SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission Registrant, State of Incorporation I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
0-25595 NIAGARA MOHAWK HOLDINGS, INC. 16-1549726
(a New York corporation)
300 Erie Boulevard West
Syracuse, New York 13202
Telephone 315-474-1511
1-2987 NIAGARA MOHAWK POWER CORPORATION 15-0265555
(a New York corporation)
300 Erie Boulevard West
Syracuse, New York 13202
Telephone 315-474-1511
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ X ] NO [ ]
The number of shares outstanding of each of the issuer's classes of voting
stock, as of April 30, 1999, were as follows:
<TABLE>
<CAPTION>
Registrant Title Shares Outstanding
- ----------------------------------- ----------------------------- ------------------
<S> <C> <C>
Niagara Mohawk Holdings, Inc Common Stock, $0.01 par value 187,364,863
Niagara Mohawk Power Corporation. Common Stock, $1.00 par value 187,364,863
(all held by Niagara Mohawk
Holdings, Inc.)
</TABLE>
<PAGE>
FILING FORMAT
This Quarterly Report on Form 10-Q is a combined quarterly report being filed
separately by two registrants: Niagara Mohawk Holdings, Inc. ("Holdings") and
Niagara Mohawk Power Corporation ("Niagara Mohawk"). Holdings became the
holding company for Niagara Mohawk on March 18, 1999. (See Item 1. Financial
Statements - Notes to Consolidated Financial Statements - Note 1. Summary of
Significant Accounting Policies - "Formation of Holding Company" and Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - "POWERCHOICE Agreement"). Any references in this report to
"Holdings" are to both Holdings and Niagara Mohawk, collectively. Niagara
Mohawk makes no representation to the information contained in this report in
relation to Holdings and its subsidiaries other than Niagara Mohawk.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q - For the Quarter Ended March 31, 1999
PART I. FINANCIAL INFORMATION
Glossary of Terms
Item 1. Financial Statements
Consolidated Financial Statements:
Niagara Mohawk Holdings, Inc.
-----------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Niagara Mohawk Power Corporation
--------------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Review by Independent Accountants
Independent Accountants' Report on the Limited Review of the Interim
Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
GLOSSARY OF TERMS
TERM DEFINITION
- ---- ----------
CTC Competitive transition charge: a mechanism established in the
POWERCHOICE agreement to recover stranded costs from customers
Dth Dekatherm: one thousand cubic feet of gas with a heat content of
1,000 British Thermal Units per cubic foot
EBITDA 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, non-cash regulatory deferrals and other
amortizations, and extraordinary items (a non-GAAP measure
of cash flow)
FERC Federal Energy Regulatory Commission
GAAP Generally Accepted Accounting Principles
GRT Gross Receipts Tax
GWh Gigawatt-hours: one gigawatt hour equals one billion watt-hours
IPP Independent Power Producer: any person that owns or operates, in
whole or in part, one or more Independent Power Facilities
IPP Party Independent Power Producers that were a party to the MRA
KWh Kilowatt-hour: a unit of electrical energy equal to one kilowatt of
power supplied or taken from an electric circuit steadily for one
hour
MRA Master Restructuring Agreement - an agreement, including amendments
thereto, which terminated, restated or amended certain IPP Party
power purchase agreements effective June 30, 1998
MRA Recoverable costs to terminate, restate or amend IPP Party
Regulatory contracts, which have been deferred and are being amortized and
Asset recovered under the POWERCHOICE agreement
MW Megawatt: one million watts
NRC Nuclear Regulatory Commission
POWERCHOICE Niagara Mohawk's five-year electric rate agreement, which
agreement incorporates the MRA, approved by the PSC in an order dated
March 20, 1998, and became effective September 1, 1998
PPA Power Purchase Agreement: long-term contracts under which a utility
is obligated to purchase electricity from an IPP at specified rates
PRP Potentially Responsible Party
PSC New York State Public Service Commission
SFAS Statement of Financial Accounting Standards No. 71
No. 71 "Accounting for the Effects of Certain Types of Regulation"
SFAS Statement of Financial Accounting Standards No. 121
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of"
Unit 1 Nine Mile Point Nuclear Station Unit No. 1
<PAGE>
PART I
------
ITEM 1. FINANCIAL STATEMENTS
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------- ----------
(In thousands of dollars)
<S> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . $ 864,678 $ 913,521
Gas . . . . . . . . . . . . . . . . . . . 254,407 250,157
Other . . . . . . . . . . . . . . . . . . 49 219
-------------- -----------
1,119,134 1,163,897
-------------- -----------
OPERATING EXPENSES:
Fuel for electric generation. . . . . . . 57,094 47,198
Electricity purchased . . . . . . . . . . 175,292 374,919
Gas purchased . . . . . . . . . . . . . . 115,258 130,673
Other operation and maintenance expenses. 206,343 264,319
Amortization of MRA regulatory asset. . . 96,625 -
Depreciation and amortization . . . . . . 94,816 88,059
Other taxes . . . . . . . . . . . . . . . 121,858 127,160
-------------- ----------
867,286 1,032,328
-------------- ----------
OPERATING INCOME. . . . . . . . . . . . . . . 251,848 131,569
Other income (deductions) . . . . . . . . . . (1,403) 6,953
-------------- ----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . 250,445 138,522
Interest charges. . . . . . . . . . . . . . . 130,275 65,590
Preferred dividend requirement of subsidiary. 9,024 9,223
-------------- ----------
INCOME BEFORE FEDERAL AND FOREIGN
INCOME TAXES. . . . . . . . . . . . . . . 111,146 63,709
Federal and foreign income taxes. . . . . . . 60,314 52,569
-------------- ----------
NET INCOME (NOTE 1) . . . . . . . . . . . . . $ 50,832 $ 11,140
============== ===========
Average number of shares of common stock
outstanding (in thousands). . . . . . . . 187,365 144,419
BASIC AND DILUTED EARNINGS PER AVERAGE
SHARE OF COMMON STOCK . . . . . . . . . . $ 0.27 $ 0.08
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 December 31,
(UNAUDITED) 1998
----------- ------------
(In thousands of dollars)
<S> <C> <C>
UTILITY PLANT:
Electric plant . . . . . . . . . . . . . . . . . . . $ 8,918,920 $ 8,826,650
Nuclear fuel . . . . . . . . . . . . . . . . . . . . 627,737 604,213
Gas plant. . . . . . . . . . . . . . . . . . . . . . 1,217,409 1,179,716
Common plant . . . . . . . . . . . . . . . . . . . . 357,930 349,066
