than the maximum off-peak permitted for Class I, the
difference between such maximum permitted amount and the amount actually
delivered shall be tracked in a notional account. In the event that in later
billing periods, there is an excess of off-peak KWh hours in comparison to the
maximum Class I off-peak KWh permitted, such additional off-peak KWh shall also
be paid for at the Class I rate up to any amount then in the notional account
and the notional account will be reduced by the additional KWh paid for at the
Class I rate.
With regard to the offset to be applied during Period A, no offset
shall be applied through the end of 1994 (the period during which LRAC is
less than 6 cents/KWh under the Commission's current estimate). Instead, the
period between commencement of commercial operation to the end of 1994 shall
be used to establish
<PAGE>
the Plant's base output. Specifically, a second notional account shall be
used to track (1) the total number of Class I KWh purchases by Buyer through
the end of 1994 plus the total amount of Available Generation (as defined in
Exhibit J) paid for based on a Contract Rate (as defined in Exhibit J) equal
to the Class I electricity rate through the same period less Variable Cost
(as defined in Exhibit J), and (2) the total number of hours from the time of
commercial operation through the end of 1994. The first number will then be
divided by the second to compute the Plant's Base Output.
Commencing in January 1995 and for each monthly billing period
thereafter through the end of Period A, the sum of the Potential Generation of
the Plant for each hour of the current monthly billing period and the preceding
eleven monthly billing periods shall be divided by the total number of hours in
the same twelve monthly billing periods less any hours of Force Majeure outages
in the same period; the resulting number shall be referred to as the Plant's
"Current Output."
If the Plant's Current Output is less than the Plant's Base Output,
then an offset in the amount of that difference times twelve times the
difference between Buyer's short-run avoided cost as defined in Exhibit H and
six cents/KWh times the number of hours in the then current billing period
shall be applied to the amount due from Buyer during that billing period;
provided, however, that if six cents/KWh exceeds Buyer's short-run avoided
cost as defined in Exhibit H, then no offset shall be applied. In any
monthly billing period that an offset is applied, the Plant's total Potential
Generation for the corresponding period shall be deemed to equal the Plant's
Base Output times the number of hours in that period for the purpose of all
future calculations of offsets.
<PAGE>
EXHIBIT 27
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made and entered into as of the 6th day of May, 1997, by
and between NEW YORK STATE ELECTRIC & GAS CORPORATION ("NYSEG") , a New York
corporation having its principal place of business at Ithaca-Dryden Road (no
street number), Dryden, New York 13053, and CALENERGY COMPANY, INC.
("CalEnergy"), having its principal place of business at 302 South 36th St.,
Suite 400, Omaha, Nebraska 68131-3845.
WITNESSETH:
-----------
CalEnergy wishes to disclose to NYSEG certain information which CalEnergy
deems to be CalEnergy's confidential, proprietary and trade secret information
with respect to matters relating to [*] and other potential natural gas users
(the "Project"); and
WHEREAS, NYSEG wishes to disclose to CalEnergy certain information which
NYSEG deems to be NYSEG's confidential, proprietary and trade secret information
with respect to the prices, other costs and issues relative to the potentiality
that NYSEG or CalEnergy (either jointly or separately) may provide natural gas
transportation service for the Project; and
WHEREAS, both parties are willing to receive such information from the
other under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
with each other, for themselves, their successors and assigns, as follows:
1. "Information" shall mean all information furnished by one party or its
affiliates to the other party or its affiliates, whether furnished before or
after the date hereof, and regardless of the manner in which it is furnished,
together with all copies, reproductions, summaries, analyses or extracts thereof
or based thereon in the possession of a party or in the possession of any
representative of a party.
2. Unless otherwise agreed to in writing by the transmitting party, the
receiving party shall (a) keep all Information confidential and not disclose or
reveal any Information to any person other than the receiving party's employees,
advisors, attorneys or accountants who are involved in the Project, and have a
reasonable "need-to-know" such information, (b) inform the transmitting party
of the identity of all such persons (other than the receiving party's
employees) and cause them to agree in writing to comply with the terms of this
- ------------------
* Confidential treatment has been requested pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
<PAGE>
Agreement, and (c) not use Information for any purpose other than in connection
with the evaluation of the Project or transactions associated therewith. The
receiving party will be responsible for any breach of the terms hereunder by
it or by its Employees, advisors or representatives.
3. This Agreement shall terminate two (2) years from the date first above
written; provided, however that either party may terminate this Agreement
earlier by giving ten (10) days prior written notice of termination to the other
party. No termination of this Agreement shall affect a party's obligations
hereunder with respect to Information disclosed to it prior to such termination.
This Paragraph, and all obligations of the parties under this Agreement, shall
survive such termination.
4. The parties may copy the Information to the extent necessary for it to
complete the purpose specified in Paragraph 2 above.
5. Neither party's confidentiality obligations hereunder shall apply to
any portion of the Information which:
(a) has become a matter of public knowledge other than through an act
or omission of the receiving party;
(b) has been made known to the receiving party by a third party in
accordance with such third party's legal rights without any restriction on
disclosure;
(c) was in the receiving party's possession prior to the disclosure
thereof by the other party hereunder and was not acquired by the receiving
party directly or indirectly from the other party or any person or entity
in a relationship of trust and confidence with the transmitting party with
respect to such Information; or
(d) The party is required by law to disclose.
6. The receiving party shall return or destroy the Information (including
all copies thereof) at the transmitting party's discretion promptly upon the
earlier of (a) any termination of this Agreement and (b) upon completion of the
purpose specified in Paragraph 2 above.
7. This Agreement shall not be deemed to grant any rights with respect to
the Information other than those expressly set forth herein and shall not be
deemed to grant any license whatsoever with respect to any patents, inventions,
copyrights, trademarks or trade secrets contained in said Information.
8. Any notice by either party under this Agreement shall be sufficiently
given if in writing and mailed by certified mail,
-2-
<PAGE>
return receipt requested, addressed to the party to be notified at the address
set forth below or at such other address as the party to be notified may from
time to time designate by giving notice thereof in writing. Notice shall be
complete upon such mailing except in the case of a notice to change an address
in which case notice shall be complete when the notice is received by the
addressee.
To NYSEG: New York State Electric
& Gas Corporation
4500 Vestal Pkwy. East, P.O. Box 3607
Binghamton, New York 13902-3607
ATTN: Michael I. German
To CalEnergy: CalEnergy Company, Inc.
302 South 36th St.
Suite 400
Omaha, Nebraska 68131-3845
ATTN: J. Douglas Divine
9. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to the Project and sets forth the entire
understanding of said parties with respect thereto and may not be changed or
terminated orally, and no attempted change, termination or waiver of any of the
provisions hereof shall be binding unless in writing and signed by both of the
parties hereto.
10. Neither party shall assign or transfer this Agreement, or its rights
or obligations hereunder, without the prior written consent of the other party,
which consent shall not be unreasonably withheld. Any act in derogation of the
foregoing shall be null and void.
11. This Agreement shall be governed by and construed in accordance with
the law of the State of New York, exclusive of its choice of law rules.
12. The parties to this Agreement hereby submit and consent to the
exclusive jurisdiction of the Federal District Courts for the Southern District
of New York and for the Northern District of New York, in any action brought to
enforce (or otherwise relating to) this Agreement. In addition, said parties
hereby agree that venue shall be proper in each of said courts. Each party
irrevocably waives any objection that it now has, or that it may have in the
future, to such jurisdiction and venue.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NEW YORK STATE ELECTRIC & GAS
CORPORATION
WITNESS:
/s/ Deborah W. Jenison By: /s/ Michael I. German
- ---------------------------- ---------------------------
Michael I. German
Title: Senior Vice President,
as Business Unit
CALENERGY COMPANY, INC.
WITNESS: By: /S/ J. Douglas Divine
---------------------------
J. Douglas Divine
/s/ Maureen M. Burns Title: Vice President, Strategic
- -------------------- Planning
-4-
<PAGE>
STATE OF NEW YORK :
: ss.:
COUNTY OF BROOME :
On the 7th day of May, 1997, before me personally came Michael I. German,
to me known, who, being by me duly sworn, did depose and say that he resides in
Chenango Bridge, New York, that he is the Senior Vice President, Gas Business
Unit of NEW YORK STATE ELECTRIC & GAS CORPORATION, the corporation described in
and which executed the above instrument, and that he signed his name thereto by
authority of the board of directors of said corporation.
/S/ Nancy M. Santucci
-----------------------------
Notary Public
[NOTARIAL SEAL]
STATE OF NEBRASKA :
: ss.:
COUNTY OF DOUGLAS :
On the 9th day of May, 1997, before me personally came J. Douglas Divine,
to me known, who, being by me duly sworn, did depose and say that he resides in
Omaha, Nebraska, that he is the Vice President, Strategic Planning of CalEnergy
Company, Inc., the corporation described in and which executed the above
instrument, and that he signed his name thereto by authority of the board of
directors of said corporation.
/s/ Virginia Mortensen
-----------------------------
Notary Public
[NOTARIAL SEAL]
-5-
<PAGE>
EXHIBIT 28
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF BROOME
- ----------------------------------------x
MORTIMER SCHULMAN, P.C. MONEY PURCHASE : Index No.
PLAN, AND ELISE MILLER, :
:
Plaintiffs, :
v. :
:
: CLASS ACTION COMPLAINT
WESLEY W. VON SCHACK, JAMES A. :
CARRIGG, ALLEN E. KINTIGH, JOHN M. : JURY TRIAL DEMANDED
KEELER, RICHARD AURELIO, WALTER G. :
RICH, EVERETT A. GILMOUR, LOUIS B. :
DEFLUER, ALTON G. MARSHALL, BEN E. :
LYNCH, ALISON CASARETT, PAUL I. GOIA, :
JOSEPH J. CASTIGLIA, AND NEW YORK :
STATE ELECTRIC & GAS COMPANY, :
:
Defendants. :
- ----------------------------------------x
Plaintiffs, by their attorneys, allege upon personal knowledge as to
themselves and their own acts, and upon information and belief, based upon the
investigation conducted by counsel that included review and analysis of, among
other things, public documents filed with the United States Securities and
Exchange commission ("SEC") by defendant New York State Electric & Gas Company
("NYSE&G" or "Company") and by CalEnergy Company, Inc. ("CECI"), press releases,
news articles, written analyses of financial analysts, and various published
materials, as follows:
SUMMARY OF THE ACTION
AND THE EQUITABLE RELIEF SOUGHT
1. This is a stockholders' class action lawsuit, filed pursuant to
Section 901 ET SEQ. of the New York Civil Practice Law and Rules ("CPLR"),
individually and on behalf of a
<PAGE>
class consisting of all persons and entities who own the common stock of
defendant NYSE&G and are being deprived of the opportunity to realize
the full value and benefits of their investment in NYSE&G as a result of
defendants' failure to fulfill their fiduciary duties and seek to maximize
shareholder value in light of CECI's BONA FIDE offer to negotiate a
transaction by which CECI would acquire all outstanding shares of NYSE&G for
$27.50 per share (the "Offer"). In connection therewith, the rights of the
plaintiffs and the Class to freely exercise their stockholder franchise are
being inhibited because they are being forced to choose to either (a) tender
their shares now, pursuant to a tender offer by CECI to purchase at least
6,540,670 shares, for a total of 9.9% of the outstanding shares of NYSE&G common
stock, for $24.50 per share in cash (the "Tender Offer") as the first step in
CECI's plan to subsequently acquire all of the outstanding shares of NYSE&G, or,
(b) refrain from tendering their shares for the possibility that they MAY
ultimately be provided the opportunity to decide whether to choose to remain
shareholders of an independent NYSE&G and await the uncertain benefits of such
continued ownership or to sell their shares to CECI for at least $27.50 per
share or to any third party, including CECI, pursuant to a better offer for a
higher price for their shares of NYSE&G. Without adequate information
regarding whether defendants will ultimately agree to fulfill their fiduciary
duties and implement steps to maximize shareholder value, the plaintiffs and
Class are not able, and
-2-
<PAGE>
will not be able to freely exercise their shareholder franchise in connection
with the Tender Offer.
