NIAGARA MOHAWK POWER CORP /NY/, S-4, 1998-04-09

NIAGARA MOHAWK POWER CORP /NY/
S-4, 1998-04-09
ELECTRIC & OTHER SERVICES COMBINED

Previous: NEW YORK TELEPHONE CO, 424B2, 1998-04-09

Next: NORTHEAST UTILITIES SYSTEM, 8-K, 1998-04-09

AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. _____________
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------

NIAGARA MOHAWK HOLDINGS, INC.
(Exact name of registrant as specified in charter)

NEW YORK 4931
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)

WILLIAM F. EDWARDS
CHIEF FINANCIAL OFFICER
NIAGARA MOHAWK HOLDINGS, INC.
300 ERIE BOULEVARD WEST 300 ERIE BOULEVARD WEST
SYRACUSE, NEW YORK 13202 SYRACUSE, NEW YORK 13202
(315) 474-1511 (315) 474-1511
--------------------------- ---------------------------
(Address, including zip code, and (Name, address, including zip
telephone number, including area code, code, and telephone number,
of registrant's principal executive including area code, of agent
offices) for service)
--------------------------- ---------------------------

COPIES TO:

Janet T. Geldzahler, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000

---------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.

---------------------------

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|

---------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED UNIT (2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share(1) 191,865,829 $12.2500 $2,350,356,405.25 $693,355.14
====================================================================================================================================
<FN>
(1) The number of shares of Common Stock of Niagara Mohawk Holdings, Inc.
("Holdings") to be issued in the share exchange described herein (the
"share exchange") cannot be precisely determined at the time this
Registration Statement becomes effective because shares of common stock of
Niagara Mohawk Power Corporation (the "Company") may be issued thereafter
and prior to the effective time of the share exchange pursuant to the
Company's Employee Savings Fund Plans for Represented and Non-Represented
Employees and the Company's 1992 Stock Option Plan. This Registration
Statement covers a number of shares of common stock of Holdings which is
estimated to be at least as large as the number of shares of common stock
of the Company which is expected to be outstanding at the effective time of
the share exchange. See the undertaking in Item 22(4) in Part II of this
Registration Statement.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) of the Securities Act of 1933, based upon the
per share market value of the shares of common stock of the Company to be
exchanged in the share exchange, which is the average of the reported high
and low sales prices of a share of common stock of the Company on the New
York Stock Exchange, Inc. Composite Tape on April 7, 1998.
</FN>
</TABLE>

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================
<PAGE>

EXPLANATORY NOTE

Unless otherwise indicated, the information in this Prospectus/Proxy
Statement assumes that the Conditions Determination Date (the date under the
Master Restructuring Agreement (the "MRA") by which all parties to the MRA shall
have satisfied or waived all conditions with respect to third party arrangements
and executed and placed in escrow all contracts relating to the consummation of
the MRA or withdrawn from the MRA) has occurred and no party has withdrawn and
that following such date the Board of Directors has approved the definitive
terms of the MRA. There can be no assurance that this will occur.

<PAGE>

[NiMo Letterhead]

To the Shareholders of
Niagara Mohawk Power Corporation

You are cordially invited to attend the Annual Meeting of your Company
to be held at 10:30 a.m. on June 23, 1998 at the Buffalo Convention Center,
Convention Center Plaza, Buffalo, New York 14202.

This year's Annual Meeting marks an important milestone for Niagara
Mohawk. After years of determined effort we are poised to solve a problem that
once seemed unsolvable: rising payments to independent power producers. In
addition, we have achieved regulatory approval of our PowerChoice plan to
restructure Niagara Mohawk to face the emerging competitive utility marketplace.

At this Annual Meeting, you will be asked to approve the issuance of up
to 43 million shares of Common Stock to certain independent power producers in
connection with the Company's Master Restructuring Agreement, all as described
in the accompanying Prospectus/Proxy Statement, as well as to amend the
Company's Certificate of Incorporation to increase the amount of Common Stock
the Company is authorized to issue to 250 million shares. Your Board of
Directors believes the Master Restructuring Agreement provides the best
alternative to restoring the Company's financial health and urges you to approve
the issuance of the Common Stock.

You will also be asked to approve a proposal to adopt a holding company
structure. As more fully explained in Proposal 4 of the accompanying
Prospectus/Proxy Statement, our industry is becoming increasingly subject to the
forces of market-driven competition. The formation of a holding company will
provide a structure more conducive to the pursuit of unregulated business
opportunities. Under the PowerChoice Agreement with the New York Public Service
Commission described in this Prospectus/Proxy Statement, the Company has
approximately one year within which it may adopt such a structure -- a structure
which several other New York utilities have adopted or are pursuing.
Accordingly, the Board is seeking your approval at this time, although the
actual formation of a holding company would be delayed pending the regulatory
approvals described herein.

In addition, you will elect five Class I Directors. Finally, you will
be asked to vote on two shareholder proposals concerning the endorsement by the
Company of the CERES Principles and executive compensation. A current report on
the affairs of the Company will be presented at the meeting and shareholders
will have an opportunity to ask questions.

Your vote is important. Whether or not you plan to attend the Annual
Meeting, please take a moment now to record your vote, sign and date your proxy
card and promptly return it in the self-addressed envelope. No postage is
necessary. You may revoke your voted proxy at any time prior to the vote being
taken at the meeting or vote in person if you decide to attend the meeting.

We have traveled a long and challenging road since proposing
PowerChoice in October 1995. With your support we will complete this journey
successfully and turn to the future with a renewed spirit of optimism and
resolve.

Sincerely,

William E. Davis
Chairman of the Board and
Chief Executive Officer

<PAGE>

NOTICE OF ANNUAL MEETING

NIAGARA MOHAWK POWER CORPORATION
300 ERIE BOULEVARD WEST, SYRACUSE, NEW YORK 13202

Please take notice that the Annual Meeting of Shareholders of Niagara
Mohawk Power Corporation (the "Company" or "Niagara Mohawk") will be held at the
Buffalo Convention Center, Convention Center Plaza, Buffalo, New York 14202 on
Tuesday, June 23, 1998, at 10:30 a.m. for the following purposes:

1. To elect five directors to serve in Class I for a term expiring at
the 2001 Annual Meeting;

2. To consider and act upon the proposed issuance of up to 43 million
shares of common stock, par value $1.00 per share ("Common Stock")
of the Company to certain independent power producers pursuant to
the Master Restructuring Agreement, dated as of July 9, 1997, as
amended;

3. To consider and act upon the proposed amendment of the Company's
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 185 million to 250 million;

4. Adoption of an Agreement and Plan of Exchange (a copy of which is
attached as Exhibit A to the accompanying Prospectus/Proxy
Statement), which provides that (a) the holders of shares of the
Company's Common Stock will become holders of shares of common
stock of Niagara Mohawk Holdings, Inc. ("Holdings") through a
share exchange, (b) Holdings will become the parent holding
company of the Company and certain of its non-utility
subsidiaries, and (c) Niagara Mohawk and those subsidiaries will
continue to carry on their utility and other businesses as
separate subsidiaries of Holdings;

5. To consider and act upon a shareholder proposal relating to an
endorsement by the Company of the CERES Principles;

6. To consider and act upon a shareholder proposal relating to
executive compensation; and

7. To transact such other business as may be properly brought before
the meeting or any adjournment thereof.

Shareholders entitled to vote at the meeting are the holders of Common
Stock of record at the close of business on May 7, 1998.

By Order of the Board of Directors

Kapua A. Rice
Secretary

IMPORTANT

EVEN THOUGH YOU MAY EXPECT TO ATTEND THE ANNUAL MEETING, THE BOARD OF
DIRECTORS URGENTLY REQUESTS THAT, WHETHER YOUR COMMON STOCK SHAREHOLDINGS ARE
LARGE OR SMALL, YOU PROMPTLY FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY
CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED FOR THAT PURPOSE. YOUR VOTE IS VERY
IMPORTANT TO US. IF YOU DO ATTEND AND VOTE AT THE ANNUAL MEETING, YOUR VOTE IN
PERSON WILL SUPERSEDE ANY EARLIER VOTE BY PROXY.

<PAGE>

[NIAGARA MOHAWK LOGO]

SUBJECT TO COMPLETION, DATED APRIL 9, 1998
NIAGARA MOHAWK POWER CORPORATION
300 Erie Boulevard West
Syracuse, New York 13202

The Board of Directors of Niagara Mohawk Power Corporation (the "Company"
or "Niagara Mohawk") has unanimously approved a Master Restructuring Agreement,
dated as of July 9, 1997, as amended (the "MRA"), pursuant to which the power
purchase agreements with certain independent power producers representing over
80% of the Company's over market power purchase obligations will be terminated,
restated or amended, all as described herein, in exchange for approximately
$3,616 million in cash, 42.9 million shares of Common Stock and a series of
fixed price swap contracts. Pursuant to the rules of the New York Stock
Exchange, the Company's common shareholders must approve the issuance of such
Common Stock, and the Company is also seeking to amend its Certificate of
Incorporation to authorize additional shares of Common Stock. The Board of
Directors believes that the MRA, when coupled with the provisions of the
PowerChoice Agreement described herein, should arrest the Company's financial
decline and provide greater growth in shareholder value than the other
alternatives available to the Company.

The Board of Directors has also unanimously approved a proposal to adopt a
holding company structure, which would be implemented, following regulatory
approval, through a share exchange. If Niagara Mohawk common shareholders
approve the holding company proposal by adopting the Agreement and Plan of
Exchange at the Annual Meeting and the share exchange occurs, holders of shares
of Common Stock (including the independent power producers) will automatically
become holders of common stock of Niagara Mohawk Holdings, Inc. ("Holdings") on
the basis of one share of Niagara Mohawk for one share of Holdings common stock.
As a result of the share exchange,

o Holdings will become a holding company owned by the former common shareholders
of Niagara Mohawk;
o Holdings will become the sole owner of Niagara Mohawk's Common Stock;
o Niagara Mohawk's obligations with respect to its long-term debt, First
Mortgage Bonds and preferred stock will remain with Niagara Mohawk and not be
transferred to Holdings;
o Niagara Mohawk will continue to carry on its utility business as a subsidiary
of Holdings and Niagara Mohawk's non-utility subsidiaries generally will
become separate subsidiaries of Holdings.

We will also elect directors of Niagara Mohawk and act on shareholder proposals
relating to an endorsement by Niagara Mohawk of the CERES principles and
executive compensation at the Annual Meeting.

Your vote is very important. Please vote by completing and mailing the
enclosed proxy card to us. If you have any questions or need assistance in
voting your shares, please call D.F. King & Co., Inc., which is assisting in our
proxy solicitation, toll free at 1-800-[________].

This Prospectus/Proxy Statement provides you with detailed information
about the MRA and the proposed holding company structure and the share exchange.
We encourage you to read this entire document carefully, including "Certain
Considerations" under Proposals 2 and 4 at _________ and at _______.

Niagara Mohawk common shareholders will not need to physically exchange
their stock certificates for Holdings certificates when the share exchange
occurs. Existing certificates for Niagara Mohawk Common Stock will automatically
represent a like number of shares of Holdings common stock, which shares will be
listed on the New York Stock Exchange under the ticker symbol "_____", and will
no longer represent Niagara Mohawk Common Stock when the share exchange occurs.

THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT NIAGARA MOHAWK THAT IS NOT INCLUDED IN THIS DOCUMENT. THIS INFORMATION IS
AVAILABLE TO SECURITY HOLDERS WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST.
PLEASE DIRECT SUCH REQUESTS TO KAPUA A. RICE, SECRETARY, NIAGARA MOHAWK POWER
CORPORATION, 300 ERIE BOULEVARD WEST, SYRACUSE, NEW YORK 13202, TELEPHONE NUMBER
(315) 474-1511. TO OBTAIN TIMELY DELIVERY, SECURITY HOLDERS MUST REQUEST THIS
INFORMATION NO LATER THAN JUNE 16, 1998.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

Prospectus/Proxy Statement dated April 9, 1998 and first mailed to shareholders
on or about May 14, 1998.

<PAGE>

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

<PAGE>

TABLE OF CONTENTS

Page

QUESTIONS AND ANSWERS AND SUMMARY ABOUT THE MASTER RESTRUCTURING
AGREEMENT AND THE HOLDING COMPANY PROPOSAL AND SHARE EXCHANGE................

INTRODUCTION..................................................................

PROPOSAL 1: NOMINATION AND ELECTION OF DIRECTORS.............................

PROPOSAL 2: APPROVAL OF ISSUANCE OF UP TO 42.9 MILLION SHARES OF COMMON
STOCK TO CERTAIN INDEPENDENT POWER PRODUCERS............................
Background Information..................................................
The MRA.................................................................
Board Recommendation....................................................
The PowerChoice Agreement...............................................
Capitalization..........................................................
Pro Forma Condensed Financial Statements................................
Selected Historical and Pro Forma Financial Data........................
Management's Discussion of Pro Forma Condensed Financial Statements.....
Certain Considerations..................................................
Company Prospects If the MRA Is Not Consummated.........................

PROPOSAL 3: COMMON STOCK AMENDMENT...........................................

PROPOSAL 4: HOLDING COMPANY AND ADOPTION OF THE
EXCHANGE AGREEMENT......................................................

Reasons for the Holding Company Structure and Share Exchange............
Certain Considerations..................................................

A. THE SHARE EXCHANGE.................................................

Exchange Agreement......................................................
Regulatory Approvals....................................................
Conditions to Effectiveness of the Share Exchange.......................
Exchange of Stock Certificates..........................................
Transfer of Niagara Mohawk's Non-Utility Subsidiaries to Holdings.......
Dividend Reinvestment and Stock Purchase Plan...........................
Amendment or Termination of the Exchange Agreement......................
Listing of Holdings Common Stock........................................
Niagara Mohawk Common Stock Market Prices and Dividends.................
Dividend Policy.........................................................
Certain Federal Income Tax Consequences.................................
Niagara Mohawk Employee Plans...........................................
Treatment of Niagara Mohawk Preferred Stock.............................
Treatment of Niagara Mohawk Debt, Assets and Liabilities, and Business..
Holdings Capital Stock..................................................
Comparative Shareholders' Rights........................................
Business................................................................
Regulation of Holdings and Niagara Mohawk...............................
The PowerChoice Agreement...............................................

<PAGE>

Page

Statutory Appraisal Rights..............................................

B. MANAGEMENT.........................................................

Directors and Officers of Holdings......................................
Restrictions on Board and Management Interlocks between Holdings and
Niagara Mohawk.....................................................

C. OTHER INFORMATION..................................................

Validity of Holdings Common Stock.......................................
Experts.................................................................
Costs...................................................................

PROPOSAL 5: SHAREHOLDER PROPOSAL RELATED TO THE CERES PRINCIPLES..............

PROPOSAL 6: SHAREHOLDER PROPOSAL RELATED TO EXECUTIVE COMPENSATION...........

OTHER MATTERS.................................................................

Deadline for Shareholder Proposals......................................
Additional Information..................................................
Independent Accountants.................................................
Quarterly Reports.......................................................

WHERE YOU CAN FIND MORE INFORMATION...........................................

EXHIBIT A--AGREEMENT AND PLAN OF EXCHANGE..................................A-1

EXHIBIT B--CERTIFICATE OF INCORPORATION OF
NIAGARA MOHAWK HOLDINGS, INC.........................................B-1

EXHIBIT C-- BY-LAWS OF NIAGARA MOHAWK HOLDINGS, INC........................C-1

<PAGE>

QUESTIONS AND ANSWERS AND SUMMARY ABOUT THE
MASTER RESTRUCTURING AGREEMENT AND THE HOLDING COMPANY PROPOSAL
AND SHARE EXCHANGE

The following Questions and Answers and Summary highlight selected
information on Proposals 2, 3 and 4 at the Annual Meeting regarding the MRA and
the holding company proposal and share exchange, and may not contain all of the
information that is important to you. For a more complete discussion of such
matters, you should read carefully this entire document and the attached
exhibits and the documents referred to you. For example, the Agreement and Plan
of Exchange attached to this Prospectus/Proxy Statement as Exhibit A provides
for the share exchange, and Holdings' certificate of incorporation (Exhibit B)
and by-laws (Exhibit C) set out, among other things, provisions governing
certain rights of Holdings' shareholders. See also "Where You Can Find More
Information" on page ___ of this Prospectus/Proxy Statement.

1. WHAT IS THE MRA?

As a result of federal and New York law, the Company was required to
purchase electricity from independent power producers ("IPPs") in
quantities in excess of its own demand and at prices well in excess of
those available to the Company by internal generation or in the wholesale
market. The MRA is an agreement among the Company and 15 IPPs that sell
electricity to the Company under 28 power purchase agreements ("PPAs")
which represent approximately 80% of the Company's overmarket purchase
obligations. Upon consummation of the MRA, the 28 PPAs will be terminated,
restated or amended.

2. WHAT WILL THE COMPANY PAY UNDER THE MRA?

Approximately $3,616 million in cash, 42.9 million shares of Niagara
Mohawk common stock and a series of financial contracts. It is possible
that prior to the closing of the MRA the mix of consideration could be
further revised. PPAs with respect to 1,180 MW of electric capacity will
be terminated entirely, and PPAs with respect to 541 MW of capacity will
be restated on more favorable terms to Niagara Mohawk than the existing
contracts.

3. WHAT ARE SHAREHOLDERS BEING ASKED TO APPROVE AND WHY?

The rules of the New York Stock Exchange require approval of the issuance
of a block of stock this large. In addition, the Company does not have
sufficient stock available under its Certificate of Incorporation to issue
42.9 million shares. If the charter amendment is not approved (which has a
slightly higher vote requirement than the New York Stock Exchange required
vote), the Company would attempt to renegotiate the terms of the MRA to
lower the stock and increase the cash, or alternatively, would purchase
shares to use for the MRA.

4. WHY IS THE MRA GOOD FOR NIAGARA MOHAWK?

These above market power obligations have resulted in the deterioration of
the Company's competitive and financial position. Under the MRA, the
Company's significant long-term and escalating IPP payment obligations
will be restructured into a more manageable debt obligation and a smaller
portfolio of PPAs with more favorable price and duration terms, resulting
in a significant improvement in cash flow which can be dedicated to the
repayment of debt. In its written order issued March 20, 1998, the New
York State Public Service Commission (the "PSC"), which regulates
utilities in the State of New York, approved the PowerChoice Settlement
Agreement (the "PowerChoice Agreement") thereby establishing a five-year
rate plan and approving the terms of the MRA. The PowerChoice rate plan
will allow the Company to meet its financial obligations and provide for
the recovery of its stranded costs through a competitive transition charge
("CTC") in rates, exit fees and back-up rates. The PowerChoice Agreement
also allows the Company to

<PAGE>

establish a regulatory asset reflecting most of the costs associated with
the MRA. The regulatory asset will be amortized over a maximum of ten
years, and this amortization will substantially depress the Company's
reported earnings for at least five years.

The Board of Directors has unanimously approved the MRA and recommends
that you vote "FOR" Proposals 2 and 3.

5. WHAT IS NIAGARA MOHAWK'S HOLDING COMPANY PROPOSAL? WHY IS IT BEING
PROPOSED?

Niagara Mohawk is proposing to establish a holding company structure
through a share exchange, with the new holding company being called
Niagara Mohawk Holdings, Inc. After the share exchange, Niagara Mohawk
will continue to operate its present utility business as a subsidiary of
Holdings, and certain of Niagara Mohawk's non-utility subsidiaries will
become separate subsidiaries of Holdings.

While Niagara Mohawk's financial condition and contractual obligations
will limit the amount of investments in unregulated businesses in
the near term, the Company believes this structure will give it the
financial and regulatory flexibility to compete more effectively in the
increasingly competitive energy industry by relaxing constraints imposed
by the PSC on incremental investments in unregulated operations. Relaxing
constraints and eliminating time-lags associated with regulatory decisions
should allow more rapid moves in an industry where competitors do not have
the same constraints as regulated entities. Niagara Mohawk also believes
that a holding company structure should provide greater opportunities for
growth and enhanced value, greater flexibility in developing new
businesses, and greater flexibility regarding the timing, method and
amount of financings and acquisitions, through the discernible separation
between its utility and non-utility businesses and relaxed constraints on
unregulated activities.

Under the terms of the PowerChoice Agreement, Niagara Mohawk has a
one-year window in which it may adopt this structure. The Board of
Directors has unanimously approved the holding company proposal and the
share exchange and believes their adoption is in the best interests of
Niagara Mohawk and its shareholders. The Board recommends that you vote
"FOR" that proposal and adoption of the Agreement and Plan of Exchange at
the Annual Meeting.

<PAGE>

6. WHAT WILL THE HOLDING COMPANY STRUCTURE LOOK LIKE? WHAT TYPE OF BUSINESSES
WILL HOLDINGS ENGAGE IN?

The chart below shows the present and proposed structures.
<TABLE>
<CAPTION>
PRESENT STRUCTURE

<S> <C> <C> <C> <C> <C>
-----------
: Niagara :
: Mohawk :
-----------
:
:
------------------------------------------------------------------------------------------------------
: : : : : :
--------------- -------------- ------------------ ------------- ----------------- ----------
: NM Holdings : : NM Uranium : : NM Receivables : : Opinac NA : : Beebee Island : : Moreau :
--------------- -------------- ------------------ ------------- ----------------- ----------
:
--------------------------------------
: :
--------------- --------------
: Plum Street : : Opinac :
: Enterprises : : Energy :
--------------- --------------
:
: 50%
:
--------------
: CNP :
--------------

</TABLE>

<TABLE>
<CAPTION>
PROPOSED STRUCTURE

<S> <C> <C> <C> <C> <C> <C>
--------------------------------
: Niagara Mohawk Holdings Inc. :
--------------------------------
:
:
----------------------------------------------------
: :
--------------- ------------------
: Opinac NA : : Niagara Mohawk :
--------------- ------------------
: :
--------------------- -----------------------------------------------------------------------------
: : : : : : :
- --------------- ------------ ------------------ --------------- ----------------- ----------------- ------------
: Plum Street : : Opinac : : NM Receivables : : NM Holdings : : NM Uranium : : Beebee Island : : Moreau :
: Enterprises : : Energy : : : : : : : : : : :
- --------------- ------------ ------------------ --------------- ----------------- ----------------- ------------
:
: 50%
:
-----------
: CNP :
-----------

</TABLE>

In addition to becoming the parent holding company of Niagara Mohawk and
certain of its non-utility subsidiaries, Holdings will also be able to
invest in certain other businesses and ventures that should strengthen its
ability to provide total energy services in an increasingly competitive
marketplace.

Niagara Mohawk is engaged principally in the business of generation,
purchase, transmission, distribution and sale of electricity and the
purchase, distribution, sale and transportation of gas in New York State.
Its non-utility subsidiaries principally participate in real estate
development of property formerly owned by Niagara Mohawk and energy-related
services.

<PAGE>

The principal executive offices of Niagara Mohawk are located at 300 Erie
Boulevard West, Syracuse, New York 13202 and its telephone number is (315)
474-1511. Holdings' principal executive offices are at the same address;
its telephone number is (315) ________.

7. WHAT IS THE SHARE EXCHANGE?

The share exchange is the means by which the holding company structure will
be established. If shareholders approve the holding company proposal and
adopt the related Agreement and Plan of Exchange at the Annual Meeting, the
necessary regulatory approvals are received and Niagara Mohawk does not
abandon the holding company structure, Niagara Mohawk common shareholders
will automatically become holders of common stock of Holdings on the basis
of one share of Niagara Mohawk for one share of Holdings. Following the
exchange, Holdings will own all of Niagara Mohawk's outstanding common
stock and certain Niagara Mohawk's non-utility subsidiaries will become
separate subsidiaries of Holdings.

8. WILL I HAVE TO EXCHANGE MY NIAGARA MOHAWK STOCK CERTIFICATES FOR NEW
HOLDINGS CERTIFICATES?

No. Your present certificates for Niagara Mohawk Common Stock will
automatically represent an equal number of shares of Holdings common stock
when the exchange occurs and will no longer represent Niagara Mohawk Common
Stock.

9. WHEN WILL THE SHARE EXCHANGE OCCUR?

The exchange will occur once all the required regulatory approvals are
obtained. Assuming shareholder approval at the Annual Meeting, Niagara
Mohawk expects this to occur in the first quarter of 1999.

10. WHERE WILL MY HOLDINGS COMMON STOCK BE TRADED? WHAT WILL BE THE TICKER
SYMBOL?

Holdings common stock will be listed on the New York Stock Exchange, and
will trade under the ticker symbol "___".

Niagara Mohawk's Common Stock is presently listed and principally traded on
the New York Stock Exchange. The reported closing price of the Common Stock
on [_________], 1998 was $[_____]. After the share exchange, Niagara
Mohawk's Common Stock will no longer trade and will be delisted.

11. WHAT IS THE EFFECT ON DIVIDENDS?

Niagara Mohawk suspended the common stock dividend in 1996 to help
stabilize its financial condition. In making future dividend decisions with
respect to Niagara Mohawk or Holdings, the applicable board will evaluate,
along with standard business considerations, the entity's financial
condition, contractual and regulatory restrictions, the degree of
competitive pressure on prices, available cash flow, current and retained
earnings and other strategic considerations.

Following the share exchange, dividends on Niagara Mohawk preferred stock
will continue to be paid by Niagara Mohawk.

12. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES TO COMMON SHAREHOLDERS?

If a shareholder exchanges solely Niagara Mohawk Common Stock solely for
Holdings common stock, that shareholder will not recognize any gain or loss
under Federal income tax laws.

<PAGE>

13. WILL NIAGARA MOHAWK PREFERRED STOCK OR BONDS BE EXCHANGED?

No. Niagara Mohawk's preferred stock will not be exchanged and will
continue as outstanding shares of Niagara Mohawk preferred stock. The
rights of holders of the preferred shares as provided in Niagara Mohawk's
certificate of incorporation will not change. Niagara Mohawk's First
Mortgage Bonds, as well as the unsecured notes to be issued in connection
with the financing of the MRA, will not change and will continue to be
obligations of Niagara Mohawk.

14. WHO WILL MANAGE THE HOLDING COMPANY?

A new Board of Directors of Holdings will be elected before the share
exchange by Niagara Mohawk as sole shareholder of Holdings. It will consist
of the then existing Niagara Mohawk directors. Certain existing officers of
Niagara Mohawk will also serve as officers of Holdings. William E. Davis
will be chairman and chief executive officer and a director of Holdings,
and will continue as chairman and chief executive officer and a director of
Niagara Mohawk.

The PowerChoice Agreement contains certain restrictions on Board and
managerial interlocks between Niagara Mohawk and Holdings and other
subsidiaries of Holdings.

15. HOW WILL MY PARTICIPATION IN THE DIVIDEND REINVESTMENT PLAN BE AFFECTED?

All shares of Niagara Mohawk Common Stock held under the Dividend
Reinvestment and Stock Purchase Plan will be automatically exchanged for
shares of Holdings common stock. We will continue the Dividend Reinvestment
and Stock Purchase Plan with Holdings common stock after the share
exchange.

16. WHAT DO I NEED TO DO NOW?

Just mail your signed proxy card in the enclosed postage-paid return
envelope as soon as possible, so that your shares may be represented at the
Annual Meeting. The meeting will take place on Tuesday, June 23, 1998 at
the Buffalo Convention Center, Convention Center Plaza, Buffalo, New York.

17. WHAT SHAREHOLDER VOTE IS REQUIRED FOR APPROVAL OF THE HOLDING COMPANY
PROPOSAL AND THE SHARE EXCHANGE?

Holders of record of Niagara Mohawk Common Stock on May 7, 1998 are
entitled to vote at the Annual Meeting. Two-thirds of the outstanding
shares of Niagara Mohawk Common Stock must be voted "For" Proposal 4 at the
Annual Meeting in order to approve the holding company proposal and the
share exchange.

18. WHO CAN I CALL IF I HAVE ANY QUESTIONS?

We have set up a special number for you. You are welcome to call D.F. King
& Co., Inc., which is assisting in our proxy solicitation, toll free, at
1-800-________.

FOR NIAGARA MOHAWK EMPLOYEES AND RETIREES:

19. HOW WILL STOCK-BASED EMPLOYEE BENEFIT PLANS BE AFFECTED?

Niagara Mohawk's Employee Savings Fund Plans for Represented and
Non-Represented Employees and its 1992 Stock Option Plan will be amended to
provide for ownership of common shares of Holdings instead of Niagara
Mohawk Common Stock, and Holdings will take over responsibility for these
plans. All existing shares of Niagara Mohawk Common Stock held in these
plans, or subject to plan options or

<PAGE>

performance awards, will automatically become an equal number of common
shares or stock options or performance awards of Holdings, and Holdings
will be the issuer of future stock options and awards.

20. WHAT WILL HAPPEN TO NIAGARA MOHAWK'S RETIREMENT AND OTHER EMPLOYEE BENEFIT
PLANS?

Holdings will take over responsibility for all Niagara Mohawk retirement
and employee benefit plans, such as our defined benefit pension plans,
health plans and disability plans. Benefits provided for in these plans
will not be changed as a result of our restructuring into a holding
company.

SUMMARY OF OTHER SELECTED INFORMATION:

CERTAIN CONSIDERATIONS

Certain factors for your consideration in determining whether to vote
"For" Proposals 2 and 3 or the holding company proposal and to adopt the related
Agreement and Plan of Exchange are discussed under "Certain Considerations"
under Proposal 2 and "Certain Considerations" under Proposal 4.

REGULATORY APPROVALS

The PSC has approved the MRA and the holding company concept in the
PowerChoice Agreement. Niagara Mohawk has filed for certain approvals and
exemptions with respect to the holding company under the Federal Power Act, the
Atomic Energy Act and the Public Utility Holding Company Act of 1935, and has
made additional filings with respect to the holding company with the PSC.

CONDITIONS TO THE SHARE EXCHANGE

Completion of the share exchange depends on the satisfaction of certain
conditions, including: (a) common shareholder approval at the Annual Meeting;
(b) receipt of all necessary regulatory approvals, (c) Holdings' common shares
being listed on the New York Stock Exchange; and (d) a certificate of exchange
being filed with the New York Department of State.

AMENDMENT OR TERMINATION OF THE EXCHANGE AGREEMENT

The Niagara Mohawk and Holdings Boards of Directors may amend any of
the terms of the Agreement and Plan of Exchange at any time before or after its
adoption by common shareholders. No amendment, however, may materially and
adversely affect the rights of Niagara Mohawk's shareholders.

The Agreement may be terminated and the share exchange abandoned at any
time before or after shareholders adopt the Agreement if Niagara Mohawk's Board
of Directors determines that the completion of the share exchange would not be
in the best interests of Niagara Mohawk or its shareholders.

COMPARATIVE SHAREHOLDERS' RIGHTS

When the share exchange is completed, holders of Niagara Mohawk Common
Stock will automatically become holders of Holdings' common stock, and their
rights will be governed by Holdings' certificate of incorporation and by-laws
instead of those of Niagara Mohawk. Certain differences between the rights of
holders of Holdings common stock and those of holders of Niagara Mohawk Common
Stock are summarized on pages ______.

<PAGE>

Shares of Niagara Mohawk preferred stock will not be exchanged but will
continue as shares of Niagara Mohawk preferred stock. The share exchange will
not change the rights of holders of preferred stock as currently provided in
Niagara Mohawk's certificate of incorporation.

REGULATION OF HOLDINGS AND NIAGARA MOHAWK

Following the share exchange, Holdings, as the parent company of
Niagara Mohawk, will have to comply with the provisions of the PowerChoice
Agreement. Niagara Mohawk will continue to be regulated by the PSC as before.
The PSC order contains restrictions on transactions between Niagara Mohawk and
Holdings and other Holdings subsidiaries, loans, guarantees or pledges by
Niagara Mohawk for the benefit of Holdings or Holdings' subsidiaries, and on
Board and managerial interlocks.

Niagara Mohawk currently is exempt from the federal Public Utility
Holding Company Act of 1935 by virtue of Section 3(a)(2) of such act which
exempts holding companies which are themselves state regulated utilities. When
the share exchange occurs, Holdings will become a "public utility holding
company" and will file an application with the Securities and Exchange
Commission to exempt it and each of its subsidiaries under Section 3(a)(1) from
such act (except for those provisions requiring approval of certain acquisitions
and investments).

NEW RATE PLAN OF NIAGARA MOHAWK (SEE PAGES [___])

The PowerChoice Agreement contains a new rate plan that will take
effect on the closing of the MRA and will remain in effect for five years. The
rate plan will reduce average electricity prices for residential and commercial
customers by 3.2% over the first three years. This reduction will include
certain savings that will result from partial reductions of the New York State
Gross Receipts Tax. Industrial customers will receive average price reductions
of 25% relative to 1995 price levels; the calculation of the level of these
decreases includes discounts currently offered to some industrial customers
through optional and flexible rate programs. During the term of the PowerChoice
Agreement, the Company will be permitted to defer certain costs, associated
primarily with environmental remediation, nuclear decommissioning and related
costs, and changes in laws, regulations, rules and orders. In years four and
five of its rate plan, the Company can request an increase in prices subject to
a cap of 1% of the all-in price, excluding commodity costs (e.g., transmission,
distribution, nuclear, and forecasted CTC). In addition to the price cap, the
PowerChoice Agreement provides for the recovery of deferrals established in
years one through four, and cost variations in the MRA financial contracts
resulting from the indexing provisions of these contracts. Overall, price
increases in years four and five are limited to the rate of inflation. The rate
plan will continue to govern Niagara Mohawk's utility rates and charges even if
common shareholders do not approve the holding company proposal and adopt the
Agreement and Plan of Exchange at the Annual Meeting. In the event that
shareholders do not approve the holding company proposal, Niagara Mohawk will
not be able to realize any benefits from a holding company structure, which the
Company believes are important in the future deregulated competitive environment
of the energy industry.

STATUTORY APPRAISAL RIGHTS

Because of a recent change in New York law, holders of shares of
Niagara Mohawk Common Stock who do not vote for the holding company proposal and
adoption of the Agreement and Plan of Exchange will not have any right to
dissent and seek the fair value of their Common Stock in cash under New York
law.

<PAGE>

INTRODUCTION

SOLICITATION OF PROXIES

This Prospectus/Proxy Statement contains both a proxy statement
furnished in connection with the solicitation, by and on behalf of the Board of
Directors of Niagara Mohawk, of proxies to be voted at the Annual Meeting of
Niagara Mohawk's shareholders which will be held at the Buffalo Convention
Center on Tuesday, June 23, 1998 at 10:30 a.m. and at any adjournment or
adjournments thereof, and a prospectus of Holdings, relating to the issuance of
up to 191,865,829 shares of Holdings common stock upon the consummation of the
holding company structure for Niagara Mohawk described herein. This proxy
statement and form of proxy are first being mailed to holders on or about
May 14, 1998. The mailing address of the executive offices of Niagara Mohawk
is 300 Erie Boulevard West, Syracuse, New York 13202.

The enclosed form of Proxy is solicited by and on behalf of the Board
of Directors of Niagara Mohawk. Niagara Mohawk has employed D.F. King & Co.,
Inc. to assist in the solicitation of proxies for a fee of $25,000 plus
out-of-pocket expenses which will be borne by Niagara Mohawk. Officers and
employees of Niagara Mohawk may solicit for no extra compensation. Solicitation
is being made by the use of the mails, but may also be made by telephone,
telegram and personal interviews. Niagara Mohawk will request brokers or other
persons holding stock in their names, or in the names of their nominees, to
forward proxy material to the beneficial owners of such stock or request
authority for the execution of the proxies and, upon request, will reimburse
such brokers or other persons for their reasonable out-of-pocket expenses in
doing so.

VOTING RIGHTS AND VOTE REQUIRED

RECORD DATE

The close of business on May 7, 1998, has been fixed as the record date
for determining the holders of Common Stock entitled to vote at the meeting.
Only shareholders of Common Stock whose names appeared on the books of Niagara
Mohawk on the record date will be entitled to notice of and to vote at the
meeting and at any adjournment thereof. On the record date, there were ________
shares of Common Stock outstanding and entitled to vote. Each share of Common
Stock is entitled to one vote.

Shareholders are urged to sign the accompanying form of proxy and
return it promptly in the envelope provided for that purpose. The proxy does not
affect the right to vote in person at the meeting. Proxies will be voted in
accordance with the shareholders' directions. If no directions are given,
proxies will be voted FOR the election of the nominees for directors set forth
in this Prospectus/Proxy Statement; FOR Proposals 2 and 3, which, respectively,
approve the issuance of Common Stock in connection with the MRA and increase the
number of authorized shares of Common Stock from 185 million shares to 250
million shares; FOR Proposal 4, which will authorize the holding company
structure and the related share exchange; and against Proposals 5 and 6, the
shareholder proposals. In the event any nominee or director withdraws or is for
any reason unable to serve, a contingency not presently anticipated, proxies
will be voted for any nominee that may be designated by the Board of Directors
as a substitute nominee.