Construction work in progress. . . . . . . . . . . . 363,813 471,802
----------- -------------
Total utility plant . . . . 11,485,809 11,431,447
Less - Accumulated depreciation and amortization . . 4,641,719 4,553,488
----------- -------------
Net utility plant . . . . . 6,844,090 6,877,959
----------- -------------
OTHER PROPERTY AND INVESTMENTS. . . . . . . . . . . . . . . . 353,233 411,106
----------- -------------
CURRENT ASSETS:
Cash, including temporary cash investments
of $402,246 and $122,837, respectively . . . . 429,810 172,998
Accounts receivable (less allowance for doubtful
accounts of $58,600 and $47,900, respectively) 598,856 427,588
Materials and supplies, at average cost:
Coal and oil for production of electricity . . 31,699 42,299
Gas storage. . . . . . . . . . . . . . . . . . 10,310 38,803
Other. . . . . . . . . . . . . . . . . . . . . 114,936 118,855
Refundable Federal income taxes. . . . . . . . . . . - 130,411
Prepaid taxes. . . . . . . . . . . . . . . . . . . . 61,397 17,282
Other. . . . . . . . . . . . . . . . . . . . . . . . 7,102 22,208
----------- -------------
1,254,110 970,444
----------- -------------
REGULATORY ASSETS (NOTE 3):
MRA regulatory asset. . . . . . . . . . . . . . . . 3,955,603 4,045,647
Indexed swap contracts regulatory asset . . . . . . 521,800 535,000
Regulatory tax asset. . . . . . . . . . . . . . . . 425,898 425,898
Deferred environmental restoration costs (Note 2) . 220,000 220,000
Unamortized debt expense. . . . . . . . . . . . . . 50,383 51,922
Postretirement benefits other than pensions . . . . 51,760 52,701
Other . . . . . . . . . . . . . . . . . . . . . . . 122,511 137,061
----------- -------------
5,347,955 5,468,229
----------- -------------
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 127,166 133,449
----------- -------------
$13,926,554 $ 13,861,187
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 December 31,
(UNAUDITED) 1998
----------- ------------
(In thousands of dollars)
<S> <C> <C>
CAPITALIZATION (NOTE1):
COMMON STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value; authorized 300,000,000 shares;
issued 187,364,863 . . . . . . . . . . . . . . . . . . . . . $ 1,874 $ -
Common stock of Niagara Mohawk- $1 par value;
authorized 250,000,000 shares; issued 187,364,863. . . . . . - 187,365
Capital stock premium and expense. . . . . . . . . . . . . . . . . 2,548,020 2,362,531
Accumulated other comprehensive income . . . . . . . . . . . . . . (29,722) (25,794)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 696,872 646,040
------------ --------------
3,217,044 3,170,142
------------ --------------
PREFERRED STOCK OF SUBSIDIARY:
Not subject to mandatory redemption. . . . . . . . . . . . . . . . 440,000 440,000
Subject to mandatory redemption. . . . . . . . . . . . . . . . . . 68,990 68,990
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,425,984 6,417,225
------------ --------------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . 10,152,018 10,096,357
------------ --------------
CURRENT LIABILITIES:
Long-term debt due within one year . . . . . . . . . . . . . . . . . . 312,240 312,240
Sinking fund requirements on redeemable preferred stock of subsidiary. 7,620 7,620
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,461 197,124
Payable on outstanding bank checks . . . . . . . . . . . . . . . . . . 16,531 39,306
Customers' deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 15,782 17,148
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,103 6,254
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,681 132,236
Accrued vacation pay . . . . . . . . . . . . . . . . . . . . . . . . . 38,782 38,727
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,877 91,877
------------ --------------
807,077 842,532
------------ --------------
REGULATORY AND OTHER LIABILITIES (NOTE3):
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . . . 1,547,774 1,511,417
Liability for indexed swap contracts . . . . . . . . . . . . . . . . . 678,512 693,363
Employee pension and other benefits. . . . . . . . . . . . . . . . . . 242,732 235,376
Unbilled gas revenues. . . . . . . . . . . . . . . . . . . . . . . . . 25,252 30,652
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,189 231,490
------------ --------------
2,747,459 2,702,298
------------ --------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 3):
Liability for environmental restoration . . . . . . . . . . . . . . . 220,000 220,000
------------ --------------
$13,926,554 $ 13,861,187
============ ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
-------- ---------
(In thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,832 $ 11,140
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 94,816 87,950
Amortization of MRA regulatory asset. . . . . . . . . . . . . . . . 96,625 -
Amortization of nuclear fuel. . . . . . . . . . . . . . . . . . . . 9,182 8,461
Provision for deferred income taxes . . . . . . . . . . . . . . . . 36,357 54,863
Net accounts receivable . . . . . . . . . . . . . . . . . . . . . . (176,668) (100,644)
Materials and supplies. . . . . . . . . . . . . . . . . . . . . . . 41,444 26,313
Accounts payable and accrued expenses . . . . . . . . . . . . . . . (53,394) (31,949)
Accrued interest and taxes. . . . . . . . . . . . . . . . . . . . . 72,294 43,980
MRA regulatory asset. . . . . . . . . . . . . . . . . . . . . . . . (7,534) -
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . 130,411 -
Changes in other assets and liabilities . . . . . . . . . . . . . . (16,048) 17,886
------------ ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . 278,317 118,000
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,315) (123,518)
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,524) (6,230)
------------ ----------
Acquisition of utility plant. . . . . . . . . . . . . . . . . . . . . . . . . (68,839) (129,748)
Materials and supplies related to construction. . . . . . . . . . . . . . . . 1,568 (2,646)
Accounts payable and accrued expenses related to construction . . . . . . . . (13,349) (7,987)
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,074 75,124
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,065 6,070
------------- ----------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . (21,481) (59,187)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) (789)
------------- ----------
NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . (24) (789)
------------- ----------
NET INCREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,812 58,024
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,998 378,232
------------ ----------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 429,810 $ 436,256