2. Plaintiffs allege that, in light of the facts set forth below,
NYSE&G's Board of Directors (the "Board"), all of whom have been named as
defendants in this action (the "Individual Defendants," defined below), have
breached, and are continuing to breach, their fiduciary duties to the
stockholders of NYSE&G. The Individual Defendants are required, under New York
State law, to take all reasonable steps to assure the maximization of
stockholder value including, the implementation of bidding mechanisms to foster
and ensure a fair auction of the Company to the highest bidder; the removal of
all improper impediments to the acquisition of NYSE&G, including any impediments
to CECI's Offer or Tender Offer; and the exploration of strategic alternatives
which will return greater or equivalent short-term value to the plaintiffs and
the Class. Defendants have violated, and continue to violate, such fiduciary
duties by, INTER ALIA, failing to seriously consider and rejecting CECI's Offer.
3. Moreover, defendants have already sought to deprive, and have strongly
indicated by statements and actions that they are likely to persist in seeking
to deprive, NYSE&G shareholders of the substantial benefits that would be
provided by their allowing a free and unfettered auction for NYSE&G and fully
and fairly considering any and all proposals to acquire NYSE&G (including the
Offer, which represents a premium of 31.74%
-3-
<PAGE>
over the closing price of NYSE&G shares on June 30, 1997, the date that CECI
began making open market purchases of NYSE&G shares), by quickly rejecting the
Offer one day after it was proposed without giving it proper consideration.
4. The Defendants have been, and are, breaching their fiduciary duties to
the stockholders of NYSE&G by, INTER ALIA, refusing to seriously consider a
bonified Offer for the shares of NYSE&G at a substantial premium; failing to
implement an auction or other bidding mechanisms or market check procedures
necessary to assure that the stockholders receive the highest possible price in
connection with a change in control transaction; and failing to announce their
intentions to negotiate with CECI and/or others which prevents shareholders from
making an informed decision about whether to tender their shares to CECI in the
Tender Offer.
5. The conduct complained of herein is designed by the Individual
Defendants to entrench themselves in the management and control of NYSE&G and
to advance their own personal interests at the expense of NYSE&G's public
stockholders. Indeed, defendants' present conduct has the effect of deterring
and ultimately thwarting any unsolicited expressions of interest to acquire
the Company which they have not initiated or approved and were and are not
reasonable responses to CECI's interest in negotiating a merger of CECI and
NYSE&G.
6. Preliminary and permanent injunctive relief and other equitable
remedies are sought to protect NYSE&G's public
-4-
<PAGE>
stockholders from the immediately threatened breach of duties owed to them by
the defendants. Specifically, plaintiffs seek declaratory, preliminary and
permanent injunctive relief; (a) declaring the Individual Defendants in breach
of their fiduciary duties under New York law unless they take all necessary
actions to ensure that the value of NYSE&G stock is maximized; (b) declaring
the Individual Defendants in breach of their fiduciary duties should they
continue to attempt to preclude the stockholders of NYSE&G from taking
advantage of CECI's Offer to negotiate a transaction that would provide at
least a 31% premium to the plaintiffs and class; (c) enjoining any direct or
indirect interference with CECI's ability to solicit consents and/or conduct a
proxy contest; and (d) enjoining any manipulative franchising or
disenfranchising activities (or activities with such direct or indirect effect)
by NYSE&G in connection with any shareholder meeting that might be sought by
CECI.
7. In light of defendants' refusal to negotiate with CECI or develop any
alternatives to the Offer, unless the injunctive and declaratory relief
requested herein is granted, no acquisition of NYSE&G by CECI can succeed and
NYSE&G stockholders will be deprived of their opportunity to choose to receive a
premium for their shares. As such, plaintiffs and the Class have no adequate
remedy at law.
-5-
<PAGE>
THE PARTIES
-----------
8. Plaintiffs Mortimer Schulman, P.C. Money Purchase Plan, and Elise
Miller are, and at all relevant times were, the owners of shares of common stock
of NYSE&G who have been damaged and are threatened with further injury by the
wrongful actions of the defendants as set forth below. They bring this action
as a class action on behalf of the public stockholders of NYSE&G.
9. NYSE&G is a corporation duly organized and existing under the laws of
the State of New York. The Company generates electricity and purchases,
transmits and distributes electricity and natural gas in a service territory in
Central, Eastern and Western New York State. NYSE&G maintains its principal
executive offices at 4500 Vestal Parkway East, Binghamton, New York 13902.
NYSE&G has approximately 69.3 million shares of common stock outstanding and
thousands of stockholders of record. NYSE&G's stock trades on the New York
Stock Exchange.
10. Defendant Wesley W. von Schack ("von Schack") is the Chairman of the
Board of Directors and Chief Executive Officer and President of NYSE&G. Von
Schack was hired by the Company in September 1996 and for the four months he
worked in 1996 he received over $300,000 -- $178,766 in salary, $72,037 in
bonuses and $7S,000 for other compensation. Von Schack has a three year
employment contract with a base salary of $575,000 per year. He also has a
"change in control" agreement by which he
-6-
<PAGE>
will receive three times his full compensation if he leaves after a change in
Control of the Company.
11. Defendant James A. Carrigg is a director and the former Chairman,
President and Chief Executive officer of NYSE&G. He retired in October 1996
and received from NYSE&G over $550,000 in compensation for the nine months he
worked in 1996.
12. Defendants Allen Kintigh, John M. Keeler, Richard Aurelio, Walter
Rich, Everett A. Gilmour, Louis B. DeFluer, Alton G. Marshall, Ben E. Lynch,
Alison Casarett, Paul I. Goia, and Joseph J. Castiglia are directors of NYSE&G.
13. The defendants named in paragraphs 10 through 12 are hereinafter
referred to as the "Individual Defendants."
14. Because of their positions as officers/directors of the Company, the
Individual Defendants owe a fiduciary duty of loyalty and due care to plaintiff
and the other members of the class. The Individual Defendants are sued
individually and as co-conspirators and aiders and abettors, as well as in their
capacity as officers and/or directors of NYSE&G, and the liability of each
arises from the fact that they have engaged in all or part of the unlawful acts,
plans, schemes, or transactions complained of herein.
15. Defendants are liable, as direct participants in the wrongs complained
of herein and/or as controlling persons of NYSE&G, and they substantially and
knowingly aided and abetted each other in committing these wrongs. The
Defendants, because of their positions of control and authority as directors
and/or
-7-
<PAGE>
officers of NYSE&G, were able to and did, directly or indirectly, control
the content of their various public reports, statements, press releases and
reports filed with the SEC which were issued and disseminated during the Class
Period.
16. By virtue of the acts and conduct alleged herein, the Individual
Defendants, who control the actions of NYSE&G, have breached and are breaching
their fiduciary duties to NYSE&G's public shareholders.
CLASS ACTION ALLEGATIONS
------------------------
17. Plaintiffs bring this lawsuit on their own behalves and as a class
action on behalf of all shareholders of NYSE&G (except defendants herein and any
person, firm, trust, corporation or other entity related to, controlled by or
affiliated with any of the defendants) and their successors in interest (the
"Class") pursuant to Section 901 ET. SEQ. of the CPLR.
18. This action is properly maintainable as a class action.
19. The Class of shareholders for whose benefit this action is brought is
so numerous that joinder of all Class members is impracticable. NYSE&G has over
69.3 million shares of common stock outstanding, owned by more than thousands of
record shareholders. Members of the Class are scattered throughout the United
States.
-8-
<PAGE>
20. The parties opposing the Class have acted or refused to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive
and declaratory relief requested herein.
21. There are questions of law and fact common to members of the Class
that predominate over any questions affecting only individual members. The
common questions include, INTER ALIA, whether:
a. whether defendants have breached, or aided and abetted the
breach of the fiduciary duties owed by them to the plaintiffs and other members
of the Class by failing and refusing to attempt in good faith to maximize
shareholder value;
b. whether the defendants are unlawfully impeding actual and/or
potential acquisition offers at the expense of NYSE&G's public stockholders;
c. whether the defendants have failed and will continue to fail
to negotiate in good faith with CECI or any other prospective purchasers of
NYSE&G;
d. whether the defendants have engaged and are continuing to
engage in a plan and scheme to entrench themselves in their positions of control
of NYSE&G at the expense of NYSE&G's public stockholders;
e. whether plaintiffs and the other members of the Class would
be irreparably damaged were the defendants not enjoined from continuing in the
conduct described in this action; and
-9-
<PAGE>
f. whether plaintiffs and the other members of the Class are
being and will continue to be injured by the wrongful conduct alleged herein
and, if so, what is the proper remedy and/or measure of damages.
22. The claims of the plaintiffs are typical of the claims of other
members of the Class and plaintiff has no interests that are adverse or
antagonistic to the interests of the Class.
23. Plaintiffs are committed to the vigorous prosecution of this
action and have retained competent counsel experienced in litigation of this
nature. Accordingly, plaintiffs are adequate representatives of the Class and
will fairly and adequately protect the interests of the Class.
24. Plaintiffs anticipate that there will not be any difficulty in
the management of this litigation as a class action.
25. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action
and the claims asserted herein.
SUBSTANTIVE ALLEGATIONS
-----------------------
26. By the acts, transactions, and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme and/or by
aiding and abetting one another in total disregard of their fiduciary duties,
are attempting to
-10-
<PAGE>
deprive plaintiffs and the Class unfairly of the opportunity
to maximize the value of their investment in NYSE&G Power.
NYSE&G'S Poor Performance
and Uncertain Future
- -------------------------
27. Since 1994, when NYSE&G cut the dividend on its common stock by
over 36%, the price of NYSE&G stock has consistently underperformed the market,
as measured by the S&P 500 Index, and the stocks of other utility companies.
Indeed, the cumulative return on $100 invested in 1991 would be $202.89 as of
December 31, 1996 based on the returns of the S&P 500 Index, but only $104.56 if
it had been invested in NYSE&G stock.
28. In its most recent Proxy filed with the SEC on May 21, 1997, the
Company acknowledged that its prospects for future growth and profitability are
also uncertain, noting several times that NYSE&G faces "increased competition
and uncertain regulatory policies."
CECI Approaches NYSE&G
- ----------------------
29. On July 10, 1997, CECI and NYSE&G met to discuss a possible
business combination between the two companies.