A majority of the shares entitled to vote at the meeting shall
constitute a quorum. A plurality of the votes cast at the meeting is required to
elect directors under Proposal 1. A majority of the votes cast is necessary to
approve Proposal 2 (issuance of shares to the IPPs), provided a majority of the
outstanding stock has cast a vote. A majority of the votes cast is necessary to
approve Proposals 5 and 6 (the shareholder proposals). A majority of the
outstanding Common Stock is necessary to approve Proposal 3 (the amendment of
the Corporation's Certificate of Incorporation). A vote of two-thirds of the
outstanding Common Stock is necessary to approve Proposal 3 (the holding company
proposal). Except where otherwise provided by law, an

<PAGE>

affirmative vote of a majority of the votes cast at the meeting is required for
approval of any other matter. Abstentions and broker non-votes will not be
considered as votes cast with respect to a particular matter, but will be
counted in the number of shares present in person or represented by proxy for
purposes of determining whether a quorum is present. Proposals 2, 3 and 4 are
considered "non-discretionary" under the rules of the New York Stock Exchange
and brokers who have received no instructions from their clients do not have the
authority to vote on the proposals.

Full and fractional shares held by Niagara Mohawk for each participant
in the Dividend Reinvestment and Common Stock Purchase Plan will be voted by
Niagara Mohawk, as the registered owner of such shares, in accordance with the
participant's instructions on the Proxy.

Voting is confidential, in accordance with the provisions of Sections 8
and 9 of Article II of the by-laws of Niagara Mohawk (the "By-Laws"). Tabulation
of proxies and the votes cast at the meeting is conducted by an independent
inspector of election. Any information which would identify the vote of any
shareholder is held permanently confidential and will not be disclosed to
Niagara Mohawk, except in limited circumstances set forth in such Sections of
the By-Laws.

Adjournments. It is Niagara Mohawk's present expectation that on the
scheduled date of the Annual Meeting, votes will be taken and the polls closed
on all Proposals. It is possible, however, that management may propose one or
more adjournments of the Annual Meeting, either to allow the inspectors of
election to count and report on the votes cast after the polls have been closed,
or, without closing the polls, in order to permit further solicitation of
proxies with respect to the Proposals or for other reasons. In order for any
such adjournment to be approved, the votes cast in favor thereof must represent
a majority of the total number of votes entitled to be cast by the holders of
the Common Stock present at the meeting in person or by proxy. Proxies solicited
by the Board of Directors will be voted at the Annual Meeting in favor of any
adjournment proposed by management but will not be considered a direction to
vote for any adjournment proposed by others. If any adjournment is properly
proposed at the Annual Meeting on behalf of any person other than management,
the persons named as proxies, acting in such capacity, will have discretion to
vote on such adjournment in accordance with their best judgment.

Attendance at the Annual Meeting will be limited to shareholders of
record, beneficial owners of Common Stock entitled to vote at the meeting having
evidence of ownership, the authorized representative (one only) of an absent
shareholder, and invited guests of the management. Any person claiming to be an
authorized representative of a shareholder must, upon request, produce written
evidence of the authorization. In order to assure a fair and orderly meeting and
to accommodate as many shareholders as possible who may wish to speak at the
meeting, management will permit only shareholders or their authorized
representatives to address the meeting and such persons may speak only once for
up to two minutes. In addition, management will require that any signs, banners,
placards and similar materials be left outside the meeting room.

Revocation of Proxies. A shareholder who has executed and returned a
proxy may revoke it at any time before it is voted by executing and returning a
proxy bearing a later date, by giving written notice of revocation to the
Secretary of Niagara Mohawk or by attending the Annual Meeting and voting in
person.

NIAGARA MOHAWK'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL
DIRECTOR NOMINEES NAMED IN PROPOSAL 1.

NIAGARA MOHAWK'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MRA
AND RECOMMENDS A VOTE "FOR" THE ISSUANCE OF COMMON STOCK IN CONNECTION WITH THE
MRA AND TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 250
MILLION AS DISCUSSED IN PROPOSALS 2 AND 3.

<PAGE>

IN ADDITION, THE BOARD HAS UNANIMOUSLY APPROVED THE HOLDING COMPANY
STRUCTURE AND ADOPTED THE EXCHANGE AGREEMENT AND RECOMMENDS A VOTE "FOR" THE
HOLDING COMPANY PROPOSAL AND THE ADOPTION OF EXCHANGE AGREEMENT AS DISCUSSED IN
PROPOSAL 4.

FINALLY, NIAGARA MOHAWK'S BOARD RECOMMENDS A VOTE "AGAINST" THE
SHAREHOLDER PROPOSALS RELATING TO AN ENDORSEMENT BY THE COMPANY OF THE CERES
PRINCIPLES AND EXECUTIVE COMPENSATION, AS DISCUSSED IN PROPOSALS 5 AND 6.

- --------------------------------------------------------------------------------
PROPOSAL 1: NOMINATION AND ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------

The Board of Directors currently consists of thirteen directors. Mr.
Edmund M. Davis will retire from the Board of Directors at the Annual Meeting
after 28 years of service. The Board of Directors is deeply appreciative of the
contributions made by Mr. Davis. At the Annual Meeting, five directors will be
elected to Class I of the Board of Directors for three-year terms expiring at
the 2001 Annual Meeting or until their respective successors are duly elected
and qualified. As a result, the Company will have fourteen directors following
the 1998 Annual Meeting. Directors will be elected by a plurality of the votes
cast at the meeting.

Of the five nominees, Messrs. Budney and Panasci and Dr. Hill are members
of the present Board of Directors. Messrs. Alfiero and _____ are being proposed
for election to the Board of Directors for the first time and will hold office,
pending regulatory approval. Section 305(b) of the Federal Power Act, as amended
by the Public Utility Regulatory Policies Act, restricts the ability of a
director of a public utility to simultaneously hold a position as an officer or
director of other specified corporations. The Company recently filed an
application seeking approval from the Federal Energy Regulatory Commission
("FERC") for Mr. Alfiero to concurrently hold the positions of Director of
Niagara Mohawk and Director of Marine Midland Bank; Phoenix Home Life Mutual
Insurance Company and Southwire Company.

In accordance with the Company's Certificate of Incorporation, the
Board of Directors is divided into three classes, composed of as nearly equal a
number of directors as is possible, with staggered terms of office so that one
class of the directors must be elected at each annual meeting.

As applicable to each nominee and continuing director, the name, age as
of March 1, 1998, principal occupation, business experience for the last five
years or more, other directorships and the year in which first elected a
director, are set forth below.

BUSINESS BACKGROUND OF NOMINEES AND DIRECTORS
- --------------------------------------------------------------------------------

NOMINEES FOR CLASS I DIRECTORS - TERMS EXPIRING IN 2001

SALVATORE H. ALFIERO
o Chairman and Chief Executive Officer, Mark IV Industries, Inc.
o Nominee for Election

Mr. Alfiero, age 60, Chairman and Chief Executive Officer, March IV
Industries, Inc., a manufacturer of engineered systems and components for power
transmission, fluid power and transfer, and filtration applications, located in
Amherst, NY. Mr. Alfiero founded March IV Industries, Inc. in 1969 and has been
Chairman and Chief Executive Officer since its inception. Director of Marine
Midland Bank; Phoenix Home Life Mutual Insurance Company; and Southwire Company.

ALBERT J. BUDNEY, JR.
o President of the Company
o Director since 1995

Mr. Budney, age 50, was elected President of the Company in 1995. Mr. Budney
was previously employed by UtiliCorp United, Inc., an energy services company,
as Managing Vice President of the UtiliCorp Power Services Group and as
President of the Missouri Public Service Division. Mr. Budney joined UtiliCorp
United, Inc. in 1993. Prior to that, he was Vice President of Stone & Webster
Engineering Corp., where he managed the engineering firm's Boston Business
Development Department. Director of Plum Street Enterprises, Inc. ("Plum
Street"); Canadian Niagara Power Company, Limited ("CNP"); and Utilities Mutual
Insurance Company. President of Opinac North America, Inc. ("Opinac NA"), a
wholly-owned subsidiary of the Corporation, which holds 100% of Plum Street and,
through its subsidiary, Opinac Energy Corporation ("Opinac"), a 50 percent
interest in CNP.

<PAGE>

DR. BONNIE GUITON HILL
o President and Chief Executive Officer of The Times Mirror Foundation and
Vice President of The Times Mirror Company
o Director since 1991
o Member of Audit, Corporate Public Policy & Environmental Affairs and Finance
Committees of the Board

Dr. Hill, age 56, President and Chief Executive Officer of The Times Mirror
Foundation, a non-profit institution, and Vice President of The Times Mirror
Company, a news and information company, located in Los Angeles, CA. Dr. Hill
served as Dean and Professor of Commerce of the McIntire School of Commerce at
the University of Virginia from 1992-1996. Prior to that, she served as the
Secretary of State and Consumer Services Agency for the State of California.
Director of AK Steel Corporation; Crestar Financial Corporation; Hershey Foods
Corporation; and Louisiana-Pacific Corporation.

HENRY A. PANASCI, JR.
o Chairman, Cygnus Management Group, LLC
o Director since 1988
o Member of Compensation & Succession, Corporate Public Policy and
Environmental Affairs and Finance Committees of the Board

Mr. Panasci, age 69, Chairman of Cygnus Management Group, LLC, a consulting
firm specializing in venture capital and private investments located in
Syracuse, NY. Mr. Panasci retired in 1996 as Chairman of the Board and Chief
Executive Officer of Fay's Incorporated, a drug store chain. Mr. Panasci
co-founded Fay's Drug Co., Inc. with his father in 1958. Director of National
Association of Chain Drug Stores.

- -----------------------------

CONTINUING CLASS II DIRECTORS - TERMS EXPIRING IN 1999

WILLIAM F. ALLYN
o President and Chief Executive Officer of Welch Allyn, Inc.
o Director since 1988
o Member of Audit, Compensation & Succession, and Nuclear Oversight Committees
of the Board

Mr. Allyn, age 62, President and Chief Executive Officer of Welch Allyn,
Inc., Skaneateles Falls, NY, a manufacturer of medical diagnostic
instrumentation, bar code readers and optical scanning devices. Mr. Allyn joined
Welch Allyn, Inc. in 1962 and was elected to his present position in 1980.
Director of ONBANCorp., Inc.; OnBank & Trust Company; Oneida Limited; and Perfex
Corporation.

WILLIAM E. DAVIS
o Chairman of the Board and Chief Executive Officer of the Company
o Director since 1992
o Chairperson of Executive Committee of the Board

Mr. Davis, age 55, was elected Chairman of the Board and Chief Executive
Officer of the Company in 1993. Mr. Davis joined the Company in 1990 and was
elected Senior Vice President in April 1992, serving in that capacity until
elected Vice-Chairman of the Board of the Corporation in November 1992. Director
of Opinac NA; Plum Street; Opinac; CNP; and Utilities Mutual Insurance Company.
Mr. Davis is also the Chairman of the Board of Plum Street and holds the
position of Secretary, Utilities Mutual Insurance Company.

<PAGE>
WILLIAM J. DONLON
o Former Chairman of the Board and Chief Executive Officer of the Company
o Director since 1980

Mr. Donlon, age 68, retired in 1993 as Chairman of the Board and Chief
Executive Officer of the Company with 45 years service as an active employee.
Director of Opinac; ONBANCorp., Inc.; and OnBank & Trust Company.

ANTHONY H. GIOIA
o Chairman and Chief Executive Officer of Gioia Management, Inc.
o Director since 1996
o Member of Executive, Compensation & Succession and Nuclear Oversight
Committees of the Board

Mr. Gioia, age 56, Chairman and Chief Executive Officer of Gioia Management,
Inc., a holding company for several companies, including three packaging
companies located in Buffalo and Lockport, NY. Mr. Gioia has held his present
position since 1987.

DR. PATTI MCGILL PETERSON
o Executive Director of the Council for International Exchange of Scholars
o Director since 1988
o Member of Executive, Audit (Chairperson) and Corporate Public Policy &
Environmental Affairs Committees of the Board

Dr. Peterson, age 54, Executive Director of the Council for International
Exchange of Scholars, a non-profit organization located in Washington, DC. From
1996 to 1997, Dr. Peterson was a Senior Fellow of the Cornell Institute for
Public Affairs, Cornell University, Ithaca, NY. Dr. Peterson also served as
President of St. Lawrence University from 1987-1996. Prior to that, she was
President of Wells College. She holds the title President Emerita at both
institutions. Independent Trustee of John Hancock Mutual Funds.

CONTINUING CLASS III DIRECTORS - TERMS EXPIRING IN 2000

LAWRENCE BURKHARDT, III
o Nuclear Consultant
o Director since 1988
o Chairperson of Nuclear Oversight Committee of the Board

Mr. Burkhardt, age 65, independent consultant to the nuclear industry since
1990. Prior to his retirement in 1990, Mr. Burkhardt was employed by the Company
and served as Executive Vice President of Nuclear Operations. Director of
MACTEC, Inc., formerly Management Analysis Company.

DOUGLAS M. COSTLE
o Distinguished Senior Fellow and Chairman of the Board of the Institute for
Sustainable Communities
o Director since 1991
o Member of Executive, Audit, Corporate Public Policy & Environmental Affairs
(Chairperson), and Nuclear Oversight Committees of the Board

Mr. Costle, age 58, Distinguished Senior Fellow and Chairman of the Board of
the Institute for Sustainable Communities, a non-profit organization located in
Montpelier, VT. Mr. Costle has held his present position since 1991. Former Dean
of the Vermont Law School in South Royalton, Vermont, and Administrator of the
U.S. Environmental Protection Agency. Independent Trustee of John Hancock Mutual
Funds.

12
<PAGE>

DONALD B. RIEFLER
o Financial Market Consultant
o Director since 1978
o Member of Executive, Audit, Finance (Chairperson), and Nuclear Oversight
Committees of the Board

Mr. Riefler, age 70, financial market consultant and advisor to J. P.
Morgan, Florida FSB, Palm Beach, FL, a private banking concern affiliated with
J. P. Morgan & Co., Inc. Prior to his retirement in 1991, Mr. Riefler was
Chairman of the Market Risk Committee for J. P. Morgan & Co. Incorporated and
Morgan Guaranty Trust Company of New York.

STEPHEN B. SCHWARTZ
o Retired Senior Vice President, International Business Machines Corporation
o Director since 1992
o Member of Executive, Compensation & Succession (Chairperson) and Finance
Committees of the Board

Mr. Schwartz, age 63, retired as Senior Vice President of International
Business Machines Corporation in 1992. Mr. Schwartz joined IBM in 1957 and was
elected Senior Vice President in 1990. Director of MFRI, Inc.

BOARD OF DIRECTORS AND COMMITTEES
- --------------------------------------------------------------------------------

MEETINGS AND ATTENDANCE

During 1997, 14 meetings of the Company's Board of Directors were held. Each
director, except for Mr. Edmund M. Davis, attended more than 75 percent of the
combined total of meetings of the Board of Directors and the committees on which
he or she served.

There are six standing committees of the Board: the Executive Committee, the
Audit Committee, the Compensation and Succession Committee, the Committee on
Corporate Public Policy and Environmental Affairs, the Finance Committee and the
Nuclear Oversight Committee. The Board does not have a standing Nominating
Committee to nominate candidates for Board membership, but functions as a
committee of the whole. Any nomination may be made from the floor by any
shareholder who has made a written request to the Company to have such
nomination considered at the annual meeting in accordance with the requirements
of the Company's By-Laws. Information with respect to the Audit Committee and
the Compensation and Succession Committee is set forth below.

AUDIT COMMITTEE

The Audit Committee, consisting of Patti McGill Peterson, Chairperson,
William F. Allyn, Douglas M. Costle, Bonnie Guiton Hill and Donald B. Riefler,
all of whom are non-employee directors, met 10 times in 1997. Duties performed
by the Audit Committee include meeting with the independent accountants, chief
internal auditors and certain personnel of the Company to discuss the planned
scope of auditing examinations and the adequacy of internal controls and interim
and annual financial reporting; reviewing the results of the annual examination
of the consolidated financial statements and periodic internal audit
examinations; reviewing the services and fees of the Company's independent
accountants; overseeing matters involving compliance with corporate business
ethics policies; reviewing management's assessment of financial risks;
authorizing and participating in special projects and studies; and performing
any other duties or functions deemed appropriate by the Board.

<PAGE>

COMPENSATION AND SUCCESSION COMMITTEE

The Compensation and Succession Committee, consisting of Stephen B.
Schwartz, Chairperson, William F. Allyn, Edmund M. Davis, Anthony H. Gioia and
Henry A. Panasci, Jr., all of whom are non-employee directors, met eight times
during 1997. The Committee evaluates the performance of the Corporation's Chief
Executive Officer and the other senior officers of the Company; reviews the
annual and incentive compensation of the elected officers of the Company, the
Company's compensation programs and benefit plans, and officer development and
succession plans; makes recommendations to the Board of Directors with respect
to these matters; and meets with the Company's actuarial advisors to review the
advisor's annual reports and progress toward funding the pension,
post-retirement health plans, and supplemental executive retirement plan.

COMPENSATION AND SUCCESSION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- --------------------------------------------------------------------------------

Directors Allyn, Edmund Davis, Gioia, Panasci and Schwartz, all of whom are
non-employee directors, are the members of the Compensation and Succession
Committee.

No person serving during 1997 as a member of the Compensation and Succession
Committee of the Board served as an officer or employee of the Company or any of
its subsidiaries during or prior to 1997.

No person serving during 1997 as an executive officer of the Company serves
or has served as a director or a member of the compensation committee of any
other entity that has an executive officer who serves or has served either as a
member of the Compensation and Succession Committee or as a member of the Board
of Directors of the Company.

- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table shows the persons (as the term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) known to the Corporation to own
more than five percent (5%) of the Company's Common Stock as of December 31,
1997.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF
TITLE OF CLASS OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS

<S> <C> <C> <C>
Common Stock FMR Corp. 14,441,831 (1) 10.00%
82 Devonshire Street
Boston, Massachusetts 02109

Common Stock Fidelity Management Trust Co. 11,829,786 (2) 8.19%
82 Devonshire Street
Boston, Massachusetts 02109

Common Stock The Prudential Insurance 8,404,245 (3) 5.82%
Company of America
751 Broad Street
Newark, New Jersey 07102-3777
</TABLE>

<PAGE>

(1) Includes 1,873,631 shares with respect to which FMR Corp. has sole voting
power and 14,441,831 with sole power to dispose or to direct disposition
as reported on Schedule 13G, dated February 14, 1998, filed with SEC.

(2) The above represents shares in the Company's Non-Represented and
Represented Employees' Savings Fund Plans. Fidelity Management Trust
Company serves as Trustee. The Trustee will vote all shares of Common
Stock held in the Trusts established for the Plans in accordance with the
directions received from the employees participating in the Plans. The
Trustee will vote shares for which it receives no instructions in the same
proportion as it votes shares for which it receives instructions.

(3) Includes 789,900 shares with respect to which Prudential Insurance Company
of America has sole voting power; 7,575,445 shares with shared power to
vote; 789,900 shares with sole power to dispose or to direct disposition
and 7,614,345 shares with shared power to dispose, as reported on Schedule
13G, dated February 10, 1998, filed with the SEC.

The Company believes that holders of approximately 88.2% of the Company's
Common Stock outstanding as of December 31, 1997 elected to hold their shares,
not in their own names, but in the names of banking or financial intermediaries.
Accordingly, as of that date, 127,431,405 shares were registered in the nominee
name of The Depository Trust Company, Cede & Co.

<PAGE>

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table reflects shares of the Company's Common Stock
beneficially owned (or deemed to be beneficially owned pursuant to the rules of
the Securities and Exchange Commission) as of March 10, 1998 by each director of
the Company, each of the executive officers named in the Summary Compensation
Table below and the current directors and executive officers of the Company as a
group. The table also lists the number of stock units credited to directors,
named executive officers and the directors and executive officers of the Company
as a group as of April 7, 1998, pursuant to the Company's compensation and
benefit programs. No voting rights are associated with stock units.

<TABLE>
<CAPTION>
NUMBER OF
TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT STOCK UNITS
CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP* OF CLASS HELD***

<S> <C> <C> <C> <C>
Common Stock DIRECTORS:
Salvatore H. Alfiero _____ ** _________
William F. Allyn 1,000 ** 9,158(8)
Albert J. Budney, Jr. 10,500(1) ** 72,500(9)
Lawrence Burkhardt, III 452 ** 2,773(8)
Douglas M. Costle 500 ** 9,551(8)
Edmund M. Davis 2,274 ** 26,386(8)
William E. Davis 45,238(2) ** 115,000(9)
William J. Donlon 15,343(3) ** 0
Anthony H. Gioia 500 ** 2,311(8)
Bonnie Guiton Hill 1,000 ** 8,077(8)
Henry A. Panasci, Jr. 2,500 ** 2,311(8)
Patti McGill Peterson 500 ** 11,199(8)
Donald B. Riefler 1,000 ** 25,877(8)
Stephen B. Schwartz 500 ** 11,204(8)
_______________________

NAMED EXECUTIVES:
B. Ralph Sylvia 22,787(4) ** 36,450(9)
John W. Powers 26,659(5) ** 18,250(9)
Darlene D. Kerr 15,726(6) ** 29,350(9)

All Directors and Executive
Officers (23) as a group 197,260(7) ** 467,297

---------------

<FN>
* Based on information furnished to the Company by the Directors and
Executive Officers. Includes shares of Common Stock credited under the
Employees' Savings Fund Plan as of March 10, 1998.
** Less than one percent.
*** Stock units under the SIP were paid following the filing of this chart in
the Company's Annual Report on Form 10-K for the year ended December 31,
1997 and this chart reflects the lower amounts.
(1) Includes options for 10,000 shares of Common Stock exercisable within 60
days.
(2) Includes presently exercisable options for 42,625 shares of Common Stock.
(3) Includes presently exercisable options for 13,333 shares of Common Stock.
(4) Includes presently exercisable options for 18,000 shares of Common Stock.
(5) Includes presently exercisable options for 12,000 shares of Common Stock.
(6) Includes presently exercisable options for 9,000 shares of Common Stock.
(7) Includes presently exercisable options for 141,083 shares of Common Stock.
(8) Represents deferred stock units granted pursuant to the Outside Director
Deferred Stock Unit Plan. No voting rights are associated with deferred
stock units. For additional information regarding deferred stock units,
refer to page XXXX ("Compensation of Directors").
(9) Represents stock units granted in 1996, 1997 and 1998 pursuant to the
Long-Term Incentive Plan. No voting rights are associated with stock
units. For additional information regarding stock units granted to named
executives, refer to pages XXXX ("Long-Term Incentive Plan").
</FN>
</TABLE>
In addition to the shares of the Company's Common Stock, Albert J.
Budney, Jr. indirectly owns 100 shares of the Company's Preferred Stock, 9 1/2%
Series.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors, executive officers, beneficial owners of more than 10
percent of any class of equity securities and any other person subject to
Section 16 ("reporting persons") to file initial reports of ownership and
reports of changes in ownership of the Company's equity securities with the
Securities and Exchange Commission and the New York

<PAGE>

Stock Exchange. Based solely on a review of the copies of such forms and written
representations from the Company's directors and executive officers, the Company
believes that during the preceding year the reporting persons have complied with
all Section 16(a) filing requirements. After the effective time of the share
exchange, Holdings' directors and officers, and persons who own more than ten
percent of a registered class of Holdings' equity securities, will become
subject to these provisions.

- --------------------------------------------------------------------------------
BOARD OF DIRECTORS' COMPENSATION AND SUCCESSION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
- --------------------------------------------------------------------------------

The Compensation and Succession Committee of the Board of Directors
(the "Committee") is composed entirely of non-employee directors. The Committee
has responsibility for recommending officer salaries and for the administration
of the Corporation's officer incentive compensation plans as described in this
report. The Committee makes recommendations to the Board of Directors which
makes final officer compensation determinations.

This Committee report describes the Company's executive officer
compensation policies, the components of the compensation program, and the
manner in which 1997 compensation determinations were made for the Corporation's
Chairman of the Board and Chief Executive Officer, Mr. William E. Davis.

The 1997 Executive Officer Compensation Program was composed entirely
of base salary, frozen at 1995 levels, and 1997 grants of stock units and stock
appreciation rights ("SARs") made pursuant to the Long-Term Incentive Plan
("LTIP") adopted by the Board of Directors on September 25, 1996, as described
later in this report.

BASE SALARY

The Committee seeks to ensure that salaries of the Company's officers,
including executive officers, remain competitive with levels paid to comparable
positions among other U.S. electric and gas utilities with comparable revenues
(collectively referred to as the "Comparator Utilities"). The Committee believes
that competitive salaries provide the foundation of the Company's officer
compensation program and are essential for the Company to attract and retain
qualified officers, especially in light of the increasing competition within the
industry. Each officer position has been assigned to a competitive salary range.
The Committee intends to administer salaries within the 25th to 75th percentiles
of practice with respect to those Comparator Utilities. The 1997 average salary
of the five named executive officers falls below 25th percentile competitive
levels. Since executive officer salaries were frozen at 1995 levels, as a
condition for receipt of 1995 stock incentive grants, the competitiveness of
annual executive officer compensation is heavily dependent on stock-related
incentives in the form of stock units and stock appreciation rights granted
under the 1995 Stock Incentive Plan ("SIP") and the LTIP.

1995 STOCK INCENTIVE PLAN

On December 14, 1995, the Board of Directors approved the SIP to
promote the success and enhance the value of the Company through the retention
and continued motivation of the Company's officers and to focus their efforts
toward the execution of business strategies directed toward improving financial
returns to shareholders. Awards under the SIP consisted of stock units and SARs.
These stock unit grants were paid in cash in early 1998 based on the fair market
value of the Company's Common Stock during the last 12 consecutive trading days
in 1997 ($9.922). Under the SIP, dividends are credited (in an amount equivalent
to dividends paid, if any, on the Company's Common Stock) with respect to all
stock units granted. These credits are reinvested at the prevailing stock price,
thereby increasing the number of stock units payable at the end of

<PAGE>

the period. No dividends were credited to SIP stock units. The SARs became
exercisable on January 2, 1998, and may be exercised until they expire on
December 31, 2002.

The SIP was structured so that any compensation earned by officers
during the two-year period 1996 and 1997, other than base salary, will be based
on the Company's year-end 1997 stock price and total returns realized by
shareholders during this period. Accordingly, participants (including the
executive officers listed in the Summary Compensation Table) did not receive any
salary increases (except to reflect promotions), annual incentive compensation
or stock option grants during 1996 and 1997. Generally speaking, SIP grants were
structured so that the Company's stock price would have to more than double
during this two-year period in order for the total compensation of the
participants to approximate median competitive levels.

The Committee does not intend to make further SIP grants other than the
1995 stock unit grants which became payable in early 1998 and the 1995 stock
appreciation rights grants which became exercisable on January 2, 1998 and
expire on December 31, 2002. Long-term incentive grants were made in 1996, 1997,
and 1998 under the LTIP described below.

LONG-TERM INCENTIVE PLAN

Because the Committee seeks to provide a continuous program of
long-term stock incentives, on September 25, 1996 the Board of Directors adopted
the LTIP and approved stock unit and SAR grants for the 1996-1998 period. These
stock unit grants will be paid in cash in early 1999. Dividends are credited (in
an amount equivalent to dividends paid, if any, on the Company's common stock)
with respect to the 1996-1998 stock unit grants, which are reinvested at the
prevailing stock price, thereby increasing the number of stock units payable in
early 1999. The payment value of the stock units will be based on the average
fair market value of the Company's common stock during the last 12 consecutive
trading days in 1998. The 1996 LTIP SAR grants first become exercisable on
January 2, 1999, and may be exercised until they expire on December 31, 2005.

On January 29, 1997, the Board of Directors approved the grant of LTIP
stock units and SARs for the 1997-1999 performance period. These stock units,
and accumulated dividend stock units, will be paid in early 2000 based on the
average fair market value of the Company's common stock during the last twelve
consecutive trading days in 1999. The SARs first become exercisable on January
2, 2000, and can be exercised until they expire on December 31, 2006.

The size of both the 1996-1998 and 1997-1999 LTIP stock unit and SAR
grants were determined, based on the price of the Company's common stock at the
time these grants were made, so that the combination of the officers' current
salaries plus the grant date present value of SIP, and LTIP grants for the
1996-1998 and 1997-1999 performance periods, would approximate the 50th
percentile of comparator utility total compensation practice for the three-year
period 1995 through 1997. The competitiveness of the actual compensation
realized from SIP and the 1996-1998 and 1997-1999 LTIP grants is dependent on
the market value of the Company's common stock at the end of 1997, 1998, and
1999.

The Board of Directors also approved a January 19, 1998 grant of LTIP
stock units and SARs for the period 1998-2000. These stock units, and any
accumulated dividend stock units, will be paid in early 2001 based on the
average fair market value of the Company's Common Stock during the last 12
consecutive trading days in 2000. The SARs will first become exercisable on
January 2, 2001, and can be exercised until they expire on December 31, 2007.
The 1998 stock unit and SAR grants were determined so that the average current
salary and the average grant date present value of the 1998 LTIP grants for the
five named executive officers would approximate the 50th percentile of 1997
Comparator Utility total compensation practice.

<PAGE>

Through the combination of base salary, and during 1996, 1997 and 1998,
stock unit and SAR grants, the Committee seeks to focus the efforts of officers
toward improving, annually and over the longer-term, the financial returns for
its shareholders.

COMPENSATION OF WILLIAM E. DAVIS, CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER

Mr. Davis became Chief Executive Officer on May 1, 1993. In April 1996,
Mr. Davis voluntarily reduced his annual salary from a level of $490,000 to the
current level of $450,500. The Committee has been advised by its consultant that
Mr. Davis' 1997 salary falls below the 25th percentile relative to the chief
executive officers of the Comparator Utilities. On December 13, 1995, the Board
granted Mr. Davis 25,000 stock units and 142,500 SARs, with an exercise price of
$10.75, under the SIP. As set forth above, SIP stock unit grants were paid to
Mr. Davis and the other named executive officers in April 1998. Mr. Davis' SIP
stock unit and SAR grants were intended to provide competitive total
compensation opportunities during the 1996 and 1997 period, depending on the
Company's stock price, considering that his salary would not be increased and
that he would receive no annual incentive compensation payments and no stock
options during this two-year period.

As previously indicated, the Committee and the Board of Directors seek
to provide a continuous program of long-term stock incentives beyond 1997 when
SIP stock unit grants became payable and SIP SAR grants became exercisable.
Accordingly, on September 25, 1996 the Board of Directors approved a grant of
45,000 stock units and 90,000 SARs, with an exercise price of $8.00, for Mr.
Davis for the 1996-1998 performance period. On January 29, 1997 the Board of
Directors approved a grant of 35,000 stock units and 70,000 SARs, with an
exercise price of $10.30, for the 1997-1999 performance period. Both the
1996-1998 and 1997-1999 grants were made under the terms of the LTIP. The size
of the 1996-1998 and 1997-1999 LTIP grants for Mr. Davis was determined so that
the grant date present value of both grants, in combination with his current
salary and his SIP grants, would approximate the 50th percentile for comparator
utility chief executive officers during the 1995-1997 period. The
competitiveness of the compensation Mr. Davis actually realizes from the SIP and
LTIP grants is dependent on the market value of the Corporation's common stock
at the end of 1997, 1998, and 1999.

As previously indicated, the Board of Directors approved a January 19,
1998 grant of LTIP stock units and SARs for Mr. Davis for the period 1998-2000.
The size of these grants was determined so that the sum of his current salary
plus the grant date present value of the 1998 stock unit and SAR grants would
fall approximately midway between the 25th and 50th percentiles of 1997 total
compensation practice for electric/gas utilities of comparable size.

---------------------

<PAGE>

The Committee is aware of the limitations that tax legislation has
placed on the tax deductibility of compensation in excess of $1 million which is
paid in any year to an executive officer. Currently none of the executive
officers has received compensation subject to such limitations. The Committee
will continue to monitor developments in this area and take appropriate actions
to preserve the tax deductibility of compensation paid to executive officers,
should this become necessary.

SUBMITTED BY THE COMPENSATION AND SUCCESSION COMMITTEE OF THE BOARD OF
DIRECTORS:

Stephen B. Schwartz, Chairperson
William F. Allyn
Edmund M. Davis
Anthony H. Gioia
Henry A. Panasci, Jr.

- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------

The table below sets forth all compensation paid by the Company and its
wholly-owned subsidiaries for services rendered in all capacities during the
fiscal years ended December 31, 1997, December 31, 1996 and December 31, 1995,
to the Chairman of the Board and Chief Executive Officer and to each of the
other four most highly compensated executive officers of the Company for the
fiscal year ended December 31, 1997.

<PAGE>

SUMMARY COMPENSATION TABLE
FISCAL YEARS 1997, 1996 AND 1995

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME POSITION YEAR SALARY($)(A) BONUS($) COMPENSATION($)(D) AWARDS($)(D) OPTIONS/SARS(#) COMPENSATION(E)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. E. Davis Chairman of the 1997 450,501 0 110 371,875 70,000 42,358
Board and Chief 1996 462,351 0 0 360,000 90,000 43,365
Executive Officer 1995 473,542 0 0 246,875 152,500 35,729

A. J. Budney, Jr. President and 1997 315,002 0 110 185,938 35,000 16,436
Chief Operating 1996 315,002 0 2,956 180,000 45,000 24,975
Officer 1995 236,251 50,000(B) 32,727 148,125 76,000 48,541

B. R. Sylvia Executive Vice 1997 295,001 0 110 117,938 22,200 11,153
President 1996 295,001 0 0 114,000 28,500 10,174
1995 295,001 0 0 98,750 49,000 24,832

J. W. Powers Senior Vice 1997 210,190 0 110 85,000 16,000 187,878
President 1996 211,002 0 0 142,000 30,000 30,541
1995 209,251 0 0 22,000 58,466

D. D. Kerr Senior Vice 1997 210,001 0 110 85,000 16,000 7,953
President 1996 210,001 0 0 82,000 20,500 9,415
1995 191,085 0 0 74,063 31,500 7,338

- ---------------

<FN>
(A) Includes all employee contributions to the Employees' Savings Fund Plan.

(B) 1995 bonus for Mr. Budney represents a bonus for 1995 guaranteed at the
time he was hired if earnings per share thresholds were not met under the
Officer Incentive Compensation Plan (an annual incentive compensation plan
adopted by the Board of Directors on December 13, 1990, and suspended for
1996 and 1997 as a condition of participation in the SIP).

(C) 1996 and 1995 Other Annual Compensation for Mr. Budney represents amounts
reimbursed for payment of taxes associated with relocation expenses. 1997
Other Annual Compensation for Messrs. Davis, Budney, Sylvia and Powers and
Ms. Kerr represents amounts reimbursed for payment of taxes associated
with non-cash compensation.

(D) In 1995, 57,500 stock units were granted to the above named executive
officers pursuant to the SIP adopted by the Board of Directors on December
14, 1995. These stock units vested and became payable on December 31,
1997. No dividend equivalents were credited on these stock units. The 1995
values listed in the table were calculated by multiplying the stock units
granted by the closing market price of the company's stock ($9.875) on the
date of the grant (December 31, 1995).

In 1996, 109,750 stock units were granted to the above named executive
officers pursuant to the LTIP adopted by the Board of Directors on
September 25, 1996. These grants were made for the three-year period
January 1, 1996, through December 31, 1998, and vest and become payable on
December 31, 1998. The 1996 values listed in the table were calculated by
multiplying the stock units granted by $8.00, the price at the time these
stock unit grants were determined. Dividend equivalents, if any, will be
credited on these grants and will be paid when the related stock units are
paid. For Mr. Powers, the value also includes the value of stock units
granted in 1996 under the 1995 SIP.

In 1997, 79,600 stock units were granted to the above named executive
officers pursuant to the LTIP adopted by the Board of Directors on
September 25, 1996. These grants were made for the three-year period
January 1, 1997, through December 31, 1999, and vest and become payable on
December 31, 1999. The 1997 values listed in the table were calculated by
multiplying the stock units granted by $10.625, the price at the time
these stock unit grants were determined. Dividend equivalents, if any,
will be credited on these grants and will be paid when the related stock
units are paid.

As of the end of the 1997 fiscal year, based on a closing market price of
$10.50, Mr. Davis held 105,000 stock units having a market value of
$1,102,500; Mr. Budney held 55,000 stock units having a market value of
$577,500; Mr. Sylvia held 35,350 stock units having a market value of

<PAGE>

$371,175; Mr. Powers held 25,750 stock units having a market value of
$270,375; and Ms. Kerr held 25,750 stock units having a market value of
$270,375.