============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,485 $ 54,774
Income taxes paid (refunded). . . . . . . . . . . . . . . . . . . . . . . . . $ (134,999) $ 304
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
On March 18, 1999, Holdings issued 187,364,863 shares of commons stock
in a share-for-share exchange for Niagara Mohawk's outstanding common stock.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------ ----------
(In thousands of dollars)
<S> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . $ 849,746 $ 863,169
Gas . . . . . . . . . . . . . . . . . . . 246,275 235,235
------------ ----------
1,096,021 1,098,404
------------ ----------
OPERATING EXPENSES:
Fuel for electric generation. . . . . . . 57,094 47,198
Electricity purchased . . . . . . . . . . 160,965 324,350
Gas purchased . . . . . . . . . . . . . . 107,346 115,452
Other operation and maintenance expenses. 203,292 262,362
Amortization of MRA regulatory asset. . . 96,625 -
Depreciation and amortization . . . . . . 94,692 87,950
Other taxes . . . . . . . . . . . . . . . 121,723 126,795
------------ ----------
841,737 964,107
------------ ----------
OPERATING INCOME. . . . . . . . . . . . . . . 254,284 134,297
Other income (deductions) . . . . . . . . . . (3,839) 4,225
------------ ----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . 250,445 138,522
Interest charges. . . . . . . . . . . . . . . 130,275 65,590
------------ ----------
INCOME BEFORE FEDERAL AND FOREIGN
INCOME TAXES. . . . . . . . . . . . . . . 120,170 72,932
Federal and foreign income taxes. . . . . . . 60,314 52,569
------------ ----------
NET INCOME (NOTE 1) . . . . . . . . . . . . . 59,856 20,363
Dividends on preferred stock. . . . . . . . . 9,024 9,223
------------ ----------
BALANCE AVAILABLE FOR COMMON STOCK. . . . . . $ 50,832 $ 11,140
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 December 31,
(UNAUDITED) 1998
----------- ------------
(In thousands of dollars)
<S> <C> <C>
UTILITY PLANT:
Electric plant . . . . . . . . . . . . . . . . . . . $ 8,918,920 $ 8,826,650
Nuclear fuel . . . . . . . . . . . . . . . . . . . . 627,737 604,213
Gas plant. . . . . . . . . . . . . . . . . . . . . . 1,217,409 1,179,716
Common plant . . . . . . . . . . . . . . . . . . . . 357,930 349,066
Construction work in progress. . . . . . . . . . . . 363,813 471,802
----------- -------------
Total utility plant . . . . 11,485,809 11,431,447
Less - Accumulated depreciation and amortization . . 4,641,719 4,553,488
----------- -------------
Net utility plant . . . . . 6,844,090 6,877,959
----------- -------------
OTHER PROPERTY AND INVESTMENTS. . . . . . . . . . . . . . . . 335,124 411,106
----------- -------------
CURRENT ASSETS:
Cash, including temporary cash investments
of $325,015 and $122,837, respectively . . . . 340,192 172,998
Accounts receivable (less allowance for doubtful
accounts of $57,500 and $47,900, respectively) 587,173 427,588
Materials and supplies, at average cost:
Coal and oil for production of electricity . . 31,699 42,299
Gas storage. . . . . . . . . . . . . . . . . . 9,951 38,803
Other. . . . . . . . . . . . . . . . . . . . . 114,936 118,855
Refundable Federal income taxes. . . . . . . . . . . - 130,411
Prepaid taxes. . . . . . . . . . . . . . . . . . . . 61,397 17,282
Other. . . . . . . . . . . . . . . . . . . . . . . . 6,361 22,208
----------- -------------
1,151,709 970,444
----------- -------------
REGULATORY ASSETS (NOTE 3):
MRA regulatory asset. . . . . . . . . . . . . . . . 3,955,603 4,045,647
Indexed swap contracts regulatory asset . . . . . . 521,800 535,000
Regulatory tax asset. . . . . . . . . . . . . . . . 425,898 425,898
Deferred environmental restoration costs (Note 2) . 220,000 220,000
Unamortized debt expense. . . . . . . . . . . . . . 50,383 51,922
Postretirement benefits other than pensions . . . . 51,760 52,701
Other . . . . . . . . . . . . . . . . . . . . . . . 122,511 137,061
----------- -------------
5,347,955 5,468,229
----------- -------------
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 124,601 133,449
----------- -------------
$13,803,479 $ 13,861,187
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 December 31,
(UNAUDITED) 1998
----------- ------------
(In thousands of dollars)
<S> <C> <C>
CAPITALIZATION:
COMMON STOCKHOLDERS' EQUITY:
Common stock - $1 par value; authorized 250,000,000;
issued 187,364,863 . . . . . . . . . . . . . . . . . . . . $ 187,365 $ 187,365
Capital stock premium and expense. . . . . . . . . . . . . . . . 2,362,529 2,362,531
Accumulated other comprehensive income . . . . . . . . . . . . . (4,538) (25,794)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 552,407 646,040
------------ --------------
3,097,763 3,170,142
------------ --------------
CUMULATIVE PREFERRED STOCK, AUTHORIZED 3,400,000 SHARES, $100 PAR VALUE:
Non-redeemable (optionally redeemable), issued 2,100,000 shares. 210,000 210,000
Redeemable (mandatorily redeemable), issued 204,000 shares . . . 18,600 18,600
CUMULATIVE PREFERRED STOCK, AUTHORIZED 19,600,000 SHARES, $25 PAR VALUE:
Non-redeemable (optionally redeemable), issued 9,200,000 shares. 230,000 230,000
Redeemable (mandatorily redeemable), issued 2,248,403 shares . . 50,390 50,390
------------ --------------
508,990 508,990
------------ --------------
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,425,984 6,417,225
------------ --------------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . 10,032,737 10,096,357
------------ --------------
CURRENT LIABILITIES:
Long-term debt due within one year . . . . . . . . . . . . . . . . . 312,240 312,240
Sinking fund requirements on redeemable preferred stock. . . . . . . 7,620 7,620
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 146,029 197,124
Payable on outstanding bank checks . . . . . . . . . . . . . . . . . 16,531 39,306
Customers' deposits. . . . . . . . . . . . . . . . . . . . . . . . . 15,782 17,148
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,246 6,254
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . 157,681 132,236
Accrued vacation pay . . . . . . . . . . . . . . . . . . . . . . . . 38,782 38,727
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,995 91,877
------------ --------------
797,906 842,532
------------ --------------
REGULATORY AND OTHER LIABILITIES (NOTE3):
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . . 1,553,370 1,511,417
Liability for indexed swap contracts . . . . . . . . . . . . . . . . 678,512 693,363
Employee pension and other benefits. . . . . . . . . . . . . . . . . 242,732 235,376