30. CECI's Chairman, David Sokol, told defendant von Shack that CECI
would be willing to negotiate a transaction to acquire all of NYSE&G for a price
that would provide shareholders with at least a 25% premium over the current
trading prices of NYSE&G's stock. Von Schack had indicated at that meeting that
a 25% premium would be appropriate in a business combination
-11-
<PAGE>
effected by an exchange of shares of CECI stock for shares of NYSE&G stock.
The Individual Defendants Meet and
Immediately Reject Negotiations with CECI
- -----------------------------------------
31. The very next day, July 11, 1997, the NYSE&G Board held a meeting
and determined that pursuing further discussions with CECI was "not a priority"
and that NYSE&G would not agree to participate in discussions pursuant to a
proposed schedule for the timely negotiation of a transaction between the two
companies.
32. Later that same day, von Schack called Mr. Sokol to tell him of
the Board's conclusion. The defendants did not publicly disclose why they
reached this conclusion and what information they considered and/or based such a
decision upon. However, it is clear that the Board reached this determination
very quickly over the course of a single day.
CECI Proposes A Friendly Merger
33. On July 15, 1997, CECI publicly announced that it had sent a
letter to defendants proposing the acquisition of NYSE&G for approximately $3.3
billion in cash and assumed debt. Under the Offer, NYSE&G shareholders would
receive $27.50 per share in cash. The Offer represented a premium of
approximately 31% over the closing price of NYSE&G stock on June 30, 1997. The
letter, set forth below, clearly stated CECI's willingness to negotiate a
friendly merger.
-12-
<PAGE>
Dear Wes:
I was disappointed to learn from you in our telephone call on
Saturday, July 12th of your Board's decision that pursuing discussions
with us concerning the advantages of a possible combination of New
York State Electric & Gas Corporation ("NYSEG") and CalEnergy Company,
Inc. ("CalEnergy") was not a priority and could not be conducted on
the timely basis which I outlined to you in our meeting last week, on
Thursday, July 10th. I might add that your Board's reaction does not
appear to be consistent with the clear impression you gave me in our
meeting last Thursday to the effect that a sale of NYSEG in the price
range we conceptually discussed was an alternative that you would
seriously and promptly consider and that you agreed it was in the best
interests of your shareholders that you do so.
-13-
<PAGE>
Accordingly, after considered review of the publicly available
information concerning NYSEG, the CalEnergy Board has concluded that
the potential strategic and financial benefits to our companies',
shareholders and other concerned constituencies are compelling and
should be pursued on an immediate and serious basis. Our strong
preference would be to work together with you and the NYSEG Board to
complete a negotiated transaction. However, in light of the confusing
messages we have received from you and your Board, CalEnergy is today
approaching your shareholders directly and announcing a cash tender
offer to acquire for $24.50 per share that number of shares of NYSEG
common stock which, together with the shares of NYSEG common stock
which CalEnergy presently owns, will represent 9.9% of the total
number of shares of NYSEG common stock outstanding. Holders tendering
their shares will also be entitled to retain the regular 35 cents
dividend payable in August. This tender offer is the first step in
the intended acquisition of 100% of NYSEG's common shares by
CalEnergy.
As previously noted, we would much prefer to work together with
you and your Board to achieve a negotiated transaction. Accordingly,
this letter sets forth a specific proposal for consideration by you
-14-
<PAGE>
and your Board, together with a brief reiteration of the merger
rationale which I shared with you at our meeting last week.
Our specific merger proposal is to commence negotiations
immediately to enter into a consensual merger in which each
outstanding share of NYSEG common stock would be exchanged for $27.50
in cash. This cash price represents a premium of 31.74% above the
NYSEG $20-7/8 per share NYSE closing price on June 30, 1997 (the day
immediately preceding the day on which we first commenced our open
market purchases of NYSEG Common Stock). I would also note that the
cash merger price which we propose exceeds the up to 25% premium for
NYSEG Common Stock which you indicated, in our conceptual discussion
during our meeting last Thursday, might he appropriate in the context
of a stock for stock merger of NYSEG and CalEnergy.
As I informed you in our meeting last week, we have reviewed the
regulatory issues in detail and have fully underwritten financing
offers in an amount sufficient to complete the acquisition of 100% of
NYSEG's common stock at the price set forth above. The difference
between our proposed consensual merger price and our partial tender
offer price reflects the shorter time interval and increased certainty
associated with the purchase of 9.9% of NYSEG's common shares. The
partial tender offer requires no regulatory approvals other than
expiration of the expected 15-day Hart-Scott-Rodino waiting period, as
compared to the estimated nine to twelve months for the regulatory
approvals required to complete the acquisition of 100% of NYSEG's
common stock.
While NYSEG clearly possesses many strengths, you have publicly
acknowledged that both New York's energy industry generally and NYSEG
specifically face a number of serious, complex and immediate
challenges. These include:
-- The New York Public Service Commission's restructuring
proceedings with respect to, among other things, (i) the
lowering of the rates chargeable by NYSEG and other New York
utilities, (ii) the potential divestiture of generation
-15-
<PAGE>
assets and (iii) the introduction of broadened competition;
-- Litigation by NYSEG concerning the unimplemented rate
increases approved in NYSEG's last rate case (August 1995) ;
-- NYSEG's potentially strandable above-market costs (which you
have publicly stated are more than twice the national
average);
-- NYSEG's flat revenues over the last two years; and
-- The consistent underperformance of NYSEG's common stock
since NYSEG cut its dividend in October 1994.
CalEnergy welcomes the deregulation of the New York electric
market and views increased competition as positive and beneficial to
ratepayers and the larger New York community alike. We would expect
to bring a helpful competitive focus to NYSEG's transition to such an
environment and in meeting the competitive challenges which it faces.
CalEnergy, which has (according to analysts' consensus estimates)
expected 1997 revenues in excess of $2 billion, traces its roots to
the introduction of the competitive electric generation industry
within the United States and has expanded and thrived in the
competitive marketplace, both within the U.S. and internationally.
As I described to you, CalEnergy's U.K. utility subsidiary,
Northern Electric plc (which is engaged in the distribution and supply
of electricity to approximately 1.5 million customers, primarily in
Northeast England), brings us direct experience, systems and skills
acquired in the deregulated and competitive U.K. electric and gas
markets. We anticipate using these skills and working closely with
the New York Public Service Commission to provide rate reductions for
all NYSEG customers following the proposed merger, while maintaining
the safe and reliable service to which they are accustomed.
Consistent with CalEnergy's decentralized regional organization,
we would intend to maintain NYSEG as a separate operating business
unit with its existing corporate headquarters. We would also plan
-16-
<PAGE>
to reincorporate CalEnergy in New York and grow NYSEG's business
by participating aggressively in the increasingly competitive New York
electric market. This would ultimately make a significant
contribution to the local region's long-term ability to retain jobs
and attract new jobs and businesses. CalEnergy is a high growth
company which has increased its number of employees tenfold over the
past 5 years and provides worldwide opportunities in its numerous
locations.
As I have previously detailed, we believe that our cash merger
proposal, which reflects a substantial premium over NYSEG's current
market value, represents a full and fair price for your shareholders.
Moreover, our proposal would permit your shareholders to realize this
substantial cash value notwithstanding the significant uncertainties
facing NYSEG and its business today. To the extent that you believe
that your shareholders would view favorably an option to receive
CalEnergy shares or other forms of consideration in lieu of the cash
price we have proposed, we would be willing to consider that in the
context of a negotiated transaction.
Although we have found it necessary to go directly to your
shareholders with our partial tender offer and advise them of our
merger proposal, my continuing preference is to pursue this
opportunity on a consensual basis with you and NYSEG's board. We are
available to meet with you immediately to discuss the terms of this
proposal. However, if you choose not to enter into discussions with
us, we believe, and we hope you will agree, that NYSEG's Board ought
to permit NYSEG's shareholders to freely decide for themselves on the
merits of our offer rather than taking any action which would hinder
the shareholders' ability to express their views.
-17-
<PAGE>
34. In connection with its Offer, CECI launched a Tender Offer that
same day for up to 9.9% of NYSE&G's stock for $24.50 per share in cash, which
represents a 25% premium. The Tender Offer provides a lower price per share
than would be available to the Class if defendants had agreed, or will agree, to
negotiate a business combination with CECI.
NYSE&G'S Insincere Response
- ---------------------------
35. The same day, NYSE&G responded to CECI by stating that the NYSE&G
Board of Directors would consider the Tender Offer "in due course" and would
inform CECI of NYSE&G's decision regarding such Tender Offer after completion of
its evaluation "within 10 days."
36. Obviously, since the Defendants rejected an opportunity to
negotiate a transaction for $27.50 per share, it seems highly unlikely that they
would approve a lower price Tender Offer. Moreover, even if they did approve
and recommend the Tender Offer, the Class will still be unable to make an
informed decision because they will not know whether they should refrain from
tendering in order to obtain a higher price since defendants have not announced
their intention to negotiate with CECI and/or other parties to obtain the best
available price for the sale of the entire Company.
37. Defendants owe fundamental fiduciary obligations to NYSE&G's
shareholders to take all necessary and appropriate steps to maximize the value
of their shares. In addition, the
-18-
<PAGE>
Individual Defendants have the responsibility to act independently so that the
interests of NYSE&G's public stockholders will be protected, to seriously
consider all BONA FIDE offers for NYSE&G, and to conduct fair and active
bidding procedures or other mechanisms for checking the market to assure that
the highest possible price is achieved. Further, the directors of NYSE&G must
adequately ensure that no conflict of interest exists between the Individual
Defendants' own interests and their fiduciary obligations to maximize
stockholder value or, if such conflicts exist, to insure that all such
conflicts will be resolved in the best interests of the Company's shareholders.
38. NYSE&G represents a highly attractive acquisition candidate.
Defendants' recalcitrance to negotiate a definitive merger agreement in the past
and their current resistance to seriously consider CECI's formal Offer, have no
valid business purpose, and simply evidences their disregard for the attractive
premium being offered to NYSE&G's shareholders. Defendants' conduct would
deprive NYSE&G's public shareholders of the very substantial control premium
which CECI is prepared to pay or of the enhanced premium that further
negotiation or exposure of NYSE&G to the market could provide.
39. Because defendants dominate and control the business and
corporate affairs of NYSE&G and because they are in possession of private
corporate information concerning NYSE&G assets, businesses and future
prospects, there exists an imbalance and disparity of knowledge of economic
power between
-19-
<PAGE>
defendants and the public shareholders of NYSE&G. This discrepancy makes it
grossly and inherently unfair for defendants to entrench themselves at the
expense of its public shareholders.
40. In view of the summary rejection of CECI's proposed Offer by the
NYSE&G Board of Directors, it is highly unlikely that the NYSE&G Board, absent
action by this Court, will take such actions as are necessary to negotiate a
transaction prior to the time when the Tender Offer is scheduled to close.
Accordingly, many NYSE&G's stockholders will never have the opportunity to make
a free and fair decision concerning CECI's Offer and/or Tender Offer.
41. The Individual Defendants have breached their fiduciary and other
common law duties owed to plaintiffs and the other members of the Class in that
they have not and are not exercising independent business judgment and have
acted and are acting to the detriment of the Class.