(E) All Other Compensation for 1997 includes: employer contributions to the
Company's Employees' Savings Fund Plan: Mr. Davis ($4,800), Mr. Sylvia
($4,800), Mr. Powers ($4,800), and Ms. Kerr ($4,800); taxable portion of
life insurance premiums: Mr. Davis ($13,743), Mr. Budney ($2,436), Mr.
Sylvia ($3,537), Mr. Powers ($3,528), and Ms. Kerr ($1,653); employer
contributions to the Company's Excess Benefit Plan: Mr. Davis ($8,715),
Mr. Sylvia ($1,837), Mr. Powers ($560), and Ms. Kerr ($1,500); directors
fees received from Opinac: Mr. Davis ($15,000), Mr. Budney ($14,000), and
Mr. Powers ($11,000); lump sum payment for accrued, unused vacation upon
retirement: Mr. Powers ($62,490); severance allowance paid pursuant to
Employment Agreement: Mr. Powers ($105,500); personal travel allowance:
Mr. Sylvia ($979).
</FN>
</TABLE>

<PAGE>

The following table discloses, for the Chairman of the Board and Chief
Executive Officer, Mr. William E. Davis and the other named executive officers,
the number and terms of SARs granted during the fiscal year ended December 31,
1997.

<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
- ----------------------------------------------------------------------

NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES
GRANTED IN FISCAL EXERCISE OR EXPIRATION GRANT DATE
NAME (#) YEAR BASE PRICE ($/SH) DATE (A) PRESENT VALUE ($)(B)
- ---- ------------------------------------------------ -------- --------------------

<S> <C> <C> <C> <C> <C>
W. E. Davis 70,000 23.62% 10.30 12/31/2006 249,200
A. J. Budney, Jr. 35,000 11.81% 10.30 12/31/2006 124,600
B. R. Sylvia 22,200 7.49% 10.30 12/31/2006 79,032
J. W. Powers 16,000 5.40% 10.30 12/31/2006 56,960
D. D. Kerr 16,000 5.40% 10.30 12/31/2006 56,960

- ---------------
<FN>
(A) SARs granted in 1997 under the LTIP become exercisable January 2, 2000.
All SARs become exercisable upon a change in control.

(B) The grant date present value of SARs is calculated using the Black-Scholes
Option Pricing Model with the following assumptions: market price of the
stock at the September 29, 1997 grant date ($10.30); exercise price of
rights that expire on December 31, 2006 ($10.30); stock volatility
(0.2957); dividend yield (2.86%); risk free rate (6.00%); exercise term
(10 years); Black-Scholes ratio (0.3454); and Black-Scholes value ($3.56)
for rights that expire on December 31, 2006. Stock volatility and dividend
yield assumptions are based on 36 months of results for the period ending
December 31, 1997.
</FN>
</TABLE>

<PAGE>

The following table summarizes exercises of options by the Chairman of
the Board and Chief Executive Officer, Mr. William E. Davis, and the other named
executive officers, the number of unexercised options held by them and the
spread (the difference between the current market price of the stock and the
exercise price of the option, to the extent that market price at the end of the
year exceeds exercise price) on those unexercised options for fiscal year ended
December 31, 1997.

<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS OPTIONS/SARS AT
AT FISCAL YEAR END (#) FISCAL YEAR-END ($) (A)
------------------------------------ ------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ------------ ----------- ------------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
W. E. Davis 0 0 32,625 312,500 0 239,000
A. J. Budney, Jr. 0 0 0 156,000 0 119,500
B. R. Sylvia 0 0 13,000 99,700 0 75,690
J. W. Powers 0 0 9,000 68,000 0 78,200
D. D. Kerr 0 0 6,000 68,000 0 54,450

- -----------------

<FN>
(A) Calculated based on the closing market price of the Corporation's common stock on December 31, 1997 ($10.50).
</FN>
</TABLE>

<TABLE>
<CAPTION>
NIAGARA MOHAWK POWER CORPORATION
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN(1)
VS. S&P 500, EEI AND PEER GROUP OF EASTERN REGION UTILITIES

[ILLUSTRATION OF PERFORMANCE GRAPH--ATTACHED]

1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
NMPC 100.00 110.46 83.26 60.67 63.07 67.06
S&P 500 Index 100.00 110.08 111.53 153.45 188.68 251.63
EEI Index 100.00 111.66 97.28 123.91 123.13 159.17
Peer Group 100.00 109.15 93.87 124.16 122.02 158.83
</TABLE>

Assumes $100 invested on December 31, 1992 in Niagara Mohawk stock, S&P
500, EEI and Eastern Region utilities. All dividends assumed to be reinvested
over the five-year period.

In prior years, the Company has compared its five-year total
shareholder returns to a peer group comprised of the 23 eastern region utilities
listed below. In future years, the Company intends to compare its total
shareholder returns to the Edison Electric Institute Combination Gas and
Electric Investor-Owned Utilities Index ("EEI Index"), which is a published
industry index. In view of the nationwide deregulation of the electric and gas
utility industry, the Company believes that a national peer group, such as the
EEI Index, is more appropriate than the regional utility peer group used in
prior years. Furthermore, the EEI Index is composed entirely of combination
electric and gas utilities, like Niagara Mohawk.

<PAGE>

PEER GROUP OF EASTERN REGION UTILITIES:

<TABLE>
<S> <C> <C>
Allegheny Energy Inc. Delmarva Power & Light Co. Northeast Utilities
Atlantic Energy, Inc. Eastern Utilities Associates Orange & Rockland Utilities Inc.
Baltimore Gas & Electric Company General Public Utilities Corp. PECO Energy Company
Boston Edison Company Keyspan Energy Corp. PP&L Resources Inc.
Central Hudson Gas & Electric Corp. Long Island Lighting Co. Public Service Enterprise Group Inc.
Central Maine Power Co. National Fuel Gas Company Rochester Gas & Electric Corp.
Consolidated Edison Co. of New England Electric System The United Illuminating Company
New York, Inc. New York State Electric & Gas Corp.
DQE, Inc.

- ---------------
<FN>
(1) Total returns for each Eastern Region Utility were determined in accordance
with the Securities and Exchange Commission's regulations, i.e., weighted
according to each issuer's stock market capitalization.
</FN>
</TABLE>

RETIREMENT BENEFITS

The following table illustrates the maximum aggregate pension benefit,
with certain deductions for Social Security, payable by the Company under both
the Niagara Mohawk Pension Plan ("Basic Plan") and the Company's Supplemental
Executive Retirement Plan ("SERP") to an officer in specified average salary and
years-of-service classifications. Such benefit amounts have been calculated as
though each officer selected a straight life annuity and retired on December 31,
1997 at age 65. The amount of compensation taken into account under a
tax-qualified plan is subject to certain annual limits (adjusted for increases
in the cost of living, $150,000 in 1996 and $160,000 in 1997). This limitation
may reduce benefits payable to highly compensated individuals.

<TABLE>
<CAPTION>
ANNUAL RETIREMENT ALLOWANCE

3-YEAR AVERAGE 10 YEARS 20 YEARS 30 YEARS 40 YEARS
ANNUAL SALARY SERVICE* SERVICE SERVICE SERVICE

<S> <C> <C> <C> <C>
$150,000 $21,090 $ 81,948 $ 81,948 $ 81,948
225,000 23,555 126,948 126,948 126,948
300,000 23,869 171,948 171,948 171,948
375,000 23,869 216,948 216,948 216,948
450,000 23,869 261,948 261,948 261,948
525,000 23,869 306,948 306,948 306,948

- -------------
<FN>
*Subject to five-year average annual salary.
</FN>
</TABLE>

The credited years of service under the Basic Plan and the SERP for the
individuals listed in the Summary Compensation Table are Mr. Davis, 8 years; Mr.
Budney, 3 years; Mr. Sylvia, 7 years; Mr. Powers, 34 years; Ms. Kerr, 24 years.

The Basic Plan, a noncontributory, tax-qualified defined benefit plan,
provides all employees of the Company with a minimum retirement benefit related
to the highest consecutive five-year average

<PAGE>

compensation. Compensation covered by the Basic Plan includes only the
participant's base salary or pay, subject to the maximum annual limit noted
above. Directors who are not employees are not eligible to participate.

The SERP is a nonqualified, noncontributory defined benefit plan
providing additional benefits to certain officers of the Company upon retirement
after age 55 who have 20 or more years of employment. The Committee may grant
exceptions to these requirements. The SERP provides for payment monthly of an
amount equal to the greater of (i) 60% of monthly base salary averaged over the
final 36 months of employment, less benefits payable under the Basic Plan,
retirement benefits accrued during previous employment and one-half of the
maximum Social Security benefit to which the participant may be entitled at the
time of retirement, or (ii) benefits payable under the Basic Plan without regard
to the annual benefit limitations imposed by the Internal Revenue Code.
Participants in the SERP may elect to receive their benefit in a lump sum
payment provided certain established criteria are met.

EMPLOYEE AGREEMENTS

The Company entered into employment agreements with Messrs. Davis,
Budney, Sylvia and Powers and Ms. Kerr, effective as of December 20, 1996, which
superseded their prior agreements with the Company. The agreements have a
three-year term, and, unless either party gives 60 days prior notice to the
contrary, the agreements are extended at the end of each year for an additional
year. In the event of a change in control (as defined in the agreement), the
agreement will remain in effect for a period of at least 36 months thereafter
unless a notice not to extend the term of the agreement was given at least 18
months prior to the change in control. The agreements provide that the executive
will receive a base salary at the executive's current annual salary or such
greater amount determined by the Company and that the executive will be able to
participate in the Company's incentive compensation plans according to their
terms. In addition, the executive is entitled to business expense reimbursement,
vacation, sick leave, perquisites, fringe benefits, insurance coverage and other
terms and conditions of the agreement as are provided to employees of the
Company with comparable rank and seniority. Under an amendment to the agreements
effective as of June 9, 1997, if an executive has completed eight years of
service and attained age 55 at the time of the executive's termination of
employment, the executive (and eligible dependents) will be entitled to coverage
for medical, prescription drug, dental and hospitalization benefits equal to
those provided by the Company on March 26, 1997 for the remainder of the
executive's life with all premiums therefor paid by the Company. If an executive
has completed eight years of service but has not attained age 55 upon
terminating employment, such benefits will be provided when the executive
attains age 55.

The employment agreements also provide that the executive's benefits
under the SERP will be based on the executive's salary, annual incentive awards
and SIP awards, as applicable. Further, if the executive's employment is
terminated by the Company without cause (whether prior to or after a change in
control), or by the executive for good reason after a change in control, or
after completing eight years of service, the agreements provide that the
executive will be deemed fully vested under such plan without reduction for
early commencement. If the executive is under age 55 at the time of such
termination, the executive will be entitled to a fully vested benefit under the
SERP upon attaining age 55, without reduction for early commencement.

The agreements restrict under certain circumstances prior to a change
in control the executive's ability to compete with the Company and to use
confidential information concerning the Company. In the event of a dispute over
an executive's rights under the executive's agreement following a change in
control of the Company, the Company will pay the executive's reasonable legal
fees with respect to the dispute unless the executive's claims are found to be
frivolous.

<PAGE>

If the executive's employment is terminated by the Company without
cause prior to a change in control (as defined in the agreement), the executive
will be entitled to a lump sum severance benefit in an amount equal to two times
the executive's base salary plus an amount equal to two times the greater of the
executive's (i) most recent annual incentive award or (ii) average annual
incentive award paid over the previous three years (a portion of the value of
the SIP awards to the executive will be treated as incentive awards for 1996 and
1997 for this purpose). In addition, the executive will receive a pro rata
portion of the incentive award which would have been payable to the executive
for the fiscal year in which termination of employment occurs provided that the
executive has been employed for 180 days in such fiscal year. In the event of
such termination of employment, the executive will also be entitled to continued
participation in the Company's employee benefit plans for two years, coverage
for the balance of the executive's life under a life insurance policy providing
a death benefit equal to 2.5 times the executive's base salary at termination
and payment by the Company of fees and expenses or any executive recruiting or
placement firm in seeking new employment.

If, following a change in control, the executive's employment is
terminated by the Company without cause or by the executive for good reason (as
defined in the agreement), the executive will be entitled to a lump sum
severance benefit equal to four times the executive's base salary. The executive
will also be entitled to the additional benefits referred to in the last
sentence of the preceding paragraph, except that employee benefit plan coverage
for medical, prescription drug, dental and hospitalization benefits will
continue for the remainder of the executive's life with all premiums therefor
paid by the Company and coverage under other employee benefit plans will
continue for four years. In the event that the payments to the executive upon
termination of employment following a change in control would subject the
executive to the excise tax on excess parachute payments under the Internal
Revenue Code, the Company will reimburse the executive for such excise tax (and
the income tax and excise tax on such reimbursement).

In November 1994, the Company entered into a supplemental agreement
with Mr. Powers in exchange for his foregoing retirement under the Company's
Voluntary Employee Reduction Program and continuing employment with the Company
until December 31, 1996. This agreement was modified by an agreement between Mr.
Powers and the Company entered into in October 1996 in exchange for his
foregoing retirement on December 31, 1996, and continuing employment with the
Company for up to twelve additional months. Mr. Powers retired from the Company
effective December 31, 1997. Under the agreements, Mr. Powers became entitled to
a lump sum payment following the successful closing of the sale of HYDRA-CO
Enterprises, Inc., and to a severance allowance equal to one-half of his annual
salary in effect on December 31, 1996, which was paid to him in January 1997.
The agreements also provide that Mr. Powers would be entitled to (i) a SIP award
of 7,500 stock units and 9,500 SARs, which would be fully vested (assuming
retirement during 1997) and payable (in the case of stock units) or exercisable
(in the case of SARs) on December 31, 1997, (ii) long-term incentive grants
equivalent to those provided to other senior vice presidents for the 1996-1998
and 1997-1999 cycles (prorated for his period of service during those cycles),
(iii) a lump sum payment for unused vacation for 1995, 1996 and 1997 upon
retirement and (iv) "grandfathered" retiree medical coverages in effect on
December 31, 1996. Under the agreements Mr. Powers also is entitled to a benefit
under the Company's SERP no less than his benefit calculated as of November
1994, and to have the fees he received as a member of the board of directors of
Opinac (or would have received in the event that such fees are eliminated) taken
into account in calculating his benefit under this plan period. In January 1997,
the Committee agreed that if Mr. Powers elected to receive a lump sum payment of
his benefit under the SERP (which he did), it would be based on a discount rate
no higher than the applicable discount rate in effect under the plan on December
31, 1996.

<PAGE>

COMPENSATION OF DIRECTORS

Directors who are not employees of the Company receive an annual
retainer of $20,000 and $1,000 per Board meeting attended. Directors who are not
employees and who chair any of the standing Board Committees receive an
additional annual fee of $3,000 and those who serve on any of the standing Board
Committees, including the chair, receive $850 per Committee meeting attended.
The Company also reimburses its directors for travel, lodging and related
expenses they incur in attending Board and Committee meetings.

The Board of Directors terminated the Outside Director Retirement Plan
effective December 31, 1995. The plan paid annual retirement benefits equal to
the annual retainer in effect at the time of retirement to outside directors who
retired on or after age 65 with 10 years of service. Directors under age 60 had
the present value of their accrued benefits as of December 31, 1995 converted
into deferred stock units ("DSUs") of equivalent value which become payable upon
the director's termination from the Board. Directors age 60 or older were given
an election to (1) continue to receive grandfathered retirement benefits based
on the annual retainer in 1995, (2) convert the present value of their accrued
benefits into DSUs, or (3) receive half the grandfathered retirement benefit and
convert half the present value of their accrued benefit into DSUs. Four
directors elected to continue to receive the grandfathered Retirement Plan
benefits.

DSUs, administered in accordance with the terms of the Outside Director
Deferred Stock Unit Plan adopted by the Board of Directors on December 2, 1996,
are paid when a person ceases to be an outside director, either in a lump sum or
in five equal annual installments. The first DSU installment payment would be
made shortly after the director's service ends and the other installments would
be paid on the first through fourth anniversaries of such date, based on the
prevailing stock price at that time.

DSUs are credited with respect to any dividends paid during the term of
their deferral. Such dividend credits are reinvested into DSUs of equivalent
current value based on the prevailing price of the Company's Common Stock at
that time.

Commencing in 1996, and annually thereafter, each outside director is
credited with DSUs equal in value to 50% of the prevailing year's annual
retainer (60% for Committee Chairs). Accordingly, all outside directors were
credited with 1,168 DSUs (1,402 for Committee Chairs) based on a closing stock
price of $8.5625 on May 7, 1997. The beneficial stock ownership table on page
____, shows the DSUs which have been credited to each of the outside directors
under this plan as of March 10, 1998.

The Company provides certain health and life insurance benefits to
directors who are not employees of the Company. Each outside director covered
under the Company's health care plans contributes approximately 20 percent of
the monthly costs associated with these plans. During 1997, the following
directors received the indicated benefits under the foregoing arrangements: Mr.
Burkhardt ($3,689), Mr. Costle ($3,178), Mr. Edmund Davis ($6,602), Mr. Donlon
($204), Mr. Gioia ($4,077), Dr. Hill ($3,306), Mr. Panasci ($212), Dr. Peterson
($2,361), Mr. Riefler ($4,856) and Mr. Schwartz ($384). Mr. Burkhardt received a
consulting fee of $18,000 during 1997.

<PAGE>

- --------------------------------------------------------------------------------
PROPOSAL NO. 2: APPROVAL OF ISSUANCE OF UP TO 43 MILLION SHARES OF COMMON
STOCK TO CERTAIN INDEPENDENT POWER PRODUCERS
- --------------------------------------------------------------------------------

BACKGROUND INFORMATION

In 1997, the Company entered into two related agreements that it
believes will significantly improve its financial condition. Pursuant to the MRA
dated July 9, 1997, as amended, among the Company and 15 IPPs, the Company has
agreed to terminate, restate or amend 28 PPAs entered into with those IPPs (the
"IPP Parties") in exchange for cash, shares of Company common stock and certain
financial contracts. Pursuant to the Company's PowerChoice Agreement, entered
into with the PSC, which regulates utilities in the State of New York, the PSC
has approved the prudence of the MRA and the Company has agreed to a five year
rate plan and has agreed to divest its fossil and hydro generating assets (the
"Genco Divestiture"). The PSC entered a written order approving the PowerChoice
Agreement on March 20, 1998 and the descriptions of the PowerChoice Agreement
contained herein include any modifications to the PowerChoice Agreement effected
by that order.

The Company entered into the PPAs that are subject to the MRA because
it was required to do so under the Public Utility Regulatory Policies Act of
1978 ("PURPA"), which was intended to provide incentives for businesses to
create alternative energy sources. Under PURPA, the Company was required to
purchase electricity generated by qualifying facilities of IPPs at prices that
were not expected to exceed the cost that otherwise would have been incurred by
the Company in generating its own electricity, or in purchasing it from other
sources (known as "avoided costs"). While PURPA was a federal initiative, each
state retained certain delegated authority over how PURPA would be implemented
within its borders. In its implementation of PURPA, the State of New York passed
the "Six-Cent Law," establishing 6(cent) per Kilowatt hour ("Kwh") as the floor
on avoided costs for projects less than 80 megawatts ("MW") in size. The
Six-Cent Law remained in place until it was amended in 1992 to deny the benefit
of the statute to any future PPAs. The avoided cost determinations under PURPA
were periodically increased by the PSC during this period. PURPA and the
Six-Cent Law, in combination with other factors, attracted large numbers of IPPs
to New York State, and, in particular, to the Company's service territory, due
to the area's existing energy infrastructure and to the availability of
cogeneration hosts. The pricing terms of substantially all of the PPAs that the
Company entered into in compliance with PURPA and the Six-Cent Law or other New
York law were based, at the option of the IPP, either on administratively
determined avoided costs or minimum prices, both of which have consistently been
materially higher than the wholesale market prices for electricity.

Since PURPA and the Six-Cent Law were passed, the Company has been
required to purchase electricity from IPPs in quantities in excess of its own
demand and at prices in excess of that available to the Company by internal
generation or from purchase in the wholesale market. In fact, by 1991 the
Company was facing a potential obligation to purchase power from IPPs
substantially in excess of its peak demand of 6,093 MW. As a result, the
Company's competitive position and financial performance have deteriorated and
the price of electricity paid per KWh by its customers has risen significantly
above the national average. Accordingly, in 1991 the Company initiated a
parallel strategy of negotiating individual PPA buyouts, cancellations and
renegotiations, and of pursuing regulatory and legislative support and
litigation to mitigate the Company's obligations under the PPAs. By mid-1996,
this strategy had resulted in reducing the Company's obligations to purchase
power under its PPA portfolio to approximately 2,700 MW. Notwithstanding this
reduction in capacity, over the same time period the payments made to the IPPs
in respect of their PPAs rose from approximately $200 million in 1990 to

<PAGE>

approximately $1.1 billion in 1997 as independent power facilities from which
the Company was obligated to purchase electricity commenced operations. The
Company estimates that absent the MRA, payments made to the IPPs pursuant to
PPAs would continue to escalate by approximately $50 million per year until
2002.

Recognizing the competitive trends in the electric utility industry and
the impracticability of remedying the situation through a series of customer
rate increases, in mid-1996 the Company began comprehensive negotiations to
terminate, amend or restate a substantial portion of above-market PPAs in an
effort to mitigate the escalating cost of these PPAs as well as to prepare the
Company for a more competitive environment. These negotiations led to the MRA
and the PowerChoice Agreement.

THE MRA

On March 10, 1997, the Company announced an agreement in principle
between the Company and 19 IPPs representing 44 PPAs. Prior to the execution of
the MRA, the Company withdrew its offer with respect to a subgroup of three
developers representing 15 hydro contracts. Because the agreement in principle
called for the subgroup to be compensated solely through restructured contracts,
their departure did not change the amount of cash and stock payable by the
Company in the agreement in principle nor did it have a material impact upon the
cost reductions associated with such agreement.

On July 9, 1997, the agreement in principle was formalized as the MRA,
which was signed with 16 IPPs who sell electricity to the Company under 29 PPAs.
The MRA originally provided for the termination, restatement or amendment of
those 29 PPAs in exchange for approximately $3,605 million in cash, 46 million
shares of Niagara Mohawk Common Stock and a series of fixed price swap
contracts. The MRA specifically contemplated that two IPPs, Oxbow Power of North
Tonawanda, New York, Inc. ("Oxbow") and NorCon Power Partners, L.P. ("NorCon")
would enter into further negotiations concerning their treatment under the MRA.
Following such negotiations, Oxbow withdrew from the MRA, but, based on the
value of its allocation under the MRA and the terms of its existing PPA, Oxbow's
withdrawal did not have a material impact upon the cost reductions associated
with the MRA. The Company and NorCon agreed to replace NorCon's initial
allocation under the MRA with an all cash allocation which has, in the Company's
estimation, a value approximately $60 million higher than NorCon's initial
allocation. A third IPP Party has agreed to take cash in exchange for the shares
of Common Stock allocated to it in the MRA. As a result of these cash
allocations, there are approximately 3 million fewer shares of Common Stock
allocated to the IPP Parties under the MRA. It is possible that the terms of the
MRA, particularly the mix of consideration, will be further renegotiated prior
to the closing under the MRA, and the Company intends to attempt to renegotiate
the MRA to reduce the number of shares of Common Stock that would be issued to
decrease the number of shares and increase the cash payable (or alternatively to
purchase Common Stock to use for the MRA) if Proposal 2 is approved but Proposal
3 is not.

The MRA now covers 15 IPPs who sell electricity to the Company under 28
PPAs, representing approximately 80% of the Company's estimated above-market
purchased power obligations, whose PPAs will be terminated, restated or amended
in exchange for approximately $3,616 million of cash, 42.9 million shares of
Niagara Mohawk Common Stock and certain financial contracts. The Common Stock to
be received by the IPPs will represent approximately 23% of the outstanding
shares of the Company's Common Stock following such issuance. Under the rules of
the New York Stock Exchange, the Company must receive its shareholders' approval
to issue this large a percentage of its shares. Under the MRA, the Company is
required to maintain a shelf registration statement under which the IPP Parties
can sell such shares for a period of two years following the consummation of the
MRA. The cash payment to the IPPs will be derived from the proceeds from a
public offering of senior unsecured debt securities (the "Offering") and cash on
hand or drawn down under a new bank facility being negotiated (the "Credit
Facility").

<PAGE>

Under the MRA, 19 PPAs representing approximately 1,180 MW of electric
generating capacity will be terminated completely and 8 PPAs representing
approximately 541 MW of capacity will be restated on economic terms and
conditions that the Company believes are more favorable to it than the existing
PPAs. The restated contracts will have shorter terms (10 years) than the
existing contracts and will be structured as financial swap contracts where the
Company receives or makes payments to the IPP Parties based upon the
differential between the contract price and a market reference price for
electricity. The contract prices are fixed for the first two years changing to
an indexed pricing formula thereafter. Contract quantities are fixed for the
full 10 year term of the contracts. The indexed pricing structures ensures that
the price paid for energy and capacity will fluctuate relative to the underlying
market cost of gas and general indices of inflation. Specifically, the restated
contracts are financial swap contracts which provide for cash settlement based
on fixed contract quantities for the full 10-year term of the contracts and
fixed prices for the first two years. Thereafter the prices change to a formula
based on indices of fuel cost and inflation. Until such time as a competitive
energy market structure becomes operational in the State of New York, the
restated contracts provide the IPP Parties with a put option for the physical
delivery of energy. Additionally, one PPA representing 42 MW of capacity will be
amended to reflect a shortened term (17 years) and a lower stream of fixed unit
prices. Finally, the MRA requires the Company to provide the IPP Parties with a
number of fixed price swap contracts with a term of seven years beginning in
2003. The fixed price swap contracts will be cash settled monthly based upon a
stream of defined quantities and prices.

Although against the Company's forecast of market energy prices the
amended and restated PPAs represent an expected above-market payment obligation,
the Company believes that this portfolio of PPAs could provide it and its
customers with a hedge if market prices rose substantially. The portfolio of
amended and restated PPAs contain terms that are believed to be more responsive
than the existing PPAs to competitive market price changes.

Pursuant to the MRA, any IPP Party that receives 2% or more of the
outstanding Common Stock and any designee of IPP Parties that receives more than
4.9% of the outstanding Common Stock upon the consummation of the MRA will,
together with certain but not all affiliates (collectively, "2% Shareholders"),
enter into certain shareholder agreements (the "Shareholder Agreements").
Pursuant to each Shareholder Agreement, the 2% Shareholders each agrees that for
five years from the date of consummation of the MRA it will not acquire more
than an additional 5% of the outstanding Common Stock (resulting in ownership in
all cases of no more than 9.9%) or take any actions to attempt to acquire
control of the Company, other than certain permitted actions in response to
unsolicited actions by third parties. The 2% Shareholders will generally vote
their shares on a "pass through" basis, that is in the same proportion as all
shares held by other shareholders are voted, except that they may vote in their
discretion for extraordinary transactions and, when there is a pending proposal
to acquire the Company, for directors. Messrs. Alfiero and _______ were selected
as nominees for the Board pursuant to a procedure set forth in the MRA, where
the Company and the IPP Parties agreed to a list of ten candidates from which
the Company selected two nominees. As of the closing under the MRA, certain
litigation between the Company and the IPP Parties regarding the existing PPAs
will be terminated.

Under the terms of the MRA, each IPP Party will have the right, but not
the obligation, to maintain qualifying facility ("QF") status under state or
federal law. The Company's obligations under the PPAs that will be entered into
in conjunction with consummation of the MRA will not be contingent upon the QF
status of the counterparty to the contract. In addition, the Company has agreed
that following consummation it will not engage in monitoring the QF status of
any IPP Party. The IPP Parties will at consummation waive any right under state
law to demand a 6(cent) per kWh minimum power purchase rate from the Company and
any right under state or federal law to require the Company to enter into a
power purchase contract or otherwise take the output of an IPP Party's project.
In addition, the IPP

<PAGE>

Parties are required to take no action to subvert the Company's entitlement to
recovery of the CTC from any third party.

The closing of the MRA is subject to approval of Proposal 2, as well as
the closing of the financing necessary for the MRA.

[Niagara Mohawk's board of directors will approve the MRA only
following the Conditions Determination Date, at which point the individual IPP
Parties will state that they have satisfied or waived their third party
conditions, or they are withdrawing from the transaction. The following is
written as if this has occurred.]

BOARD RECOMMENDATION

Under the terms of the MRA, the Company's significant long term and
escalating IPP payment obligations will be restructured into a more manageable
debt obligation and a portfolio of restated and amended PPAs with price and
duration terms that the Company believes are more favorable than the existing
PPAs. The Company expects that the MRA will result in a significant improvement
in cash flow resulting from the reduction in the payment obligation (both in
nominal dollars and PPA duration) under the existing PPAs. The savings in annual
energy payments will yield significant free cash flow that can be dedicated to
the repayment of debt. Because of the ten year amortization of the MRA
Regulatory Asset described in the "Pro Forma Condensed Financial Statements",
however, earnings will be substantially depressed for at least five years.
Nonetheless, the Board believes that the MRA, coupled with the PowerChoice
Agreement, which provides a rate plan that will allow the Company to meet its
financial obligations and provide for the recovery of its stranded costs through
the CTC, exit fees and back-up rates, provides the Company with financial
stability and creates an improved platform from which to build shareholder
value. See "The PowerChoice Agreement".

Accordingly, the Board of Directors has approved the MRA and recommends
that shareholders approve the issuance of shares of Common Stock to the IPP
Parties. Absent the MRA, the Board believes the Company's financial condition
will continue to deteriorate, potentially requiring the Company ultimately to
seek protection from creditors under Chapter 11 of the United States Bankruptcy
Code ("Bankruptcy"), unless some other alternative could be found. In addition,
the Board believes the MRA provides greater potential for growth in shareholder
value than the other alternatives available to the Company.

In reaching this determination, the Board considered the advice of the
Company's financial advisor, Donaldson, Lufkin & Jenrette ("DLJ"), [DLJ opinion
to come]

The Board also considered the presentations made by management and
outside advisors on two alternatives: unilaterally ceasing to perform under the
PPAs and commencing litigation for a judicial determination of the damages owed
to the IPPs ("Abrogation") and Bankruptcy. These analyses presented a cost to
the Company with a net present value ranging from $2.2 billion to $7 billion,
with the more likely outcome somewhere in the mid-range. To achieve that
mid-range, however, the Company would have to achieve some measure of success in
litigating or settling the following issues: whether the Company is entitled to
curtail purchases under the PPAs; whether the Company is entitled with respect
to certain PPAs to offset projected underpayments during the second part of the
contract where such payments are noneconomic to the IPP and, in most cases, the
Company's contractual remedies are expressly non-recourse to the IPP; whether
contracts based on the Six-Cent Law, which has already been invalidated by FERC
on a prospective basis,

<PAGE>

would be invalidated on a retroactive basis as well. Except for the PSC's
statement that curtailment of generation from PURPA facilities is authorized and
its request for input regarding specific curtailment procedures, the Company has
heretofore been unsuccessful with respect to these issues in litigation or
otherwise. In addition, the Company would have to prove its projections of
future market prices, on which such analyses were based, were not too low and
its discount rate used at present valuing future damages was not too high.
Moreover, the mid-range would also be achievable only if in either scenario the
IPPs were found to be capable of mitigating hundreds of millions of dollars of
their damages and, in the Bankruptcy alternative, if the PPAs were determined to
be executory contracts that could be rejected. In considering these
alternatives, the Board considered the lengthy nature of either Abrogation or
Bankruptcy proceedings, with its concurrent risks as to the disruption to the
Company during the interim, especially during a period of rapid evolution in the
utility industry, the possibility of substantially higher interest rates at the
conclusion of such proceeding, the uncertainty, particularly in the Abrogation
scenario, as to rates the Company would be allowed to charge in the interim,
and, in the Abrogation scenario, the Company's lack of access to capital markets
during this period. The Board also considered the expressed desires of the state
government and the PSC to seek a more rapid, consensual arrangement. Finally,
the Board bore in mind that the MRA presented a definitive arrangement and a
plan for moving the Company forward at a time when energy markets are poised to
change rapidly and dramatically across New York State and the country generally
while the alternatives could only be analyzed with inherently imprecise
estimates which are dependent on uncertain judicial outcomes and would likely
postpone action by the Company to restructure for changing energy markets.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF
COMMON STOCK VOTE IN FAVOR OF APPROVAL OF PROPOSAL NO. 2.

THE POWERCHOICE AGREEMENT

The PowerChoice Agreement, which was approved by the PSC on March 20,
1998, establishes a five-year rate plan that will reduce average residential and
commercial rates by an aggregate of 3.2% over the first three years. This
reduction will include certain savings that will result from partial reductions
of the New York State Gross Receipts Tax. Industrial customers will see average
reductions of 25% relative to 1995 price levels; these decreases will include
discounts currently offered to some industrial customers through optional and
flexible rate programs. The cumulative rate reductions, net of New York State
Gross Receipts Tax savings, are estimated to be $111.8 million, to be phased in
on a generally ratable basis over the first three years of the agreement. During
the term of the PowerChoice Agreement, the Company will be permitted to defer
certain costs associated primarily with environmental remediation, nuclear
decommissioning and related costs, and changes in laws, regulations, rules and
orders. In years four and five of its rate plan, the Company can request an
annual increase in prices subject to a cap of 1% of the all-in price, excluding
commodity costs (e.g., transmission, distribution, nuclear, and forecasted CTC).
In addition to the price cap, the PowerChoice Agreement provides for the
recovery of deferrals established in years one through four and cost variations
resulting from indexing provisions of the MRA contracts. The aggregate of the
price cap increase and recovery of deferrals is subject to an overall limitation
of inflation.

The PowerChoice Agreement provides that the MRA and the contracts
executed pursuant thereto are found to be prudent. The PowerChoice Agreement
further provides that the Company shall have a reasonable opportunity to recover
its stranded costs, including those associated with the MRA and the contracts
executed thereto, through a CTC and, under certain circumstances, through exit
fees or in rates for back-up service.

<PAGE>

The PSC has limited the amount of the MRA Regulatory Asset that can be
recovered from customers to approximately $3.977 billion. The MRA Regulatory
Asset represents the recoverable costs of the MRA, consisting of the cash
compensation paid to the IPP Parties, the issuance of approximately 42.9 million
shares of Common Stock, and other expenses related to the MRA. On March 26,
1998, the estimated value of the cash and Common Stock to be paid to the IPP
Parties under the MRA and related expenses was approximately $4.167 billion,
and, as a result, the Company has recorded a charge against 1997 earnings of
$190.0 million. Earnings in 1998 will be adjusted to reflect, among other
things, the change in the price of the Common Stock from March 26, 1998 to the
date of the consummation of the MRA.

The PowerChoice Agreement calls for the Company to divest all of its
fossil and hydro generating facilities and prohibits the Company from owning
non-nuclear generating assets within the State of New York except as described
below. The Genco Divestiture is intended to be accomplished through an auction.
Winning bids will be selected within 11 months of PSC approval of the auction
plan, which was filed with the PSC separately from the PowerChoice Agreement and
is awaiting PSC approval. The Company will retain a portion of the auction sale
proceeds as an incentive to obtain maximum value in the sale. The Company agreed
that if it does not receive an acceptable bid for any asset, the Company will
form a subsidiary to hold any such asset and then will legally separate this
subsidiary from the Company through a spin-off to shareholders or otherwise. If
a bid of zero or below is received for any asset, the Company may keep the asset
as part of its regulated business. The auction process will serve to quantify
any stranded costs associated with the Company's fossil and hydro generating
facilities. The Company will have a reasonable opportunity to recover these
costs through the CTC and, under certain circumstances, through exit fees or in
rates for back-up service. The Company intends to use any cash proceeds from
such an auction to repay indebtedness.

Under the terms of the PowerChoice Agreement, all of the Company's
customers will be able to choose their electricity supplier in a competitive
market by December 1999. The Company will continue to distribute electricity
through its transmission and distribution systems and would be obligated to be
the so-called provider of last resort for those customers who do not exercise
their right to choose a new electricity supplier.

The PowerChoice Agreement contemplates that the Company's nuclear
plants will remain part of the Company's regulated business. The Company has
been supportive of the creation of a statewide New York Nuclear Operating
Company that it expects would improve the efficiency of nuclear units throughout
the state. The PowerChoice Agreement stipulates that absent such a statewide
solution, the Company will file a detailed plan for analyzing other proposals
regarding its nuclear facilities, including the feasibility of an auction,
transfer and/or divestiture of such facilities, within 24 months of PowerChoice
approval.

The PowerChoice Agreement also allows the Company to form a holding
company. The Company, therefore, is seeking approval from its shareholders for
the formation of a holding company at its 1998 annual meeting. The
implementation of a holding company structure, if approved by the Company's
shareholders, would only occur following various regulatory approvals.