Unbilled gas revenues. . . . . . . . . . . . . . . . . . . . . . . . 25,252 30,652
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,970 231,490
------------ --------------
2,752,836 2,702,298
------------ --------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 3):
Liability for environmental restoration . . . . . . . . . . . . . . 220,000 220,000
------------ --------------
$13,803,479 $ 13,861,187
============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------------- ----------
(In thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,856 $ 20,363
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . 94,692 87,950
Amortization of MRA regulatory asset . . . . . . . . 96,625 -
Amortization of nuclear fuel . . . . . . . . . . . . 9,182 8,461
Provision for deferred income taxes. . . . . . . . . 36,357 54,863
Net accounts receivable. . . . . . . . . . . . . . . (176,668) (100,644)
Materials and supplies . . . . . . . . . . . . . . . 41,444 26,313
Accounts payable and accrued expenses. . . . . . . . (53,394) (31,949)
Accrued interest and taxes . . . . . . . . . . . . . 72,294 43,980
MRA regulatory asset . . . . . . . . . . . . . . . . (7,534) -
Refundable federal income taxes. . . . . . . . . . . 130,411 -
Changes in other assets and liabilities. . . . . . . (16,048) 17,886
------------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . 287,217 127,223
------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions . . . . . . . . . . . . . . . . . . . . (45,315) (123,518)
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . (23,524) (6,230)
------------- ----------
Acquisition of utility plant . . . . . . . . . . . . . . . . . (68,839) (129,748)
Materials and supplies related to construction . . . . . . . . 1,568 (2,646)
Accounts payable and accrued expenses related to construction. (13,349) (7,987)
Other investments. . . . . . . . . . . . . . . . . . . . . . . 58,074 75,124
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,189 6,070
------------- ----------
NET CASH USED IN INVESTING ACTIVITIES . . (21,357) (59,187)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (9,024) (9,223)
Corporate restructuring to establish holding company . . . . . (89,618) -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) (789)
------------- ----------
NET CASH USED IN FINANCING ACTIVITIES . . . (98,666) (10,012)
------------- ----------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . 167,194 58,024
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . 172,998 378,232
------------- ----------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . $ 340,192 $ 436,256
============= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . $ 95,485 $ 54,774
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . $ (134,999) $ 304
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
On March 18, 1999, Niagara Mohawk's outstanding common stock was exchanged
on a share-for-share basis for Holdings' common stock.
On March 31, 1999, Niagara Mohawk distributed the stock of Opinac as a
dividend to Holdings, which included cash of $89.6 million.
The accompanying notes are an integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HOLDING COMPANY FORMATION: On March 18, 1999, Niagara Mohawk Power Corporation
("Niagara Mohawk") was reorganized into a holding company structure in
accordance with its Agreement and Plan of Exchange between Niagara Mohawk and
Niagara Mohawk Holdings, Inc. ("Holdings"). Niagara Mohawk's outstanding common
stock was exchanged on a share-for-share basis for Holdings' common stock.
Niagara Mohawk's preferred stock was not exchanged as part of the share exchange
and will continue as shares of Niagara Mohawk.
SUBSIDIARIES: On March 31, 1999, Niagara Mohawk distributed its ownership in
the stock of Opinac North America, Inc. ("Opinac") as a dividend to Holdings.
As a result, the net assets and accumulated other comprehensive income of
Opinac are no longer included in Niagara Mohawk's consolidated balance sheet
as of March 31, 1999. The dividend completes the holding company structure,
with Holdings owning the stock of its two subsidiaries, Niagara Mohawk and
Opinac. Niagara Mohawk and its subsidiaries manage all regulated activities
and comprise 99 percent of the assets and 98 percent of the revenues of
Holdings. Opinac and its subsidiaries manage all other activities including
an energy marketing company and investments in energy related services.
BASIS OF PRESENTATION: This Quarterly Report on Form 10-Q is a combined report
of Holdings and Niagara Mohawk, a regulated electric and gas utility subsidiary.
The Notes to the Consolidated Financial Statements apply to both Holdings and
Niagara Mohawk. Holdings' consolidated financial statements include the
accounts of Holdings and its wholly owned subsidiaries, including Niagara
Mohawk. Niagara Mohawk's consolidated financial statements include its
accounts as well as those of its wholly owned subsidiaries.
Holdings' prior period consolidated financial statements have been prepared from
Niagara Mohawk's prior period consolidated financial statements, except that
accounts have been reclassified to reflect Holdings' structure.
Holdings and Niagara Mohawk, in the opinion of management, have included all
adjustments (which include normal recurring adjustments) necessary for a fair
statement of the results of operations for the interim periods presented. These
financial statements for 1999 are subject to adjustment at the end of the year
when they will be audited by independent accountants. These financial
statements and notes thereto should be read in conjunction with the financial
statements and notes for the years ended December 31, 1998, 1997 and 1996
included in Niagara Mohawk's 1998 Annual Report on Form 10-K.
Niagara Mohawk's electric sales tend to be substantially higher in summer and
winter months as related to weather patterns in its service territory; gas sales
tend to peak in the winter. Notwithstanding other factors, Niagara Mohawk's
quarterly net income will generally fluctuate accordingly. Therefore, the
earnings for the three-month period ended March 31, 1999 should not be taken as
an indication of earnings for all or any part of the balance of the year. It is
expected that the closing of the MRA, which occurred on June 30, 1998, and the
implementation of POWERCHOICE will result in substantially depressed earnings
during the five-year term of POWERCHOICE, but that operating cash flows will
substantially improve.
COMPREHENSIVE INCOME: Comprehensive income is the change in the equity of a
company, not including those changes that result from shareholder transactions.