42. The Individual Defendants were and are under a duty to:
a. fully inform themselves before taking, or agreeing to
refrain from taking, action;
b. elicit, promote, consider and evaluate reasonable and BONA
FIDE offers for the Company, including CECI's overtures and
Offer;
c. act in the best interests of the equity owners and other
constituencies of the
-20-
<PAGE>
Company such as the customers and employees of NYSE&G;
d. refrain from acting in their own personal self-interest or
in the personal interest of other Board members;
e. maximize shareholder value;
f. obtain the best financial and other terms when the Company,
or control of the Company, is for sale or the Company's
independent existence will be materially altered by a
transaction; and
g. act in accordance with their fiduciary duties of care and
loyalty.
43. The Individual Defendants owe fundamental fiduciary obligations
to NYSE&G's stockholders to take all necessary and appropriate steps to
maximize the value of their shares. In addition, the Individual Defendants
have the responsibility to act independently so that the interests of NYSE&G's
public stockholders will be protected, to seriously consider all BONA FIDE
offers for NYSE&G, and to implement fair and active bidding procedures or
other mechanisms for checking the market to assure that the highest possible
price is achieved. Further, the NYSE&G directors must adequately insure that
no conflict of interest exists between defendants' own interests and their
fiduciary obligations to maximize stockholder value or, if such conflicts
exist, to insure that all such conflicts will be
-21-
<PAGE>
resolved in the best interests of the NYSE&G's public stockholders.
44. NYSE&G represents a highly attractive acquisition candidate. The
Individual Defendants' conduct has deprived and will continue to deprive the
NYSE&G public stockholders of the very substantial premiums now being offered
and which further exposure of the Company to the market could provide.
45. The Individual Defendants have breached their fiduciary and other
common law duties owed to plaintiffs and other members of the Class in that they
have not and are not exercising independent business judgment and have acted and
are acting to the detriment of the class in order to benefit themselves and
other members of NYSE&G senior management.
46. Moreover, the Individual Defendants have refused to take those
steps necessary to ensure that the Company's stockholders will receive maximum
value for their shares of NYSE&G stock. The Individual Defendants have refused
to seriously consider CECI's offers, and have failed to announce any active
auction or open bidding procedures best calculated to maximize stockholder value
in selling NYSE&G.
47. The Individual Defendants are acting to entrench themselves in
their offices and positions and maintain their substantial salaries and
prerequisites, all at the expense and to the detriment of NYSE&G's public
stockholders.
48. By the acts, transactions and courses of conduct alleged herein,
the Individual Defendants, individually and as
-22-
<PAGE>
part of a common plan and scheme in breach of their fiduciary duties and
obligations, are attempting unfairly to deprive plaintiffs and the other
members of the class of the premiums they could realize in an acquisition
transaction and to ensure continuance of their positions as directors and
officers, all to the detriment of NYSE&G and its stockholders. The Individual
Defendants have been engaged in a wrongful effort to entrench themselves in
their offices and positions of control and prevent the acquisition of NYSE&G
except on terms which would further their own personal interests.
49. By virtue of the acts and conduct alleged herein, the Individual
Defendants, who control the actions of NYSE&G, have carried out a preconceived
plan and scheme to place their own personal interests ahead of the interests of
NYSE&G's public stockholders and thereby entrench themselves in their offices
and positions within NYSE&G. The Individual Defendants have violated their
fiduciary duties owed to plaintiffs and the Class in that they have not and are
not exercising independent business judgment and have acted and are acting to
the detriment of NYSE&G's public stockholders for their own personal benefit.
50. As a result of the actions of the Individual Defendants,
plaintiffs and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
NYSE&G assets and business and/or have been and will be prevented from obtaining
a
-23-
<PAGE>
fair and adequate price for their shares of NYSE&G's common stock.
51. Plaintiffs seek preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiffs and the Class of their right to realize a full and fair
value for their stock at a substantial premium over the market price, and to
compel defendants to carry out their fiduciary duties to maximize stockholder
value in selling NYSE&G.
52. Only through the exercise of this Court's equitable powers can
plaintiffs be fully protected from the immediate and irreparable injury which
defendants, actions threaten to inflict.
53. Unless enjoined by the Court, defendants will continue to breach
their fiduciary duties owed to plaintiffs and the other members of the class,
and/or aid and abet and participate in such breaches of duty, and will prevent
the sale of NYSE&G at a substantial premium, all to the irreparable harm of
plaintiffs and the other members of the Class.
54. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
(a) Declaring this to be a proper class action and certifying
plaintiffs as class representatives;
(b) Ordering the Individual Defendants to carry out their fiduciary
duties to plaintiffs and the other members of the Class by announcing their
intention to:
-24-
<PAGE>
(i) cooperate fully with any entity or person, including
CECI, having a BONA FIDE interest in proposing any transactions that would
maximize shareholder value, including but not limited to, a merger or
acquisition of NYSE&G;
(ii) immediately undertake an appropriate evaluation of
NYSE&G's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance NYSE&G's value
and attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose NYSE&G
to the marketplace in an effort to create an active auction of the Company;
(v) act independently so that the interests of the
Company's public shareholders will be protected; and
(vi) adequately ensure that no conflicts of interest exist
between the Individual Defendants' own interest and their fiduciary obligation
to maximize shareholder value or, in the event such conflicts exist, to ensure
that all conflicts of interest are resolved in the best interests of the public
shareholders of NYSE&G;
(c) Ordering the Individual Defendants, jointly and severally to
account to plaintiffs and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
-25-
<PAGE>
(d) Awarding plaintiffs the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and expert' fees;
and
(e) Granting such other and further relief as may be just and proper.
Dated: July 16, 1997
WECHSLER HARWOOD HALEBIAN &
FEFFER LLP
805 Third Avenue
New York, New York 10022
(212) 935-7400
GARWIN, BRONZAFT GERSTEIN
& FISHER, LLP
1501 Broadway
New York, New York 10036
(212) 398-0055
Attorneys for Plaintiffs
-26-
<PAGE>
Exhibit 29
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
MALCOLM ROSENWALD, As a Beneficiary :
Of The IRA For The Benefit Of :
MALCOLM ROSENWALD, : Index No. 97-603715
:
Plaintiff, : COMPLAINT
:
-against- : __________
: County Clerk's Office
NEW YORK STATE ELECTRIC & GAS : ____ 18, 1997
CORPORATION AND WESLEY W. VON :
SCHACK, :
: __________
Defendants. : Not Compared
- - - - - - - - - - - - - - - - - - - X with Copy Filed
Plaintiff alleges upon information and belief, which includes the
investigation conducted by and through his undersigned attorneys, except as to
those matters pertaining to plaintiff, which are alleged upon knowledge, as
follows:
NATURE OF THIS ACTION
---------------------
1. This is a class action brought on behalf of holders of the common
stock of New York State Electric & Gas Corporation ("NYSEG" or the "Company") to
compel NYSEG, in accordance with its fiduciary obligations to NYSEG
stockholders, to initiate procedures to maximize the value of NYSEG for the
benefit of its stockholders, by giving fair and full consideration to the
pending offer by CalEnergy Company, Inc. ("CalEnergy") to acquire NYSEG for cash
at a significant premium over market.
<PAGE>
THE PARTIES
-----------
2. Plaintiff Malcolm Rosenwald in a long-term holder of NYSEG common
stock through his IRA account. Plaintiff is a citizen of the State of New York
and maintains his offices in New York County. Venue is therefore appropriate in
this County.
3. Defendant NYSEG was incorporated as a New York corporation in 1852,
and maintains its executive offices in Ithaca, New York.
4. NYSEG is an electric and gas utility that services approximately
80,000 electric customers and 236,000 natural gas customers in the central,
eastern and western parts of New York. The larger cities serviced by NYSEG are
Binghamton, Elmira, Auburn, Geneva, Ithaca and Lockport. As of April 1, 1997,
the Company had 69,337,427 shares of common stock outstanding, which shares are
listed and traded on the New York Stock Exchange. Less than 1/4 of 1% of
NYSEG's outstanding common shares are owned by the Company's executive directors
and officers.
5. Defendant Wesley W. von Schack ("von Schack") has been NYSEG's
President, Chief Executive Officer and Chairman of the Board of Directors since
September 1996. By reason of his positions and ability to control the business
and affairs of NYSEG, defendant von Schack owes NYSEG shareholders fiduciary
duties of due care, entire fairness, trust and loyalty, and is required to
manage the affairs of the corporation in a fair and equitable manner and act
in furtherance of the best interests of NYSEG and its shareholders.
6. CalEnergy is a Delaware corporation whose executive offices are based
in Omaha, Nebraska. CalEnergy owns and
-2-
<PAGE>
operates 20 power generating facilities in the United States, the Philippines,
and Indonesia, and also services 1.5 million residential electric customers
through its recent acquisition of a 70% interest in a U.K. utility, Northern
Electric Plc.
CLASS ACTION ALLEGATIONS
------------------------
7. Plaintiff brings this action on behalf of himself and, under CPLR
Article 9, as a representative of the class of NYSEG stockholders, excluding all
defendants, officers and directors of NYSEG and their immediate families, the
respective subsidiaries and affiliates of NYSEG, and CalEnergy and its
respective directors, officers, subsidiaries and affiliates (the "Class").
8. There are approximately 69.3 million shares of NYSEG common stock
outstanding which are held by thousands of persons or entities. Joinder of the
members of the Class is, therefore, impracticable. The members of the Class are
readily identifiable from information and records in the possession of
defendants.
9. Plaintiff's claims are typical of the members of the Class in that
plaintiff and all members of the Class were injured by the same wrongful conduct
by the defendants.
10. Plaintiff will fairly and adequately protect and represent the
interests of the Class, and is committed to the vigorous prosecution of the
action. Plaintiff is represented by counsel who are experienced and competent
in the prosecution of complex securities and class action litigation. The
interests of Plaintiff are coincident with, and not antagonistic to, those of
the Class.
-3-
<PAGE>
11. Questions of law and fact common to the members of the Class
predominate over questions, if any, that may affect only individual members
because defendants have acted on grounds generally applicable to the entire
Class. Questions of law and fact common to the Class include:
a. whether the defendants are breaching their fiduciary duties to
the shareholders with respect to the CalEnergy offer;
b. whether the defendants exercised their duty of care in
appropriately reviewing all of the relevant data necessary to understand and act
upon the CalEnergy proposal;
c. whether NYSEG has acted to further the interests of its
stockholders in refusing to timely consider the CalEnergy proposal; and
d. whether NYSEG is required to maximize shareholder value by
soliciting bids for NYSEG or taking other steps to enhance shareholder value.
12. Class action treatment is the superior method for the fair and
efficient adjudication of this controversy, in that, among other things, such
treatment will permit a large number of similarly situated persons to prosecute
their common claims in a single forum simultaneously, efficiently, and without
the unnecessary duplication of evidence, effort, and expense that numerous
individual actions would engender. Plaintiff knows of no difficulty to be
encountered in the maintenance of this action that would preclude its
maintenance as a class action.
-4-
<PAGE>
ADDITIONAL SUBSTANTIVE ALLEGATIONS
----------------------------------
13. NYSEG's financial position has languished over the past several years
and its growth has been stagnant. For example, the Company reported 1996 net
income of approximately $178 million and earnings per share of $2.37, as
compared to 1995 net income of $197 million and earnings par share of $2.49.