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1997 on a historical basis and as adjusted to give pro forma effect
to consummation of the MRA (including the financing of the MRA under the
Offering and the Credit Facility (the "MRA Financing")), and the principal terms
of the PowerChoice Agreement excluding the Genco Divestiture. This table should
be read in conjunction with "Pro Forma Condensed Financial Statements,"
"Management's Discussion of Pro Forma Condensed Financial Statements" and the
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus/Proxy Statement.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-------------------------------------
HISTORICAL PRO FORMA
(Dollars in thousands)

Common Shareholder's Equity:
Common stock, par value $1.00 per share, 185,000,000* shares
authorized. Issued and outstanding 144,419,351 and 187,319,351
shares, respectively................................................ $ 144,419 $ 187,319
Capital stock premium and expense..................................... 1,779,688 2,270,788
Retained earnings..................................................... 679,920 679,920
----------------- -----------------
2,604,027 3,138,027

Preferred Stock:
Preferred stock, cumulative, par value $100 per share, 3,400,000 shares
authorized:
Mandatorily redeemable. Issued and outstanding
222,000 shares................................................. 22,200 22,200
Non-redeemable. Issued and outstanding 2,100,000
shares........................................................ 210,000 210,000

Preferred stock, cumulative, par value $25 per share, 19,600,000 shares
authorized:
Mandatorily redeemable. Issued and outstanding
2,581,204 shares............................................... 64,530 64,530
Non-redeemable. Issued and outstanding 9,200,000
shares......................................................... ---------- ----------
Total preferred stock.......................................... 526,730 526,730
Less -- Preferred stock due within one year..................... 10,120 10,120
---------- ----------

Preference stock, par value $25 per share, 8,000,000 shares
authorized. None issued and outstanding.............................. __ __

Long-term Debt:
First Mortgage Bonds.................................................. 2,801,305 2,801,305
Promissory Notes...................................................... 413,760 413,760
Credit Facility....................................................... 105,000 1,335,000
Notes................................................................. -- 2,000,000
Other long-term debt.................................................. 164,411 164,411
----------------- -----------------
Total long-term debt.............................................. 3,484,476 6,714,476
Less-- Long-term debt due within one year......................... 67,095 67,095
----------------- -----------------
3,417,381 6,647,381
----------------- -----------------
Total capitalization........................................... $ 6,538,018 $ 10,302,018
================= =================
<FN>

- ----------------
* Under Proposal 3, the authorized common stock would be increased to 250
million shares. If Proposal 2 is approved but Proposal 3 is not, the
Company intends to either renegotiate the terms of the MRA to increase cash
and decrease the number of shares of Common Stock, or to buy sufficient
shares to be able to issue 42.9 million shares to the IPP Parties.
</FN>
</TABLE>

<PAGE>

PRO FORMA CONDENSED FINANCIAL STATEMENTS

INTRODUCTION

The following unaudited Pro Forma Condensed Statement of Income and
unaudited Pro Forma Condensed Balance Sheet are based on the historical
Consolidated Financial Statements of the Company incorporated by reference in
this Prospectus/Proxy Statement, as adjusted to give effect to (i) the
consummation of the MRA; (ii) the consummation of the MRA Financing; (iii) the
issuance of approximately 42.9 million shares of Common Stock to the IPP Parties
and (iv) the principal terms of the PowerChoice Agreement, including the first
year impact of a three year rate reduction intended to reduce the Company's
revenues by approximately $111.8 million (exclusive of reductions in the New
York State Gross Receipts Tax) by the time it is fully phased in over three
years, and the establishment of the MRA Regulatory Asset (described in Note 3 to
the Notes to Unaudited Pro Forma Condensed Statement of Income) which will be
amortized by the Company over a maximum of ten years. The unaudited Pro Forma
Condensed Financial Statements do not, however, give effect to the Genco
Divestiture as required by the PowerChoice Agreement as well as certain
insignificant elements of the PowerChoice Agreement. The Company is unable at
this time to predict the ultimate value of its fossil and hydro generating
facilities to prospective purchasers, nor the timing of such proceeds to the
Company. In the event that unacceptable bids are received for any or all of the
generating facilities, the Company has reserved the right for the possible
spinoff of such assets to the Company's shareholders. The book value of the
fossil and hydro generating facilities at December 31, 1997 was approximately
$1.1 billion. The unaudited Pro Forma Condensed Statement of Income has been
prepared as though the consummation of the MRA and the MRA Financing, and the
principal terms of the PowerChoice Agreement, excluding the Genco Divestiture,
had occurred on January 1, 1997. The unaudited Pro Forma Condensed Balance Sheet
has been prepared as though the consummation of the MRA and the MRA Financing,
and the principal terms of the PowerChoice Agreement, excluding the Genco
Divestiture, had occurred on December 31, 1997.

The PSC has limited the amount of the MRA Regulatory Asset that can be
recovered from customers to approximately $3.977 billion. The MRA Regulatory
Asset represents the recoverable costs of the MRA, consisting of the cash
compensation paid to the IPP Parties, the issuance of approximately 42.9 million
shares of Common Stock, and other expenses related to the MRA. On March 26,
1998, the estimated value of the cash and Common Stock to be paid to the IPP
Parties under the MRA and related expenses was approximately $4.167 billion,
and, as a result, the Company recorded a charge against 1997 earnings of $190.0
million. Earnings in 1998 will be adjusted to reflect, among other things, the
change in the price of the Common Stock from March 26, 1998 to the date of the
consummation of the MRA. See "The MRA" and "The PowerChoice Agreement" under
Proposal 2.

The unaudited Pro Forma Condensed Financial Statements and
accompanying notes should be read in conjunction with the Company's historical
Consolidated Financial Statements and the notes thereto incorporated by
reference in this Prospectus/Proxy Statement. The unaudited Pro Forma Condensed
Financial Statements are presented for informational purposes only and do not
purport to represent what the Company's financial position or results of
operations would actually have been if the consummation of the MRA (including
the MRA Financing) had occurred on such date, or to project the Company's
financial position or results of operations at any future date or for any future
period. However, the unaudited Pro Forma Condensed Financial Statements contain,
in the opinion of management, all adjustments necessary for a fair presentation.

<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF INCOME
(Unaudited)

Year Ended December 31, 1997
---------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Operating Revenues:
Electric................................................ $ 3,309,441 $ (56,300)(1)
(22,000)(2) $ 3,231,141
Gas..................................................... 656,963 656,963
------------ ------------- -----------
3,966,404 (78,300) 3,888,104
------------ ------------- -----------
Operating Expenses:
Fuel for electric generation............................ 179,455 179,455
Electricity purchased:
IPP................................................ 1,105,970 (857,300)(3)
203,700 (3)
93,500 (3) 545,870
Others............................................. 130,138 130,138
Gas purchased........................................... 345,610 345,610
Other operation and maintenance......................... 835,282 835,282
Amortization of MRA Regulatory Asset.................... -- 397,700 (4) 397,700
Depreciation and amortization........................... 339,641 339,641
Other taxes............................................. 471,469 471,469
------------ ------------- -----------
3,407,565 (162,400) 3,245,165
------------ ------------- -----------
Operating income........................................ 558,839 84,100 642,939
------------ ------------- -----------

Other income and (deductions):
PowerChoice charge...................................... (190,000) (190,000)
Other income............................................ 24,997 24,997
------------ -----------
(165,003) (165,003)
------------ -----------
Income before interest charges.............................. 393,836 84,100 477,936
Interest charges............................................ 273,906 16,500 (5)
260,125 (6) 550,531
------------ ------------- -----------
Income before federal and foreign income taxes.............. 119,930 (192,525) (72,595)
Federal and foreign income taxes............................ 60,095 (67,400)(7) (7,305)
------------ ------------- -----------
Net income.................................................. 59,835 (125,125) (65,290)
Dividends on preferred stock................................ 37,397 37,397
------------ ------------- -----------
Balance available for common stock.......................... $ 22,438 $ (125,125) $ (102,687)
============ ============= ===========

Average number of shares of
common stock outstanding (in thousands)................... 144,404 42,900 (8) 187,304
Basic and diluted earnings per
average share of common stock............................ $ 0.16 $ (0.55)

OTHER OPERATING DATA:
EBITDA (9).............................................. $ 961,502 $ 1,465,302
Net cash interest (10).................................. 226,890 487,015
Ratio of EBITDA to net cash interest (11)............... 3.0x
Ratio of earnings to fixed charges (12)................. 0.9x
Ratio of earnings to fixed charges and
preferred dividend requirements (12)................. 0.8x

See accompanying notes to Pro Forma Condensed Statement of Income
</TABLE>

<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME

The following notes set forth the explanations and assumptions used and
adjustments made in preparing the unaudited Pro Forma Condensed Statement of
Income for the year ended December 31, 1997. The unaudited Pro Forma Condensed
Statement of Income should be read in conjunction with the historical
Consolidated Financial Statements and the notes thereto incorporated by
reference in this Prospectus/Proxy Statement.

The unaudited Pro Forma Statement of Income includes the following pro
forma adjustments based on the assumptions described below:

(1) To reflect the first year impact on total electric revenues of the
rate reduction requirements contained in the PowerChoice Agreement, which
provides for rate reductions to be phased in over three years. These rate
reductions are intended to result in a decrease in electric revenues (exclusive
of reductions in the New York State Gross Receipts Tax) of approximately $111.8
million by the time they are fully phased in over the three years, of which the
first year impact is estimated to be approximately $56.3 million. The actual
rate reductions in any year will be affected by numerous factors such as the
volume of electricity sold and the timing of the rate reductions.

(2) To reflect a deferral of revenues required by the PSC Order. The
amount of the deferral is based on the difference between the assumed weighted
average interest rate of 8.5% used by the Company to prepare its PowerChoice
proposal and the estimated weighted average interest rate of 7.8125% assumed for
the MRA Financing. The amount of the first year deferral would be $22.0 million.

(3) To reflect (i) the elimination of $857.3 million of electricity
purchased expense reflecting the termination, restatement or amendment of the 28
PPAs pursuant to the MRA; (ii) the addition of approximately $203.7 million of
electricity purchased expense reflecting the Company's commitment to purchase
electricity under the new fixed price swap contracts entered into with certain
IPP Parties as part of the MRA; and (iii) the addition of approximately $93.5
million of electricity purchased expense reflecting the estimated cost of market
purchases of electricity to replace the capacity terminated as part of the MRA.
The cost of such replacement power is based on the administratively determined
"buy-back" rate from QF projects, as approved by the PSC. The weighted average
buy-back rate for 1997 was approximately 1.8(cent) per Kwh. A 1.0(cent) per Kwh
change in the buy-back rate will impact electricity purchased by approximately
$53.1 million. This adjustment decreases electricity purchased by a net amount
of $560.1 million.

(4) To reflect $397.7 million of annual amortization related to the
$3.977 billion MRA Regulatory Asset established as a result of the MRA and the
PowerChoice Agreement. Pursuant to the PowerChoice Agreement, the Company will
amortize the MRA Regulatory Asset over a maximum period of ten years.

(5) To reflect $16.5 million of additional amortization expense
reflecting the first year amortization of the total debt issuance costs of
approximately $80.0 million incurred and capitalized in

<PAGE>

connection with the MRA Financing. The debt issuance costs will be amortized
over the life of the indebtedness represented by the MRA Financing using the
interest method.

(6) To reflect $250.0 million of additional interest charges associated
with the indebtedness represented by the MRA Financing and $10.1 million of
additional interest charges on the $135.0 million of borrowings that would have
been drawn under the Company's revolving credit agreement in order to fund the
Company's cash obligations under the MRA. Interest charges on the indebtedness
represented by the MRA Financing and the revolving credit agreement were
calculated assuming a weighted average interest rate of 7.8125% and 7.5%,
respectively. A 1/8% change in the assumed interest rate on the MRA Financing
would impact interest charges by $4.0 million per year.

(7) To reflect a reduction of $67.4 million in federal and foreign
income taxes as a result of the reduction in pro forma income before federal and
foreign income taxes, calculated at the statutory federal income tax rate of
35.0%. Pro forma income before federal and foreign income taxes is reduced by
$192.5 million as the net result of the pro forma adjustments described in notes
(1) through (6).

(8) To reflect the issuance of approximately 42.9 million shares of
Common Stock to the IPP Parties as part of the consideration paid to them under
the MRA.

(9) EBITDA represents earnings before interest charges, interest
income, income taxes, depreciation and amortization, amortization of nuclear
fuel, allowance for funds used during construction, MRA Regulatory Asset
amortization, the PowerChoice charge, non-cash regulatory deferrals and other
amortizations and extraordinary items. EBITDA is presented to provide additional
information about the Company's ability to meet its future requirements for debt
service and capital expenditures. EBITDA should not be considered an alternative
to net income as an indicator of operating performance or an alternative to cash
flow as a measure of liquidity. See the Pro Forma Condensed Statement of Income
contained herein and the Consolidated Statements of Cash Flows incorporated by
reference in this Prospectus/Proxy Statement.

(10) Net cash interest reflects interest charges plus allowance for
funds used during construction less the non-cash impact of the net amortization
of discount on long-term debt and interest accrued on the Nuclear Waste Act
disposal liability less interest income.

(11) For purposes of determining the ratio of EBITDA to net cash
interest, EBITDA and net cash interest are calculated as described above in
notes (9) and (10). The ratio of EBITDA to net cash interest is presented to
provide additional information about the Company's ability to meet its future
requirements for debt service. See the Pro Forma Condensed Statement of Income
contained herein and the Consolidated Statements of Cash Flows incorporated by
reference in this Prospectus/Proxy Statement.

(12) For purposes of determining the ratio of earnings to fixed charges
and the ratio of earnings to fixed charges and preferred dividend requirements,
(i) earnings consist of income before federal and foreign income taxes plus
fixed charges; (ii) fixed charges consist of interest charges on all
indebtedness, including the portion of rental expense that is representative of
the interest factor; and (iii) preferred dividend requirements include the
dividends on all classes of preferred stock adjusted to a pre-tax basis.

<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED BALANCE SHEET
(Unaudited)

At December 31, 1997
---------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(Dollars in thousands)
<S> <C> <C> <C>

Net utility plant........................................ $ 6,868,044 $ 6,868,044
--------------- -------------
Other property and investments........................... 371,709 371,709
--------------- -------------
Current Assets:
Cash............................................ 378,232 $3,120,000 (1)
(3,633,000)(2)
135,000 (3) 232
Other current assets............................ 713,468 75,000 (4)
137,800 (5)
(105,000)(3) 821,268
--------------- ------------- -------------
1,091,700 (270,200) 821,500
--------------- ------------- -------------
MRA Regulatory Asset..................................... -- 3,977,000 (6) 3,977,000
Other regulatory assets.................................. 1,176,824 1,176,824
Other assets............................................. 75,864 80,000 (7) 155,864
--------------- ------------- -------------
Total assets........................................ $ 9,584,141 $ 3,786,800 $ 13,370,941
=============== ============= =============
</TABLE>

See accompanying Notes to Pro Forma Condensed Balance Sheet

<PAGE>

<TABLE>
<CAPTION>
PRO FORMA CONDENSED BALANCE SHEET
(Unaudited)

AT DECEMBER 31, 1997
-------------------------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(Dollars in thousands)
<S> <C> <C> <C>
Capitalization:
Common shareholders' equity:
Common stock ................................ $ 144,419 $ 42,900 (8) $ 187,319
Capital stock premium and expense............ 1,779,688 491,100 (8) 2,270,788
Retained earnings............................ 679,920 679,920
---------------- --------------- ---------------
2,604,027 534,000 3,138,027

Preferred stock................................. 516,610 516,610
Long-term debt.................................. 3,417,381 3,200,000 (1)
30,000 (3) 6,647,381
---------------- --------------- ---------------
Total capitalization......................... 6,538,018 3,764,000 10,302,018

Current liabilities............................. 555,338 555,338
Regulatory liabilities.......................... 239,880 239,880
Other liabilities............................... 2,250,905 75,000 (4)
137,800 (5)
(190,000)(9) 2,273,705
---------------- --------------- ---------------
Total liabilities and
shareholders' equity..................... $ 9,584,141 $ 3,786,800 $ 13,370,941
================ =============== ===============
</TABLE>

See accompanying Notes to Pro Forma Condensed Balance Sheet

<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET

The following notes set forth the explanations and assumptions used and
adjustments made in preparing the unaudited Pro Forma Condensed Balance Sheet at
December 31, 1997. The unaudited Pro Forma Condensed Balance Sheet should be
read in conjunction with the historical Consolidated Financial Statements and
the notes thereto incorporated by reference in this Prospectus/Proxy Statement.

The adjustments described below are based on the assumptions and
preliminary estimates described therein and are subject to change. These
statements do not purport to be indicative of the financial position of the
Company as of such date, nor are they indicative of future results. Furthermore,
this unaudited Pro Forma Condensed Balance Sheet does not reflect anticipated
changes, other than the consummation of the MRA and the MRA Financing, and the
principal terms of the PowerChoice Agreement excluding the Genco Divestiture,
which may occur as the result of operating activities before and after the
effective date of the MRA, the MRA Financing, the PowerChoice Agreement and
other matters. All of the following adjustments are based on the assumption that
the consummation of the MRA and the MRA Financing and the principal terms of the
PowerChoice Agreement excluding the Genco Divestiture had occurred on December
31, 1997.

The unaudited Pro Forma Balance Sheet includes the following pro forma
adjustments based on the assumptions described below:

(1) To reflect the net cash proceeds of $3.120 billion received by the
Company from the MRA Financing. The gross proceeds of $3.200 billion were
reduced for the payment of debt issuance costs estimated by the Company to be
approximately $80.0 million.

(2) To reflect the cash compensation of $3.616 billion paid to the IPP
Parties pursuant to the terms of the MRA and payment of $17.0 million in other
expenses related to the MRA.

(3) The amount includes $105.0 million to reflect full usage of the
Receivables Financing and $30.0 million representing a drawdown under the
Company's revolving credit agreement, which are representative of the Company's
normal cash management practices in light of the liquidity requirements
presented in the Pro Forma Condensed Balance Sheet.

(4) To record the reversal of $75.0 million of estimated federal income
tax payments which would not have been made as a result of the deduction of
payments made in connection with the MRA.

(5) To record a federal income tax receivable of $137.8 million, based
on the net operating loss which would have been generated and carried back two
years for income tax purposes. The net loss for income tax purposes results from
the current deduction for income tax purposes of the full amount of the
consideration, including cash and Common Stock, paid to the IPP Parties pursuant
to the MRA.

(6) To reflect the establishment of a $3.977 billion MRA Regulatory
Asset representing the recoverable costs of the MRA consisting of (i) the cash
compensation of $3.616 billion paid to the IPP Parties; (ii) the issuance of
approximately 42.9 million shares of Common Stock valued at an aggregate of
$344.0 million or $8.00 per share, based on the limitation on the amount of the
MRA Regulatory Asset, as set forth in the PSC Order; and (iii) other expenses of
$17.0 million related to the MRA. The MRA Regulatory Asset was established
pursuant to the PowerChoice Agreement and will be amortized over a maximum of
ten years. See "The MRA" and "The PowerChoice Agreement" under Proposal 2.

(7) To reflect the capitalization of the estimated debt issuance costs
of approximately $80.0 million resulting from the MRA Financing.

<PAGE>

(8) To reflect the issuance of approximately 42.9 million shares of
Common Stock to the IPP Parties pursuant to the MRA. The new shares will be
valued at the price of the Common Stock on the date of the consummation of the
MRA. For purposes of developing the Pro Forma Condensed Balance Sheet, the
Company used the price of the Common Stock at the close of business on March 26,
1998, or $12 7/16. This adjustment to common shareholders' equity will change
based on the price of the Common Stock on the date of the consummation of the
MRA.

(9) To reflect the reversal of the portion of the liability associated
with the MRA recognized in 1997. The liability results from the PSC Order's
limitation of the amount of the MRA Regulatory Asset that can be recovered from
customers. The amount represents the product of the difference between $8.00 and
the closing price of the Common Stock on March 26, 1998 of $12 7/16 multiplied
by approximately 42.9 million shares.

<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table sets forth selected historical financial data of
the Company for each of the five years in the period ended December 31, 1997.
The following selected historical financial data have been derived from audited
Consolidated Financial Statements, including those incorporated in this
Prospectus/Proxy Statement by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1997.

The selected historical financial data presented below should be read
in conjunction with "Pro Forma Condensed Financial Statements", "Management's
Discussion of Pro Forma Financial Statements" and the audited Consolidated
Financial Statements, including the notes thereto, appearing elsewhere or
incorporated by reference in this Prospectus/Proxy Statement.

YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>

STATEMENT OF INCOME DATA:
Operating Revenues:
Electric.......................... $ 3,332,464 $ 3,528,987 $ 3,335,548 $ 3,308,979 $ 3,309,441 $3,231,141
Gas............................... 600,967 623,191 581,790 681,674 656,963 656,963
------------ ----------- ----------- ----------- -----------
3,933,431 4,152,178 3,917,338 3,990,653 3,966,404 3,888,104
------------ ----------- ----------- ----------- ----------- ----------
Operating Expenses:
Fuel for electric generation...... 231,064 219,849 165,929 181,486 179,455 179,455
Electricity purchased:
IPP............................ 745,335 966,724 1,011,518 1,052,298 1,105,970 545,870
Others......................... 118,178 140,409 126,419 130,594 130,138 130,138
Gas purchased.................... 326,273 315,714 276,232 370,040 345,610 345,610
Other operation and maintenance.. 1,057,580 957,377 817,897 928,224 835,282 835,282
Employee reduction program....... -- 196,625 -- -- -- --
MRA Regulatory Asset
amortization.................. -- -- -- -- -- 397,700
Depreciation and amortization.... 276,623 308,351 317,831 329,827 339,641 339,641
Other taxes...................... 491,363 496,922 517,478 475,846 471,469 471,469
------------ ----------- ----------- ----------- -----------
3,246,416 3,601,971 3,233,304 3,468,315 3,407,565 3,245,165
------------ ----------- ----------- ----------- ----------- ----------
Operating income.................... 687,015 550,207 684,034 522,338 558,839 642,939
------------ ----------- ----------- ----------- ----------- ----------

Other income and (deductions):
PowerChoice charge............... -- -- -- -- (190,000) (190,000)
Other income..................... 14,154 17,204 3,069 35,943 24,997 24,997
------------ ----------- ----------- ----------- ----------- ----------
14,154 17,204 3,069 35,943 (165,003) (165,003)
------------ ----------- ----------- ----------- -----------
Income before interest charges...... 701,169 567,411 687,103 558,281 393,836 477,936
Interest charges.................... 282,263 278,958 279,674 278,033 273,906 550,531
------------ ----------- ----------- ----------- -----------
Income before federal and foreign
income taxes.................... 418,906 288,453 407,429 280,248 119,930 (72,595)
Federal and foreign income taxes.... 147,075 111,469 159,393 102,494 60,095 (7,305)
------------ ----------- ----------- ----------- -----------
Income before extraordinary item.... 271,831 176,984 248,036 177,754 59,835 (65,290)
Extraordinary item.................. -- -- -- (67,364) -- --
------------ ----------- ----------- ----------- ----------- ----------
Net income.......................... 271,831 176,984 248,036 110,390 59,835 (65,290)
Dividends on preferred stock........ 31,857 33,673 39,596 38,281 37,397 37,397
------------ ----------- ----------- ----------- -----------
Balance available for common stock.. $ 239,974 $ 143,311 $ 208,440 $ 72,109 $ 22,438 $ (102,687)
============ =========== =========== =========== =========== ==========

Average number of shares of common
stock outstanding (in thousands). 140,417 143,261 144,329 144,350 144,404 187,304
Basic and diluted earnings per average
share of common stock before
extraordinary item............... $1.71 $1.00 $1.44 $0.97 $0.16 $(0.55)
Basic and diluted earnings per
average share of common stock.... $1.71 $1.00 $1.44 $0.50 $0.16 $(0.55)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
EBITDA (1).......................... $[ ] $[ ] $[ ] $[ ] $ 961,502 $1,465,302
Net cash interest (2)............... 271,116 261,655 260,548 244,501 226,890 487,015
Capital expenditures (3)............ 519,612 490,124 345,804 352,049 290,757 290,757
Ratio of EBITDA to net cash
interest (4)..................... [ ] [ ] [ ] [ ] 4.2x 3.0x
Ratio of earnings to fixed
charges (5)...................... 2.3x 1.9x 2.3x 1.6x 1.4x 0.9x
Ratio of earnings to fixed charges
and preferred dividend
requirements (5)................ 2.0x 1.6x 1.9x 1.3x 1.1x 0.8x

BALANCE SHEET DATA (AT END OF PERIOD):
Net utility plant....................... $ 6,877,292 $ 7,035,643 $ 7,007,853 $ 6,957,615 $ 6,868,044 $ 6,868,044
Total assets............................ 9,471,327 9,649,816 9,477,869 9,427,635 9,584,141 13,370,941
Total debt, including current portion... 3,842,813 3,792,595 3,647,478 3,525,963 3,484,476 6,714,476
Preferred stock, including current
portion.............................. 440,400 556,950 546,000 535,600 526,730 526,730
Common shareholders' equity............. 2,456,465 2,462,398 2,513,952 2,585,572 2,604,027 3,138,027

- ---------------
<FN>
(1) EBITDA represents earnings before interest charges, amortization of nuclear
fuel, allowance for funds used during construction, interest income, income
taxes, depreciation and amortization, MRA Regulatory Asset amortization,
the PowerChoice charge, non-cash regulatory deferrals and other
amortizations and extraordinary items. EBITDA is presented to provide
additional information about the Company's ability to meet its future
requirements for debt service and capital expenditures. EBITDA should not
be considered an alternative to net income as an indicator of operating
performance or an alternative to cash flow as a measure of liquidity. See
the Pro Forma Condensed Statement of Income contained herein and the
Consolidated Statements of Cash Flows incorporated by reference in this
Prospectus/Proxy Statement.

(2) Net cash interest reflects interest charges plus allowance for funds used
during construction less the non-cash impact of the net amortization of
discount on long-term debt and interest accrued on the Nuclear Waste Policy
Act disposal liability less interest income.

(3) Capital expenditures consist of amounts for the Company's construction
program related to its transmission, distribution and generation operations
(including nuclear fuel, related allowance for funds used during
construction and capitalized overhead expenses), and the amounts incurred
to comply with the Clean Air Act and other environmental requirements.

(4) For purposes of determining the ratio of EBITDA to net cash interest,
EBITDA and net cash interest are calculated as described above in notes (1)
and (2). The ratio of EBITDA to net cash interest is presented to provide
additional information about the Company's ability to meet its future
requirements for debt service. See the Pro Forma Condensed Statement of
Income contained herein and the Consolidated Statements of Cash Flows
incorporated by reference in this Prospectus/Proxy Statement.

(5) For purposes of determining the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred dividend requirements, (i)
earnings consist of income before federal and foreign income taxes plus
fixed charges; (ii) fixed charges consist of interest charges on all
indebtedness, including the portion of rental expense that is
representative of the interest factor; and (iii) preferred dividend
requirements include the dividends on all classes of preferred stock
adjusted to a pre-tax basis.
</FN>
</TABLE>

<PAGE>

MANAGEMENT'S DISCUSSION OF
PRO FORMA CONDENSED FINANCIAL STATEMENTS

The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, other information included or
incorporated by reference in this Prospectus/Proxy Statement, including the
unaudited Pro Forma Condensed Financial Statements and the notes thereto.
Certain statements in the following discussion are forward-looking statements or
discussions of trends which by their nature involve substantial risks and
uncertainties that could significantly affect expected results. Actual results
and trends in the future may differ materially from those described herein
depending on a variety of factors, including those detailed under "Certain
Considerations under Proposals 2 and 4" and elsewhere in this Prospectus/Proxy
Statement.

The unaudited pro forma condensed financial statements give effect to
(i) the consummation of the MRA; (ii) the consummation of the MRA Financing;
(iii) the issuance of approximately 42.9 million shares of Common Stock to the
IPP Parties; and (iv) the principal terms of the PowerChoice Agreement,
including the first year impact of a three year rate reduction intended to
reduce the Company's revenues by $111.8 million (exclusive of reductions in the
New York State Gross Receipts Tax) by the time it is fully phased in over three
years, and the establishment of the MRA Regulatory Asset which will be amortized
by the Company over a maximum of ten years. The unaudited pro forma condensed
financial statements do not give effect to the Genco Divestiture or certain
elements of the PowerChoice Agreement that are not material to the financial
results of the Company. The Company is unable at this time to predict either the
timing of the Genco Divestiture or the amount of proceeds that the Company will
receive. In the event that unacceptable bids are received for any or all of the
generating facilities, the Company may spin off such assets to its shareholders.
The book value of the fossil and hydro generating facilities at December 31,
1997 was approximately $1.1 billion.

On a pro forma basis after giving effect to the consummation of the MRA
and MRA Financing, and the principal terms of the PowerChoice Agreement
excluding the Genco Divestiture, the Company's revenues for the year ended
December 31, 1997 would have declined by approximately $78.3 million to $3.9
billion as compared to $4.0 billion on a historical basis. This reduction in
revenues reflects the first year's phase-in of a three year rate reduction
intended to reduce the Company's electric revenues by $111.8 million (exclusive
of reductions in the New York State Gross Receipts Tax) by the time it is fully
phased in over three years, as well as a deferral of revenues required by the
PSC Order representing the difference between the assumed costs of the MRA
Financing for purposes of preparing the Company's PowerChoice proposal versus
the current estimates of the costs of the MRA Financing. The actual rate
reductions and level of revenues in 1998 and other years will be dependent upon
numerous factors such as the volume of electricity sold and the timing of the
rate reductions.

Pursuant to the MRA, 19 PPAs representing approximately 1,180 MW of
electric generating capacity are to be terminated. Such electric generating
capacity will be replaced with purchases in the spot market for electricity at
prices significantly less than the contracted prices under such terminating
PPAs. In addition, nine PPAs representing approximately 583 MW of electric
generating capacity will be restated and amended on economic terms and
conditions which the Company believes are more favorable to it than the terms of
the existing PPAs subject to the MRA. As a result, the Company's 1997
electricity purchased expense on a pro forma basis would have declined by
approximately $560.1 million to $545.9 million as compared to $1.1 billion on a
historical basis.

Pursuant to the PowerChoice Agreement, the compensation paid to the IPP
Parties in the form of cash and Common Stock will be capitalized and carried on
the Company's balance sheet as the MRA Regulatory Asset. The amount which will
be initially recorded and subsequently amortized over a ten year

<PAGE>

period has been limited by the PSC to approximately $4.0 billion. In 1997, on a
pro forma basis, the amortization of the MRA Regulatory Asset would have
amounted to $397.7 million. No such amortization charge was recorded in the
historical income statement for 1997.

The Company's 1997 operating income on a pro forma basis would have
increased by $84.1 million to $642.9 million as compared to $558.8 million on a
historical basis. This increase reflects the net positive impact resulting from
the significant reduction in the Company's electricity purchased expense which
more than offsets the decline in revenues and amortization of the MRA Regulatory
Asset.

The estimated additional interest charges and amortization of debt
issuance costs associated with the MRA Financing would have increased 1997
interest charges on a pro forma basis by approximately $276.6 million to $550.5
million as compared to $273.9 million on a historical basis.

The Company's 1997 net income on a pro forma basis would have declined
by $125.1 million to a loss of $(65.3) million as compared to net income of
$59.8 million on a historical basis. This decline reflects the above-described
decrease in revenues, the amortization of the MRA Regulatory Asset and an
increase in interest charges, which more than offset the decrease in electricity
purchased expense.

As a result of the MRA, the Company would have recognized and deducted
in the current year for income tax purposes, an amount representing the total
compensation paid to the IPP Parties, including the cash and market value of the
Common Stock issued to the IPP Parties. This deduction would have created a net
operating loss ("NOL") in 1997 which would have been carried back three years
resulting in a federal income tax refund and would have been carried forward to
effectively reduce federal income taxes paid in future years. The impact of such
NOL would have been to increase the amount of cash available to the Company
until such NOL is fully utilized.

LIQUIDITY AND CAPITAL RESOURCES

The Pro Forma Condensed Financial Statements demonstrate significant
improvement in the Company's liquidity and capital resources by comparison to
the Company's historical financial statements. Under the MRA, the Company is
able to replace long-term escalating payment obligations to the IPP Parties with
the indebtedness represented by the MRA Financing and a portfolio of restated or
amended shorter-term PPAs with pricing and terms that are more favorable than
the existing PPAs that are subject to the MRA, as well as financial contracts.
On a pro forma basis, the Company's EBITDA would increase by $503.8 million to
$1.5 billion as compared to $961.5 million on a historical basis. This change
results primarily from a decrease in electricity purchased expense due to the
termination or amendment of PPAs pursuant to the MRA. In addition, the Company
would have available additional borrowings of $_____ billion under the Credit
Facility and, under the financial covenants set forth in the Indenture, would
have had the ability to incur up to an additional $_____ billion of
indebtedness.

The Company's principal short-term and long-term liquidity requirements
are expected to consist of the payment of interest on and retirement of the
First Mortgage Bonds and the indebtedness represented by the MRA Financing, the
payment of dividends on and the redemption of the Company's Preferred Stock and
capital expenditures to maintain the Company's transmission and distribution
systems. The Company anticipates that internally generated funds will be
sufficient to meet its capital expenditure requirements, provide for the payment
of interest charges and preferred dividends and the retirement of debt and
preferred stock at maturity, and enable the Company to meet other contingencies
that may occur, such as compliance with environmental regulation.

<PAGE>

CERTAIN CONSIDERATIONS

This Prospectus/Proxy Statement contains or incorporates by reference
statements that constitute forward looking information within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements regarding the
Company's future financial condition, results of operations, cash flows,
financing plans, business strategy, projected costs and capital expenditures,
operations under the MRA and the PowerChoice Agreement and words such as
"anticipate", "estimate", "expect", "project", "intend", and similar expressions
are intended to identify forward-looking statements. Such statements appear in
this Prospectus under the captions "Questions and Answers and Summary about the
Master Restructuring Agreement and the Holding Company Proposal and Share
Exchange", "Certain Considerations under Proposals 2 and 4", "Management's
Discussion of Pro Forma Condensed Financial Statements", "The MRA" and "The
PowerChoice Agreement". Such statements are subject to certain risks,
uncertainties and assumptions. All of these forward-looking statements are based
on estimates and assumptions made by the Company's management which, although
believed by the Company's management to be reasonable, are inherently uncertain.
Investors are cautioned that such forward looking statements are not guarantees
of future performance or results and involve risks and uncertainties and that
actual results or developments may differ materially from the forward looking
statements as a result of various factors, including the factors described
below.

SUBSTANTIAL LEVERAGE AND LIMITED FINANCIAL FLEXIBILITY

Following consummation of the MRA and the MRA Financing, the Company
will have substantial leverage and significant debt service obligations. As of
December 31, 1997, on a pro forma basis after giving effect to the consummation
of the MRA and the MRA Financing, the Company would have had outstanding
approximately $6.7 billion of senior indebtedness, consisting of $2.8 billion of
First Mortgage Bonds which are secured by a lien on substantially all the
Company's utility property, $_____million of borrowings under the Credit
Facility which is unsecured, $20 million of Medium Term Notes and $__ billion of
senior unsecured notes to be issued pursuant to the Offering (the "Notes"). The
Company also will have available additional borrowings of $____ billion under
the Credit Facility and, under the financial covenants set forth in the
indenture with respect to the Notes, will have the ability to incur up to an
additional $ ______ billion of indebtedness, $400 million of which may consist
of additional First Mortgage Bonds. See "Capitalization", "Selected Historical
and Pro Forma Financial Data", "The MRA" and "The PowerChoice Agreement".

The degree to which the Company is leveraged could have important
consequences including: (i) the Company's ability to obtain additional financing
for working capital, capital expenditures, acquisitions, other corporate
purposes or other purposes will be limited in the future; (ii) a substantial
portion of the Company's cash flow from operations will be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for other purposes; and (iii) the Company's
substantial leverage may place the Company at a competitive disadvantage, hinder
its ability to adjust rapidly to changing market conditions and make it more
vulnerable in the event of a downturn in general economic conditions or its
business. As a result, any reduction in revenues or significant increase in
costs or expenditures could materially adversely affect the Company's ability to
satisfy its obligations. See "Management's Discussion and Analysis of Pro Forma
Condensed Financial Statements -- Liquidity and Capital Resources".

<PAGE>

EFFECT OF DECREASED SALES TO CUSTOMERS

Under the PowerChoice Agreement, the Company has established rates
intended to create sufficient cash flow to at least cover its operating
expenses, satisfy its fixed obligations, and recover certain stranded costs. The
Company's rate design is based on estimates of future electricity usage and the
number of customers connected to the Company's distribution system. The level of
electric revenues can be adversely affected by lower than projected sales to
retail customers and by customer bypass of the system. Economic conditions in
the Company's service area could result in lower sales due to the relocation of
customers. Because of the relatively high cost of the Company's electricity,
customers could seek to bypass the Company's distribution system through
self-generation or the replacement of the Company with a municipal or other
utility. While the PowerChoice Agreement requires the payment of an exit fee or
access charge in these circumstances, the affected customers and competitors may
challenge the Company's right to collect these fees, or the appropriate level of
these fees. There can be no assurance that the Company would prevail in any such
proceeding. If revenues are significantly lower than those anticipated in its
rate design, the Company's ability to service its obligations could be
materially adversely affected.