While the primary component of comprehensive income is reported net income or
loss, the other components of comprehensive income relate to foreign currency
translation adjustments, additional minimum pension liability recognition and
unrealized gains and losses associated with certain investments held as
available for sale. The difference in comprehensive income between Holdings and
Niagara Mohawk is the treatment of Niagara Mohawk's preferred dividends. Total
comprehensive income for the three months ended March 31, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Company: 1999 1998
- ------------------ ------ -----
(in millions)
<S> <C> <C>
Holdings. . . . $ 42.8 $ 16.5
Niagara Mohawk 51.8 25.8
</TABLE>
NEW ACCOUNTING STANDARD: In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities." The new standard requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from the changes in the
values of the derivatives will be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. Holdings and Niagara
Mohawk will be required to adopt this standard in 2000. Niagara Mohawk has
identified the indexed swap contracts, entered into as part of the MRA, as
derivative instruments and has recorded a liability at fair value under SFAS No.
80, "Accounting for Futures Contracts." These indexed swap contracts qualify as
hedges of future purchase commitments and will continue to qualify as hedges
under SFAS No. 133. Holdings and Niagara Mohawk continue to assess the
applicability of this new standard to other contractual obligations.
NOTE 2. CONTINGENCIES
ENVIRONMENTAL ISSUES: The public utility industry typically utilizes and/or
generates in its operations a broad range of hazardous and potentially hazardous
wastes and by-products. Niagara Mohawk believes it is handling identified
wastes and by-products in a manner consistent with federal, state and local
requirements and has implemented an environmental audit program to identify any
potential areas of concern and aid in compliance with such requirements.
Niagara Mohawk is also currently conducting a program to investigate and
remediate, as necessary to meet current environmental standards, certain
properties associated with former gas manufacturing and other properties which
Niagara Mohawk has learned may be contaminated with industrial waste, as well as
investigating identified industrial waste sites as to which it may be determined
that Niagara Mohawk has contributed. Niagara Mohawk has also been advised that
various federal, state or local agencies believe certain properties require
investigation and has prioritized the sites based on available information in
order to enhance the management of investigation and remediation, if necessary.
Niagara Mohawk is currently aware of 136 sites with which it has been or may be
associated, including 84 which are Niagara Mohawk-owned. With respect to
non-owned sites, Niagara Mohawk may be required to contribute some proportionate
share of remedial costs. Although one party can, as a matter of law, be held
liable for all of the remedial costs at a site, regardless of fault, in practice
costs are usually allocated among PRPs. Niagara Mohawk has denied any
responsibility at certain of these PRP sites and is contesting liability
accordingly.
Investigations at each of the Niagara Mohawk-owned sites are designed to (1)
determine if environmental contamination problems exist; (2) if necessary,
determine the appropriate remedial actions; and (3) where appropriate, identify
other parties who should bear some or all of the cost of remediation. Legal
action against such other parties will be initiated where appropriate. After
site investigations are completed, Niagara Mohawk expects to determine
site-specific remedial actions and to estimate the attendant costs for
restoration. However, since investigations are ongoing for most sites, the
estimated cost of remedial action is subject to change.
Estimates of the cost of remediation and post-remedial monitoring are based upon
a variety of factors, including identified or potential contaminants; location,
size and use of the site; proximity to sensitive resources; status of regulatory
investigation and knowledge of activities at similarly situated sites.
Additionally, Niagara Mohawk's estimating process includes an initiative where
these factors are developed and reviewed using direct input and support obtained
from the New York State Department of Environmental Conservation ("DEC").
Actual Niagara Mohawk expenditures are dependent upon the total cost of
investigation and remediation and the ultimate determination of Niagara Mohawk's
share of responsibility for such costs, as well as the financial viability of
other identified responsible parties since clean-up obligations are joint and
several. Niagara Mohawk has denied any responsibility at certain of these PRP
sites and is contesting liability accordingly.
As a consequence of site characterizations and assessments completed to date and
negotiations with PRPs, Niagara Mohawk has accrued a liability in the amount of
$220 million, which is reflected in Niagara Mohawk's and Holdings' Consolidated
Balance Sheets at March 31, 1999 and December 31, 1998. The potential high end
of the range is presently estimated at approximately $750 million, including
approximately $340 million in the unlikely event Niagara Mohawk is required to
assume 100% responsibility at non-owned sites. The amount accrued at March 31,
1999 and December 31, 1998 incorporates a method to estimate the liability for
22 of Niagara Mohawk's largest sites, which relies upon a decision analysis
approach. This method includes developing several remediation approaches for
each of the 22 sites, using the factors previously described, and then assigning
a probability to each approach. The probability represents Niagara Mohawk's
best estimate of the likelihood of the approach occurring using input received
directly from the DEC. The probable costs for each approach are then calculated
to arrive at an expected value. While this approach calculates a range of
outcomes for each site, Niagara Mohawk has accrued the sum of the expected
values for these sites. The amount accrued for Niagara Mohawk's remaining sites
is determined through feasibility studies or engineering estimates, Niagara
Mohawk's estimated share of a PRP allocation or where no better estimate is
available, the low end of a range of possible outcomes is used. In addition,
Niagara Mohawk has recorded a regulatory asset representing the remediation
obligations to be recovered from ratepayers. POWERCHOICE provides for the
continued application of deferral accounting for expense recognition resulting
from this effort.
In October 1997, Niagara Mohawk submitted a draft feasibility study to the DEC,
which included Niagara Mohawk's Harbor Point site and five surrounding non-owned
sites. The study indicates a range of viable remedial approaches and associated
cost estimates, however, a final determination has not been made concerning the
remedial approach to be taken. This range consists of a low end of $21 million
and a high end of $360 million, with an expected value calculation of $56
million, which is included in the amounts accrued at March 31, 1999 and December
31, 1998. The range represents the total costs to remediate the properties and
does not consider contributions from other PRPs, the amount of which Niagara
Mohawk is unable to estimate. Niagara Mohawk has received comments from the
DEC on the draft feasibility study, which will facilitate completion of the
feasibility study phase by the end of 1999. At this time, Niagara Mohawk cannot
predict the nature of the DEC proposed remedial action plan or the range of
remediation costs the DEC will require. While Niagara Mohawk does not expect to
be responsible for the entire cost to remediate these properties, it is not
possible at this time to determine its share of the cost of remediation.