This downward trend has continued in 1997. For the quarter ended March 31,
1997, NYSEG reported a 17% decline in net income as compared to the March 1996
quarter.
14. As a result of the Company's poor financial performance and losing
investments, NYSEG was required to cut its dividend by 30% in 1994 from $2.00 to
its current level of $1.40 per share. The market price of NYSEG common stock
has consistently underperformed the market since 1992, declining by 30% to $21
per share from the $30 per share level.
15. Moreover, the Company's prospects of success in the $210 billion
utility industry are increasingly uncertain as the industry changes from a
regulated market to a competitive one. The evolution from a regulated market
involves the separation of generation, transmission, and distribution functions
to create a competitive environment, replacing the former regulated utility that
acted as a monopoly. This dynamic process has several common features:
a. DEREGULATION: No more monopoly, rate of return tariff structure;
the market will become one with negotiated pricing and profits;
b. PRIVATIZATION: State protected and owned utilities will be
divested by governments, turning them over to private
-5-
<PAGE>
capital investment and new private sector managers with a far greater focus on
operating efficiency;
c. DISAGGREGATION: The traditional single source, vertically
integrated utility structure is being opened and restructured to separate
generation, transmission, distribution, and supply functions; and
d. CONVERGENCE: Providers of basic energy products are converging:
packaging fuel, electricity, BTUs, and power marketing into higher value
products.
16. To implement the restructuring of the electric utility industry, in
May 1996, the New York Public Service Commission ("PSC") issued an order
which calls for (i) a competitive wholesale power market in early 1997 and
(ii) the introduction of retail access for all electric customers in early
1998. The PSC order also calls for lowering rates for consumers, increasing
customers' choice of suppliers, continuing reliability of service, and
continuing programs that are in the public interest.
17. In response to the PSC order, the Company has submitted a five-year
rate and restructuring plan which provides, among other things, for a freeze in
the average retail price of electricity for five years, beginning August 1,
1997, and allows customers to increase their electricity use at up to half the
present price. The plan also introduces wholesale competition on August 1,
1997, and phases in retail competition on August 1, 1998.
18. NYSEG has publicly acknowledged that implementation of the PSC order
will seriously undermine the Company's financial position for several reasons.
Under the Company's current
-6-
<PAGE>
electric rate agreement with the PSC, there are yearly rate increases of about
$45 million (2.8%) for the three years beginning August 1, 1995. However, in
view of the PSC's rate reduction policy, the PSC has indefintely deferred the
rate increase which was due to begin in August 1996.
19. NYSEG had anticipated that rate increases in 1996 and 1997 would
offset losses incurred with respect to NYSEG's $610 million investment in the
Nine Mile Point nuclear facility, for which the Company is required to
accelerate depreciation or write-offs. Moreover, NYSEG has long-term contracts
with independent power producers that are above estimated prices in a
competitive marketplace. Without the rate increases, NYSEG's earnings will
be significantly and adversely impacted for the foreseeable future.
20. In an attempt to preserve the status quo, NYSEG has joined in
litigation with other utilities to enjoin the PSC's May 1996 order. In November
1996, the Supreme Court for the County of Albany upheld the propriety of the PSC
order. That ruling has been appealed to the Appellate Division, Third
Department. NYSEG has also filed separate litigation against the PSC in an
attempt to obtain the unimplemented rate increases.
CALENERGY AND ITS ALL-CASH PROPOSAL
-----------------------------------
21. In contrast to NYSEG's languishing financial condition, CalEnergy has
thrived as the utility industry has evolved toward a competitive market. Since
1992, CalEnergy has experienced exploding revenues and earnings from both
internal growth and acquisitions. For the quarter ended March 31, 1997,
CalEnergy
-7-
<PAGE>
reported revenues of $566 million, and income increased by 58% to $41
million as compared to $27 million for the March 1996 quarter. Revenues for
1997 are expected to surpass $2 billion. Moreover, CalEnergy's credit quality
has steadily improved as the company diversified its operations in the U.S. and
internationally.
22. Since 1992, the market price of the CalEnergy stock has increased
300% from about $10 to the $40 level.
23. On July 15, 1997, CalEnergy publicly announced that NYSEG had
rejected its invitation to enter into merger negotiations, notwithstanding
the Company's acknowledgement that such a combination, which offered a
substantial premium over the Company's market price, was a viable alternative
and should be considered in the best interests of NYSEG stockholders.
24. According to the CalEnergy press release, David F. Sokol, the
Chairman and Chief Executive Officer of CalEnergy, met with defendant von
Schack on July 19, 1997 to discuss the possibility of a business combination
between CalEnergy and NYSEG. At the meeting, Sokol was advised that the sale
of NYSEG at a significant premium (about 25% above market price) might be
appropriate in the context of a stock-for-stock merger and von Schack told
him that an offer in this range would be "seriously and promptly considered"
by the Board and that "it was in the best interest of [NYSEG] shareholders to
do so."
25. However, two days later, without even asking for any specifics, von
Schack changed position and advised Sokol that, after consultation with other
directors, a proposed combination was "not a priority" for NYSEG.
-8-
<PAGE>
26. In response to NYSEG's "confusing messages," on July 14, 1997, Sokol
advised von Schack by letter that CalEnergy would commence a tender offer to
acquire 6,540,670 NYSEG shares at a price of $24.50 per share. This will
bring CalEnergy's ownership to 9.9% of NYSEG's outstanding shares, the maximum
amount CalEnergy can purchase without prior federal and state regulatory
approval. Holders tendering their shares will still be entitled to the $0.35
per share dividend payable by NYSEG in August 1997.
27. Sokol emphasized that the tender offer is "the first step in the
intended acquisition of 100% of NYSEG's common shares by CalEnergy" and that "we
would prefer to work together with you and your Board to achieve a negotiated
transaction." To this end, Sokol proposed an all-cash acquisition of NYSG stock
at $27-1/2 per share. This price represents a 31.74% premium over NYSEG's
$20-7/8 per share closing price on June 30, 1997, when CalEnergy began
open-market purchases of NYSEG common stock.
28. Sokol also represented that CalEnergy intended to maintain NYSEG as an
independent operating business with its existing headquarters. Moreover,
CalEnergy planned to reincorporate in New York and grow NYSEG's business by
participating aggressively in the New York electric market.
29. Sokol stressed that unlike most players in the electric utility
industry, and NYSEG in particular, CalEnergy has developed expertise in and has
thrived in the competitive marketplace, both within the U.S. and
internationally. Sokol added that CalEnergy could leverage its direct
experience of its U.K. subsidiary utility, Northern Electric Plc, which services
-9-
<PAGE>
1.5 million customers and has operated in the deregulated and competitive U.K.
electric and gas markets.
30. Thus, rather than fight the inevitable changes in rate structure
initiated by the PSC, CalEnergy was prepared to succeed under a competitive
market approach. Sokol stated:
We fully expect that CalEnergy will be able to work closely with
the New York Public Service Commission to implement rate
reductions for all NYSEG customers, while providing them with the
same safe and reliable energy service to which they are
accustomed. LOWER RATES WOULD GIVE NYSEG AN ADVANTAGE IN MEETING
THE COMPETITIVE CHALLENGES OF THE DEREGULATING ENERGY MARKET
while contributing to New York's economic vitality and ability to
attract and retain jobs. [Emphasis added.]
31. Sokol added that CalEnergy was prepared to meet immediately to discuss
the terms of the transaction.
32. The market's reaction to the CalEnergy offer was immediate and
favorable -- NYSEG shares jumped over $3 per share, or 15%, in a single day, to
a 52-week high of $24-9/16.
33. Securities analysts also praised the CalEnergy offer. For example,
Banc One Investment Advisors analyst Bill Turner stated: "I love the offer. We
suffered with NYSEG for a while now." J. P. Morgan analyst Kyle Ludden was also
impressed with the "significant premium" over market.
CAUSE OF ACTION FOR
BREACH OF FIDUCIARY DUTY
------------------------
34. Plaintiff repeats and realleges by reference the allegations contained
in the paragraphs above.
-10-
<PAGE>
35. Under New York law, officers and directors of a corporation owe
fiduciary duties to shareholders and must act in the best interests of the
shareholders. Such duties require them to explore all avenues to enhance
shareholder value, including entertaining offers to enter into merger or other
extraordinary business transactions that would provide shareholders with a
significant premium over the company's market price in the foreseeable future.
Von Schack was under an obligation to adequately inform himself of and to
consider the Calenergy proposal, which he acknowledged, at a 25% market premium,
might be in the best interests of NYSEG shareholders.
36. Defendants have breached their fiduciary duties in rejecting
Calenergy's invitation to negotiate without adequately informing themselves of
the parameters of the proposal. As a result of the actions of defendants,
plaintiff and the other members of the class have been and will be irreparably
damaged in that they have not received and will not receive their fair
proportion of the value of NYSEG's assets and business nor a fair price for the
investment in NYSEG, and are being deprived of the opportunity to maximize the
value of their shares.
37. Unless this court provides the remedial relief sought herein,
defendants will continue to breach their fiduciary duties owed to plaintiff and
the other members of the class, thereby irreparably harming the members of the
class.
38. Plaintiff and the class have no adequate remedy at law.
-11-
<PAGE>
PRAYER FOR RELIEF
-----------------
WHEREFORE, plaintiff demands judgment and preliminary and permanent relief,
including injunctive relief, in his favor and in favor of the class and against
defendants, as follows:
a. An order certifying this class as a class action and designating
plaintiff and the undersigned counsel as representative and counsel,
respectively, thereof;
b. declaring and decreeing that defendants' conduct constitutes a
breach of fiduciary duties owed to the class and is therefore unlawful;
c. requiring the defendants to fulfill their fiduciary duties to
maximize shareholder value by fairly and diligently reviewing the Calenergy
offer and offers from other potential acquirors;
d. awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts' fees; and
e. such other equitable and declaratory relief as this court deems
just and proper.
Dated: July 18, 1997
LOWEY DANNENBERG BEMPORAD &
SELINGER, P.C.
The Gateway, 11th Floor
One North Lexington Avenue
White Plains, NY 10601
914-997-0500
Attorneys for Plaintiff
-12-
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF BROOME
- - - - - - - - - - - - - - - - - - - - - - - -X
MORITIMER SCHULMAN, P.C. MONEY : Index No. 1997001655
PURCHASE PLAN, AND ELISE MILLER, :
: Filed on:
Plaintiffs, :
: Plaintiffs designate
- Against - : Broome County as
: the place for trial
WESLEY W. VON SCHACK, JAMES A. CARRIGG, :
ALLEN E. KINTIGH, JOHN M. KEELER, RICHARD :
AURELIO, WALTER G. RICH, EVERETT A. : The basis of venue
GILMOUR, LOUIS B. DEFLUER, ALTON G. : is defendants' place
MARSHALL, BEN E. LYNCH, ALISON CASARETT, : of business
PAUL I. GOIA, JOSEPH J. CASTIGLIA, AND NEW :
YORK STATE ELECTRIC & GAS COMPANY, :
: S U M M O N S
Defendants. : -------------
- - - - - - - - - - - - - - - - - - - - - - - -X
To the above named defendants:
YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve
a copy of your answer, or, if the complaint is not served with this summons, to
serve a notice of appearance, on the Plaintiff's Attorneys within 20 days after
service of this summons, exclusive of the day of service (or within 30 days
after the service is complete if this summons is not personally delivered to you
within the State of New York); and in case of your failure to appear or answer,
judgment will be taken against you by default for the relief demanded in the
complaint.