REGULATORY MATTERS

Following implementation of the PowerChoice Agreement, the Company will
remain subject to extensive regulation by the PSC. While the most material
aspects of the Company's rate structure for the next five years are established
in the PowerChoice Agreement, under certain circumstances, the PSC could
initiate proceedings to reduce rates. Conversely, the PSC is likely to continue
to assess competitive consequences in considering requests for future rate
increases even if the Company successfully proves revenue shortfalls or
increased expenses. In addition, many aspects of the Company's operations,
including its electric transmission and distribution operations, the operation
and maintenance of its nuclear facilities, its gas distribution operations and
the issuance of securities, will continue to be subject to extensive regulation
by both the federal government and the PSC. Changes in these regulations or in
their application to the Company could adversely affect the Company's business
and financial condition. Further, uncertainty exists regarding the ultimate
impact on the Company as the electric industry is further deregulated and
electricity suppliers gain open access to the Company's retail customers.

PSC procedures governing the approval of the PowerChoice Agreement
provide various parties the right to appeal such approval by giving notice of
their intention to do so within 120 days of the date on which approval is
received. Such an appeal may be based on the failure of the record to show a
reasonable basis for the terms of the PowerChoice Agreement and may result in an
amendment of the record to correct such failure, in renegotiation of such terms
or in renegotiation of the PowerChoice Agreement as a whole. There can be no
assurance that, if appealed, the approval of the PowerChoice Agreement will be
upheld or that such appeal will not result in terms substantially less favorable
to the Company than those described herein. Suspension of the PowerChoice
Agreement or renegotiation of its material terms could have a material adverse
effect on the Company's results of operations and on the cash available to
service its obligations.

FEDERAL INCOME TAX IMPLICATIONS OF MRA TO THE COMPANY

The Company has requested rulings from the Internal Revenue Service to
the effect that the amount of cash and Common Stock paid to the IPP Parties who
are terminating their PPAs upon closing of the MRA will be currently deductible
and generate a substantial NOL. No assurance can be given that favorable rulings
will be issued. If favorable rulings are not received, and the Company's claimed
current deductions are challenged on audit and not ultimately sustained, the
amount of tax refunds generated from the NOL carryback, and thus the amount of
cash available to repay its obligations following consummation of the MRA would
be reduced. While any disallowed deductions would ultimately be allowable in
future years, and would likely create, or increase the

<PAGE>

amount of, NOLs available to offset tax liabilities in future years, cash flow
would be adversely affected in the near term.

The Company's ability to utilize the NOL generated as a result of the
MRA could be substantially limited under the rules of section 382 of the
Internal Revenue Code (the "Code") if certain changes in the Company's stock
ownership were to occur following the consummation of the MRA. In general, the
limitation is triggered by a more than 50% change in stock ownership during a
3-year testing period by shareholders who own, directly or indirectly, 5% or
more of the Company's stock. For purposes of making the change in ownership
computation, the IPP Parties who acquire Company stock pursuant to the MRA will
likely be considered a separate 5% shareholder group, with the result that a
stock ownership change of 23% will be deemed to have occurred by reason of their
collective acquisition of such stock. Thus, if the IPP Parties and any other 5%
shareholders experience ownership increases totaling more than 27% during any
3-year testing period that includes the consummation date of the MRA, the 50%
statutory threshold would be breached and the NOL limitation would apply. The
rules for determining changes in stock ownership for purposes of section 382 are
extremely complicated and in many respects uncertain. A stock ownership change
could occur as a result of circumstances that are not within the control of the
Company. If a more than 50% change in ownership were to occur, the Company's
remaining usable NOL in the taxable years following such change in ownership
would likely be significantly lower than the NOL amount which otherwise would be
usable absent the limitation. Consequently, the Company's net cash position
could be significantly lower as a result of tax liabilities which would
otherwise be eliminated or reduced through unrestricted use of the NOL.

LIMITATIONS ON DIVIDENDS; DEPRESSED EARNINGS

The Indenture to be entered into with respect to the Notes will contain
limitations of the amount of dividends payable with respect to the Common Stock.
In addition, because of the ten year amortization of the MRA Regulatory Asset
described in the "Pro Forma Condensed Financial Statements", earnings will be
substantially depressed for at least five years.

ACCOUNTING PRINCIPLES

The Company continues to apply the accounting principles of SFAS No. 71
to its electric transmission and distribution, nuclear and gas operations, based
on the terms of the PowerChoice Agreement. SFAS No. 71 permits a utility to
defer certain costs for future recovery which would otherwise be charged to
expense when authorized to do so by the relevant regulatory authorities. As of
December 31, 1997, the Company had recorded $810 million of regulatory assets,
net of regulatory liabilities, associated with the electric business. The
deferral of the costs of the MRA by the PSC will cause the regulatory assets to
increase by $3.977 billion. In the event that the Company determined, either as
a result of lower than expected revenues or higher than expected costs, that
this asset is not in fact recoverable, it could no longer apply the principles
of SFAS No. 71 and would be required to record a non-cash charge against income
in the amount of the remaining unamortized net regulatory assets. Depending on
when SFAS No. 71 was required to be discontinued, such charge would likely be
material to the Company's reported financial condition and results of operations
and the Company's ability to pay common and preferred dividends.

COMPANY PROSPECTS IF THE MRA IS NOT CONSUMMATED

If the MRA is not consummated, it is anticipated that the Board of
Directors will reconsider all alternatives then available to the Company to
address the Company's financial condition and regulatory situation and to
satisfy the best interest of all shareholders. These alternatives may include
the renegotiation of the terms of the MRA, the sale of the generation assets of
the Company and other efforts to increase

<PAGE>

liquidity and a request for higher rates. However, because of the prolonged
efforts exerted by all parties, resulting in concessions by each that were
difficult to achieve, no assurance can be given that a substitute arrangement
between the Company and the IPP Parties or the PSC could be readily negotiated.
Further, the Board of Directors has concluded that the other alternatives
available to the Company are not likely to be in the best interests of
Shareholders when compared to the MRA. See "Board Recommendation".

- -------------------------------------------------------------------------------
PROPOSAL NO. 3: COMMON STOCK AMENDMENT
- -------------------------------------------------------------------------------

The Board of Directors has also approved an amendment to Article IV of
its amended certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue from 185 million to 250
million (the "Common Stock Amendment") to provide a number of authorized shares
of Common Stock sufficient to implement the MRA and to preserve flexibility to
issue additional shares of Common Stock, of which an aggregate of approximately
___ million were issued and outstanding on the Record Date. If the transactions
contemplated by the MRA are consummated, the Company will issue a total of
approximately 42.9 million new shares of Common Stock to the IPP Parties in
connection with the MRA, thereby increasing the total number of issued and
outstanding shares to approximately 187.5 million. The total number of shares of
Common Stock issued or reserved for issuance will be approximately 187.7
million, which is approximately 2.7 million shares more than the Company is
currently authorized to issue. In addition, the Board of Directors believes it
to be in the best interests of the Company to authorize the issuance of
additional shares of Common Stock in order to preserve flexibility for the
Company to issue additional shares of Common Stock, as the need may arise, in
the raising of additional capital for the reduction of debt, for necessary or
desirable additions to the Company's electric system and for other corporate
purposes. The Board of Directors considers it prudent to increase the number of
shares which the Company shall have authority to issue to assure that the
Company has the flexibility to meet its financial needs in the future.

The Board of Directors considers it to be in the best interests of the
Company to have, after the consummation of the MRA, shares of Common Stock of
the Company authorized and available for issuance without further action by the
shareholders, unless such shareholder action is required by application law or
the rules of any national securities exchange on which the Company's securities
may be listed. The Board of Directors believes it advisable to authorize
additional shares of Common Stock now so that if an issuance of such shares is
determined to be appropriate in the future, it could be accomplished without the
delay and expense involved in obtaining shareholder approval. However, the
Company would be required to obtained authorization of the PSC prior to the
issuance of any additional shares of Common Stock.

In the event Proposal 2 is approved but Proposal 3 is not approved, the
Company anticipates it will attempt to renegotiate the terms of the MRA by
decreasing the number of shares of Common Stock and increasing the cash payable
to the IPP Parties, although there can be no assurance that such renegotiation
will occur, or to acquire shares of Common Stock in the market or in privately
negotiated transactions to use for part of the MRA consideration.

If the Common Stock Amendment is approved, shareholders will have no
preemptive rights with respect to the additional shares of Common Stock. Such
shares will be issued on such terms, at such times and on such conditions as the
Board of Directors may determine without further action by shareholders. The
Board of Directors has neither entered into any negotiations, agreements, or
understandings, nor made any other determinations, with respect to the issuance
of any shares of such Common Stock.

<PAGE>

While not submitted for approval as such, the Common Stock Amendment
may be considered an "anti-takeover" device. In the event of any attempted
takeover of the Company through tender offer, merger, proxy contest or
otherwise, the additional shares could be used to dilute the stock ownership of
the hostile takeover party or could be acquired by purchasers who might assist
the Board of Directors in opposing a hostile takeover bid. Moreover, the
availability of such additional shares in and of itself might have the effect of
discouraging an attempt to acquire control of the Company other than through
negotiations with the Board of Directors. The Company presently has charter or
by-law provisions which provide for a staggered board of directors, removal of
directors only for cause, advance notice of shareholder proposals and
nominations, a "fair-price" provision concerning second step transactions by
interested shareholders, no cumulative voting, and no right of shareholders to
call special meetings. Under New York law, the Company's common shareholders are
not permitted to act by less than unanimous written consent. In addition,
Section 912 of the New York Business Corporation Law (the "BCL") applies to
Niagara Mohawk and would also apply to Holdings following implementation of the
holding company proposal. Section 912 prohibits a "business combination" (as
defined in Section 912, generally including mergers, sales and leases of assets,
issurances of securities and similar transactions) by a company or its
subsidiary with an interested stockholder" (as defined in Section 912, generally
the beneficial owner of 20 percent or more of the company's voting stock) within
five years after the person or entity becomes an interested stockholder, unless
prior to the person or entity becoming an interested stockholder, the business
combination or the transaction pursuant to which the person or entity became an
interested stockholder is approved by the company's board of directors. After
five years, the business combination may be consummated only if approved by the
holders of a majority of the outstanding stock of the company entitled to vote
thereon, excluding shares held by the interested stockholder, at a meeting
called for the purpose, or pursuant to a stringent "fair price" formula. Except
as set forth under Proposal 3, the Company has no plans to adopt any measures
other than the Common Stock Amendment which may be deemed "anti-takeover"
measures. See "Proposal 4: Comparative Shareholders' Rights."

THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON STOCK VOTE
IN FAVOR OF APPROVAL OF PROPOSAL NO. 3.

- -------------------------------------------------------------------------------
PROPOSAL 4: HOLDING COMPANY AND ADOPTION OF THE EXCHANGE AGREEMENT
- -------------------------------------------------------------------------------

The Board of Directors of Niagara Mohawk unanimously believes that it
is in the best interests of Niagara Mohawk and its shareholders to restructure
Niagara Mohawk so that it will become a separate subsidiary of a new parent
holding company, with the present holders of Common Stock becoming the holders
of the common stock of the new parent.

To carry out such restructuring, Niagara Mohawk has caused to be
incorporated a New York corporation, Holdings, which now has a nominal amount of
stock outstanding and no present business or properties of its own. All of the
currently outstanding shares of Holdings common stock, are owned by Niagara
Mohawk.

The Board of Directors of each of Niagara Mohawk and Holdings has
adopted the Exchange Agreement under which, subject to adoption by Niagara
Mohawk's shareholders and the satisfaction of other conditions, Niagara Mohawk
will become a subsidiary of Holdings through the exchange of the outstanding
shares of Niagara Mohawk Common Stock on a share-for-share basis for shares of
Holdings common stock (referred to in this Prospectus/Proxy Statement as the
"share exchange" or the "exchange"). Following the share exchange, certain of
Niagara Mohawk's existing subsidiaries involved in non-utility operations will

<PAGE>

be transferred to Holdings and become subsidiaries of Holdings. See "--The Share
Exchange--Transfer of Niagara Mohawk's Non-Utility Subsidiaries to Holdings".
The Exchange Agreement is attached to this Prospectus/Proxy Statement as Exhibit
A and is incorporated herein by reference.

Niagara Mohawk is subject to regulation by the PSC under the New York
Public Service Law (the "Public Service Law"). The PowerChoice Agreement
approved the holding company restructuring and the terms with which Niagara
Mohawk and Holdings have agreed to comply in their on-going relationships and
activities.

REASONS FOR THE HOLDING COMPANY STRUCTURE AND SHARE EXCHANGE

General

The proposed holding company structure is intended to provide Niagara
Mohawk and its subsidiaries with the financial and regulatory flexibility to
compete more effectively in an increasingly competitive energy industry by
providing a structure that can accommodate both regulated and unregulated lines
of business. Niagara Mohawk currently operates under the regulatory constraints
of the PSC that were generally designed to discourage electric utilities from
participating in unregulated businesses and that limit (i) the total amount of
the incremental investment in its unregulated operations, (ii) the amount that
can be invested annually, (iii) the cumulative amount that can be invested in
any single line of business and (iv) the debt-equity ratios of its subsidiaries.
Under current regulations, any time Niagara Mohawk wishes to allocate funds to
new unregulated ventures, it must seek PSC approval. The approval process itself
leads to long delays, forces the Company to reveal its plans to competitors, and
gives competitors the opportunity to intervene in the regulatory approval
process and attempt to gain competitive advantage by seeking restrictions that
would handicap Niagara Mohawk.

The holding company structure proposed here largely would eliminate
many of these regulatory constraints that would otherwise severely limit or
handicap Niagara Mohawk's ability to participate in unregulated business
opportunities as the industry evolves. In approving PowerChoice, the PSC has
given the Company 12 months in which to form a holding company.

The holding company structure is a well-established form of
organization for companies conducting multiple lines of business. It is a common
form of organization for unregulated companies and for those regulated
companies, such as telephone utilities and water utilities, which are not
subject to the Holding Company Act. In addition, it is utilized by many electric
companies which are involved in unregulated activities. In recognition of the
increased competition in the electric utility industry, the 1992 Energy Policy
Act permits electric utilities to conduct certain business activities which were
previously limited by the Holding Company Act. Niagara Mohawk wishes to take
advantage of this opportunity, and desires to do so by utilizing the most
efficient and effective corporate structure.

More generally, the holding company structure will enable Holdings to
engage in unregulated businesses without obtaining the prior approval of the
PSC, thereby enabling Holdings to pursue unregulated business opportunities in a
timely manner. Under the new corporate structure financing of unregulated
activities of Holdings and its non-utility subsidiaries will not require PSC
approval. In addition, the capital structure of each non-utility subsidiary may
be appropriately tailored to suit its individual business. Also, under the
holding company structure, Holdings would not need PSC approval to issue debt or
equity securities to finance the acquisition of the stock or assets of other
companies. The ability to raise capital for acquisitions without prior PSC
approval should allow competition on a level basis with other potential

<PAGE>

acquirors, some of which are already holding companies. Under a holding company
structure, the issuance of debt or equity securities by Holdings to finance the
acquisition of the stock or assets of another company should not adversely
affect Niagara Mohawk's capital devoted to and available for regulated utility
operations.

The holding company structure separates the operations of regulated and
unregulated businesses. As a result, it provides a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from unregulated to regulated lines of business. A holding
company structure also is preferred by the investment community because it makes
it easier to analyze and value individual lines of business. Moreover, the use
of a holding company structure provides legal protection against the imposition
of liability on regulated utilities for the results of unregulated business
activities. In short, the holding company structure is a highly desirable form
of conducting regulated and unregulated businesses within the same corporate
group.

As discussed below under "--The Share Exchange--Transfer of Niagara
Mohawk's Non-Utility Subsidiaries to Holdings," as part of the holding company
restructuring, certain of the current non-utility subsidiaries of Niagara Mohawk
will be transferred to and become, or become owned through, separate
subsidiaries of Holdings following the share exchange. Niagara Mohawk needs the
financial and regulatory flexibility provided by this holding company structure
to operate in a changing environment and successfully address the new levels of
competition.

Opportunities in the new competitive environment could take many forms,
including joint ventures and strategic alliances in addition to direct
investments in new businesses. All of these opportunities will be easier to
pursue under a holding company structure than they would be under the current
structure.

Strategic alliances with unregulated third party participants and/or
diversification into unrelated fields may also help protect against the market
and financial risks to which Niagara Mohawk is now, and increasingly will be,
exposed. Thus, Holdings may wish to increase its investment in unregulated
energy-related businesses, whether through additional "ground floor" investment,
the acquisition of existing energy and energy services providers, or the
formation of strategic alliances with industry partners.

Holdings will continue to seek to invest in the current lines of
business and will engage in energy marketing and other energy-related
activities. Although Holdings has not identified other specific business
opportunities, it believes that such activities would likely include areas with
which Niagara Mohawk is already familiar, such as information systems,
environmental services, engineering services, financial services, meter reading,
and billing and collection services. Under a holding company structure, Holdings
should be able to take advantage of opportunities in a timely fashion and
compete more effectively against other energy companies. Except for the
restrictions set forth in the PowerChoice Agreement and discussed in "--The
Share Exchange--The PowerChoice Agreement", Holdings believes it should not
otherwise be required to obtain PSC approval for investments in non-utility
businesses, would not be subject to the limitations imposed under certain
provisions of New York law applicable to Niagara Mohawk, and thus should be able
to compete more effectively against other entities not subject to similar
constraints.

Given its financial condition and contractual restrictions, the Company
does not foresee Holdings making substantial investments in unregulated
businesses in the near future. However, under the terms of the PowerChoice
Agreement, Niagara Mohawk has a one-year window in which it can adopt the
holding company structure.

<PAGE>

CERTAIN CONSIDERATIONS

Future Performance of Holdings Common Stock Cannot Be Assured. The
purpose of the share exchange is to establish a holding company structure that
will enhance the ability to take advantage of business opportunities outside of
Niagara Mohawk's present markets. The Board of Directors believes the share
exchange and holding company structure to be in the best interests of Niagara
Mohawk and its shareholders. Nevertheless, the success of Holdings in realizing
its goals and the future performance of Holdings common stock cannot be assured.

Dividends on Holdings Common Stock Will Initially Depend on Common
Stock Dividends Paid by Niagara Mohawk. Holdings does not now, nor will it
immediately after the share exchange, conduct directly any business operations
from which it will derive any revenues. Holdings plans to obtain funds for its
own operations from dividends paid to Holdings by its subsidiaries, and from
sales of securities or debt incurred by Holdings. Dividends on Holdings common
stock will initially depend upon the earnings, financial condition and capital
requirements of Niagara Mohawk, and the dividends that Niagara Mohawk pays to
Holdings. Niagara Mohawk suspended the common stock dividend in 1996 to help
stabilize its financial condition. In making future dividend decisions with
respect to Niagara Mohawk or Holdings, the applicable board would evaluate,
along with standard business considerations, the entity's financial condition,
contractual and regulatory restrictions, competitive pressure on prices,
available cash flow and retained earnings and other strategic considerations. In
the future, dividends from Holdings' subsidiaries other than Niagara Mohawk may
also be a source of funds for dividend payments by Holdings. Payment of Niagara
Mohawk dividends to Holdings will be subject to the prior rights of holders of
Niagara Mohawk preferred stock, First Mortgage Bonds and other long-term debt.
In addition, although it has no present intention to do so, Niagara Mohawk may
issue additional preferred stock in the future to meet its capital requirements.
Such additional preferred stock will also have preferential dividend rights.

The PowerChoice Agreement also imposes the following limitations on the
dividends that Niagara Mohawk may pay to Holdings after the share exchange: net
income available for common dividends plus in each of the following years: 1998:
$50 million, 1999: $75 million, 2000, 2001 and 2002: $100 million, 2003: $80
million, 2004: $60 million, 2005: $40 million, 2006: $20 million, thereafter:
$0. If the Company files a rate case for any year from 2003 to 2007, this
dividend limitation will be reassessed in the rate filing.

Non-Utility Businesses Will Not Be Available as Sources for Dividends
on Niagara Mohawk Preferred Stock. Following consummation of the share exchange,
certain of Niagara Mohawk's non-utility subsidiaries will be transferred to
Holdings, and will not be available to the holders of Niagara Mohawk preferred
stock as a source of cash for the payment of dividends or other amounts.

Non-Utility Businesses. Niagara Mohawk's principal non-utility
subsidiaries that will be transferred to Holdings participate in energy
marketing and brokering, energy services, Canadian electricity generation and
distribution.

It is the current intention of Holdings for these non-utility
subsidiaries to engage primarily in energy-related businesses which will not be
regulated by state or federal agencies which regulate public utilities. Such
businesses may encounter competitive and other factors not previously
experienced by Niagara Mohawk, and may have different, and perhaps greater,
investment risks than those involved in the regulated utility business of
Niagara Mohawk. There can be no assurance that such businesses will be
successful or, if unsuccessful, that they will not have a direct or indirect
adverse effect on Holdings. As is the case now,

<PAGE>

any losses incurred by such businesses will not be recoverable in utility rates
of Niagara Mohawk. As Holdings engages in more such business activities, the
market price of Holdings' stock will be affected to a lesser extent by the
performance of Niagara Mohawk.

Comparable earnings from Niagara Mohawk's unregulated businesses were
$(4.7) million, or (3.3) cents per share in 1997, $23.2 million, or 16.1 cents
per share in 1996, and $10.3 million, or 7.1 cents per share in 1995.

Niagara Mohawk's total investment in these businesses, computed in
accordance with PSC specifications as a percentage of consolidated
capitalization, was 2.5%, 2.6% and 2.1% as of December 31, 1997, 1996 and 1995,
respectively.

Holdings will obtain funds to invest in non-utility subsidiaries and
other businesses from dividends it receives from Niagara Mohawk, borrowings and
other financings, and dividends Holdings may in the future receive from any
non-utility subsidiaries. There can be no assurance that non-utility
subsidiaries will have earnings or pay any dividends to Holdings in the
foreseeable future.

Implementation of the Rate Plan. The new rate plan contained in the
PowerChoice Agreement will take effect upon the closing of the MRA and will
continue to govern utility rates and charges of Niagara Mohawk even if common
shareholders of Niagara Mohawk do not approve the holding company proposal and
adopt the Exchange Agreement. In that event, Niagara Mohawk will not be able to
realize the benefits it expects from a holding company structure, which Niagara
Mohawk believes is important in the future deregulated competitive environment
of the energy industry. See also "-- The Share Exchange--The PowerChoice
Agreement" below.

Certain Restrictions in the PSC Order. As summarized above, the
PowerChoice Agreement imposes certain limitations on the dividends that Niagara
Mohawk may pay to Holdings after the share exchange. See also "--The Share
Exchange--Dividend Policy". The PowerChoice Agreement also contains restrictions
on transactions between Niagara Mohawk and Holdings or any other subsidiary of
Holdings, loans, guarantees or pledges by Niagara Mohawk for the benefit of
Holdings or any other subsidiary of Holdings, and Board and managerial
interlocks between Niagara Mohawk and Holdings or any other subsidiary of
Holdings. See "--The Share Exchange--Regulatory Approvals" and "--
Management--Restriction on Board and Management Interlocks between Holdings and
Niagara Mohawk". There can be no assurance as to the effect, if any, that such
restrictions will have on the business or operations of Holdings, Niagara Mohawk
or the non-utility subsidiaries.

A. THE SHARE EXCHANGE

EXCHANGE AGREEMENT

The Exchange Agreement has been unanimously adopted by the Boards of
Directors of Niagara Mohawk and Holdings and is subject to adoption by the
holders of at least two-thirds of the outstanding shares of Niagara Mohawk
Common Stock. See "--Vote Required" below. In the share exchange:

(1) each share of Niagara Mohawk Common Stock outstanding immediately
prior to the effective time of the share exchange will be exchanged
for one new share of Holdings common stock;

<PAGE>

(2) Holdings will become the owner of all outstanding Niagara Mohawk
Common Stock; and

(3) the shares of Holdings common stock held by Niagara Mohawk
immediately prior to the share exchange will be canceled.

As a result, upon completion of the share exchange, Holdings will
become a holding company, Niagara Mohawk will become a subsidiary of Holdings,
and all of Holdings common stock outstanding immediately after the share
exchange will be owned by the former holders of Niagara Mohawk Common Stock
outstanding immediately prior to the share exchange. Following the share
exchange, certain of Niagara Mohawk's existing non-utility subsidiaries will be
transferred to Holdings and become subsidiaries of Holdings. See "--Transfer of
Niagara Mohawk's Non-Utility Subsidiaries to Holdings". The Exchange Agreement
is attached to this Prospectus/Proxy Statement as Exhibit A and is incorporated
herein by reference.

Niagara Mohawk's outstanding preferred stock will not be exchanged in
the share exchange but will continue as shares of Niagara Mohawk preferred
stock. The share exchange will not change the rights of the holders of such
shares as currently provided in Niagara Mohawk's Amended Certificate of
Incorporation. Debt of Niagara Mohawk will remain unchanged and will continue as
outstanding obligations of Niagara Mohawk after the share exchange.

REGULATORY APPROVALS

FEDERAL POWER ACT

The FERC has held that the transfer of common stock of a public utility
company, such as the Company, from its existing stockholders to a holding
company in a transaction such as the share exchange constitutes a transfer of
the "ownership and control" of the facilities of such utility, and is thus a
"disposition of facilities" subject to FERC review and approval under Section
203 of the Federal Power Act. The Company has applied for such approval and for
approval of the transfer of certain power sales contracts and a tariff
associated with certain of its generation assets.

ATOMIC ENERGY ACT

A provision in the Atomic Energy Act requires Nuclear Regulatory
Commission ("NRC") consent for the transfer of control of NRC licenses. The NRC
Staff has in the past asserted that this provision applies to the creation of a
holding company over an NRC-licensed utility company in a transaction such as
the share exchange. The Company has applied for NRC approval under the Atomic
Energy Act for the transfer of control resulting from the Share Exchange of its
two licenses, for Nine Mile Point 1 and Nine Mile Point 2, respectively.

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

The Company is currently exempt from the Public Utility Holding Company
Act of 1935 (the "35 Act") under Section 3(a)(2) thereof. Holdings will own 100%
of the common stock of the Company, majority interests in Beebee Island
Corporation and Moreau Manufacturing Corporation and 50% of CNP, all of which
are public utility companies for purposes of the 35 Act. Section 9(a)(2) of the
35Act requires the prior approval of the SEC under Section 10 of the 35 Act for
any person to become an affiliate of more than one public utility company.
Holdings has applied for such approval. Holdings has also applied to the

<PAGE>

Commission for an order exempting Holdings from all provisions of the Holding
Company Act, except Section 9(a)(2) thereof, pursuant to the exemption provided
by Section 3(a)(1) thereof. The basis for such exemption is that the holding
company, and every subsidiary company thereof which is a public-utility company
from which the holding company derives any material part of its income, are
predominantly intrastate in character and are organized in the same state.

PUBLIC SERVICE LAW

The New York Public Service Law ("NYPSL") requires approval from the
PSC in order to undertake the reorganization represented by the formation of the
holding company structure. The NYPSL also requires PSC approval for a holding
company to acquire the stock of a utility pursuant to a share exchange. The
Company has attained PSC approval of the holding company concept and has made
appropriate additional filings with respect to the formation of a holding
company.

CONDITIONS TO EFFECTIVENESS OF THE SHARE EXCHANGE

The share exchange is subject to the satisfaction of the following
conditions (in addition to adoption of the Exchange Agreement by the holders of
Niagara Mohawk Common Stock): (i) all necessary orders, authorizations,
approvals or waivers from the PSC and all other jurisdictive regulatory bodies,
boards or agencies have been received, remain in full force and effect, and do
not include, in the sole judgment of the Board of Directors of Niagara Mohawk,
unacceptable conditions; and (ii) shares of Holdings common stock to be issued
in connection with the exchange have been listed, subject to official notice of
issuance, by the New York Stock Exchange.

Following satisfaction of these conditions, the share exchange will
become effective immediately following the close of business on the date of
filing with the New York Department of State of a certificate of exchange
pursuant to Section 913(d) of the New York Business Corporation Law. Niagara
Mohawk cannot predict when all conditions will be satisfied, but expects that
the share exchange will become effective in the first quarter of calendar 1999.

EXCHANGE OF STOCK CERTIFICATES

If the share exchange is effected, it will not be necessary for holders
of Niagara Mohawk Common Stock to physically exchange their existing stock
certificates for certificates of Holdings common stock. The certificates which
represent shares of Niagara Mohawk Common Stock outstanding immediately prior to
the effective time of the share exchange will automatically represent an equal
number of shares of Holdings common stock immediately after the effective time
and will no longer represent Niagara Mohawk Common Stock. New certificates
bearing the name of Holdings will be issued after the share exchange, if and as
certificates representing shares of Niagara Mohawk Common Stock outstanding
immediately prior to the share exchange are presented for exchange or transfer.

Niagara Mohawk preferred stock will not be exchanged but will continue
as shares of Niagara Mohawk preferred stock. The share exchange will not change
the rights of the holders of such shares as provided in Niagara Mohawk's Amended
Certificate of Incorporation. Debt of Niagara Mohawk will remain unchanged and
will continue as outstanding obligations of Niagara Mohawk after the share
exchange.

<PAGE>

TRANSFER OF NIAGARA MOHAWK'S NON-UTILITY SUBSIDIARIES TO HOLDINGS

Other than for the transfer of the subsidiaries described under
"Certain Considerations -- Non-Utility Businesses" and other de minimis
non-utility investments, and except for dividends or other distributions with
respect to Niagara Mohawk Common Stock held by Holdings, it is expected that
Niagara Mohawk will not transfer at less than a fair consideration any of its
other assets to Holdings or any Holdings subsidiaries. Niagara Mohawk will
develop accounting and other procedures to the extent determined to be necessary
or appropriate to insure separation of utility and non-utility businesses. See
"--The PowerChoice Agreement" below.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

Shares of Niagara Mohawk Common Stock held in its Dividend Reinvestment
and Common Stock Purchase Plan (including uncertificated whole and fractional
shares) will automatically become a like number of shares of Holdings common
stock at the effective time of the share exchange. At the effective time,
Holdings will succeed to the Plan as in effect immediately prior to the
effective time, and shares of Holdings common stock will be issued under the
Plan on and after the effective time. Holdings will file a post-effective
amendment to Niagara Mohawk's registration statement on Form S-3 for the Plan
shortly after the effective time of the exchange.

AMENDMENT OR TERMINATION OF THE EXCHANGE AGREEMENT

The Boards of Directors of Niagara Mohawk and Holdings may amend any of
the terms of the Exchange Agreement at any time before or after its adoption by
the holders of Niagara Mohawk Common Stock and prior to the effective time, but
no such amendment may, in the sole judgment of the Board of Directors of Niagara
Mohawk, materially and adversely affect the rights of Niagara Mohawk's
shareholders.

The Exchange Agreement may be terminated and the share exchange
abandoned at any time before or after the shareholders of Niagara Mohawk adopt
the Exchange Agreement, and prior to the effective time, if the Board of
Directors of Niagara Mohawk determines, in its sole judgment, that consummation
of the exchange would, for any reason, be inadvisable or not be in the best
interests of Niagara Mohawk or its shareholders.

LISTING OF HOLDINGS COMMON STOCK

Holdings is applying to have its common stock listed on the New York
Stock Exchange. It is expected that such listing will become effective at the
effective time of the share exchange. The stock exchange ticker symbol of
Holdings common stock will be "________", and quotations will be carried in
newspapers as they have been for Niagara Mohawk Common Stock. Following the
share exchange, Niagara Mohawk Common Stock will no longer trade and will be
delisted and no longer registered pursuant to Section 12 of the Securities
Exchange Act of 1934.

NIAGARA MOHAWK COMMON STOCK MARKET PRICES AND DIVIDENDS

Niagara Mohawk Common Stock is listed and principally traded on the New
York Stock Exchange. The table below sets forth the high and low sales prices of
Niagara Mohawk Common Stock for the fiscal periods indicated as reported in The
Wall Street Journal as New York Stock Exchange Composite Transactions. No
dividends were paid on the Common Stock during such period.

<PAGE>
<TABLE>
<CAPTION>
Price Range
-----------------------------
High Low
------ ------
($) ($)
<S> <C> <C>

Calendar 1996
First Quarter............................................. 10-1/8 6-1/2
Second Quarter............................................ 8-5/8 6-1/2
Third Quarter............................................. 8-7/8 6-3/4
Fourth Quarter............................................ 10 7-5/8
Calendar 1997
First Quarter............................................. 11-1/8 8-1/8
Second Quarter............................................ 9 7-7/8
Third Quarter............................................. 10-1/16 8-1/4
Fourth Quarter............................................ 10-9/16 9-1/16
Calendar 1998
First Quarter............................................. 13-9/16 10-1/8
Second Quarter (through ______, 1998).....................
</TABLE>

The closing price of Niagara Mohawk Common Stock on _________, 1998 was
reported to have been $[______].

DIVIDEND POLICY

Holdings does not now, nor will it immediately after the share
exchange, conduct directly any business operations from which it will derive any
revenues. Holdings plans to obtain funds for its own operations from dividends
paid to Holdings on the stock of its subsidiaries, and from sales of securities
or debt incurred by Holdings. Dividends on Holdings common stock will initially
depend upon the earnings, financial condition and capital requirements of
Niagara Mohawk, and the dividends paid by Niagara Mohawk to Holdings. In the
future, dividends from Holdings' subsidiaries other than Niagara Mohawk may also
be a source of funds for dividend payments by Holdings. Payment of dividends on
Niagara Mohawk Common Stock will continue to be subject to the prior rights of
holders of Niagara Mohawk preferred stock. Niagara Mohawk suspended the common
stock dividend in 1996 to help stabilize its financial condition. In making
future dividend decisions with respect to Niagara Mohawk or Holdings, the
applicable board would evaluate, along with standard business considerations,
the entity's financial condition, contractual restrictions and regulatory
restrictions, competitive pressure on prices, available cash flow and retained
earnings and other strategic considerations.

In addition, as set forth above under "Certain Considerations", the
PowerChoice Agreement contains restrictions on the dividends Niagara Mohawk can
pay Holdings. See "Considerations -- Dividends on Holdings Common Stock Will
Initially Depend on Common Stock Dividends Paid by Niagara Mohawk".

<PAGE>

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

Niagara Mohawk and Holdings have received an opinion from Bryan Cave
LLP, their special tax counsel, regarding the principal federal income tax
consequences of the share exchange, as summarized below.

TAX IMPLICATIONS TO NIAGARA MOHAWK SHAREHOLDERS. Under section 351 of
the Code, no gain or loss will be recognized by a holder of Niagara Mohawk
Common Stock as a result of the exchange of such holder's Niagara Mohawk Common
Stock solely for Holdings common stock. The tax basis of the Holdings common
stock received in the share exchange will be the same as the exchanging
shareholder's basis in the Niagara Mohawk Common Stock surrendered. The holding
period of the Holdings common stock received by each exchanging shareholder will
include the holding period during which such shareholder held the Niagara Mohawk
Common Stock surrendered, provided that such stock was held as a capital asset
on the date of the share exchange. No federal income tax consequences will
result from the share exchange to holders of Niagara Mohawk preferred stock in
respect of such stock.

TAX IMPLICATIONS TO NIAGARA MOHAWK AND HOLDINGS. No gain or loss will
be recognized by Niagara Mohawk or Holdings as a result of the share exchange.
The basis of the Niagara Mohawk Common Stock received by Holdings will be the
same as the aggregate tax basis that the holders of Niagara Mohawk Common Stock
had in such stock immediately prior to the share exchange. Holdings' holding
period in the Niagara Mohawk Common Stock received in the share exchange will
include the period during which such stock was held by the holders of Niagara
Mohawk Common Stock.

CONTINUATION OF AFFILIATED GROUP. Consummation of the share exchange
will not result in a termination of the existence of the affiliated group of
corporations of which Niagara Mohawk has been the common parent. Niagara Mohawk
will be included in such affiliated group of corporations of which Holdings will
become the new common parent.

REPORTING REQUIREMENTS. Pursuant to applicable Treasury regulations,
shareholders of Niagara Mohawk Common Stock will be required to attach to their
federal income tax returns a complete statement of all facts pertinent to the
share exchange, including the shareholder's basis in the shares of Niagara
Mohawk Common Stock transferred to Holdings and the type, number and value of
shares of Holdings common stock received in the share exchange. In addition,
such shareholders will be required to keep permanent records of any information
relating to the share exchange that is required to be filed with their income
tax returns.