In May 1995, Niagara Mohawk filed a complaint, pursuant to applicable Federal
and New York State law, in the U.S. District Court for the Northern District of
New York against several defendants seeking recovery of past and future costs
associated with the investigation and remediation of the Harbor Point and
surrounding sites. The New York State Attorney General moved to dismiss Niagara
Mohawk's claims against the state of New York, the New York State Department of
Transportation and the Thruway Authority and Canal Corporation under the
Comprehensive Environmental Response, Compensation and Liability Act. Niagara
Mohawk opposed this motion. On April 3, 1998, the Court denied the New York
State Attorney General's motion as it pertains to the Thruway Authority and
Canal Corporation, and granted the motion relative to the state of New York and
the Department of Transportation. On January 12, 1999, a pre-trial status
conference was convened by the Court. The Court issued a case management order
that currently calls or the close of discovery by the end of June 1999 and
establishes December 1, 1999 as the trial ready date. As a result, Niagara
Mohawk cannot predict the outcome of the pending litigation against the
defendants or the allocation of Niagara Mohawk's share of the costs to remediate
the Harbor Point and surrounding sites.
NOTE 3. RATE AND REGULATORY ISSUES AND CONTINGENCIES
Holdings' and Niagara Mohawk's financial statements conform to GAAP, including
the accounting principles for rate-regulated entities with respect to its
regulated operations. Niagara Mohawk discontinued application of regulatory
accounting principles to its fossil and hydro generation business as of December
31, 1996. Substantively, SFAS No. 71 permits a public utility, regulated on a
cost-of-service basis, to defer certain costs, which would otherwise be charged
to expense, when authorized to do so by the regulator. These deferred costs are
known as regulatory assets, which in the case of Niagara Mohawk are
approximately $5.3 billion at March 31, 1999. These regulatory assets are
probable of recovery.
Under POWERCHOICE, a regulatory asset was established for the costs of the MRA
and will be amortized over a period generally not to exceed ten years. Niagara
Mohawk's rates under POWERCHOICE have been designed to permit recovery of the
MRA regulatory asset.
Niagara Mohawk, as part of the MRA, entered into restated contracts with eight
IPPs. The contracts have a term of ten years and are structured as indexed swap
contracts where Niagara Mohawk receives or makes payments to the IPP Parties
based upon the differential between the contract price and a market reference
price for electricity. Niagara Mohawk has recorded the liability for these
contractual obligations and recorded a corresponding regulatory asset since
payments under these restated contracts are authorized under POWERCHOICE. The
indexed swap contract regulatory asset represents the fair value of the
difference between the estimated future market prices and the indexed contract
prices for the notional quantities of power in the restated PPA contracts and
will be amortized over ten years ending in June 2008, as notional quantities are
settled. The amount of this regulatory asset will fluctuate as estimates of
future market and contract prices change over the term of the contracts, and
will decrease over the life of the contracts as notional quantities are settled.
In the quarter ended March 31, 1999, there have been no changes in the
assumptions and estimates used to value the indexed swap contract asset or
liability. The reduction in the regulatory asset for the indexed swap contracts
is due to the settlement of notional quantities.
Under POWERCHOICE, Niagara Mohawk's remaining electric business (nuclear
generation and electric transmission and distribution business) will continue to
be rate-regulated on a cost-of-service basis and, accordingly, Niagara Mohawk
continues to apply SFAS No. 71 to these businesses. Also, Niagara Mohawk's IPP
contracts, including those restructured under the MRA, will continue to be the
obligations of the regulated business.
The Emerging Issues Task Force ("EITF") of the FASB reached a consensus on Issue
No. 97-4 "Deregulation of the Pricing of Electricity - Issues Related to the
Application of SFAS No. 71 and SFAS No. 101" in July 1997. EITF 97-4 does not
require a company to earn a return on regulatory assets that arise from a
deregulating transition plan in assessing the applicability of SFAS No. 71.
Niagara Mohawk believes that the regulated cash flows to be derived from prices
it will charge for electric service over the next ten years, including the
Competitive Transition Charge ("CTC") assuming no unforeseen reduction in demand
or bypass of the CTC or exit fees, will be sufficient to recover the MRA
regulatory asset and to provide recovery of and a return on the remainder of its
assets, as appropriate. In the event Niagara Mohawk determines, as a result of
lower than expected revenues and/or higher than expected costs, that its net
regulatory assets are not probable of recovery, it can no longer apply the
principles of SFAS No. 71 and would be required to record an after-tax non-cash
charge against income for any remaining unamortized regulatory assets and
liabilities. If Niagara Mohawk could no longer apply SFAS No. 71, the resulting
charge would be material to Holdings' and Niagara Mohawk's reported financial
condition and results of operations and adversely effect Niagara Mohawk's, and
therefore Holdings' ability to pay dividends.
POWERCHOICE requires Niagara Mohawk to divest its portfolio of fossil and hydro
generating assets. As of March 31, 1999, Niagara Mohawk has entered into
agreements to sell its hydroelectric generating plants, its coal-fired stations
and its Oswego oil and gas-fired plant for $860 million. Niagara Mohawk is
pursuing the sale of its remaining oil and gas-fired plant at Albany and its 25%
ownership in the Roseton Steam Station, which have a combined book value of
approximately $78 million as of March 31, 1999.
The POWERCHOICE agreement provides for deferral and future recovery of net
losses, if any, resulting from the sale of the portfolio. For the announced
sales, Niagara Mohawk estimates its net loss (stranded costs) to be in the range
of $60 to $70 million. A regulatory asset will be recorded for the amount of
the actual net loss upon the closing of the sales transactions. The amount of
the regulatory asset is subject to change as a result of closing adjustments on
the announced sales, any delays in closing, transaction costs, and the outcome
of the sale of the remaining fossil assets. Not included in the estimated range
of the loss is the amount of incentive Niagara Mohawk is entitled to under
POWERCHOICE. This amount cannot be determined until all sales are concluded.
The estimated range of loss also excludes any accounting requirements relating
to the transition power agreements ("TPAs"). Niagara Mohawk will be able to
begin recovery of the losses and incentives starting in 2003.
On January 28, 1999, Niagara Mohawk announced plans to pursue the sale of its
nuclear assets. A sale of the nuclear plants will require approval by, among
others, the PSC, FERC, NRC, and the SEC. A sale would be contingent upon
Niagara Mohawk's recovery of stranded costs created by the sale. Niagara Mohawk
is unable to predict if a sale will occur and the timing of such sale.