Dated: July 17, 1997 RECEIVED
July 17 1997
Defendants' address: Broome County Clerk
4500 Vestal Parkway East
Binghamton, New York 13902
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
Attorneys for Plaintiffs
805 Third Avenue
New York, New York 10022
(212) 935-7400
<PAGE>
Exhibit 30
SUPREME COURT OF THE STATE OF NEW YORK Index No. 97/112854
COUNTY OF NEW YORK Date purchased July 16, 1997
_______________________________________________
CARMINE S. CASELLA, on behalf of himself and Plaintiff(s) designate(s)
all others similarly situated, New York County as the place
of trial.
The basis of the venue is
Plaintiff(s) that plaintiff and defendant
reside in New York
against
SUMMONS
NEW YORK STATE ELECTRIC & GAS CORP., WESLEY W.
VON SCHACK, A.E. KINTIGH, J.A. CARRIGG, B.E. Plaintiff(s) reside(s) at
LYNCH, ALISON P. CASARETT, A.G. MARSHALL, E.A. 139 Russell Street
CASARETT, A.G. MARSHALL, E.A. GILMOUR, J.J. Brooklyn, New York 1122_
CASTIGLIA, LOIS B. DEFLEUR, J.M. KEELER and County of Kings
P.L. GIOIA,
Defendant(s)
_______________________________________________
To the above named Defendant(s)
YOU ARE HEREBY SUMMONED to answer the complaint in this action and
to serve a copy of your answer, or, if the complaint is not served with this
summons, to serve a notice of appearance, on the Plaintiff's Attorney(s)
within days after the service of this summons, exclusive of the day of
service (or within 30 days after the service is complete if this summons is
not personally delivered to you within the State of New York); and in case of
your failure to appear or answer, judgment will be taken against you by
default for the relief demanded in the complaint.
Dated, July 16, 1997 ABBEY, GARDY & SQUITIERI, LLP
Attorney(s) for Plaintiff
Defendant's address: Office and Post Office Address
(See Attached) 212 East 39th Street
New York, New York 10016
<PAGE>
ATTACHMENT TO SUMMONS
---------------------
NEW YORK STATE ELECTRIC & GAS CORP.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
WESLEY W. VON SCHACK
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
A.E. KINTIGH
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
J.A. CARRIGG
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
B.E. LYNCH
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
ALISON P. CASARETT
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
A.G. MARSHALL
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
E.A. GILMOUR
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
<PAGE>
J.J. CASTIGLIA
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
LOIS B. DEFLEUR
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
J.M. KEELER
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
P.L. GIOIA
c/o New York State Electric & Gas Corp.
4500 Vestal Parkway East
Binghamton, New York 13902-3607
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - -
CARMINE S. CASELLA, on behalf of : Index No. 97112854
himself and all others similarly :
situated, :
:
Plaintiff, : CLASS ACTION
: COMPLAINT
: ------------
:
-against- :
:
NEW YORK STATE ELECTRIC & GAS CORP., :
WESLEY W. VON SCHACK, A.E. KINTIGH, :
J.A. CARRIGG, B.E. LYNCH, ALISON P. :
CASARETT, A.G. MARSHALL, E.A. :
GILMOUR, J.J. CASTIGLIA, LOIS B. :
DEFLEUR, J.M. KEELER and P.L. GIOIA, :
:
Defendants. :
- - - - - - - - - - - - - - - - - - - - - -
Plaintiff, by his attorneys, alleges upon information and belief,
except as to paragraph 1 which is alleged upon knowledge, as follows:
THE PARTIES
-----------
1. Plaintiff is the owner of shares of common stock of defendant New
York State Electric & Gas Corp. ("Electric & Gas" or the "Company") and has been
the owner continuously of such shares since prior to the wrongs complained of
herein.
2. Defendant Electric & Gas is a corporation duly existing and
organized under the laws of the State of New York, with its principal offices
located at 4500 Vestal Parkway East, Binghamton, New York 13902-3607. The
Company provides electric and gas services to customers in central, eastern
and western parts of New York. The area is composed of light industry, high
technology businesses, agriculture, recreation facilties and colleges.
<PAGE>
3. Defendant Wesley W. Von Schack ("Schack") is and was, at all
times relevant hereto, President and Chief Executive Officer, and Chairman of
the Board of Directors of Electric & Gas.
4. Defendants A.E. Kintigh, J.A. Carrigg, B.E. Lynch, Alison P.
Casarett, A.G. Marshall, E.A. Gilmour, J.J. Castiglia, Lois B. Defleur, J.M.
Keeler and P.L. Gioia are and were, at all times relevant hereto, directors of
the Company.
5. The defendants referred to in paragraphs 3 and 4 are collectively
referred to herein as the "Director Defendants."
6. By reason of the above Director Defendants' positions with the
Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiff and the other public stockholders of Electric & Gas,
and owe plaintiff and the other members of the class the highest obligations of
good faith, fair dealing, due care, loyalty and full, candid and adequate
disclosure.
CLASS ACTION ALLEGATIONS
------------------------
7. Plaintiff brings this action for declaratory, injunctive and
other relief on his own behalf and as a class action pursuant to CPLR Section
901 ET SEQ. on behalf of all common stockholders of Electric & Gas (except
defendants herein and any person, firm, trust, corporation or other entity
related to or affiliated with any of the defendants) or their successors in
interest, who are being deprived of the opportunity to maximize the value of
their Electric & Gas shares by the wrongful acts of the defendants as
described herein.
-2-
<PAGE>
8. This action is properly maintainable as a class action for the
following reasons:
a. The class of stockholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable. As
of March 31, 1997, there were approximately 69 million common shares of Electric
& Gas outstanding, owned by thousands of stockholders of record. Members of the
Class are scattered throughout the United States.
b. There are questions of law and fact which are common to
members of the Class and which predominate over all questions affecting only
individual members, including whether the defendants have breached or aided and
abetted a breach of the fiduciary duties owed by them to plaintiff and members
of the Class by reason of the acts described herein and whether plaintiff and
the other class members would be irreparably damaged if the defendants are not
enjoined in the manner described below.
c. The claims of plaintiff are typical of the claims of the
other members of the Class and plaintiff has no interests that are adverse or
antagonistic to the interests of the Class.
d. Plaintiff is committed to the vigorous prosecution of this
action and has retained competent counsel experienced in litigation of this
nature. Accordingly, plaintiff is an adequate representatives of the Class and
will fairly and adequately protect the interests of the Class.
-3-
<PAGE>
e. The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class and establish incompatible standards
of conduct for the party opposing the Class.
f. Defendants have acted and are about to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive
or corresponding declaratory relief with respect to the Class as a whole.
FACTUAL ALLEGATIONS
-------------------
9. On July 15, 1997, CalEnergy Company, Inc. ("CalEnergy")
announced that its wholly owned subsidiary CE Electric, Inc. intends to
commence a cash tender offer to acquire a 9.9% stake in Electric & Gas (or
6,540,670 shares of the common stock of Electric & Gas) at a price of $24.50
per share or $159 million. The maximum percentage of shares that CalEnergy
can acquire without certain federal and state regulatory approval is 9.9%.
The tender offer is not subject to any financing. CalEnergy manages and owns
interests in over 5000 power generation facilities in operation, construction
and development worldwide, and also supplies and distributes electricity to
1.5 million customers.
10. The tender offer, CalEnergy announced, is its first step toward
the intended acquisition of 100% of Electric & Gas' outstanding common stock.
CalEnergy informed Electric & Gas that it would much prefer to commence
negotiations to enter into a consensual merger.
-4-
<PAGE>
11. CalEnergy also announced that it was willing to pay $27.50 per
share in cash for Electric & Gas' outstanding common stock if a friendly
consensual merger could be negotiated. In reaction to CalEnergy's tender offer,
shares of Electric & Gas jumped $3.1875 or approximately 15% to close at
$24.5625 on July 15, 1997.
12. In response to CalEnergy's offer, Electric & Gas informed
CalEnergy that pursuing discussions concerning a possible combination was not a
priority and that its board of directors would meet in due course. Electric &
Gas advised its shareholders to take no action in connection with CalEnergy's
tender offer.
13. In refusing to actively consider CalEnergy's offer, the Company
is failing to recognize the economic realities facing it. Electric & Gas'
financial results have remained essentially flat or worsened in recent years.
For example, it's 1996 net income decreased to $178,241,000 from 1995 net
income of $196,690,000 and 1994 net income of $187,645,000. Similarly,
earnings per share of $2.37 in 1994 increased to $2.49 per share in 1995 an
dropped back down to $2.37 per share in 1996. Dividends per share of $2.18
in 1994 dropped to $1.40 per share in 1995 and remained flat at $1.40 per
share in 1996. First quarter 1997 net income decreased to $81.9 million from
first quarter 1996 net income of $98.6 million. The Company's earnings per
share for the same periods dropped from $1.35 to $1.15 per share.
14. A cash price of $27.50 represents a premium of 31.74% above the
$20 7/8 closing price for Electric & Gas on June
-5-
<PAGE>
30, 1997, the day immediately preceding the day on which CalEnergy commenced
open market purchases of Electric & Gas common stock.
15. In light of the foregoing, the Individual Defendants must, as
their fiduciary obligations require:
- undertake an appropriate evaluation of Electric & Gas' worth as a
merger/ac-quisition candidate;
- take all appropriate steps to enhance Electric & Gas' value and
attractiveness as a merger/acquisition candidate;
- take all appropriate steps so effectively expose Electric & Gas
to the marketplace in an effort to create an active auction for
Electric & Gas, including but not limited to engaging in serious
negotiations with CalEnergy or its representatives;
- act independently so that the interests of Electric & Gas' public
stockholders will be protected; and
- adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to
maximize stockholder value or, if such conflicts exist, to ensure
that all conflicts be resolved in the best interests of Electric
& Gas' public stockholders.
16. As a result of defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their proportionate share of the value
of the Company's assets and business, and have been and will be prevented from
obtaining a fair price for their common stock.
17. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the
-6-
<PAGE>
other members of the Class, by maintaining themselves in office (as Electric
& Gas' top management and directors and who may be unable to retain those
positions in the event of a merger) and/or failing to take the steps set
forth herein above, excluding the Class from its fair proportionate share of
Electric & Gas' valuable assets and businesses, all to the irreparable harm
of the Class.
18. Plaintiff and the other members of the Class have no adequate
remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
(1) declaring this to be a proper class action;
(2) enjoining, preliminarily and permanently, the proposed merger
under the terms presently proposed, and requiring defendants to make full and
fair disclosure of all material facts to the class before the completion of
any such merger;
(3) to the extent, if any, that the transaction or transactions
complained of are consummated prior to the entry of this Court's final judgment,
rescinding such transaction or transactions, including, but not limited to
rescissory damages;
(4) directing that defendants pay to plaintiff and the class all
damages caused to them and account for all profits and any special benefits
obtained as a result of their unlawful conduct;
(5) awarding to plaintiff the costs and disbursements of this action,
including a reasonable allowance for the fees and expenses of plaintiff's
attorneys and expert; and
-7-
<PAGE>
(6) granting such other further relief as may be just and proper in
the premises.