The Bryan Cave opinion is based on certain factual representations
received from Niagara Mohawk and Holdings, and upon the firm's review and
analysis of relevant and currently applicable Code provisions, Treasury
regulations, other administrative pronouncements and judicial decisions. Such
opinion is not binding upon either the Internal Revenue Service or the courts.
Authorities relied upon in the Bryan Cave opinion could be repealed, revoked or
modified, possibly with retroactive effect, so as to result in federal income
tax consequences different from those indicated.

THE FOREGOING FEDERAL INCOME TAX DISCUSSION IS INTENDED TO PROVIDE ONLY
A GENERAL SUMMARY. IT DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO THE SHARE EXCHANGE, INCLUDING TAX CONSEQUENCES
WHICH MAY VARY DEPENDENT ON THE PARTICULAR CIRCUMSTANCES OR SPECIAL TAX STATUS
OF CERTAIN NIAGARA MOHAWK SHAREHOLDERS. NOR DOES IT, OR THE BRYAN CAVE OPINION,
ADDRESS THE CONSEQUENCES OR EFFECT OF ANY

<PAGE>

APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS, OR ANY ESTATE, INHERITANCE OR GIFT
TAX LAWS. EACH HOLDER OF NIAGARA MOHAWK COMMON STOCK IS STRONGLY URGED TO
CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR REGARDING FEDERAL OR OTHER POSSIBLE
TAX CONSEQUENCES ARISING OUT OF THAT HOLDER'S PARTICIPATION IN THE SHARE
EXCHANGE.

NIAGARA MOHAWK EMPLOYEE PLANS

The Exchange Agreement provides that Niagara Mohawk's Employee Savings
Fund Plans for Represented and Non-Represented Employees, Dividend Reinvestment
and Common Stock Purchase Plan and 1992 Stock Option Plan (together, the
"Niagara Mohawk Stock Plans"), along with other employee benefit plans
maintained by Niagara Mohawk (collectively with the Niagara Mohawk Stock Plans,
the "Niagara Mohawk Employee Plans"), such as the pension plans, health plans
and disability plans, will be amended to provide for Holdings taking over
responsibility for such Plans upon consummation of the share exchange. The
Niagara Mohawk 1992 Stock Option Plan (the "Option Plan") was previously
approved by Niagara Mohawk shareholders.

Stock Based Plans

If the share exchange is consummated, shares of Niagara Mohawk Common
Stock then held under the Niagara Mohawk Stock Plans will automatically become a
like number of shares of Holdings common stock.

Upon consummation of the share exchange, all outstanding stock options
under Niagara Mohawk's Option Plan will be converted into options to acquire, on
the same terms and conditions as were applicable under such stock options
immediately prior to the share exchange, such number of shares of Holdings
common stock as the holders of such options would have been entitled to receive
pursuant to the share exchange had such holders exercised such stock options in
full immediately prior to the share exchange, at a price per share of Holdings
common stock equal to the per share option price of Niagara Mohawk Common Stock.
Also, a vote in favor of the share exchange will also constitute approval, under
the Option Plan, as then amended, for shares of Holdings common stock, instead
of Niagara Mohawk Common Stock, to be issued and delivered in the future under
such Plan. Holdings may issue future options on its common stock under such
Plan. In addition, performance shares granted and to be granted under such Plan
will be treated in a comparable manner. Holdings will file post-effective
amendments to Niagara Mohawk's registration statements on Form S-8 for the
amended Niagara Mohawk Stock Plans shortly after the effective time of the share
exchange.

Non-Stock Based Plans

Upon consummation of the share exchange, Holdings will take over
responsibility for all of Niagara Mohawk's retirement and other employee benefit
plans, such as the pension plans, health plans and disability plans. Benefits
provided for in these non-stock based plans will not be changed as a result of
the holding company restructuring and share exchange.

<PAGE>

TREATMENT OF NIAGARA MOHAWK PREFERRED STOCK

Shares of Niagara Mohawk preferred stock will not be exchanged in the
share exchange but will continue as shares of preferred stock of Niagara Mohawk.
Therefore, holders of Niagara Mohawk preferred stock will not become holders of
Holdings preferred or common stock as a result of the share exchange. Except as
discussed under this caption, the share exchange and the holding company
structure will not change the rights of holders of the outstanding shares of
Niagara Mohawk preferred stock. Niagara Mohawk preferred stock will continue to
rank senior to Niagara Mohawk Common Stock as to dividends and as to the
distribution of Niagara Mohawk's assets upon any liquidation.

The restructuring is not expected to affect adversely the holders of
Niagara Mohawk preferred stock. Dividends on Niagara Mohawk preferred stock will
continue to be paid as before, depending upon the earnings, financial condition
and other relevant factors affecting Niagara Mohawk. However, the assets or
earnings of Holdings' subsidiaries other than Niagara Mohawk will not be
available to pay dividends on Niagara Mohawk preferred stock or to make
distributions with respect to such preferred stock in the event of a liquidation
if the share exchange is consummated. See "--Transfer of Niagara Mohawk's
Non-Utility Subsidiaries to Holdings" above. Appraisal rights under the New York
Business Corporation Law are not available to holders of Niagara Mohawk
preferred stock inasmuch as that preferred stock is not being exchanged for
Holdings stock and will continue as Niagara Mohawk preferred stock after the
holding company restructuring.

After the share exchange, Niagara Mohawk will continue to be subject to
the periodic reporting requirements of the Securities Exchange Act of 1934.

The Board of Directors considered the effects on the holders of the
Niagara Mohawk Common Stock and the holders of Niagara Mohawk preferred stock in
determining that the share exchange should only involve the Niagara Mohawk
Common Stock. The Board's decision to exchange Niagara Mohawk Common Stock for
Holdings common stock was primarily based on the Board's desire to confer the
expected benefits of the share exchange on those investors who are best placed
to enjoy such benefits, namely the holders of Niagara Mohawk Common Stock. Even
if the Niagara Mohawk preferred stock were to be exchanged for preferred stock
of Holdings, investors in such preferred stock would continue to receive fixed
dividend payments in respect of their investment. The expected benefits of the
share exchange include those discussed above, such as increased flexibility in
operating Holdings' unregulated businesses and enhanced ability to take
advantage of the new business opportunities in a timely manner. The Board's
decision not to exchange Niagara Mohawk preferred stock in the share exchange
was primarily based on the Board's desire not to alter, or potentially alter,
the nature of the investment decision represented by the Niagara Mohawk
preferred stock (namely, a direct investment in a regulated utility) and the
priority position of the holders of Niagara Mohawk preferred stock with respect
to dividends and assets on liquidation. As to holders of Niagara Mohawk
preferred stock, the benefits of continuing as investors in Niagara Mohawk's
regulated utility business outweigh any loss of access to the return on future
investments made by the unregulated businesses of Holdings. In that regard,
investors in priority position securities, such as the holders of Niagara Mohawk
preferred stock, benefit to the extent that such securities have been issued by
the corporate entity that holds directly and/or has unrestricted access to the
principal assets of the enterprise. As discussed above under the caption
"Certain Considerations", the funds required to pay dividends on Holdings common
stock for a period of time following the share exchange are expected to be
derived predominately from dividends paid by Niagara Mohawk. If the Niagara
Mohawk preferred stock also were to be exchanged pursuant to the share exchange
and become preferred stock of Holdings, the funds required to pay dividends on
that preferred stock would also be derived predominately from dividends paid by
Niagara Mohawk. Although it has no

<PAGE>

present intention to do so, it is expected that Niagara Mohawk may need to issue
preferred stock in the future to meet its capital requirements. The preferred
stock that would be issued by Niagara Mohawk would have preference over the
Common Stock as to the payment of dividends and, therefore, would reduce the
amount of funds available to Niagara Mohawk for the payment of dividends to
Holdings. As a result, the conversion of the Niagara Mohawk preferred stock to
Holdings preferred stock would result in the dividend payments and distributions
upon liquidation with respect to those shares being subordinated to the dividend
and distribution rights of any newly created preferred stock of Niagara Mohawk.

TREATMENT OF NIAGARA MOHAWK DEBT, ASSETS AND LIABILITIES, AND BUSINESS

The current indebtedness of Niagara Mohawk will continue to be
obligations of Niagara Mohawk and will be neither assumed nor guaranteed by
Holdings in connection with the share exchange. Niagara Mohawk's first mortgage
bonds will continue to be secured by first mortgage liens on all of the
properties of Niagara Mohawk that are currently subject to such liens. Such
indebtedness will be neither assumed nor guaranteed by Holdings in connection
with the share exchange. The decision to have the indebtedness of Niagara Mohawk
continue as obligations of Niagara Mohawk is based upon a desire not to alter,
or potentially alter, the nature of the investment represented by such fixed
income obligations, namely a direct investment in a regulated utility.

The consolidated assets and liabilities of Niagara Mohawk and its
subsidiaries immediately before the Effective Time will be the same as the
consolidated assets and liabilities of Holdings and its subsidiaries immediately
after the Effective Time. All the business and operations conducted immediately
before the Effective Time by Niagara Mohawk and its subsidiaries will continue
to be conducted immediately after the Effective Time by Niagara Mohawk and such
subsidiaries as subsidiaries of Holdings.

HOLDINGS CAPITAL STOCK

Holdings' certificate of incorporation and by-laws will govern certain
rights of Holdings' shareholders after the share exchange as discussed under
this caption and under "--Comparative Shareholders' Rights" below.

The following statements with respect to Holdings common stock are
based on certain provisions of Holdings' certificate of incorporation and
by-laws and on New York law. Holdings' certificate of incorporation is attached
as Exhibit B hereto and is incorporated herein by reference and Holdings'
by-laws are attached as Exhibit C hereto and are incorporated herein by
reference.

Holdings is authorized to issue 300,000,000 shares of common stock and
50,000,000 shares of preferred stock. Holdings preferred stock may be issued
from time to time in series as Holdings' Board of Directors may determine, and
the respective dividend rates, redemption terms (if any), amounts payable on
liquidation, voting rights (if any), number of votes per share, conversion
rights (if any), and other terms will be fixed by Holdings' Board of Directors
with respect to any such series prior to issuance.

When issued in the share exchange, shares of Holdings common stock will
be fully paid and nonassessable. Holders of Holdings common stock and preferred
stock are not entitled to preemptive rights.

<PAGE>

Dividends

Subject to prior rights of Holdings preferred stock (if any should
become outstanding), Holdings common stock is entitled to such dividends as may
be declared by Holdings' Board of Directors, and Holdings may purchase or
otherwise acquire outstanding shares of common stock, out of funds legally
available therefor.

As noted above, the PowerChoice Agreement and the terms of Niagara
Mohawk's debt imposes certain limitations on the dividends that Niagara Mohawk
may pay to Holdings after the share exchange. At least initially after the
exchange, dividends on Holdings common stock will depend on dividends paid by
Niagara Mohawk on its Common Stock owned by Holdings.

Liquidation Rights

Upon liquidation of Holdings, any net assets remaining after payment to
the holders (if any) of Holdings preferred stock of the full amounts to which
they are entitled to receive are distributable pro rata to the holders of
Holdings common stock.

Voting Rights

Holders of Holdings common stock are entitled to one vote per share.
There are no cumulative voting rights. Holdings' Board of Directors is divided
into three classes, with directors elected generally to serve for terms of three
years.

Transfer Agent and Registrar

The transfer agent and registrar for Holdings common stock will be The
Bank of New York of New York, NY.

Indemnification and Limitation of Liability

As do the Niagara Mohawk By-Laws, the Holdings by-laws will provide
that Holdings shall indemnify to the full extent permitted by law any person
made, or threatened to be made, a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person or such person's testator or intestate is or was a director,
officer or employee of Holdings, or serves or served at the request of Holdings
with any other enterprise as a director, officer or employee; expenses incurred
by any such person in defending any such action, suit or proceeding will be paid
or reimbursed by Holdings promptly upon receipt by it of an undertaking of such
person to repay such expenses if it shall ultimately be determined that such
person is not entitled to be indemnified by Holdings. No amendment of this
by-law provision will impair the rights of any person arising at any time with
respect to events occurring prior to such amendment.

As does Niagara Mohawk's Certificate of Incorporation, Holdings'
certificate of incorporation provides that a director shall not be personally
liable to Holdings or its shareholders for damages for any breach of duty in
such capacity, except to the extent that such exemption is not permitted under
the BCL (presently, such exemption is not permitted for acts or omissions in bad
faith or involving intentional misconduct or a knowing violation of law, or if
the director personally gained in fact a financial profit or other advantage to
which the director was not legally entitled or if such act violated Section 719
of the BCL).

<PAGE>

Any amendment, modification or repeal of such liability limitation provision may
not apply to or have any effect on the liability or alleged liability of any
director for or with respect to any acts or omissions of such director occurring
prior to such amendment, modification or repeal.

Possible Effect of Certain Holdings Provisions and the BCL

It is not the intention of the Board of Directors to discourage
legitimate offers to enhance shareholder value. However, certain provisions of
Holdings' certificate of incorporation and by-laws may have the effect of
discouraging unilateral tender offers or other attempts to take over and acquire
the business of Holdings. These provisions, all of which are already contained
in Niagara Mohawk's Certificate of Incorporation or By-Laws or otherwise apply
to Niagara Mohawk, might discourage a potentially interested purchaser from
attempting a unilateral takeover bid for Holdings on terms which some
shareholders might favor. If they discourage potential takeover bids, these
provisions might limit the opportunity for Holdings' shareholders to sell their
shares at a premium over then prevailing market prices.

Non-Cumulative Voting. Neither Niagara Mohawk nor Holdings provides for
cumulative voting in the election of directors. The procedure known as
cumulative voting permits shareholders to multiply the number of votes to which
they may be entitled by the total number of directors to be elected in the same
election by the holders of the class or classes of shares of which their shares
are a part and to cast their whole number of votes for one candidate or to
distribute them among any two or more candidates.

Under cumulative voting, it is possible for representation on the Board
of Directors to be obtained by an individual or group of individuals who own
less than a majority of the voting stock. Such a shareholder or group may have
interests and goals which are not consistent with, and indeed might be in
conflict with, those of a majority of the shareholders. The Board of Directors
believes that each director should represent all shareholders, rather than the
interests of any special constituency, and that the presence on Holdings' Board
of one or more directors representing such a constituency could disrupt and
impair the efficient management of Holdings. The lack of cumulative voting could
discourage the accumulation of blocks of Holdings common stock and therefore
could tend to make temporary increases in the market price of Holdings common
stock, which could result therefrom, less likely to occur. Therefore, in these
limited instances, shareholders may not be able to sell their shares of Holdings
common stock at a market price temporarily influenced by this type of activity.

Advance Notice of Business to be Brought Before Shareholder Meetings.
As under Niagara Mohawk's By-Laws, under Holdings' by-laws shareholders must
provide Holdings prior written notice of any business to be brought before an
annual or special meeting (including the nomination of directors) in order for
it to be considered. With respect to any annual meeting, such by-laws require
the written notice to be received by the Secretary of Holdings no earlier than
90 days nor later than 60 days prior to the date of the annual meeting, except
that if the date of the annual meeting is first publicly announced less than 70
days prior to the date of the meeting, such by-laws require the written notice
to be received by the Secretary of Holdings not more than 10 days after such
public announcement. These by-law provisions provide a more orderly procedure
for conducting shareholder meetings and provide the Board of Directors with a
meaningful opportunity prior to shareholder meetings to inform shareholders, to
the extent deemed necessary or desirable by the Board of Directors, of any
business proposed to be conducted at such meetings, together with any
recommendation of the Board of Directors. Also, by requiring advance notice of
nominations by shareholders, these by-law provisions afford the Board of
Directors a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the Board
of Directors, to inform shareholders about such qualifications.

<PAGE>

On the other hand, these by-law provisions may provide sufficient time
for Holdings to institute litigation or take other steps to respond to such
business, or to prevent such business from being acted upon, if such response or
prevention is thought to be necessary or desirable. With respect to the election
of directors, these by-law provisions may tend to inhibit shareholders who do
not have any intention of controlling Holdings or its Board of Directors from
participating in the nomination process; such provisions may also provide
sufficient time for Holdings to institute litigation or take other steps to
prevent the nominee from being elected or serving if such prevention is thought
to be necessary or desirable.

"Blank-Check" Preferred Stock. Holdings' certificate of incorporation
will authorize the issuance of 50,000,000 shares of Holdings preferred stock. In
addition, after giving effect to the share exchange, approximately 113 million
shares of Holdings common stock will be authorized but unissued and not reserved
for issuance. An effect of the existence of unissued Holdings common stock and
preferred stock may be to enable the Holdings Board of Directors to render more
difficult or discourage a transaction to obtain control of Holdings. Such shares
might be issued by the Board of Directors without shareholder approval in
transactions that might prevent or render more difficult or costly the
completion of a takeover transaction, as by diluting voting or other rights of
the proposed acquiror. In this regard, Holdings' certificate of incorporation
(as does Niagara Mohawk's) will grant the Board of Directors broad power to
establish the rights and preferences of the authorized and unissued preferred
stock, one or more classes or series of which could be issued entitling holders
to vote separately as a class on any proposed merger or consolidation, to
convert such stock into shares of Holdings common stock or possibly other
securities, to demand redemption at a specified price under prescribed
circumstances related to a change of control, or to exercise other rights
designed to impede a takeover.

Section 912 of the New York Business Corporation Law. Section 912 of
the BCL would prohibit a "business combination" (as defined in Section 912,
generally including mergers, sales and leases of assets, issuances of securities
and similar transactions) by Holdings or a subsidiary with an "interested
shareholder" (as defined in Section 912, generally the beneficial owner of 20
percent or more of Holdings' voting stock) within five years after the person or
entity becomes an interested shareholder, unless (i) prior to the person or
entity becoming an interested shareholder, the business combination or the
transaction pursuant to which such person or entity became an interested
shareholder shall have been approved by Holdings' Board of Directors, or (ii)
the business combination is approved by the holders of a majority of the
outstanding voting stock of Holdings, excluding shares held by the interested
shareholder, at a meeting called for such purpose not earlier than five years
after such interested shareholder's stock acquisition date.

Section 70 of the New York Public Service Law. Under Section 70 of the
Public Service Law, unless authorized by the PSC, no gas corporation or electric
corporation may directly or indirectly acquire the stock or bonds of any other
corporation incorporated for, or engaged in, the same or a similar business, or
proposing to operate or operating under a franchise from New York State or any
other state or any other municipality. In general, no stock corporation other
than a gas corporation or electric corporation or street railroad corporation
may purchase or acquire, take or hold, more than ten percent (10%) of the voting
capital stock of any gas corporation or electric corporation organized or
existing under or by virtue of the laws of New York unless with the consent of,
and subject to the terms and conditions set by, the PSC. No consent may be given
by the PSC to any such acquisition unless it has been shown that such
acquisition is in the public interest. Any contract, assignment, transfer or
agreement for transfer of any stock in violation of Section 70 will be void and
of no effect, and no such transfer or assignment may be made upon the books of
any such gas corporation or electric corporation, or will be recognized as
effective for any purpose. An "electric corporation" is defined to generally
include any corporation, company, partnership and person owning, operating or
managing any electric plant for use by others than itself and its tenants, or
except where

<PAGE>

electricity is generated solely from co-generation, small buyers or alternative
energy production facilities or distributed from such facilities to users
located near such a facility.

Other Provisions. Some other provisions of Holdings' certificate of
incorporation and by-laws may also tend to discourage potential offers to take
over and acquire the business of Holdings. Holdings' Board of Directors will be
divided into three classes, with directors in each class generally being elected
to serve a three-year term. Also, special shareholder meetings may be called
only by the chairman of the Board of Directors or by the Board pursuant to a
resolution adopted by a majority of the entire Board. Holdings' certificate of
incorporation also provides that directors may not be removed without cause by
the shareholders, except in the case of a director elected by the holders of any
class or series of stock (other than Holdings common stock), voting as a class
or series, when so entitled by the applicable provisions of Holdings'
certificate of incorporation. Finally, certain provisions (relating to, for
example, limitation on director liabilities, the ability to call special
meetings of shareholders, presiding at meetings of shareholders, classified
Board of Directors, election and removal of directors, advance notice
requirements for shareholder proposals and nomination of directors at
shareholder meetings, and indemnification) may only be amended by the
affirmative vote of not less than two-thirds of the shares entitled to vote at a
shareholder meeting or, with respect to By-Law amendments effecting such
provisions, two-thirds of the entire Board. Niagara Mohawk's Certificate of
Incorporation and By-Laws presently contain a number of these provisions.

COMPARATIVE SHAREHOLDERS' RIGHTS

Niagara Mohawk and Holdings are both New York corporations. When the
share exchange becomes effective, holders of Niagara Mohawk Common Stock will
become holders of Holdings common stock, and their rights will be governed by
Holdings' certificate of incorporation and by-laws instead of those of Niagara
Mohawk.

Certain differences between the rights of holders of Holdings common
stock and those of holders of Niagara Mohawk Common Stock are summarized below.
Such summary is qualified in its entirety by reference to the information
included in the exhibits hereto, in exhibits to the Registration Statement of
which this Prospectus/Proxy Statement is a part, and in materials incorporated
herein by reference.

Voting Requirements for Significant Transactions. As a result of a
recent change in the BCL, the necessary vote for significant transactions
involving Holdings, such as mergers, consolidations, share exchanges and
dissolution, will be a majority vote, rather than the two-thirds vote applicable
to Niagara Mohawk. The Board of Directors believes this lower vote requirement
will facilitate any transactions deemed to be in the best interests of Holdings
and its shareholders.

Purpose Clause. The corporate purposes for which Niagara Mohawk may
engage in business are generally those related to rendering electric or gas
service and related activities. Holdings is authorized to engage in any and all
lawful acts and activities.

Authorized Shares. Authorized Holdings and Niagara Mohawk common stock
is 300,000,000 and 185,000,000, subject to increase to 250,000,000 shares if
Proposal 3 is adopted, shares, respectively. As of the record date for the
Annual Meeting, there were 144,419,351 shares of Niagara Mohawk Common Stock
issued and outstanding. Up to approximately 187 million shares of Holdings
common stock may be issued in the share exchange. The additional authorized but
unissued shares of Holdings common stock will be available for issuance under
the Dividend Reinvestment and Stock Purchase Plan and the Option Plan, as well
as possibly for stock splits, stock dividends, equity financings, and for other
general corporate purposes (including, possibly, acquisitions) (none of which is
under current consideration).

<PAGE>

In addition, as of the record date, there were 3,400,000 shares of
Cumulative Preferred Stock, par value $100 per share, of which 2,322,000 shares
were issued and outstanding, and 19,600,000 shares of Cumulative Preferred
Stock, par value $25 per share, of which 11,681,204 shares were issued and
outstanding. There will be 50,000,000 authorized shares of Holdings preferred
stock, all of which are unissued.

Preferred Stock. The respective Boards of Directors of Holdings and
Niagara Mohawk are authorized to issue preferred stock in series.

The voting rights and certain preferences of the Niagara Mohawk
preferred stock are determined in Niagara Mohawk's certificate of incorporation.
Niagara Mohawk preferred stock is generally not entitled to vote but only has
limited voting rights as required by law and as set out in the Niagara Mohawk's
certificate of incorporation, which rights generally arise only in the event of
certain arrearages in payment of dividends and certain corporate transactions
affecting Niagara Mohawk preferred stock. Niagara Mohawk preferred stock is
subject to redemption and sinking fund provisions. After the share exchange,
outstanding Niagara Mohawk preferred stock will continue as equity securities of
Niagara Mohawk with the same preferences, designations, relative rights,
privileges and powers, and subject to the same restrictions, limitations and
qualifications, as were applicable to outstanding Niagara Mohawk preferred stock
prior to the share exchange.

Holdings' certificate of incorporation will not establish voting
rights, preferences or other rights with respect to Holdings preferred stock.
Holdings' Board of Directors is given full authority to establish and designate
each particular series of preferred stock and to fix the rights, preferences and
limitations of each particular series, and the relative rights, preferences and
limitations between series, as follows: (i) the serial designation; (ii) the
number of shares in such series; (iii) the dividend rate or rates and the date
or dates upon which such dividends shall be payable; (iv) whether dividends on
such series will be cumulative, and, if so, from which date or dates; (v)
liquidation preferences; (vi) provisions relating to sinking or other similar
funds; (vii) provisions relating to the conversion or exchange of shares of such
series into shares of any class of stock (except that conversion or exchange may
not be made into shares having superior dividend or liquidation preferences);
(viii) the voting rights, if any, in addition to those required by law and the
number of votes per share; and (ix) any other relative rights, preferences or
limitations of such series not inconsistent with the Holdings' certificate of
incorporation or with applicable law.

Management believes that the ability to issue Holdings preferred stock
will provide important flexibility to Holdings.

Par Value. The par value of Holdings preferred stock differs from those
of Niagara Mohawk preferred stocks. A designated par value is not required under
the BCL and in modern corporate practice par value does not serve any useful
purpose. It is anticipated that the difference in par values will not affect the
market value of Holdings preferred stock.

The par value per share of Holdings common stock, $0.01, was reduced
from the $1.00 par value per share of Niagara Mohawk Common Stock to save on
filing fees in New York.

Classified Board. As is the case with Niagara Mohawk, Holdings'
certificate of incorporation and by-laws will provide (i) for the Board to
determine the number of directors; and (ii) for the division of the Board into
three classes with directors in each class generally being elected for a
three-year term. See "--Management" below.

<PAGE>

Other Provisions. Holdings' certificate of incorporation will provide
that directors may not be removed without cause by the shareholders, except in
the case of a director elected by the holders of any class or series of stock
(other than Holdings common stock), voting as a class or series, when so
entitled by the applicable provisions of Holdings' restated certificate of
incorporation. Also, certain provisions (relating to, for example, preferred
stock, limitation on director liabilities, the ability to call special meetings
of shareholders, classified Board of Directors, election and removal of
directors, advance notice requirements for shareholder proposals and nomination
of directors at shareholder meetings) may only be amended by the affirmative
vote of not less than two-thirds of the shares then entitled to vote at
shareholder meetings. Other provisions of Holdings' certificate of incorporation
or by-laws may be amended, repealed or adopted by a vote of the shareholders of
Holdings at the time entitled to vote at any shareholder meeting or, in the case
of the Holdings by-laws, by the Board of Directors of Holdings.

See also "--Holdings Capital Stock".

BUSINESS

Niagara Mohawk is engaged in the generation, purchase, transmission,
distribution and sale of electricity and the purchase, distribution, sale and
transportation of natural gas in New York State. Niagara Mohawk provides
electric service to its customers in areas of central, northern and western New
York having a total population of approximately 3.5 million, including the
cities of Buffalo, Syracuse, Albany, Utica, Schenectady, Niagara Falls,
Watertown and Troy. Niagara Mohawk sells, distributes and transports natural gas
in areas of central, northern and eastern New York contained within its electric
service territory having a total population of approximable 1.7 million. Niagara
Mohawk owns or has a significant ownership interest in seven principal fossil
and nuclear electric generating facilities providing it with a total capacity of
approximately 5,299 megawatts of electricity.

Niagara Mohawk's principal non-utility subsidiaries participate in real
estate development of property formerly owned by Niagara Mohawk and
energy-related services. In addition, Niagara Mohawk holds a single-purpose
subsidiary established to facilitate the sale of an undivided interest in a
designated pool of customer receivables. Certain of these subsidiaries will be
transferred to and therefor become separate subsidiaries of Holdings after the
share exchange.

After the share exchange occurs, Holdings will have no material assets
other than its ownership of stock of its subsidiaries, which initially will
consist of all of Niagara Mohawk's outstanding common stock and thereafter the
common stock of certain Niagara Mohawk's existing non-utility subsidiaries. See
"--Transfer of Niagara Mohawk's Non-Utility Subsidiaries to Holdings". It is
expected that, in the future, Holdings will expand into some other businesses
and ventures.

REGULATION OF HOLDINGS AND NIAGARA MOHAWK

Regulation of Holdings. Holdings must comply with the PowerChoice
Agreement. As discussed and referred to above under "--The PowerChoice
Agreement", there are restrictions on transactions between Niagara Mohawk and
Holdings and other Holdings subsidiaries, restrictions on loans, guarantees or
pledges for the benefit of Holdings and other Holdings subsidiaries, and
restrictions on Board and managerial interlocks between Niagara Mohawk and
Holdings and other Holdings subsidiaries.

<PAGE>

As a result of the share exchange, Holdings will become a "public
utility holding company" under the Holding Company Act. Though Niagara Mohawk
expects to sell or liquidate its majority interests in two of its generation
subsidiaries, Beebee Island Corporation and Moreau Manufacturing Corporation,
Holdings will retain an indirect 50% interest in CNP which does not contribute a
material part of its income.

In 1994 the SEC issued a release soliciting the views of interested
parties on a study being conducted by its staff to develop recommendations
regarding certain Congressional concerns and the needs of those affected by
regulation under the Holding Company Act. In June 1995 the staff completed its
study and issued a report which concluded that significant changes were needed
in the current regulatory scheme. The SEC staff report viewed the Holding
Company Act as unnecessarily restrictive in many regards which could prevent
companies from responding effectively to changes now occurring in the utility
industry. Among the staff report's recommendations were three legislative
options for the SEC to offer to Congress--repeal of the Holding Company Act with
legislation to continue federal protection of consumers, unconditional repeal of
the Holding Company Act, or a broadening of the SEC's authority to exempt
holding companies where state regulation was adequate. Pending legislative
action, the staff report recommended that the SEC act administratively to
modernize and simplify holding company regulation, reduce delays in current
administration, and minimize regulatory overlap, including rulemaking proposals
and significant changes in the SEC's past interpretations under the Act. One of
these proposals was a rule to exempt most energy-related diversification within
investment limitations. Niagara Mohawk cannot predict whether Congress will take
any action to significantly modify or repeal the Holding Company Act, or whether
the SEC will take action to revise or modify significantly its Holding Company
Act rules, decisions and interpretations.

Regulation of Niagara Mohawk. Niagara Mohawk will continue to be
subject to regulation by the PSC after the share exchange. Niagara Mohawk's
utility retail sales, which include sales of gas, transportation and balancing
services, will continue to be made primarily under rate schedules and tariffs
filed with and subject to the jurisdiction of the PSC. See "--The PowerChoice
Agreement" below. In addition, Niagara Mohawk will continue to be subject to
regulation by the PSC, as it has been in the past, regarding issuances of
securities, capital ratio maintenance, and the maintenance of its books and
records.

Niagara Mohawk also will continue to be subject to regulation by the
FERC and the NRC. FERC will continue to regulate the terms and conditions of
Niagara Mohawk's transmission of electricity, along with transmission
interconnections and ancillary services, as well as the terms and conditions of
its sales of electric energy for resale. FERC will also continue to regulate
Niagara Mohawk's disposition of any capacity on interstate gas pipelines to
which it has rights under firm contracts. The NRC will continue to review and
regulate Niagara Mohawk's operation of the two Nine Mile Point nuclear units.

THE POWERCHOICE AGREEMENT

Prohibitions of Affiliate Loans, Guarantees and Pledges. Under the
PowerChoice Agreement, Niagara Mohawk is prohibited from making loans to, or
providing guarantees or other credit support for the obligations of, Holdings or
any other subsidiary of Holdings. Likewise, Niagara Mohawk may not pledge its
assets for the obligations of any other entity, including Holdings or any other
subsidiary of Holdings.

Prohibitions of Affiliate Transactions and Other Restrictions. The
PowerChoice Agreement generally prohibits any transaction between Niagara Mohawk
and Holdings or any other subsidiary of Holdings, except for the provision of
certain corporate administrative services, certain "grandfathered" transactions
as listed therein, transactions permitted as a matter of generic policy by the
PSC, and tariffed transactions. In addition, Holdings and its subsidiaries are
required by the PowerChoice Agreement to

<PAGE>

operate as separate entities, and the PowerChoice Agreement prescribes capital
ratio maintenance requirements for Niagara Mohawk. Finally, the PowerChoice
Agreement sets out guidelines for the allocation of costs among Holdings,
Niagara Mohawk and the other subsidiaries of Holdings.

Restrictions on Board and Management Interlocks. In order to address
concerns regarding the possible diversion of the attention of Niagara Mohawk's
management away from the utility business, as well as to avoid potential
conflicts of interest with the management of Holdings, the PowerChoice Agreement
contains restrictions regarding the composition of the Boards and managements of
Niagara Mohawk and Holdings and other subsidiaries of Holdings. See
"--Management--Restrictions on Board and Management Interlocks between Holdings
and Niagara Mohawk".

On March 20, 1998, the Company received written approval from the PSC
for the PowerChoice Agreement which establishes a five-year rate plan and
incorporates the terms of the MRA. The key elements of the PowerChoice Agreement
include: (i) a revenue reduction of $112 million (exclusive of reductions in the
New York State Gross Receipts Tax) for all customer classes to be phased-in over
three years beginning upon the consummation of the MRA; (ii) a cap on prices to
electric customers in years four and five of the five year term; (iii) an
allowance for the Company to recover stranded costs (including the costs
associated with the MRA); (iv) the permission to establish the MRA Regulatory
Asset, reflecting the costs of the MRA which will be amortized over a maximum of
ten years; (v) an agreement by the Company to divest its fossil and hydro
electric generating facilities within a defined time period and retain its
nuclear generating facilities with a commitment to explore their divestiture at
a later date and (vi) an agreement by the Company to provide its retail electric
customers with the option to choose their supplier of electricity by no later
than December 1999. See "Proposal 2: The PowerChoice Agreement."

The PowerChoice Agreement will continue to govern Niagara Mohawk's
utility rates and charges even if common shareholders do not approve the holding
company proposal and adopt the Exchange Agreement at Niagara Mohawk's Annual
Meeting. In that event, Niagara Mohawk will not be able to realize the benefits
it expects from a holding company structure, which it believes is necessary in
the future deregulated competitive environment of the energy industry.

STATUTORY APPRAISAL RIGHTS

Holders of shares of Niagara Mohawk Common Stock are not entitled to
appraisal rights under the BCL as a result of the exchange.

B. MANAGEMENT

DIRECTORS AND OFFICERS OF HOLDINGS

Holdings' certificate of incorporation and by-laws divides Holdings'
Board of Directors into three classes of three directors each, which will become
effective prior to the share exchange, with directors in each class generally
being elected for a three-year term. Holdings' by-laws will permit the Board of
Directors to fix from time to time the number of directors, and the Board has
fixed its initial size at 3, to be increased to 14, effective as of the
effective time of the share exchange. A vote in favor of the share exchange will
also constitute ratification of the make-up of Holdings' Board of Directors.

Presently William E. Davis, Albert J. Budney, Jr. and Wiliam F. Edwards
are the directors of Holdings.

<PAGE>

Immediately prior to the effective time of the share exchange, Mr. Edwards will
resign and Niagara Mohawk, as such sole shareholder, will elect all of the then
current Niagara Mohawk directors to the Board of Holdings in the same classes as
they presently serve. As of the effective time of the share exchange, Messrs.
Davis and Budney will serve on the Boards of Directors of both Holdings and
Niagara Mohawk and the remaining Niagara Mohawk directors will be _______,
_______ and ____________. After completion of the share exchange, Holdings'
Board vacancies may be filled by action of Holdings' Board of Directors.
Holdings also contemplates amending the certificate of incorporation and by-laws
of Niagara Mohawk following the share exchange to reflect more appropriate
provisions for a subsidiary.

The following individuals are officers of Holdings:

William E. Davis Chairman and Chief Executive Officer

Albert J. Budney, Jr. President

William F. Edwards Chief Financial Officer

Kapua A. Rice Secretary

In addition, prior to the share exchange, Gary J. Lavine will become
Chief Legal Officer, and Steven W. Tasker will become Chief Accounting Officer.

For further information concerning persons to become directors or
officers of Holdings, see "Proposal 1: Nomination and Election of
Directors--Nominees for Class I Directors", "--Continuing Class II Directors",
"--Continuing Class III Directors" and "--Security Ownership of Directors and
Executive Officers".

RESTRICTIONS ON BOARD AND MANAGEMENT INTERLOCKS BETWEEN HOLDINGS AND
NIAGARA MOHAWK

In order to address concerns regarding the possible diversion of the
attention of Niagara Mohawk's management away from the utility business, as well
as to avoid potential conflicts of interest with the Board and management of
Holdings, the PowerChoice Agreement sets forth the following restrictions
regarding the composition of the managements of Niagara Mohawk and Holdings.

Composition of the Boards of Directors. Niagara Mohawk's Board of
Directors must include at least a majority of outside directors (i.e.,
individuals not employed by Niagara Mohawk, Holdings or any of their unregulated
affiliates).

Separation of Employees and Officers. Niagara Mohawk and the
unregulated subsidiaries of holdings will have separate operating employees and
operating officers. Officers of Holdings may be officers of either Niagara
Mohawk or an unregulated affiliate.