NOTE 4. SEGMENT INFORMATION
Holdings is organized between regulated and unregulated activities. Within the
regulated business, Niagara Mohawk, which has 99% of total assets and 98% of
total revenues, there are three principal business units: Energy Delivery,
Nuclear and Fossil/Hydro. As discussed above, Niagara Mohawk is in the process
of selling its fossil and hydro assets. Although there are three identified
business units, financial performance and resource allocation are measured and
managed at the regulated business level.
Holdings' unregulated activities do not meet the reporting thresholds of SFAS
No. 131, but comprise a substantial portion of "other" in the accompanying
table.
<TABLE>
<CAPTION>
(In thousands of dollars)
For the three months ended Total Economic Identifiable
March 31, Revenues Value Added Assets
- -------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
1999
REGULATED. . . . . . . . . $ 1,096,021 $ (130,805) $ 13,803,479
OTHER. . . . . . . . . . . 23,385 (7,878) 123,418
ELIMINATIONS . . . . . . . (272) - (343)
--------------- ------------- --------------
TOTAL CONSOLIDATED . $ 1,119,134 $ (138,683) $ 13,926,554
========================== =============== ============= ==============
1998
Regulated. . . . . . . . . $ 1,098,404 $ (140,892) $ 9,560,924
Other. . . . . . . . . . . 66,169 (9,577) 146,659
Eliminations . . . . . . . (676) - -
--------------- ------------- --------------
Total Consolidated . $ 1,163,897 $ (150,469) $ 9,707,583
========================== =============== ============= ==============
</TABLE>
Holdings and Niagara Mohawk use a shareholder value based management system.
The measure of shareholder value creation is Economic Value Added ("EVA").
EVA is the financial measure used to evaluate projects, allocate resources
and report and provide performance incentives.
EVA is calculated as Net Operating Profit after Taxes less a charge for the use
of capital employed. The capital charge is determined by applying a rate
representing an estimate of investors' expected return given the risk of the
business and a targeted capital structure. The rate is not the same as the
embedded cost of capital, and in particular, does not reflect the return on
equity that may be established in a rate proceeding. Certain adjustments to
accounting data are made to more closely reflect operating or economic results.
For the three months ending March 31, 1999 and 1998, an adjustment is made to
include the recognition of the liability for remaining future over-market
contracts with IPPs and the corresponding recognition of imputed interest on
that liability. In addition, there was a significant adjustment for the three
months ending 1998 to reflect the re-capitalization for EVA purposes of the
incremental operating expense associated with the January 1998 ice storm.
EVA is further segmented between EVA from Operations and EVA related to the
IPPs. This distinction is used to allow management to focus on operating
performance separate from the consequences of the IPP contracts, the MRA
regulatory asset and finance decisions related to managing the capitalization of
Holdings.
A reconciliation of total segment EVA to total consolidated net income for the
three months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
(in thousands of dollars) 1999 1998
- ------------------------------------- -------------- -----------
<S> <C> <C>
Economic Value Added:
Operations. . . . . . . . . . . . $ (11,221) $ (46,239)
IPP - Related . . . . . . . . . . (127,462) (104,230)
-------------- ----------
Total Economic Value Added. . . . . . (138,683) (150,469)
Charge for Use of Investor's Capital. 299,414 308,920
Adjustments for Significant Items . . (14,634) (93,140)
Interest Charges (net of taxes) . . . (86,241) (44,948)
Niagara Mohawk Preferred Dividends. . (9,024) (9,223)
-------------- ----------
Consolidated Net Income. . . . . . $ 50,832 $ 11,140
============== ==========
</TABLE>
<PAGE>
REVIEW BY INDEPENDENT ACCOUNTANTS
Holdings and Niagara Mohawk's independent accountants, PricewaterhouseCoopers
LLP, have made limited reviews (based on procedures adopted by the American
Institute of Certified Public Accountants) of the unaudited Consolidated Balance
Sheets of Niagara Mohawk Holdings, Inc. and its subsidiary companies, as of
March 31, 1999 and 1998, and the related unaudited consolidated statements of
income and of cash flows for the three-month periods ended March 31, 1999 and
1998 and the unaudited Consolidated Balance Sheets of Niagara Mohawk Power
Corporation and its subsidiary companies as of March 31, 1999 and 1998 and the
related unaudited Consolidated Statements of Income and of cash flows for the
three-month periods ended March 31, 1999 and 1998. The accountants' report
regarding their limited reviews of the Form 10-Q of Niagara Mohawk Holdings and
its subsidiaries, and Niagara Mohawk Power Corporation and its subsidiaries
appears on the next page. That report does not express an opinion on the
interim unaudited consolidated financial information. PricewaterhouseCoopers
LLP has not carried out any significant or additional audit tests beyond those
which would have been necessary if their report had not been included.
Accordingly, such report is not a "report" or "part of the Registration
Statement" within the meaning of Sections 7 and 11 of the Securities Act of 1933
and the liability provisions of Section 11 of such Act do not apply.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, NY 13202
We have reviewed the condensed consolidated balance sheets of Niagara Mohawk
Holdings, Inc. and its subsidiaries as of March 31, 1999 and 1998 (not presented
herein), and the related condensed consolidated statements of income and cash
flows for the three month periods ended March 31, 1999 and 1998, and the
condensed consolidated balance sheets of Niagara Mohawk Power Corporation and
its subsidiaries as of March 31, 1999 and 1998 (not presented herein), and the
related condensed consolidated statements of income and of cash flows for the
three month periods ended March 31, 1999 and 1998. These financial statements
are the responsibility of Niagara Mohawk Holdings, Inc.'s management and Niagara
Mohawk Power Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding he financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet of Niagara Mohawk Power Corporation as of
December 31, 1998, and the related consolidated statements of income, and
retained earnings, of cash flows and of comprehensive income for the year then
ended (not presented herein), and in our report dated January 28, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
SYRACUSE NY
May 17, 1999
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements included in this Quarterly Report on Form 10-Q are
forward-looking statements as defined in Section 21E of the Securities Exchange
Act of 1934 that involve risk and uncertainty, including the improvement in
Holdings' and Niagara Mohawk's cash flow upon the implementation of the MRA and
POWERCHOICE, the timing and outcome of the future sale of Niagara Mohawk's
fossil, hydro and nuclear generation assets, the conclusion of the Unit 1
refueling outage, and the outcome of the Niagara Mohawk's transition to a new
customer service system. In addition, certain statements made related to the
year 2000 readiness program are also forward-looking (see "Year 2000 Readiness
Disclosure"). These forward-looking statements are based upon a number of
assumptions, including assumptions regarding the POWERCHOICE agreement and
regulatory actions to continue to support such an agreement. Actual future
results and developments may differ materially depending on a number of factors,
including regulatory changes either by the federal government or the PSC,
uncertainties regarding the ultimate impact on Holdings and Niagara Mohawk as
the regulated electric and gas industries are further deregulated and
electricity and gas suppliers gain open access to Niagara Mohawk's retail
customers, challenges to the POWERCHOICE agreement under New York laws, the
timing and extent of changes in commodity prices and interest rates, the effects
of weather, the length and frequency of outages at Niagara Mohawk's two nuclear
plants, the results from Niagara Mohawk's ongoing sale of its generation assets,
length of the transition period to Niagara Mohawk's new customer service system,
and the economic conditions of Niagara Mohawk's service territory.