Dated: New York, New York
July 16, 1997
Yours, etc.
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
Telephone: (212) 889-3700
-8-
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
======================================
CARMINE S. CASELLA, on behalf of
himself and all others similarly
situated,
Plaintiff,
-against-
NEW YORK STATE ELECTRIC & GAS CORP.,
WESLEY W. VON SCHACK, A.E. KINTIGH,
J.A. CARRIGG, B.E. LYNCH, ALISON P.
CASARETT, J.J. CASTIGLIA, LOIS B.
DEFLEUR, J.M. KELLER and P.L. GIOIA,
Defendants.
======================================
CLASS ACTION COMPLAINT
======================================
ABBEY, GARDY & SQUITIERI, LLP
Attorney(s) for Plaintiff
212 East 30th Street
New York, N.Y. 10016
(212) 889-3700
<PAGE>
EXHIBIT 31
SUPREME COURT OF THE STATE OF NEW YORK INDEX NO. 24812/97
COUNTY OF KINGS Plaintiff(s) designates
- - - - - - - - - - - - - - - - - - - - - - x Kings
:
HOWARD LASKER, IRVING HOLLANDER TRUST, : County as the place of trial
JULIANNE RAMOS and MARY HERMAN, :
: The basis of the venue is
Plaintiff(s) :
: Plaintiff Howard Lasker
against : resides in Kings County
:
WESLEY W. VON SCHACK, JAMES A. CARRIGG, : Summons with Notice
ALISON P. CASARETT, JOSEPH J. :
CASTIGLIA, LOIS B. DEFLEUR, EVERETT A. : Plaintiff(s) reside(s) at
GILMOUR, PAUL L. GOIA, JOHN M. KEELER, :
ALLEN E. KINTIGH, BEN E. LYNCH, ALTON : Howard Lasker, 415 Avenue L,
G. MARSHALL, and NEW YORK STATE : Brooklyn, NY 11230
ELECTRIC & GAS CORPORATION, :
: County of Kings
Defendant(s) :
- - - - - - - - - - - - - - - - - - - - - - x
To the above named Defendant(s)
YOU ARE HEREBY SUMMONED to answer the complaint in this action and to
serve a copy of your answer, or, if the complaint is not served with this
summons, to serve a notice of appearance, on the Plaintiff's Attorney(s) within
20 days after the service of this summons, exclusive of the day of service (or
within 30 days after the service is complete if this summons is not personally
delivered to you within the State of New York); and in case of your failure to
appear or answer, judgment will be taken against you by default for the relief
demanded herein.
Dated, July 18, 1997
Defendant's Address: All Defendants c/o
NEW YORK STATE ELECTRIC Attorney(s) for Plaintiff(s)
& GAS CORP Office and Post Office Address
4500 Vestal Parkway East, STULL, STULL & BRODY
Binghamton, NY 13902-3607 6 East 45th Street, Suite 500
New York, NY 10017
Notice: The nature of this action is
Securities Class Action alleging breach
of fiduciary duty
The relief sought is
Upon your failure to appear, judgment will be taken against you by default
for the sum of $ With interest from 19 and
the costs of this action.
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF KINGS
- - - - - - - - - - - - - - - - - - - - -x
HOWARD LASKER, IRVING HOLLANDER TRUST, :
JULIANNE RAMOS and MARY HERMAN, :
: INDEX NO.
Plaintiffs, :
:
-against- : CLASS ACTION
: COMPLAINT
WESLEY M. VON SCHACK, JAMES A. CARRIGG, :
ALISON P. CASARETT, JOSEPH J. CASTIGLIA, :
LOIS B. DEFLEUR, EVERETT A. GILMOUR, :
PAUL J. GIOIA, JOHN M. KEELER, ALLEN E. :
KINTIGH, BEN E. LYNCH, ALTON G. MARSHAL :
and NEW YORK STATE ELECTRIC & GAS :
CORPORATION, :
:
Defendants. :
- - - - - - - - - - - - - - - - - - - - -x
Plaintiffs, by their attorneys, allege upon information and belief,
except for paragraphs 2-5, which plaintiffs allege on personal knowledge, as
follows:
1. Plaintiffs bring this class action pursuant to Article 9 of the
CPLR, on behalf of themselves and all other stockholders of defendant New York
State Electric and Gas Corporation ("NYSEG" or the "Company") who are or will be
threatened with injury arising from defendants' actions as more fully described
herein.
2. Plaintiff Howard Lasker is and has been a stockholder of the
Company at all times relevant to the allegations herein.
3. Plaintiff Irving Hollander Trust is and has been a stockholder of
the Company at all times relevant to the allegations herein.
-1-
<PAGE>
4. Plaintiff Julianne Ramos is and has been a stockholder of the
Company at all times relevant to the allegations herein.
5. Plaintiff Mary Herman is and has been a stockholder of the
Company at all relevant times to the allegations herein.
6. NYSEG is a combination utility providing electric and gas
services in the eastern, western and central portions of New York State. NYSEG
provides electricity to 808,000 customers and gas to 238,000 customers in
central and eastern and western New York. NYSEG is incorporated in New York,
with its principal offices located at Ithaca-Dryden Rd., P.O. Box 3287, Ithaca,
New York 14851-3287. The number of shares outstanding of NYSEG's common stock
as of April 1, 1997, was 69,337,427. NYSEG's stock is traded on the New York
Stock Exchange.
7. Defendant Wesley W. Von Schack ("Von Schack") is, and has been at
all relevant times, Chairman of the Board, President, Chief Executive Officer
and a director of the Company.
8. Defendants James A. Carrigg, Alison P. Casarett, Joseph J.
Castiglia, Lois B. DeFleur, Everett A. Gilmour, Paul L. Gioia, John M. Keeler,
Allen B. Kintigh, Ben E. Lynch and Alton G. Marshall are currently directors of
NYSEG and have been directors of NYSEG at all times relevant to this action.
9. The persons named in paragraphs 7-8 above shall be collectively
referred to herein as the "Individual Defendants.
10. By reason of their positions with the Company, the Individual
Defendants are in fiduciary relationships with Plaintiffs and the other public
stockholders of the Company and owe to
-2-
<PAGE>
them the highest obligations of good faith and fair dealing. The Individual
Defendants, by reason of their corporate dictatorships, stand in a fiduciary
position relative to the Company's shareholders, which fiduciary
relationship, at all times relevant herein, required the Individual
Defendants to exercise their best judgment, and to act in a prudent manner,
and in the best interests of the Company's shareholders. They were and are
required to use their ability to control and manage the Company in a fair,
just and equitable manner; to act in furtherance of the best interests of the
Company's shareholders; to refrain from abusing their positions of control;
and not to favor their own interests at the expense of the Company's
shareholders.
CLASS ACTION ALLEGATIONS
------------------------
11. Plaintiffs brings this action on their own behalf and as a class
action, pursuant to Article 9 of the CPLR, on behalf of all security holders of
the Company (except the defendants herein, members of their immediate families,
and any person, firm, trust, corporation or other entity related to or
affiliated with any of the defendants) and their successors in interest, who are
or will be threatened with injury arising from defendants' actions as more fully
described herein.
12. The class is so numerous that joinder of all members is
impracticable. The number and identity of the members of the class of NYSEG
securities can be ascertained from the books and records of the Company and/or
its agents. The members of the class are scattered throughout the United
States.
-3-
<PAGE>
13. There are questions of law and fact which are common to the class
and which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
(a) whether defendants have breached their fiduciary duties by
engaging in concerted and continual action to entrench themselves in their
lucrative positions at the expense of NYSEG's public stockholders;
(b) whether defendants are unlawfully impeding possible takeover
attempts at the expense of NYSEG's public stockholders;
(c) whether defendants have failed and will fail to negotiate in good
faith with prospective purchasers of the Company; and
(d) whether Plaintiffs' and the other members of the class would be
irreparably damaged were the defendants not enjoined from the conduct
described hereinbelow.
14. Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature. The claims
of Plaintiffs are typical of the claims of the other members of the class and
Plaintiffs have the same interests as the other members of the class.
Plaintiffs are adequate representative of the class and will fairly and
adequately protect the interests of the class.
15. The likelihood that individual members of the class will
prosecute separate individual actions is remote due to the burden and expense of
prosecuting litigation of this nature and magnitude.
-4-
<PAGE>
Plaintiff anticipate that there will not be any difficulty in the management
of this litigation.
16. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of the
controversy and the requirements are satisfied.
SUBSTANTIVE ALLEGATIONS
-----------------------
17. On July 10, 1997, David L. Sokol ("Sokol"), the Chairman and
Chief Executive Officer of CalEnergy Company, Inc. ("CalEnergy") met with Wesley
W. Von Schack, the Chairman, President and Chief Executive Officer of NYSEG to
discuss the possibility of a business combination between NYSEG and CalEnergy.
18. Subsequent to that meeting, Von Schack called Sokol to inform him
that the Board of Directors of NYSEG, at a meeting on July 11, 1997, had
determined that discussions of this opportunity were not a priority and could
not be conducted on the timely basis which Sokol had outlined in their meeting.
19. On July 15, 1997, CalEnergy stated it would launch a hostile
$159 million bid for 9.9 percent of NYSEG in the first step of an effort to
buy the whole utility. CalEnergy offered to buy the stake for $24.50 per
share in cash and said it would be willing to raise the offer to $27.50 per
share for all of the stock if NYSEG agreed to a friendly bid. This cash
price represents a premium of 31.74% above the NYSEG $20-7/8 per share
closing price on June 30, 1997 (the day immediately preceding the day on
which
-5-
<PAGE>
CalEnergy first commenced our open market purchases of NYSEG Common Stock).
The higher offer would be worth $1.9 billion.
20. CalEnergy stated that it made the offer after preliminary
discussions of a possible merger were not received warmly by NYSEG's board of
directors. Sokol stated it was prepared to launch an aggressive attack on NYSEG
and would pursue a proxy fight if necessary. He also stated that CalEnergy has
$2 billion in financing committed for the deal.
21. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
refusal to negotiate the possible acquisition of NYSEG and to provide
confidential information.
22. Plaintiffs and the other members of the class have been and will
be damaged in that they have not and will not receive their fair proportion of
the value of NYSEG's assets and businesses, and have been and will be prevented
from obtaining a fair price for their shares of the Company's common stock.
23. Unless enjoined by this Court, the Individual Defendants will
continue to breach their fiduciary duties owed to plaintiffs and the other
members of the class, and will entrench themselves in their corporate
offices, all to the irreparable harm of the class, as aforesaid.
24. Plaintiffs and the other members of the class have no adequate
remedy at law.