C. OTHER INFORMATION

VALIDITY OF HOLDINGS COMMON STOCK

The validity of the shares of Holdings common stock to be issued in the
share exchange will be passed upon by Sullivan & Cromwell, general counsel to
Niagara Mohawk and Holdings, 125 Broad Street, New York, New York 10004.

<PAGE>

EXPERTS

The consolidated financial statements incorporated by reference herein
have been audited by Price Waterhouse LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

COSTS

The Board of Directors considered the financial cost to Niagara Mohawk
of implementing the share exchange, including the expenses associated with
obtaining required approvals, the costs of this proxy solicitation and the other
expenses incurred in connection with registering the Holdings common stock with
the Commission. In the Board's view, these expenses, although in some cases
significant, are acceptable in light of the benefits to Niagara Mohawk of the
share exchange.

---------------------------

NIAGARA MOHAWK'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
HOLDING COMPANY STRUCTURE AND ADOPTED THE EXCHANGE AGREEMENT, BELIEVES THE
HOLDING COMPANY STRUCTURE AND THE SHARE EXCHANGE TO BE IN THE BEST INTERESTS OF
NIAGARA MOHAWK AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE HOLDERS OF NIAGARA
MOHAWK COMMON STOCK VOTE "FOR" THE HOLDING COMPANY PROPOSAL AND ADOPTION OF THE
EXCHANGE AGREEMENT AT THE ANNUAL MEETING.

<PAGE>

- -------------------------------------------------------------------------------
PROPOSAL 5: SHAREHOLDER PROPOSAL RELATED TO THE CERES PRINCIPLES
- -------------------------------------------------------------------------------

The Benedictine Sisters, 3120 W. Ashby, San Antonio, Texas 78228, who
own 205 shares of the Company's common stock have advised the Company that they
intend to present the following proposal at the 1998 Annual Meeting of
Shareholders. The proposed resolution and supporting statement are as follows:

"WHEREAS WE BELIEVE: Responsible implementation of a sound, credible
environmental policy increases long-term shareholder value by raising
efficiency, decreasing clean-up costs, reducing litigation, and enhancing public
image and product attractiveness;

Adherence to public standards for environmental performance gives a
company greater public credibility than standards created by industry alone. For
maximum credibility and usefulness, such standards should specifically meet the
concerns of investors and other stakeholders;

Companies are increasingly being expected by investors to do
meaningful, regular, comprehensive and impartial environmental reports.
Standardized environmental reports enable investors to compare performance over
time. They also attract investment from investors seeking companies which are
environmentally responsible and which minimize risk of environmental liability.

WHEREAS: The Coalition for Environmentally Responsible Economies
(CERES) -- which includes shareholders of this Company; public interest
representatives, and environmental experts --consulted with corporations to
produce the CERES Principles as comprehensive public standards for both
environmental performance and reporting. Scores of companies, including Bank
America, Baxter International, Bethlehem Steel, General Motors, H.B. Fuller, ITT
Industries, Pennsylvania Power and Light, Polaroid, and Sun [Sunoco], have
endorsed these principles to demonstrate their commitment to public
environmental accountability and standardized reporting. Fortune-500 endorsers
say that benefits of working with CERES are *public credibility; *direct access
to major environmental and shareholder organizations, *leadership in designing
the rapidly advancing standardization of environmental disclosure, and
*measurable value-added for the company's environmental initiatives;

A company endorsing the CERES Principles commits to work toward:

1. Protection of the biosphere
2. Sustainable natural resource use
3. Waste reduction and disposal
4. Energy conservation
5. Risk reduction
6. Safe products/services
7. Environmental restoration
8. Informing the public
9. Management commitment
10. Audits and reports

(Materials on the CERES Principles and CERES Report Form are obtainable
from CERES, 711 Atlantic Avenue, Boston, MA 02110, tel: 617/482-2028).

<PAGE>

CERES is distinguished from other initiatives for corporate
environmental responsibility, in being (1) a successful model of shareholder
relations; (2) a leader in public accountability through standardized
environmental reporting; and (3) a catalyst for significant and measurable
environmental improvement within firms.

RESOLVED: Shareholders request the Company to endorse the CERES
Principles as a part of its commitment to be publicly accountable for its
environmental impact."

STATEMENT OF SHAREHOLDERS

"Many investors support this resolution. Those sponsoring similar
resolutions at various companies have portfolios totaling $75 billion.
Furthermore, the number of public pension funds and foundations supporting this
resolution increases every year. We believe the CERES Principles exceed the
European Community regulation for voluntary participation in verified and
publicly-reported eco-management and auditing, and that they also exceed the
requirements for ISO 14000.

Your vote FOR this resolution will encourage both scrutiny of our
Company's environmental policies and reports and adherence to standards
supported by management and shareholders alike. We believe the CERES Principles
will protect both your investment and your environment."

BOARD OF DIRECTORS' RESPONSES TO THE SHAREHOLDER PROPOSAL

In 1991, the Company adopted a Corporate Policy on Protection of the
Environment which articulates the Company's proactive approach toward
environmental issues. The environmental policy takes the Company beyond mere
compliance with the law. In addition, its comprehensive environmental management
system has helped the Company stay in the forefront of progress toward an
environmentally sustainable energy future.

Since adopting its policy in 1991, the Company has comprehensively
measured and reported on its environmental performance and has engaged in
benchmarking its environmental program against corporate programs both within
and outside of the utility industry. Such benchmarking has consistently shown
that the Company has a leading-edge environmental program. In addition, the
Company has been recognized by a number of governmental and environmental
organizations for its environmental achievements, including its proactive
response to global warming, its leadership in establishing environmental
performance indices for the utility industry, and other advanced environmental
management practices.

Consistent with its policy of going beyond compliance, during 1997 the
Company became the first utility in the U.S. to voluntarily undertake and
achieve full certification of all its fossil and nuclear generating plants with
the newly adopted International Standard for Corporate Environmental Management
known as ISO 14001. The certification process included a rigorous independent
audit which assessed the generating plants' full conformance to the Standard,
including effective implementation of the Company's environmental policies,
pollution prevention, performance measurement, and other "best practices".

Given its track record of dealing successfully with environmental
issues under its own Corporate policy, the Company carefully reviewed the CERES
Principles and does not believe that adopting the CERES Principles in lieu of or
in addition to the Corporation's existing environmental policy and programs
would help the Company better fulfill its continuing commitment to environmental
excellence.

<PAGE>

The Company believes that its environmental program provides the most specific
and focused approach to ensure that the Company is in compliance with all
applicable environmental regulations and to position itself as a recognized
leader for its environmental achievements.

THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS
PROPOSAL.

- -------------------------------------------------------------------------------
PROPOSAL 6: SHAREHOLDER PROPOSAL RELATED TO EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------

Edward S. George, 89 Corning Hill, Glenmont, New York 12077, who owns
5,000 shares of the Company's Common Stock, has advised the Company that he
intends to present the following proposal at the 1998 Annual Meeting of
Shareholders:

"Whereas the dividend is the first casualty in any economic downturn
and the stockholder is the first casualty and the last to benefit from an
upturn, be it

Resolved: That when a dividend is cut, it is recommended that, with
respect to future contract obligations, no salaries will be increased or any
stock options allowed to executives or directors until the dividend is restored
to its original amount before the cut."

STATEMENT OF SHAREHOLDER

"The bullet must be large enough to enable the executives and directors
as well as the stockholders to get their teeth on it.

The administration will maintain that the increases in salary and stock
options are necessary to attract and hold good people. This cliche belongs with
the one 'The check is in the mail', the New York State Legislature and certain
elected officials to justify an increase in their salaries, and I'm from the
government and I'm here to help."

BOARD OF DIRECTORS' RESPONSE TO THE SHAREHOLDER PROPOSAL

As previously stated in the Company's 1997 proxy statement, the
suspension of dividend payments on the common stock was taken to help stabilize
the Corporation's financial condition and provide flexibility as the Company
addresses growing pressure from the PPAs and weaker sales. While we recognize
the unfavorable effect it has had on our shareholders, the Company believes that
the shareholders' long-term financial interests would not be served by basing
compensation decisions on dividend payment levels.

The Company and the Compensation and Succession Committee of the Board
of Directors have made decisions regarding the compensation of officers and
other employees which we believe are appropriate to the circumstances the
Corporation faces. The Compensation and Succession Committee's Report on
Executive Compensation, which appears earlier in this Proxy Statement, describes
the decisions that have been made regarding the structure and administration of
the officer compensation program, including a freeze on salary increases during
1996 and 1997. These decisions will ensure the Company's ability to maintain a
group of qualified officers, in an increasingly competitive industry, and will
directly relate the payment of a significant component of their total
compensation to the future value of our stock and

<PAGE>

our shareholders' investment. Adoption of a rigid, inflexible rule like that
proposed by Dr. George could harm the stockholders by making retention of
qualified executives difficult, if not impossible.

THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS
PROPOSAL.

Other Matters
- --------------------------------------------------------------------------------

Management does not know of any matters to be presented for action at
the Annual Meeting other than those listed in the Notice of Meeting and referred
to herein. If any other matters properly come before the Annual Meeting, it is
intended that the proxy solicited hereby will be voted in accordance with the
recommendations of the Board of Directors.

SHAREHOLDERS WHO CANNOT BE PRESENT AT THE ANNUAL MEETING ARE REQUIRED
TO FILL OUT, DATE, SIGN AND PROMPTLY RETURN THE ACCOMPANYING FORM OF PROXY IN
THE ENCLOSED ENVELOPE.

DEADLINE FOR SHAREHOLDER PROPOSALS

In order to be included in Holdings' proxy statement and form of proxy
relating to its 1999 Annual Meeting (if common shareholders adopt the Exchange
Agreement and the share exchange occurs) or in Niagara Mohawk's 1999 Annual
Meeting proxy statement and form of proxy (if the Exchange Agreement is not
adopted by common shareholders), proposals from shareholders to be presented at
the 1999 Annual Meeting must be received by the Secretary of Holdings or Niagara
Mohawk, as the case may be, at 300 Erie Boulevard West, Syracuse, New York
13202, no later than December 9, 1998.

Matters intended to be presented by holders of Holdings or Niagara
Mohawk Common Stock, as the case may be, at the 1998 Annual Meeting must be
stated in writing, and delivered to the appropriate Secretary by such
shareholders during the period between 90 and 60 days prior to the date of the
meeting.

If Niagara Mohawk common shareholders adopt the Exchange Agreement and
the share exchange occurs, Niagara Mohawk will no longer be publicly held and
Holdings will be the sole owner of Niagara Mohawk Common Stock after the share
exchange. In such event, there will be no regularly scheduled meetings of
shareholders of Niagara Mohawk in 1999 or thereafter.

ADDITIONAL INFORMATION

Niagara Mohawk's annual report on Form 10-K to the SEC, which includes
additional information concerning Niagara Mohawk, its subsidiaries and their
operations and financial condition, is incorporated by reference in this
Prospectus/Proxy Statement. This report, except for exhibits, will be furnished
at no cost to shareholders upon written request to the Secretary, The Niagara
Mohawk Power Corporation, 300 Erie Boulevard West, Syracuse, New York 13202.

The directors and officers of the Company and its subsidiaries are
insured against obligations which may be incurred as a result of the Company's
indemnification of its directors and officers. The coverage also insures the
directors and officers against liabilities for which they may not be indemnified
by the Company or its subsidiaries, except a dishonest act or breach of trust.
The insurance was purchased from the National Union Fire Insurance Company,
Associated Electric & Gas Insurance Services, Ltd., Aetna Casualty and Surety
Company, Federal Insurance Company, CNA Insurance Company and ACE Insurance

<PAGE>

Company, Ltd. for the term from January 31, 1998 to January 30, 1999 for an
aggregate premium of $1,169,480.

INDEPENDENT ACCOUNTANTS

The Company has selected the independent accounting firm of Price
Waterhouse LLP to examine the financial statements of the Company and its
subsidiaries for the year ended December 31, 1998. Representatives of Price
Waterhouse LLP will be present at the meeting with the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.

QUARTERLY REPORTS

Shareholders who are not receiving quarterly reports directly from the
Company and who would like to receive the Company's quarterly reports may write
to Investor Relations, Niagara Mohawk Power Corporation, 300 Erie Boulevard
West, Building C-3, Syracuse, New York 13202-7904 to be included on the
Company's mailing list.

WHERE YOU CAN FIND MORE INFORMATION

Niagara Mohawk files annual, quarterly and special reports, proxy
statements and other information with the SEC. After the share exchange, both
Niagara Mohawk and Holdings will do so. You may read and copy any reports,
statements or other information Niagara Mohawk has filed or Holdings will file
at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549 and at public reference rooms in New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the Internet web site maintained
by the SEC at "http://www.sec.gov."

Holdings has filed a Registration Statement on Form S-4 to register
with the SEC the shares of Holdings common stock to be issued in the share
exchange. This Prospectus/Proxy Statement is a part of that Registration
Statement and constitutes a prospectus of Holdings in addition to being a proxy
statement of Niagara Mohawk for the Annual Meeting. As permitted by SEC rules,
this Prospectus/Proxy Statement does not contain all the information you can
find in the Registration Statement or in its exhibits.

The SEC allows us to "incorporate by reference" information into this
Prospectus/Proxy Statement, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Prospectus/Proxy Statement, except for any information superseded by information
in this Prospectus/Proxy Statement. This Prospectus/Proxy Statement incorporates
by reference the document set forth below that was previously filed with the SEC
(File No. 1-2987). Such document contains important information about Niagara
Mohawk, its subsidiaries and their operations and financial condition.

<PAGE>

1. Annual Report on Form 10-K for the year ended December 31, 1997.

We are also incorporating by reference additional documents that we may
file with the SEC between the date of this Prospectus/Proxy Statement and the
Annual Meeting.

---------------------------

Niagara Mohawk has not authorized anyone to provide you with
information that is different from what is contained in this Prospectus/Proxy
Statement. Neither the delivery of this Prospectus/Proxy Statement nor any
distribution of shares of Holdings common stock shall, under any circumstances,
create any implication that there has not been any change in the affairs of
Niagara Mohawk or Holdings since the respective dates as of which information is
given. This Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy shares of Holdings common stock by any person in
any jurisdiction or in any circumstance in which such offer would be unlawful.

<PAGE>

EXHIBIT A

AGREEMENT AND PLAN OF EXCHANGE

This AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated as of
April __, 1998, is between Niagara Mohawk Power Corporation, a New York
corporation and the corporation whose shares of Common Stock, par value $1.00
per share, will be acquired pursuant to the "Exchange" provided for in this
Agreement (the "Subject Corporation"), and Niagara Mohawk Holdings, Inc., a New
York corporation and the corporation which will acquire the foregoing shares of
Common Stock of the Subject Corporation (the "Acquiring Corporation"). The
Subject Corporation and the Acquiring Corporation are hereinafter referred to,
collectively, as the "Corporations".

WITNESSETH:

WHEREAS, the authorized capital of the Subject Corporation is
$1,215,000,000, consisting of (a) 185,000,000 shares of Common Stock, par value
$1.00 per share ("Subject Corporation Common Stock"), of which 144,419,351
shares are issued and outstanding (which number of issued and outstanding shares
is subject to change prior to the Effective Time (as hereinafter defined) of the
Exchange pursuant to the Dividend Reinvestment and Common Stock Purchase Plan
("DRIP") and the Employee Savings Fund Plans for Represented and Non-Represented
Employees (each an "Employee Plan" and collectively the "Employee Plans") of the
Subject Corporation, (b) 3,400,000 shares of Cumulative Preferred Stock, par
value $100 per share ("Subject Corporation $100 Preferred Stock"), of which
2,322,000 shares are issued and outstanding, (c) 19,600,000 shares of Cumulative
Preferred Stock, par value $25 per share ("Subject Corporation $25 Preferred
Stock"), of which 11,681,204 shares are issued and outstanding and (d) 8,000,000
shares of Preference Stock, par value $25 per share ("Preference Stock"), no
shares of which are outstanding.

WHEREAS, the Acquiring Corporation is a wholly-owned subsidiary of the
Subject Corporation with authorized capital stock consisting of 300,000,000
shares of Common Stock, par value $0.01 per share ("Acquiring Corporation Common
Stock"), of which 100 shares are issued and outstanding and owned by the Subject
Corporation;

WHEREAS, the Boards of Directors of the Corporations deem it desirable
and in the best interests of the Corporations and the shareholders of the
Subject Corporation that, at the Effective Time, (a) the Acquiring Corporation
acquire and become the owner and holder of each share of Subject Corporation
Common Stock issued and outstanding at the Effective Time, (b) each share of
Subject Corporation Common Stock issued and outstanding immediately prior to the
Effective Time be automatically exchanged for one share of Acquiring Corporation
Common Stock, and (c) each holder of shares of Subject Corporation Common Stock
issued and outstanding immediately prior to the Effective Time becomes the
holder of a like number of shares of Acquiring Corporation Common Stock, all on
the terms and conditions hereinafter set forth; and

WHEREAS, the Boards of Directors of the Corporations have each approved
and adopted this Agreement, and the Board of Directors of the Subject
Corporation has recommended that the shareholders of the Subject Corporation
approve and adopt the Exchange and this Agreement pursuant to Section 913 of the
New York Business Corporation Law (the "BCL").

A-1

<PAGE>

NOW, THEREFORE, the Corporations hereby agree as follows:

ARTICLE I

The Exchange and this Agreement shall be submitted to the holders of
Subject Corporation Common Stock for approval and adoption as provided by
Section 913 of the BCL. The affirmative vote of the holders of at least
two-thirds of the issued and outstanding Subject Corporation Common Stock shall
be necessary to approve and adopt the Exchange and this Agreement.

ARTICLE II

Subject to the terms and conditions of this Agreement, the Exchange
shall become effective immediately following the close of business on the date
of filing with the New York Department of State (the "Department of State") of a
certificate of exchange pursuant to Section 913(d) of the BCL ("Certificate"),
or at such later time and date as may be stated in the Certificate (the time and
date at and on which the Exchange becomes effective being referred to herein as
the "Effective Time").

ARTICLE III

A. At the Effective Time:

(1) each share of Subject Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be automatically
exchanged for one share of Acquiring Corporation Common Stock, which shares
shall be fully paid and nonassessable by the Acquiring Corporation;

(2) the Acquiring Corporation shall acquire and become the owner and
holder of each issued and outstanding share of Subject Corporation Common
Stock so exchanged;

(3) each share of Acquiring Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled and
shall thereupon constitute an authorized and unissued share of Acquiring
Corporation Common Stock;

(4) each share of Subject Corporation Common Stock held under the DRIP
or an Employee Plan (including fractional and uncertificated shares)
immediately prior to the Effective Time shall be automatically exchanged
for a like number of shares (including fractional and uncertificated
shares) of Acquiring Corporation Common Stock, which shares shall be held
under and pursuant to the DRIP or be issued under such Employee Plan, as
the case may be, as hereinafter provided;

(5) each unexpired and unexercised option to purchase Subject
Corporation Common Stock ("Subject Corporation Stock Option") under the
1992 Stock Option Plan (the "Option Plan"), whether vested or unvested,
will be automatically converted into an option (a "Substitute Option") to
purchase a number of shares of Acquiring Corporation Common Stock equal to
the number of shares of Subject Corporation Common Stock that could have
been purchased immediately prior to the Effective Time (assuming full
vesting) under such Subject Corporation Stock Option, at a price per share
of Acquiring Corporation Common Stock equal to the per share option
exercise price specified in such Subject Corporation Stock Option. In
accordance with Section 424(a) of the

A-2

<PAGE>

Internal Revenue Code of 1986, as amended, each Substitute Option shall
provide the option holder with rights and benefits that are no less and no
more favorable to him than were provided under the Subject Corporation
Stock Option; and

(6) the former holders of Subject Corporation Common Stock shall be
entitled only to receive shares of Acquiring Corporation Common Stock in
exchange therefor as provided in this Agreement.

B. Shares of Subject Corporation $100 Preferred Stock, Subject Corporation
$25 Preferred Stock and Subject Corporation Preference Stock shall not be
exchanged or otherwise affected by or in connection with the Exchange. Each
share of Subject Corporation $100 Preferred Stock issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding following the Exchange and shall continue to be one share of Subject
Corporation $100 Preferred Stock of the applicable series designation. Each
share of Subject Corporation $25 Preferred Stock issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding following the Exchange and shall continue to be one share of Subject
Corporation $25 Preferred Stock of the applicable series designation.

C. As of the Effective Time, the Acquiring Corporation shall succeed to the
DRIP as in effect immediately prior to the Effective Time, and the DRIP shall be
appropriately modified to provide for the issuance or delivery of Acquiring
Corporation Common Stock on and after the Effective Time pursuant thereto.

D. As of the Effective Time, (1) the Employee Plans shall be appropriately
amended to provide for the issuance or delivery of Acquiring Corporation Common
Stock, and the Acquiring Corporation shall agree to issue or deliver Acquiring
Corporation Common Stock, and (2) the Option Plan shall also be appropriately
amended to provide for the issuance of options by the Acquiring Corporation to
purchase Acquiring Corporation Common Stock, in each case on and after the
Effective Time pursuant thereto.

ARTICLE IV

A. The filing of the Certificate with the Department of State and the
consummation of the Exchange shall be subject to satisfaction of the following
conditions at or prior to the Effective Time:

(1) the affirmative vote of the holders of Subject Corporation Common
Stock provided for in Article I of this Agreement shall have been received;

(2) such orders, authorizations, approvals or waivers from the New York
Public Service Commission and all other jurisdictive regulatory bodies,
boards or agencies required to consummate the Exchange and related
transactions shall have been received, shall remain in full force and
effect, and shall not include, in the sole judgment of the Board of
Directors of the Subject Corporation, unacceptable conditions; and

(3) the Acquiring Corporation Common Stock to be issued in connection
with the Exchange shall have been listed, subject to official notice of
issuance, by the New York Stock Exchange.

A-3

<PAGE>

ARTICLE V

Following the Effective Time, each holder of an outstanding certificate
or certificates theretofore representing shares of Subject Corporation Common
Stock may, but shall not be required to, surrender the same to the Acquiring
Corporation's Transfer Agent for cancellation and reissuance of a new
certificate or certificates in such holder's name or for cancellation and
transfer, and each such holder or transferee shall be entitled to receive a
certificate or certificates representing the same number of shares of Acquiring
Corporation Common Stock as the shares of Subject Corporation Common Stock
previously represented by the certificate or certificates surrendered. Until so
surrendered or presented for exchange or transfer, each outstanding certificate
which, immediately prior to the Effective Time, represents Subject Corporation
Common Stock shall be deemed and shall be treated for all purposes to represent
the ownership of the same number of shares of Acquiring Corporation Common Stock
as though such surrender or exchange or transfer had taken place. The holders of
Subject Corporation Common Stock at the Effective Time shall have no right at
and after the Effective Time to have their shares of Subject Corporation Common
Stock transferred on the stock transfer books of the Subject Corporation (such
stock transfer books being deemed closed for this purpose at the Effective
Time), and at and after the Effective Time such stock transfer books may be
deemed to be the stock transfer books of the Acquiring Corporation.

ARTICLE VI

A. This Agreement may be amended, modified or supplemented, or
compliance with any provision hereof may be waived, at any time prior to the
Effective Time (including, without limitation, after receipt of the affirmative
vote of holders of Subject Corporation Common Stock as provided in Article IV(l)
hereof), by the mutual consent of the Boards of Directors of the Subject
Corporation and the Acquiring Corporation at any time prior to the Effective
Time; provided, however, that no such amendment, modification, supplement or
waiver shall be made or effected if such amendment, modification, supplement or
waiver would, in the sole judgment of the Board of Directors of the Subject
Corporation, materially and adversely affect the shareholders of the Subject
Corporation.

B. This Agreement may be terminated and the Exchange and related
transactions abandoned, at any time prior to the Effective Time (including,
without limitation, after receipt of the affirmative vote of holders of Subject
Corporation Common Stock as provided in Article IV(l) hereof), if the Board of
Directors of the Subject Corporation determines, in its sole judgment, that
consummation of the Exchange would for any reason be inadvisable or not in the
best interests of the Subject Corporation or its shareholders.

IN WITNESS WHEREOF, each of the Corporations, pursuant to authorization
and approval given by its Board of Directors, has caused this Agreement to be
executed as of the date first above written.

Niagara Mohawk Power Corporation

By:________________________________

Niagara Mohawk Holdings, Inc.

By:________________________________

A-4

<PAGE>

EXHIBIT B

CERTIFICATE OF INCORPORATION

NIAGARA MOHAWK HOLDINGS, INC.

Under Section 402 of the Business Corporation Law

FIRST. The name of the corporation is Niagara Mohawk Holdings, Inc.
(the "Corporation").

SECOND. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Business
Corporation Law of the State of New York, provided that any act or activity
requiring the consent or approval of any State official, department, board,
agency or other body shall not be engaged in without such consent or approval
first being obtained.

THIRD. The office of the Corporation within the State of New York is to
be located in the City of Syracuse, County of Onondaga.

FOURTH. The aggregate number of shares which the Corporation shall have
authority to issue is (a) three hundred million (300,000,000) shares of common
shares with a par value of $0.01 per share (the "Common Stock") and fifty
million (50,000,000) shares of Preferred Stock, with a par value of $0.01 per
share (the "Preferred Stock").

The designations, relative rights, preferences and limitations of the
shares of such classes of stock are as follows:

A. The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series of Preferred Stock, and the Board of
Directors is expressly authorized, prior to issuance, in the resolution or
resolutions providing for the issue of shares of each particular series, to
establish and designate each particular series and to fix the rights,
preferences and limitations of each particular series, and the relative rights,
preferences and limitations between series, as follows:

(i) The distinctive serial designation of such series which shall
distinguish it from other series;

(ii) The number of shares included in such series, which number
(except where otherwise provided by the Board of Directors in creating
such series) may be increased (but not above the total number of
authorized shares of Preferred Stock) or decreased (but not below the
number of the outstanding shares of such series) from time to time by
the Board of Directors; provided that if the number of shares is
decreased, the shares constituting such decrease shall be restored to
the status of authorized but unissued shares of Preferred Stock;

(iii) The annual or other dividend rate or rates (or method of
determining such rate or rates) for shares of such series and the date
or dates upon which such dividends shall be payable;

B-1

<PAGE>

(iv) Whether dividends on the shares of such series shall be
cumulative, and, in the case of shares of any series having cumulative
dividend rights, the date or dates (or method for determining such date
or dates) from which dividends on the shares of such series shall be
cumulative;

(v) The amount or amounts per share which shall be paid out of the
assets of the Corporation to the holders of the shares of such series
upon voluntary or involuntary liquidation, dissolution, or winding up
of the Corporation;

(vi) The price or prices (cash or otherwise) at which, the period
or periods within which and the terms and conditions upon which, if
any, the shares of such series may be purchased, redeemed or acquired
(by exchange or otherwise), in whole or in part;

(vii) Provision or provisions, if any, for the Corporation to
purchase, redeem or acquire (by exchange or otherwise), in whole or in
part, shares of such series pursuant to a sinking or other similar
fund, and the price or prices (cash or otherwise) at which, the period
or periods within which and the terms and conditions upon which the
shares of such series shall be so purchased, redeemed or acquired, in
whole or in part, pursuant to such provision or provisions;

(viii) The period or periods within which and the terms and
conditions, including the price or prices or the rate or rates of
conversion or exchange and the terms and conditions of any adjustments
thereof, upon which, if any, the shares of such series shall be
convertible or exchangeable, in whole or in part, at the option of the
holder, the Corporation or another person into shares of any class of
stock or into shares of any series of any class or cash, other
property, indebtedness or other securities of the Corporation or
another corporation;

(ix) The voting rights, if any, of the shares of such series in
addition to those required by law, including the number of votes per
share (which may be fractional or more or less than one); and

(x) Any other relative rights, preferences or limitations of the
shares of such series not inconsistent with applicable law.

B. Except as may from time to time be required by law and except as
otherwise may be provided by the Board of Directors in accordance with paragraph
A of this Article 4 in respect of any particular series of Preferred Stock, all
voting rights of the Corporation shall be vested exclusively in the holders of
the Common Stock who shall be entitled to one vote per share on all matters.

FIFTH. The Secretary of State of the State of New York is designated as
agent of the Corporation upon whom process in any action or proceeding against
it may be served. The address to which the Secretary of State shall mail a copy
of any process against the Corporation served upon him is 300 Erie Boulevard
West, Syracuse, New York 13202, Attn: Corporate Secretary.

SIXTH. Subject to the voting provisions of Article 10, By-laws of the
Corporation may be adopted, amended or repealed by the Board of Directors of the
Corporation by the vote of a majority of the directors present at a meeting of
the board at which a quorum is present.

B-2

<PAGE>

SEVENTH. No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any shares of the corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights to subscribe for or purchase such shares, or any securities convertible
into or exchangeable for such shares, which may at any time be issued, sold or
offered for sale by the Corporation.

EIGHTH. Subject to the rights, if any, of holders of any class or
series of Preferred Stock, now or hereafter authorized, special meetings of
shareholders may be called only by the Chairman of the Board or by the Board of
Directors pursuant to resolution adopted by a majority of the total number of
directors which the Corporation would have if there were no vacancies.

NINTH. The following provisions shall relate to the Board of Directors
of the Corporation:

A. The size of the Board of Directors shall be fixed by or pursuant to
the By-Laws. The Board of Directors shall be divided into three classes
designated Class I, Class II and Class III. Such classes shall be as nearly
equal in number as the then total number of directors constituting the entire
Board permits. At the first annual meeting of shareholders, or any special
meeting in lieu thereof, Class I, Class II and Class III directors shall be
elected for terms expiring at the next succeeding annual meeting, the second
succeeding annual meeting and the third succeeding annual meeting, respectively,
and until their respective successors are elected and qualified. At each annual
meeting of shareholders after such first annual (or special) meeting of
shareholders, the directors chosen to succeed those in the class whose terms
then expire shall be elected by shareholders for terms expiring at the third
succeeding annual meeting after election, or for such lesser term for which one
or more may be nominated in a particular case in order to assure that the number
of directors in each class shall be appropriately constituted and until their
respective successors are elected and qualified. Newly created directorships or
any decrease in directorships resulting from increases or decreases in the
number of directors shall be so apportioned among the classes of directors as to
make all the classes as nearly equal in number as possible. Vacancies on the
Board of Directors at any time for any reason except the removal of directors
without cause may be filled by a majority of the directors then in office,
although less than a quorum. If the number of directors is increased by the
Board of Directors and any newly created directorships are filled by the Board,
there shall, to the extent required by New York law, be no classification of the
additional directors until the next annual meeting of shareholders.

Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock, now or hereafter authorized, shall have
the right, voting separately or by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by any
provisions of the Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into one or more classes pursuant to
this Article 9A unless expressly provided by such provisions.

B. Directors may be removed for cause by a vote of shareholders
entitled to vote thereon. Directors shall not be removed without cause by
shareholders, except in the case of a director elected by the holders of any
class or series of Preferred Stock, now or hereafter authorized, voting as a
class or series, when so entitled by the provisions of the Certificate of
Incorporation applicable thereto.

TENTH. In addition to any vote that may be required by law or in the
Certificate of Incorporation in respect of any class or series of Preferred
Stock, now or hereafter authorized, the provisions of Articles 6, 7, 8, 9, 10,
11 and 12 of the Certificate of Incorporation shall not be amended or repealed,
or a new provision adopted inconsistent therewith, without the affirmative vote
of not less than two-thirds of

B-3

<PAGE>

the shares entitled to vote thereon at such annual or special meeting of
shareholders at which any such action is proposed.

ELEVENTH. Except as otherwise provided in the Certificate of
Incorporation in respect of any class or series of Preferred Stock, now or
hereafter authorized, the By-Laws of the corporation may be amended or repealed,
or new By-Laws may be adopted, either (a) by a vote of shareholders entitled to
vote at any annual or special meeting of shareholders, or (b) by a vote of the
majority of the entire Board of Directors at any regular or special meeting of
directors; provided, however, that any amendment or repeal of, or the adoption
of any new By-Law or provision inconsistent with, Article I (Sections 1.2, 1.13
or 1.14), Article II (Sections 2.2, 2.3, or 2.7) or Article VI (Sections 6.6 or
6.7) of the By-Laws, if by action of such shareholders, shall be only upon the
affirmative vote of not less than two-thirds of the shares entitled to vote
thereon at such annual or special meeting of shareholders at which any such
action is proposed and, if by action of the Board of Directors, shall be only
upon the approval of not less than two-thirds of the entire Board of Directors
at any regular or special meeting of directors.

TWELFTH. Except as may be provided by the Board of Directors in
accordance with paragraph A of Article 4 in respect of any particular series of
Preferred Stock, any action required or permitted to be taken by the
shareholders of the corporation must be taken at a duly called annual or special
meeting of such holders and may not be taken by any consent in writing by such
holders. Except as otherwise provided for herein or required by law, special
meetings of shareholders of the corporation for any purpose or purposes may be
called only by the Chairman of the Board, the President or the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof, and
any power of shareholders to call a special meeting is specifically denied.

THIRTEENTH. A director of the Corporation shall not be personally
liable to the Corporation or its shareholders for damages for any breach of duty
as a director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the Business Corporation Law as
currently in effect or as it may hereafter be amended. No amendment,
modification or repeal of this Article THIRTEENTH shall adversely affect any
right or protection of a director that exists at the time of such amendment,
modification or repeal.

B-4

<PAGE>
EXHIBIT C

BY-LAWS

NIAGARA MOHAWK HOLDINGS, INC.

ARTICLE I

Shareholders

Section 1.1. Annual Meeting. A meeting of shareholders shall be held
annually for the election of directors at such date and time as may be
designated by the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.

Section 1.2. Special Meetings. Special meetings of the shareholders may
be called by the Board of Directors, the Chairman of the Board or the President,
to be held at such date and time as may be stated in the notice of the meeting.
At any special meeting only such business may be transacted which is related to
the purpose or purposes set forth in the notice of such special meeting given
pursuant to Section 1.4 of these By-laws.

Section 1.3. Place of Meetings. Meetings of shareholders shall be held
at such place, within or without the State of New York, as may be fixed by the
Board of Directors. If no place is so fixed, such meetings shall be held at the
principal office of the Corporation in the State of New York.

Section 1.4. Notice of Meetings. Written notice of each meeting of
shareholders shall be given stating the place, date and hour of the meeting.
Notice of a special meeting of shareholders shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting and
shall state the purpose or purposes for which the meeting is called. If, at any
meeting of shareholders, action is proposed to be taken which would, if taken,
entitle objecting shareholders to receive payment for their shares, the notice
of such meeting shall include a statement of that purpose and to that effect and
shall be accompanied by a copy of Section 623 of the New York Business
Corporation Law as then in effect or an outline of its material terms. A copy of
the notice of each meeting of shareholders shall be given, personally or by
first class mail, not fewer than ten nor more than sixty days before the date of
the meeting, or shall be given by third class mail not less than twenty-four nor
more than sixty days before

C-1

<PAGE>

the date of the meeting, to each shareholder entitled to vote at such meeting.
If mailed, such notice shall be deemed given when deposited in the United States
mail, with postage thereon prepaid, directed to the shareholder at his or her
address as it appears on the record of shareholders, or, if he or she shall have
filed with the Secretary of the Corporation a written request that notices to
him or her be mailed to some other address, then directed to him or her at such
other address. When a meeting of shareholders is adjourned to another time or
place, it shall not be necessary to give any notice of the adjourned meeting if
the time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted on the original date
of the meeting. However, if after the adjournment the Board of Directors fixes a
new record date for the adjourned meeting, a notice of the adjourned meeting
shall be given to each shareholder of record on the new record date entitled to
notice under this Section 1.4.

Section 1.5. Waiver of Notice. Notice of meeting need not be given to
any shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him or her.

Section 1.6. Inspectors. Voting at meetings of shareholders shall be
conducted by inspectors. The Board of Directors, in advance of any shareholders'
meeting, shall appoint one or more inspectors to act at the meeting or any
adjournment thereof. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the Board in advance of the meeting
or at the meeting by the person presiding thereat. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his or her ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the meeting
or any shareholder entitled to vote

C-2

<PAGE>

thereat, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.

Section 1.7. List of Shareholders at Meetings. A list of shareholders
as of the record date, certified by the Secretary or any Assistant Secretary or
by a transfer agent, shall be produced at any meeting of shareholders upon the
request thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.