WHEREFORE, Plaintiffs pray for judgment and relief against defendants
and each of them as follows:
-6-
<PAGE>
A. Declaring this action to be a proper class action and certifying
the Plaintiffs as class representatives;
B. Offering the Individual Defendants to carry out their fiduciary
duties to plaintiffs and the other members of the class by announcing their
intention to:
1. cooperate fully with any person or entity, having a bona
fide interest in proposing any transaction which would maximize shareholder
value, including, but not limited to, a buyout or takeover of the Company;
2. undertake an appropriate evaluation of NYSEG's worth as a
merger/acquisition candidate;
3. take all appropriate steps to enhance NYSEG's value and
attractiveness as a merger/acquisition candidate;
4. take all appropriate steps to effectively expose NYSEG to
the marketplace in an effort to create an active auction for NYSEG;
5. act independently so that the interests of NYSEG's public
stockholders will be protected; and
6. adequately ensure that no conflicts of interest exist
between Individual Defendants' own interest and their fiduciary obligation to
maximize stockholder value or, if such conflicts exist, to ensure that all
conflicts are resolved in the best interests of NYSEG's public stockholders;
C. Ordering the Individual Defendants to carry out their fiduciary
duties to plaintiffs and the class and requiring them to
-7-
<PAGE>
respond in good faith to any bona fide potential acquirers of NYSEG;
D. Awarding Plaintiffs the costs and disbursements of this action
and reasonable attorneys' and expert's fees; and
E. Granting such other and further relief as the Court deems just
and proper.
Dated: July 18, 1997
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
WEISS & YOURMAN
551 Fifth Avenue
Suite 1600
New York, NY 10176
(212) 682-3025
KANTROWITZ & GOLDHAMER, P.C.
747 Chestnut Ridge Road
Chestnut Ridge, New York 10977
(914) 356-2570
Attorneys for Plaintiffs
-8-
<PAGE>
NYSEG REJECTS CALENERGY'S UNSOLICITED PARTIAL TENDER OFFER
AND INVITATION TO NEGOTIATE
--BOARD UNANIMOUSLY RECOMMENDS THAT NYSEG SHAREHOLDERS REJECT OFFER--
FOR IMMEDIATE RELEASE
BINGHAMTON, NEW YORK, JULY 30, 1997 -- The Board of Directors of New York State
Electric & Gas Corporation ("NYSEG") (NYSE: NGE), after a comprehensive and
careful review, has unanimously recommended that shareholders reject CalEnergy's
unsolicited tender offer to purchase 9.9% of NYSEG's common shares for $24.50
per share in cash (the "Stake-Out Tender Offer"). The Board has also decided to
reject CalEnergy's proposal to commence merger negotiations for a transaction in
which CalEnergy would acquire all of NYSEG at $27.50 per share, as not being in
the best interests of the Company or its shareholders, customers, employees and
other constituencies.
In reaching its decision, the Board considered a number of factors, including:
- the Board's belief that, for a variety of reasons, especially the
uncertain regulatory environment affecting utilities operating in New York
State and the ongoing regulatory restructuring proceedings initiated by
the New York Public Service Commission, the market price of NYSEG common
stock is artificially depressed and that the price stated in the
invitation to negotiate does not reflect the current or long-term value
inherent in NYSEG. In that regard, the Board noted that, as announced
separately today, NYSEG has reached an agreement in principle with the New
York Public Service Commission staff which is an important milestone in
putting an end to much of that uncertainty and the terms of which, the
Board believes, will be beneficial to NYSEG's shareholders, customers and
service territory in general;
- the lack of substance to CalEnergy's invitation to negotiate, including
the absence of any regulatory plan, without which any proposal to take
over a public utility is meaningless, and the absence of commitments for,
and total lack of detail regarding, CalEnergy's proposed financing
arrangements, which are an integral part of any regulatory plan;
- the significant regulatory hurdles associated with effecting a business
combination transaction, including obtaining the approval of the PSC, the
Federal Energy Regulatory Commission, the Nuclear Regulatory Commission
and the Securities and Exchange Commission under the Public Utility
Holding Company Act (or structuring the transaction in a way that will
obviate the need for Securities and Exchange Commission approval), as well
as the time delays and uncertainties associated with obtaining those
regulatory approvals;
- CalEnergy's lack of experience as a manager of electric and natural gas
transmission and distribution system;
- the structure and nature of the 9.9% tender offer which, if successful,
would result in NYSEG having a large shareholder, CalEnergy, with
interests (through its Saranac Power subsidiary) different from and
conflicting with NYSEG's other shareholders, and with the potential for
significant influence to further its own agenda at the expense of the
other shareholders;
- the opinion of NYSEG's management that the consideration of $27.50 per
share stated by CalEnergy in the invitation to negotiate is inadequate;
and
- the opinions of the Company's financial advisors regarding the $27.50 per
share price stated in CalEnergy's invitation to negotiate. Morgan Stanley
& Co. has opined that the price is inadequate from a financial point of
view to the holders of NYSEG's common stock (other than CalEnergy) and
Goldman, Sachs & Co. has opined that the price is inadequate to the
holders of NYSEG's common stock (other than CalEnergy).
A detailed discussion of the rationale for the Board's recommendation is
contained in the company's Solicitation/Recommendation Statement on Schedule
14D-9, which is being filed today with the Securities and Exchange Commission
and will be mailed to shareholders shortly.
<PAGE>
Wes von Schack, NYSEG Chairman, President, and Chief Executive Officer, said:
"NYSEG takes very seriously its obligation to ensure the safety and reliability
of the transmission and distribution of energy to every home, business, school
and hospital in the communities we share.
"With the best record of any utility in the state as measured by consumer
complaints and high marks from our customers on reliability and service, we have
a long and proud history of fulfilling our duties faithfully and being a leading
corporate citizen in our communities. Our programs in the areas of economic
development, community support, philanthropy, low-income assistance, and
volunteerism are among the most outstanding in the country.
"In the board's view, it would be a breach of our obligations to our customers,
employees, and communities to weigh any transfer of NYSEG's role and
responsibilities without a careful and deliberate consideration of a proposed
acquiror's fitness to operate our systems and meet our inviolate duties within
our service territory, which is inextricably linked to our ability to create
shareholder value.
"CalEnergy has given us no basis for concluding that it is an appropriate party
to assume the duties we have fulfilled for the better part of a century.
CalEnergy's six-month, long-distance ownership of an electric distribution
system in England and complete lack of experience in owning or operating a
natural gas distribution system is hardly reassuring in that regard. Also
troubling are the questionable tactics by which, and the irresponsibly hasty
timetable on which, CalEnergy set about to acquire NYSEG, which we believe raise
troubling questions about CalEnergy's true motives and qualifications.
"We also are concerned by CalEnergy's misleading and disingenuous attempts to
promote itself as an agent for deregulation and change. In fact, few companies
in America have benefitted from government regulation as much as CalEnergy. Many
analysts have pointed out that one of the key factors behind CalEnergy's revenue
growth has been government-mandated, above-market energy purchase agreements
under which utilities such as NYSEG are compelled to subsidize independent power
producers such as CalEnergy.
"NYSEG's customers currently bear the burden of several such contracts, the
largest of which is with CalEnergy's subsidiary, Saranac Power Partners, which
costs NYSEG customers well in excess of $100 million annually in payments above
market value. In fact, payments under these contracts represent the
second-largest element of NYSEG's electric rate structure, exceeded only by
taxes. CalEnergy is not the solution to lower energy rates in New York--it's
part of the problem," said Mr. von Schack.
"If preparing for competition is the issue," Mr. von Schack continued, "we have
already demonstrated our ability to thrive in a competitive environment on the
natural gas distribution side of our business, an area in which CalEnergy has no
experience whatsoever. Even though we face 40 competitors, our natural gas
business had its best year ever in 1996. Natural gas deliveries, revenues and
earnings all reached record levels. We have frozen our natural gas prices for
residential customers through July 1998 and, after a winter in which natural gas
prices rose sharply elsewhere in the state, we have some of the lowest and most
competitive prices in the Northeast.
"CalEnergy has engaged in a set of tactics, including its stake-out tender offer
for 9.9% of our stock and a massive PR and ad campaign, clearly designed to put
pressure on the board of directors and to mislead the financial markets and our
customers, employees and communities into believing that a change in control of
NYSEG is imminent. But, for all the smoke and mirrors CalEnergy has attempted to
conjure, in reality it has not even begun to put a real offer on the table. They
have no regulatory plan and no financing plan."
NYSEG is commencing litigation alleging CalEnergy's misuse of NYSEG's
confidential information in violation of a confidentiality agreement and failure
to disclose highly material information regarding its tender offer and
invitation to negotiate, as well as its failure to disclose major obstacles that
would substantially delay, and could prevent, CalEnergy from proceeding on a
nonconsensual basis with any takeover attempt.
Contact: Katherine Karlson, Corporate Communications: (607) 762-7976.
<PAGE>
NYSEG AND PUBLIC SERVICE COMMISSION STAFF REACH
AGREEMENT ON PRINCIPLES TO GOVERN COMPETITION
FOR IMMEDIATE RELEASE
BINGHAMTON, NY, JULY 30, 1997 -- New York State Electric & Gas Corporation
("NYSEG") (NYSE: NGE) announced today that it has reached an agreement with the
New York Public Service Commission Staff on the principles to govern a
settlement of the utility's proceeding to establish the terms on which
competition will be promoted in its service territory.
"This is an important milestone in our transition to competition. It presents
the most aggressive plan in the state for implementing 'customer choice' and
reinforces our commitment to competition," said Wes von Schack, NYSEG's
Chairman, President, and CEO.
According to the agreement, "The settlement meets all of the PSC's rate goals.
It encourages economic development and freezes prices under a hard five-year
price cap. The aggregate value of the revenue concessions is nearly $600
million."
The agreement includes the following features:
- NYSEG, whose electric rates have not increased since 1995, will forego
previously approved price increases for residential and commercial
customers totaling 6% that were scheduled to become effective in August of
1996 and 1997. These prices will be frozen through July 31st, 2002;
- Rates for large-use industrial and commercial customers will be reduced by
5% each year for the next five years;
- A retail choice program will proceed, under which all customers will be
permitted to buy electricity in a competitive marketplace by August 1,
1999;
- An extension of the current natural gas settlement through July 31st,
2002. This will freeze prices which are already among the lowest in the
northeast; and
- NYSEG will separate its fossil fuel generation into an unregulated
subsidiary. The fossil generating units will be subject to an auction
process in which the Company can participate. Value achieved as a result
of the auction process will also benefit customers.
In addition to the above there is the potential to reduce prices another 9%
since the Company intends to pass back to customers savings from renegotiation
of non-utility generator contracts and the passage of securitization
legislation. Furthermore, if the legislature approves the replacement of the
gross receipts tax with a "profits-based tax" electric prices may be reduced
another 3.1%. The combined effect of all these actions will be a reduction in
average electric prices of approximately 20% from previously authorized levels.
"This plan moves the State aggressively toward competition, provides
considerable price reductions, and improves economic development potential. The
real price of electricity could be reduced by 35% over the next five years when
inflation is factored into our plans stated above. For our natural gas business,
the real price of natural gas will decrease 15% over the same period of time,"
said von Schack.
This process began in the fall of 1996, when all investor-owned electric
utilities in New York, with the exception of LILCO and Niagara Mohawk, were
ordered to submit plans for the transition to open competition. Since that time,
NYSEG has been in settlement discussions with the PSC Staff. While NYSEG and the
Staff litigated this matter after the formal negotiation period expired,
settlement discussions continued, which resulted in this accord.
This agreement will now be presented to all the interested parties and an
Administrative Law Judge, with the expectation of a Commission decision by the
end of October.
Contact: Katherine Karlson, NYSEG Corporate Communications: (607) 762-7976.
# # #