Section 1.8. Qualification of Voters. Every shareholder of record shall
be entitled at every meeting of shareholders to one vote for every share
standing in his or her name on the record of shareholders, unless otherwise
provided in the certificate of incorporation. If the certificate of
incorporation provides for more or less than one vote for any share on any
matter, every reference in these by-laws to a majority or other proportion of
shares shall be construed to refer to such majority or other proportion of the
votes of such shares. Treasury shares as of the record date and shares held as
of the record date by another domestic or foreign corporation of any type or
kind, if a majority of the shares entitled to vote in the election of directors
of such other corporation is held as of the record date by the Corporation,
shall not be shares entitled to vote or to be counted in determining the total
number of outstanding shares. Shares held by an administrator, executor,
guardian, conservator, committee or other fiduciary, except a trustee, may be
voted by him or her or it, either in person or by proxy, without transfer of
such shares into his or her or its name. Shares held by a trustee may be voted
by him or her or it, either in person or by proxy, only after the shares have
been transferred into his or her or its name as trustee or into the name of his
or her or its nominee. Shares standing in the name of another domestic or
foreign corporation of any type or kind may be voted by such officer, agent or
proxy as the by-laws of such corporation may provide, or, in the absence of such
provision, as the board of directors of such corporation may determine. A
shareholder shall not sell his or her vote or issue a proxy to vote to any
person for any sum of money or anything of value except as permitted by law.

Section 1.9. Quorum of Shareholders. The holders of a majority of the
votes of shares entitled to vote

C-3

<PAGE>

thereat shall constitute a quorum at a meeting of shareholders for the
transaction of any business, provided that when a specified item of business is
required to be voted on by a class or series, voting as a class, the holders of
a majority of the votes of shares of such class or series shall constitute a
quorum for the transaction of such specified item of business. When a quorum is
once present to organize a meeting, it is not broken by the subsequent
withdrawal of any shareholders. The shareholders present in person or by proxy
and entitled to vote may, by a majority of the votes cast, adjourn the meeting
despite the absence of a quorum.

Section 1.10. Proxies. Every shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him or her by proxy. No proxy shall be
valid after the expiration of eleven months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the shareholder executing it, except as otherwise provided by law. The
authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the shareholder who executed the proxy unless, before
the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the Secretary or any Assistant
Secretary.

Section 1.11. Vote or Consent of Shareholders. Directors shall, except
as otherwise required by law or by the certificate of incorporation, be elected
by a plurality of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote in the election. Whenever any corporate action, other
than the election of directors, is to be taken by vote of the shareholders, it
shall, except as otherwise required by law or by the certificate of
incorporation, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon. Whenever
shareholders are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent, setting forth the action so
taken, signed by the holders of all outstanding shares entitled to vote thereon.
Written consent thus given by the holders of all outstanding shares entitled to
vote shall have the same effect as a unanimous vote of shareholders.

Section 1.12. Fixing Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal

C-4

<PAGE>

without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of such meeting,
nor more than fifty days prior to any other action. If no record date is fixed:
(1) the record date for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if no notice is given,
the day on which the meeting is held; and (2) the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the resolution of the Board of Directors relating thereto is adopted.
When a determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.

Section 1.13. Advance Notice of Shareholder Proposals. At any annual or
special meeting of shareholders, proposals by shareholders and persons nominated
for election as directors by shareholders shall be considered only if advance
notice thereof has been timely given as provided herein and such proposals or
nominations are otherwise proper for consideration under applicable law and the
certificate of incorporation and by-laws of the Corporation. Notice of any
proposal to be presented by any shareholder or of the name of any person to be
nominated by any shareholder for election as a director of the Corporation at
any meeting of shareholders shall be delivered to the Secretary of the
Corporation at its principal executive office not less than 60 nor more than 90
days prior to the date of the meeting; provided, however, that if the date of
the meeting is first publicly announced or disclosed (in a public filing or
otherwise) less than 70 days prior to the date of the meeting, such advance
notice shall be given not more than ten days after such date is first so
announced or disclosed. Public notice shall be deemed to have been given more
than 70 days in advance of the annual meeting if the Corporation shall have
previously disclosed, in these by-laws or otherwise, that the annual meeting in
each year is to be held on a determinable date, unless and until the Board
determines to hold the meeting on a different date. Any shareholder who gives
notice of any such proposal shall deliver therewith the text of the proposal to
be presented and a brief written statement of

C-5

<PAGE>

the reasons why such shareholder favors the proposal and setting forth such
shareholder's name and address, the number and class of all shares of each class
of stock of the Corporation beneficially owned by such shareholder and any
material interest of such shareholder in the proposal (other than as a
shareholder). Any shareholder desiring to nominate any person for election as a
director of the Corporation shall deliver with such notice a statement in
writing setting forth the name of the person to be nominated, the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such person, the information regarding such person required by paragraphs
(a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and
Exchange Commission (or the corresponding provisions of any regulation
subsequently adopted by the Securities and Exchange Commission applicable to the
Corporation), such person's signed consent to serve as a director of the
Corporation if elected, such shareholder's name and address and the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such shareholder. As used herein, shares "beneficially owned" shall mean all
shares as to which such person, together with such person's affiliates and
associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934),
may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as well as all shares as to which such person,
together with such person's affiliates and associates, has the right to become
the beneficial owner pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting, in addition to
making any other determinations that may be appropriate to the conduct of the
meeting, shall determine whether such notice has been duly given and shall
direct that proposals and nominees not be considered if such notice has not been
given.

Section 1.14. Organization. Meetings of shareholders shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the President, or in the absence of the President by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary, or in the absence of the Secretary an
Assistant Secretary, shall act as secretary of the meeting, but in the absence
of the Secretary and any Assistant Secretary the chairman of the meeting may
appoint

C-6

<PAGE>

any person to act as secretary of the meeting. The order of business at each
such meeting shall be as determined by the chairman of the meeting. The chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts and things as are necessary
or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof and the opening and closing of the
voting polls.

ARTICLE II

Board of Directors

Section 2.1. Power of Board and Qualification of Directors. The
business of the Corporation shall be managed under the direction of the Board of
Directors. Each director shall be at least eighteen years of age. No person who
has reached age 70 shall, following their initial election, stand for
reelection as a director.

Section 2.2. Number of Directors. The number of directors constituting
the entire Board of Directors shall be the number, not less than three, fixed
from time to time by a majority of the total number of directors which the
Corporation would have, prior to any increase or decrease, if there were no
vacancies, provided that no decrease shall shorten the term of any incumbent
director.

Section 2.3. Election, Terms and Vacancies. The Board of Directors
shall be divided into three classes designated Class I, Class II and Class III.
Such classes shall be as nearly equal in number as the then total number of
directors constituting the entire Board permits. At the first annual meeting of
shareholders, or any special meeting in lieu thereof, Class I, Class II and
Class III directors shall be elected for terms expiring at the next succeeding
annual meeting, the second succeeding annual meeting and the third succeeding
annual meeting, respectively, and until their respective successors are elected
and qualified. At each annual meeting of shareholders after such first annual
(or special) meeting shareholders, the directors chosen to succeed those in the
class whose terms then expire shall be elected by shareholders for terms
expiring at the third succeeding annual meeting after election, or for such
lesser term for which one or more may be nominated in a particular case in order
to assure that the number of directors in each class shall be appropriately
constituted and until their

C-7

<PAGE>

respective successors are elected and qualified. Newly created directorships or
any decrease in directorships resulting from increases or decreases in the
number of directors shall be so apportioned among the classes of directors as to
make all the classes as nearly equal in number as possible. Vacancies on the
Board of Directors at any time for any reason except the removal of directors
without cause may be filled by a majority of the directors then in office,
although less than a quorum. If the number of directors is increased by the
Board of Directors and any newly created directorships are filled by the Board,
there shall, to the extent required by New York law, be no classification of the
additional directors until the next annual meeting of shareholders.

Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock, now or hereafter authorized, shall have
the right, voting separately or by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by any
provisions of the Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into one or more classes pursuant to
this Section 2.3 unless expressly provided by such provisions.

Section 2.4. Quorum of Directors and Action by the Board. Unless a
greater proportion is required by law or by the certificate of incorporation,
one third of the entire Board of Directors shall constitute a majority for the
transaction of business or of any specified item of business. Except where
otherwise provided by law or in the certificate of incorporation or these
by-laws, the vote of a majority of the directors present at a meeting at the
time of such vote, if a quorum is then present, shall be the act of the Board.
Any action required or permitted to be taken by the Board of Directors may be
taken without a meeting if all members of the Board consent in writing to the
adoption of a resolution authorizing the action. The resolution and the written
consents by the members of the Board shall be filed with the minutes of the
proceedings of the Board. Except as otherwise provided by law, all corporate
action to be taken by the Board of Directors shall be taken at a meeting of the
Board or by unanimous written consent. Any one or more members of the Board of
Directors may participate in a meeting of the Board by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time, and participation by such
means shall constitute presence in person at such meeting.

C-8

<PAGE>

Section 2.5. Meetings of the Board. An annual meeting of the Board of
Directors shall be held in each year as soon as practicable after the annual
meeting of shareholders. Regular meetings of the Board shall be held at such
times as may be fixed by the Board. Special meetings of the Board may be held at
any time whenever called by the Chairman of the Board, if any, the President or
any two directors. Meetings of the Board of Directors shall be held at such
places within or without the State of New York as may be fixed by the Board for
annual and regular meetings and in the notice of meeting for special meetings.
If no place is so fixed, meetings of the Board shall be held at the principal
office of the Corporation. No notice need be given of annual or regular meetings
of the Board of Directors. Notice of each special meeting of the Board shall be
given to each director either by mail not later than the third business day
prior to the meeting or by telegram, by facsimile transmission, by written
message or orally to the director not later than noon, New York time, on the day
prior to the meeting. Notices shall be deemed to have been given by mail when
deposited in the United States mail, by telegram at the time of filing, by
facsimile transmission upon confirmation of receipt, and by messenger at the
time of delivery by the messenger. Notices by mail, telegram, facsimile
transmission or messenger shall be sent to each director at the address or
facsimile number designated by him or her for that purpose, or, if none has
been so designated, at his or her last known residence or business address.
Notice of a meeting of the Board of Directors need not be given to any director
who submits a signed waiver of notice whether before or after the meeting, or
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him or her. A notice or waiver of notice
need not specify the purpose of any meeting of the Board of Directors. A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. Notice of any adjournment of a
meeting to another time or place shall be given in the manner described above to
the directors who were not present at the time of the adjournment and, unless
such time and place are announced at the meeting, to the other directors.

Section 2.6. Resignation. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the Chairman
of the Board, if any, or the President or the Secretary of the Corporation.
Such resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective.

C-9

<PAGE>

Section 2.7. Removal of Directors. Directors may be removed for cause
by a vote of shareholders entitled to vote thereon. Directors shall not be
removed without cause by shareholders, except in the case of a director elected
by the holders of any class or series of Preferred Stock, now or hereafter
authorized, voting as a class or series, when so entitled by the provisions of
the Certificate of Incorporation applicable thereto.

Section 2.8. Compensation of Directors. The Board of Directors shall
have authority to fix the compensation of directors for services in any
capacity, which shall be a charge to be paid by the Corporation. The Board of
Directors may elect or appoint members of the Board as officers, members of
committees, or agents of the Corporation, may assign duties to be performed and
may fix the amount of the respective salaries, fees or other compensation
therefor, and the amount so fixed shall be a charge to be paid by the
Corporation. In addition to any other compensation provided pursuant to these
by-laws, each director shall be entitled to receive a fee, in amount as fixed
from time to time by resolution of the Board of Directors, for attendance at any
meeting of the Board, or of any committee of the Board, together with his
expenses of attendance, if any.

ARTICLE III

Executive and Other Committees

Section 3.1. Executive and Other Committees of Directors. The Board of
Directors, by resolution adopted by a majority of the entire Board, shall
designate from among its members an Executive Committee, an Audit Committee and
a Finance Committee and may designate such other committees, each consisting of
one or more directors, and each of which, to the extent provided in the
resolution, shall have all the authority of the Board, except that no such
committee shall have authority as to (1) the submission to shareholders of any
action that needs shareholders' approval; (2) the filling of vacancies in the
Board or in any committee thereof; (3) the fixing of compensation of the
directors for serving on the Board or on any committee thereof; (4) the
amendment or repeal of the by-laws, or the adoption of new by-laws; or (5) the
amendment or repeal of any resolution of the Board which, by its terms, shall
not be so amendable or repealable. The Board of Directors may designate one or
more directors as alternate members of any such committee, who may replace any
absent member or members at any meeting of such committee. Unless the Board of
Directors otherwise

C-10

<PAGE>

provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present or the
unanimous written consent of all members thereof shall be the act of such
committee, any one or more members of such committee may participate in a
meeting of such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time and participation by such means shall
constitute presence in person at such meeting, and in other respects each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws. Each
such committee shall serve at the pleasure of the Board of Directors.

Section 3.2. Executive Committee. When the Board of Directors is not in
session, the Executive Committee shall have all of the authority of the Board of
Directors, except it shall have no authority as to the matters specified in
Section 3.1. The Chairman of the Board shall be Chairman of the
Executive Committee. The members of the Executive Committee shall serve at the
pleasure of the Board of Directors.

Section 3.3. Audit Committee. The Audit Committee shall recommend to
the Board of Directors the accounting firm to be selected by the Board or to be
recommended by it for shareholder approval, as independent auditor of the
Corporation and its subsidiaries; act on behalf of the Board in meeting and
reviewing with the independent auditors, the chief internal auditor and the
appropriate corporate officers matters relating to corporate financial reporting
and accounting procedures and policies, adequacy of internal controls and the
scope of the respective audits of the independent auditors and the internal
auditor; review the results of such audits with the respective auditing agency
and reporting thereon to the Board; review and make recommendations to the Board
concerning the independent auditor's fees and services; review interim and
annual financial reports and disclosures and submit to the Board any
recommendations it may have from time to time with respect to financial
reporting and accounting practices and policies; be consulted, and its consent
obtained, prior to the selection or termination of the chief internal auditor;
oversee matters involving compliance with corporate business ethics

C-11

<PAGE>

policies including the work of the Business Ethics Council; review management's
assessment of financial risks; authorize special investigations and studies, as
appropriate, in fulfillment of its function as specified herein or by resolution
of the Board of Directors; and perform any other duties or functions deemed
appropriate by the Board of Directors. The Committee will conduct a
self-assessment at least every three years of its performance in relation to its
powers and responsibilities. The membership of such committee shall consist only
of directors of the Corporation who are not, and have not been, officers of the
company.

Section 3.4. Finance Committee. The Finance Committee shall exercise
such powers of the Board of Directors as shall be provided in one or more
resolutions of the Board of Directors with respect to the issuance by the
Corporation of securities and evidences of indebtedness and the participation by
the Corporation in other financing transactions and with respect to the
authorization of the making, modification, alteration, termination or abrogation
of notes, bills, mortgages, sales, deeds, financing leases, liens and contracts
of the Corporation and shall further be empowered to take any action in
connection with the determination of the terms of any securities, evidences of
indebtedness or other financing transactions of the Corporation the issuance of
which by the Corporation or the participation in which by the Corporation shall
have theretofore been approved by the Board of Directors, and shall further
perform any other duties or functions deemed appropriate by the Board of
Directors.

ARTICLE IV

Officers

Section 4.1. Officers. The officers of the Corporation shall consist of
a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary,
a Controller, a Treasurer, and such Assistant Secretaries, Assistant Controllers
and Assistant Treasurers and other officers as shall be elected or appointed by
the Board of Directors. The Board of Directors may elect or appoint a General
Counsel upon such terms and with such powers and duties as it may prescribe and
may also designate the General Counsel an officer of the Corporation.

Section 4.2. Election. The officers of the Corporation shall be elected
or appointed by the Board of Directors at the meeting of the Board held after
each annual meeting of the stockholders. The Chairman of the Board and

C-12

<PAGE>

the President shall be elected or appointed by the Board of Directors from among
their number. Any number of Vice-Presidents, the Secretary, the Controller, the
Treasurer and other officers established pursuant to resolution of the Board of
Directors shall also be elected or appointed by the Board of Directors.

Section 4.3. Term of Office. The officers of the Corporation shall hold
office until the meeting of the Board of Directors held after the next annual
meeting of the stockholders and until their successors are elected and have
qualified, unless a shorter term is fixed or unless removed, subject to the
provisions of law, by the Board of Directors. The Chairman of the Board, the
President, any Vice-President, the Secretary, the Controller or the Treasurer
may be removed at any time, with or without cause, by the Board of Directors
provided that notice of the meeting at which such action shall have been taken
shall set forth such action as one of the purposes of such meeting. Any other
officer of the Corporation may be removed at any time, with or without cause, by
the Board of Directors. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors at any time to serve
the remaining current term of that office.

Section 4.4. Chairman of the Board. There shall be a chairman of the
Board of Directors, with the official title "Chairman of the Board", who shall
be the chief executive officer of the Corporation. The Chairman of the Board
shall preside at meetings of the stockholders, the Board of Directors and the
Executive Committee. He shall recommend to the Board policies to be followed by
the Corporation, and, subject to the Board, shall have general charge of the
policies and business of the Corporation and general supervision of the details
thereof, and shall supervise the operation, maintenance and preservation of the
properties of the Corporation. He shall keep the Board of Directors informed
respecting the business of the Corporation. He shall have authority to sign on
behalf of the Corporation all contracts and other documents or instruments to be
signed or executed by the Corporation, and, in all cases where the duties and
powers of subordinate officers and agents of the Corporation are not
specifically prescribed by the by-laws or by resolutions of the Board of
Directors, the Chairman of the Board may prescribe such duties and powers. He
shall perform such other duties as may from time to time be assigned to him by
the Board of Directors.

C-13

<PAGE>

Section 4.5. President. The President shall have the direction of and
responsibility for the operations of the Corporation and such other powers and
duties as the Board of Directors or the Chairman of the Board shall designate
from time to time and, in the absence or inability to act of the Chairman of the
Board, shall have the powers and duties of the Chairman of the Board. The
President, unless some other person is thereunto specifically authorized by vote
of the Board of Directors, shall have authority to sign all contracts and other
documents and instruments of the Corporation.

Section 4.6. The Vice-Presidents. The Vice-Presidents may be designated
by such title or titles and in such order of seniority as the Board of Directors
may determine. The Vice-Presidents shall perform such of the duties and exercise
such of the powers of the President on behalf of the Corporation as may be
assigned to them respectively from time to time by the Board of Directors or by
the Chairman of the Board or the President, and, subject to the control of the
Board, shall have authority to sign on behalf of the Corporation all contracts
and other documents or instruments necessary for the conduct of the business of
the Corporation. The Vice-Presidents shall perform such other duties as may from
time to time be assigned to them respectively by the Board of Directors or the
Chairman of the Board or the President.

Section 4.7. The Secretary and Assistant Secretaries. The Secretary
shall cause notices of all meetings of stockholders and directors to be given as
required by law, the corporate charter, and these by-laws. He shall attend all
meetings of stockholders and of the Board of Directors and keep the minutes
thereof. He shall affix the corporate seal to and sign such instruments as
require the seal and his signature and shall perform such other duties as
usually pertain to his office or as are required of him by the Board of
Directors or the Chairman of the Board or the President.

Any Assistant Secretary may, in the absence or disability of the
Secretary, or at his request, perform the duties and exercise the powers of the
Secretary, and shall perform such other duties as the Board of Directors, the
Chairman of the Board, the President or the Secretary shall prescribe.

C-14

<PAGE>

The Secretary or any Assistant Secretary may certify under the
corporate seal as to the corporate charter or these by-laws or any provision
thereof, the acts of the Board of Directors or any committee thereof, the
tenure, signatures, identity and acts of officers of the Corporation or other
corporate facts, and any such certificate may be relied upon by any person or
Corporation to whom the same shall be given until receipt of written notice to
the contrary.

In the absence of the Secretary and of an Assistant Secretary, the
stockholders or the Board of Directors may appoint a secretary pro tem to record
the proceedings of their respective meetings and to perform such other acts
pertaining to said office as they may direct.

Section 4.8. The Controller and Assistant Controllers. The Controller
shall be the chief accounting officer of the Corporation. He shall have general
supervision of the accounting and financial reporting policies of the
Corporation, and shall recommend policies and procedures and shall render
current and periodic reports of financial status to the Chairman of the Board,
the President and the Board of Directors. He shall perform such other duties as
usually pertain to his office or as are required of him by the Board of
Directors or the Chairman of the Board or the President.

Any Assistant Controller may, in the absence or disability of the
Controller, or at his request, perform the duties and exercise the powers of the
Controller and shall perform such other duties as the Board of Directors, the
Chairman of the Board, the President or the Controller shall prescribe.

Section 4.9. The Treasurer and Assistant Treasurers. The Treasurer is
authorized and empowered to receive and collect all moneys due the Corporation
and to receipt for the same. He shall be empowered to execute on behalf of the
Corporation all instruments, agreements and certificates necessary or
appropriate to effect the issuance by the Corporation of securities or evidences
of indebtedness or to permit the Corporation to enter into and perform any other
financing transactions to the extent the foregoing are within the ordinary
course of business of the Corporation or have been authorized by the Board of
Directors or a committee thereof. He shall cause to be entered in books of the
Corporation to be kept for that purpose full and accurate accounts of all moneys
received by and paid on account of the Corporation. He shall make and sign such
reports, statements, and instruments as may be

C-15

<PAGE>

required of him by the Board of Directors or by laws of the United States or the
State of New York, or by commission, bureau, department or agency created under
any such laws, and shall perform such other duties as usually pertain to his
office or as are required of him by the Board of Directors or the Chairman of
the Board or the President.

Any Assistant Treasurer may, in the absence or disability of the
Treasurer, or at his request, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as the Board of Directors, the
Chairman of the Board, or the President, or the Treasurer shall prescribe.

Section 4.10. Additional Officers. In addition to the officers provided
for by these by-laws, the Board of Directors may, from time to time, designate
and appoint such other officers as may be necessary or convenient for the
transaction of the business and affairs of the Corporation. Such other officers
shall have such powers and duties as may be assigned to them by resolution of
the Board of Directors.

Section 4.11. Officers Holding Two or More Offices. Any two or more of
the above-mentioned offices may be held by the same person, except that the
President shall not also be the Secretary, but no officer shall execute or
verify any instrument in more than one capacity if such instrument be required
by law or otherwise to be executed or verified by any two or more officers.

Section 4.12. Duties of Officers May be Delegated. In case of the
absence of any officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board of Directors may delegate, for
the time and to the extent specified, the powers or duties of any officer to any
other officer, or to any director.

Section 4.13. Compensation. The compensation of all officers with an
assigned salary level above the scale of Salary Grade N as prescribed in the
Salary Administration Program, as adopted by the Board of Directors, shall be
fixed by the Board of Directors. The compensation of all other officers and
employees shall be fixed by the Chairman of the Board or by the President in
accordance with the Salary Administration Program.

C-16

<PAGE>

Section 4.14. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditional upon the faithful performance of his duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
The premium payable to any surety company for such bond shall be paid by the
Corporation.

ARTICLE V

Forms of Certificates and Loss and
Transfer of Shares

Section 5.1. Forms of Share Certificates. The shares of the Corporation
shall be represented by certificates, in such forms as the Board of Directors
may prescribe, signed by the Chairman of the Board or the President or a
Vice-President and the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation itself or its employee or if the
shares are listed on a national securities exchange. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he or she were such officer
at the date of issue. If the Corporation is authorized to issue shares of more
than one class, each certificate representing shares issued by the Corporation
shall set forth upon the face or back of the certificate, or shall state that
the Corporation will furnish to any shareholder upon request and without charge,
a full statement of the designation, relative rights, preferences and
limitations of the shares of each class authorized to be issued and the
designation, relative rights, preferences and limitations of each series of any
class of preferred shares authorized to be issued in series so far as the same
have been fixed and the authority of the Board of Directors to designate and fix
the relative rights, preferences and limitations of other series. Each certifi-
cate representing shares shall state upon the face thereof (1) that the
Corporation is formed under the laws of the State of New York; (2) the name of
the person or persons to

C-17

<PAGE>

whom issued; and (3) the number and class of shares, and the designation of the
series, if any, which such certificate represents.

Section 5.2. Transfers of Shares. Shares of the Corporation shall be
transferable on the record of shareholders upon presentation to the Corporation
or a transfer agent of a certificate or certificates representing the shares
requested to be transferred, with proper endorsement on the certificate or on a
separate accompanying document, together with such evidence of the payment of
transfer taxes and compliance with other provisions of law as the Corporation
or its transfer agent may require.

Section 5.3. Lost, Stolen or Destroyed Share Certificates. The
Corporation may issue a new certificate for shares in place of any certificate
theretofore issued by it, alleged to have been lost or destroyed, and the
Corporation may require the owner of the lost or destroyed certificate, or such
owner's legal representative, to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate or the issuance of any such
new certificate.

ARTICLE VI

Other Matters

Section 6.1. Corporate Seal. The Board of Directors may adopt a
corporate seal, alter such seal at pleasure, and authorize it to be used by
causing it or a facsimile to be affixed or impressed or reproduced in any other
manner.

Section 6.2. Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.

Section 6.3. When Notice or Lapse of Time Unnecessary. Whenever for any
reason the Corporation or the Board of Directors or any committee thereof is
authorized to take any action after notice to any person or persons or after the
lapse of a prescribed period of time, such action may be taken without notice
and without the lapse of such period of time if at any time before or after such
action is completed the person or persons entitled to such notice or entitled to
participate in the action to be taken or, in the case of a shareholder, his or
her attorney-in-fact, submit a signed waiver of notice of such requirements.

C-18

<PAGE>

Section 6.4. Books to be Kept. The Corporation shall keep (a) correct
and complete books and records of account, (b) minutes of the proceedings of the
shareholders, Board of Directors and each committee and (c) a current list of
the directors and officers and their residence addresses; and the Corporation
shall also keep at its office located in the county of Onondaga in the State of
New York or at the office of its transfer agent or registrar in the State of New
York, if any, a record containing the names and addresses of all shareholders,
the number and class of shares held by each and the dates when they respectively
became the owners of record thereof. Any of the foregoing books, minutes or
records may be in written form or in any other form capable of being converted
into written form within a reasonable time.

Section 6.5. Interest of Directors and Officers in Transactions. In the
absence of fraud, no contract or other transaction between the Corporation and
one or more of its directors, or between the Corporation and any other
Corporation, firm, association or other entity in which one or more of its
directors are directors or officers, or have a substantial financial interest,
shall be either void or voidable, irrespective of whether such interested
director or directors are present at the meeting of the Board of Directors, or
of a committee thereof, which approves such contract or transaction and
irrespective of whether his, her or their votes are counted for such purpose:

(1) If the material facts as to such director's interest in such
contract or transaction and as to any such common directorship, officership
or financial interest are disclosed in good faith or known to the Board of
Directors, or a committee thereof, and the Board or committee approves such
contract or transaction by a vote sufficient for such purpose without
counting the vote of such interested director or, if the votes of the
disinterested directors are insufficient to constitute an act of the Board
under Section 2.4 of these by-laws, by unanimous vote of the disinterested
directors; or

(2) If the material facts as to such director's interest in such
contract or transaction and as to any such common directorship, officership
or financial interest are disclosed in good faith or known to the
shareholders entitled to vote thereon, and such contract or transaction is
approved by vote of such shareholders.

C-19

<PAGE>

If a contract or other transaction between the Corporation and one or more of
its directors, or between the Corporation and any other Corporation, firm,
association or other entity in which one or more of its directors are directors
or officers or have a substantial financial interest, is not so approved, the
Corporation may avoid the contract or transaction unless the party or parties
thereto shall establish affirmatively that the contract or transaction was fair
and reasonable as to the Corporation at the time it was approved by the Board, a
committee or the shareholders. Notwithstanding the foregoing, no loan, except
advances in connection with indemnification, shall be made by the Corporation to
any director unless it is authorized by vote of the shareholders. For this
purpose, shares of the director who would be the borrower shall not be shares
entitled to vote.

Section 6.6. Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify to the full extent permitted by law any person made
or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director,
officer or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. Expenses
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by the Corporation promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The rights provided to any person by this by-law shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon it in serving or continuing to serve as a director, officer or
employee as provided above. No amendment of this by-law shall impair the rights
of any person arising at any time with respect to events occurring prior to
such amendment. For purposes of this by-law, the term "Corporation" shall
include any predecessor of the Corporation and any constituent Corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include any
Corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; service "at the request of the Corporation" shall include service as
a director, officer or employee of the Corporation which imposes duties on, or
involves services by, such director, officer or employee with respect to an
employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit

C-20

<PAGE>

plan shall be deemed to be indemnifiable expenses; and action taken or omitted
by a person with respect to an employee benefit plan which such person
reasonably believes to be in the interest of the participants and beneficiaries
of such plan shall be deemed to be action not opposed to the best interests of
the Corporation.

Section 6.7. Amendments. Except as otherwise provided in the
Certificate of InCorporation in respect of any class or series of Preferred
Stock, now or hereafter authorized, the By-Laws of the Corporation may be
amended or repealed, or new By-Laws may be adopted, either (a) by a vote of
shareholders entitled to vote at any annual or special meeting of shareholders,
or (b) by a vote of the majority of the entire Board of Directors at any regular
or special meeting of directors; provided, however, that any amendment or repeal
of, or the adoption of any new By-Law or provision inconsistent with, Article I
(Sections 1.2, 1.13 or 1.14), Article II (Sections 2.2, 2.3, or 2.7) or Article
VI (Sections 6.6 or 6.7) of these By-Laws, if by action of such shareholders,
shall be only upon the affirmative vote of not less than two-thirds of the
shares entitled to vote thereon at such annual or special meeting of
shareholders at which any such action is proposed and, if by action of the Board
of Directors, shall be only upon the approval of not less than two-thirds of the
entire Board of Directors at any regular or special meeting of directors.

C-21

<PAGE>

- --------------------------------------------------------------------------------
: :
: IMPORTANT :
: :
: THE INTEREST AND COOPERATION OF ALL SHAREHOLDERS IN THE AFFAIRS OF THE :
: NIAGARA MOHAWK POWER CORPORATION ARE CONSIDERED TO BE OF THE GREATEST :
: IMPORTANCE BY YOUR MANAGEMENT. EVEN THOUGH YOU EXPECT TO ATTEND THE :
: ANNUAL MEETING, IT IS URGENTLY REQUESTED THAT, WHETHER YOUR COMMON :
: STOCK SHARE HOLDINGS ARE LARGE OR SMALL, YOU PROMPTLY FILL IN, DATE, :
: SIGN AND RETURN THE ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED :
: HEREWITH. IF YOU DO ATTEND AND VOTE AT THE ANNUAL MEETING, THAT VOTE :
: WILL SUPERSEDE ANY EARLIER VOTE BY PROXY. :
: :
- --------------------------------------------------------------------------------

<PAGE>

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

(a) Indemnification. Pursuant to Article Thirteen of Holdings' Certificate
of Incorporation, no director of Holdings shall have personal liability to
Holdings or its shareholders for damages for any breach of duty in such
capacity, except to the extent that such exemption is not permitted under the
BCL (presently, such exemption is not permitted) for acts or omissions in bad
faith or involving intentional misconduct or a knowing violation of law, or if
such director personally gained in fact a financial profit or other advantage to
which such director was not legally entitled, or if such director's act violated
Section 719 of the BCL. Any amendment or repeal of such Article 13 may not apply
to or have any effect on the liability or alleged liability of any director of
Holdings for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.

Section 6.6 of Holdings' by-laws provides that Holdings shall indemnify to
the full extent permitted by law any person made, or threatened to be made, a
party to any action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person or such person's
testator or intestate is or was a director, officer or employee of Holdings or
serves or served at the request of Holdings with any other enterprise as a
director, officer or employee; expenses incurred by any such person in defending
any such action, suit or proceeding shall be paid or reimbursed by Holdings
promptly upon receipt by it of an undertaking of such person to repay such
expenses if it shall ultimately be determined that such person is not entitled
to be indemnified by Holdings. No amendment of this by-law provision shall
impair the rights of any person arising at any time with respect to events
occurring prior to such amendment. In addition, Holdings intends to enter into
indemnification agreements with its officers and directors which provide for
indemnification to the maximum extent permitted by law. These agreements will
set forth certain procedures for the advancement by Holdings of certain expenses
to indemnities.

(b) Insurance. Holdings (with respect to indemnification liability) and its
directors and officers (in their capacities as such) are insured against
liability for wrongful acts (to the extent defined) under insurance policies.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following exhibits are filed herewith.

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- --------------------------------------------------------------------

2(a) Agreement and Plan of Exchange (attached to Prospectus/Proxy Statement
as Exhibit A).

3(a) Certificate of Incorporation of Niagara Mohawk Holdings, Inc.
(attached to Prospectus/Proxy Statement as Exhibit B).

3(b) By-Laws of Niagara Mohawk Holdings, Inc. (attached to Prospectus/
Proxy Statement as Exhibit C).

3(c) Certificate of Incorporation of Niagara Mohawk Power Corporation
(the "Company") (incorporated by reference to Exhibits 3(a)(1) --
(46) in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-2987)).

3(d) By-Laws of the Company (incorporated by reference as Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).

II-1

<PAGE>

5 Opinion of Sullivan & Cromwell.*

8 Opinion of Bryan Cave LLP.*

23(a) Consent of Sullivan & Cromwell (included in Exhibit 5).*

23(b) Consents of Bryan Cave LLP (included in Exhibit 8).*

23(c) Consent of Price Waterhouse LLP.

99(a) Form of Proxy Card.

99(b) Consents of persons to become directors of Niagara Mohawk Holdings,
Inc. at the effective time of the share exchange.*

(b) The financial statement schedules are incorporated by reference
from Niagara Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.

- --------------------
* To be filed by amendment.

II-2

<PAGE>

ITEM 22. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.

(3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.

(4) To remove from registration by means of a post-effective amendment any
shares of Holdings common stock which are not issued in the share exchange.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20, or otherwise (other
than by insurance), the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than under insurance
policies and other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-3

<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SYRACUSE, STATE OF NEW
YORK ON THIS 9th DAY OF APRIL, 1998.

NIAGARA MOHAWK HOLDINGS, INC.

By: /s/ William F. Edwards
----------------------------------
NAME: WILLIAM F. EDWARDS
TITLE: Chief Financial Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED, ON APRIL 9, 1998.

SIGNATURE TITLE

/s/ William E. Davis Chairman, Chief Executive
-------------------------- Officer and Director
WILLIAM E. DAVIS

--------------------------
ALBERT J. BUDNEY, JR. President and Director

/s/ William F. Edwards
--------------------------
WILLIAM F. EDWARDS Chief Financial Officer and Director

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ------------------------------------------- -------

<S> <C> <C>
2(a) AGREEMENT AND PLAN OF EXCHANGE (ATTACHED TO PROSPECTUS/PROXY
STATEMENT AS EXHIBIT A).

3(a) ARTICLES OF INCORPORATION OF NIAGARA MOHAWK HOLDINGS, INC.
(ATTACHED TO PROSPECTUS/PROXY STATEMENT AS EXHIBIT B).

3(b) BY-LAWS OF NIAGARA MOHAWK HOLDINGS, INC. (ATTACHED TO
PROSPECTUS/PROXY STATEMENT AS EXHIBIT C).

3(c) CERTIFICATE OF INCORPORATION OF NIAGARA MOHAWK POWER
CORPORATION (THE "COMPANY") (INCORPORATED BY REFERENCE TO
EXHIBITS 3(A)(1) -- (4.6) IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1994 (FILE NO. 1-2987)).

3(d) BY-LAWS OF THE COMPANY (INCORPORATED BY REFERENCE AS EXHIBIT
3(B) TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997).

5 OPINION OF SULLIVAN & CROMWELL.

8 OPINION OF BRYAN CAVE LLP.

3(a) CONSENT OF SULLIVAN & CROMWELL (INCLUDED IN EXHIBIT 5).

23(b) CONSENTS OF BRYAN CAVE LLP (INCLUDED IN EXHIBIT 8).

23(c) CONSENT OF PRICE WATERHOUSE LLP.

99(a) FORM OF PROXY CARD AND REMINDER LETTER.

99(b) CONSENTS OF PERSONS TO BECOME DIRECTORS OF NIAGARA MOHAWK
HOLDINGS, INC. AT THE EFFECTIVE TIME OF THE SHARE EXCHANGE.

</TABLE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Niagara Mohawk
Holdings, Inc. of our report dated March 26, 1998 appearing on page 53 of
Niagara Mohawk Power Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page 109 in such
Annual Report on Form 10-K. We also consent to the reference to us under the
heading "Experts" in such Prospectus.

/s/ PRICE WATERHOUSE LLP

Syracuse, New York
April 8, 1998

(NM LOGO)

PLEASE FOLD AND TEAR HERE

- -------------------------------------------------------------------------------

The Board of Directors recommend a vote FOR Proposals 1-4:

1. Election of Directors to Class I: Salvatore H. Alfiero
Albert J. Budney, Jr.
Dr. Bonnie G. Hill
Henry A. Panasci, Jr.

-----------------------

/_/ FOR all nominees /_/ WITHHELD from nominees

/_/ FOR all nominees except: _______________________________________

2. Issuance of up to 43 million shares of Common Stock to certain independent
power producers.