POWERCHOICE AGREEMENT
Niagara Mohawk's POWERCHOICE Agreement was approved by the PSC in a written
order issued March 20, 1998. Niagara Mohawk consummated its MRA Agreement with
certain IPP Parties on June 30, 1998 and implemented the rate reductions under
POWERCHOICE effective September 1, 1998 upon PSC approval of the rate tariff
schedules.
The POWERCHOICE agreement establishes a five-year rate plan that will reduce
class average residential and commercial prices by an aggregate of 3.2% over the
first three years, beginning September 1, 1998. The reduction in prices
includes certain savings that will result from approved reductions of the GRT.
Industrial customers will see average reductions of 25% relative to 1995
tariffs; these decreases will include discounts currently offered to some
industrial customers through optional and flexible rate programs.
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
August 1999. Currently, some customers are able to choose their electricity
supplier. The Company will continue to distribute electricity through its
transmission and distribution systems and will be obligated to be the provider
of last resort for those customers who do not exercise their right to choose a
new electricity supplier.
In early October 1998, the Alliance for Municipal Power ("AMP"), a group of 21
towns and villages in St. Lawrence and Franklin Counties pursuing
municipalization, and Alfred P. Coppola ("Coppola"), a Councilman from the City
of Buffalo, commenced an Article 78 Proceeding in Albany County Supreme Court
that challenged the PSC's decision to approve POWERCHOICE and the PSC's decision
that denied the petitions of Alliance for Municipal Power and Coppola for
rehearing before the Commission. The Article 78 Petition sought to vacate the
decision of the PSC approving POWERCHOICE provisions relating to the
determination and recovery of strandable costs through the application of a
competitive transition charge and exit fees. The PSC has made a motion to
dismiss the Article 78 Petition in this matter. On March 11, 1999, the Albany
County Supreme Court dismissed in its entirety, the petition of Coppola and also
dismissed AMP's petition to the extent that it challenged the determination and
recovery of stranded costs through the application of CTCs and exit fees.
However, the Court did order the PSC to respond to AMP's claim that the PSC
failed to act on discovery requests seeking information about exit fees. The
parties are negotiating a resolution of that matter by means of Niagara Mohawk
providing AMP with information on the calculation of exit fees. On May 7, 1999,
Niagara Mohawk provided AMP with an updated exit fee of approximately $150
million if calculated using the method prescribed by POWERCHOICE and the PSC,
but the amount could be as high as $272 million if it is calculated using the
method prescribed by FERC. Recently, AMP filed a motion to re-argue with the
Supreme Court and has also filed a notice of appeal from the decision of the
lower court. Niagara Mohawk is unable to predict the outcome of this matter.
Suspension of POWERCHOICE or renegotiation of its material terms could have a
material adverse effect on Holdings' and Niagara Mohawk's results of
operations, financial condition, and future cash flows. For a further
discussion of Niagara Mohawk's stranded cost recovery in the case of
municipalization, see Niagara Mohawk's Form 10-K for fiscal year ended
December 1, 1998, Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - "FERC Rulemaking on Open Access
and Stranded Cost Recovery").
In its written Order dated May 6, 1998, the PSC approved Niagara Mohawk's plan
to divest all of its fossil and hydro generation assets, which is a key
component in its POWERCHOICE agreement to lower average electricity prices and
provide customer choice. Niagara Mohawk has previously announced agreements to
sell its hydro and coal-fired generation assets. See Niagara Mohawk's Form 10-K
for fiscal year ended December 31, 1998, Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
"Master Restructuring Agreement and the POWERCHOICE Agreement" for discussion of
such agreements and associated transition power agreements. On April 1, 1999,
Niagara Mohawk announced another agreement with NRG to sell its 88 percent share
of its oil and gas-fired generating plant in Oswego for $80 million. The Oswego
generating station has a book value of approximately $325 million and a capacity
of 1,496 megawatts. Niagara Mohawk anticipates that the transaction closing
will occur later in 1999, once appropriate regulatory approval is obtained.
Niagara Mohawk has also signed a transition power agreement ("TPA") with NRG
for electricity from the Oswego plant. The terms of the TPA, which is one part
of the integrated transaction for the sale of the Oswego plant, provides
primarily for capacity payments, with payments for a nominal quantity of energy.
Niagara Mohawk continues to pursue the sale of its oil and gas-fired plant in
Albany, which has a net book value of approximately $38 million. Niagara Mohawk
is unable to predict the outcome or timing of the divestiture of its Albany
plant. Niagara Mohawk plans to sell its interest in the Roseton plant, which
has a net book value of approximately $40 million, through an auction by the
operator of the plant, Central Hudson Gas and Electric Corporation. Central
Hudson Gas and Electric Corporation has indicated that the sale is expected to
conclude in 2000. The auction of the fossil and hydro assets will serve to
quantify any stranded costs associated with Niagara Mohawk's fossil and hydro
generating assets. Niagara Mohawk will have a reasonable opportunity to recover
these costs through the CTC and otherwise as described above. The POWERCHOICE
agreement provides for deferral and future recovery of net losses, resulting
from the sale of the assets. For the announced sales, Niagara Mohawk estimates
its net loss (stranded costs) to be in the range of $60 to $70 million. A
regulatory asset will be recorded for the amount of the actual net loss upon
closing of the sales transactions. The amount of the regulatory asset is
subject to change as a result of closing adjustments on the announced sales, any
delays in closing, transaction costs, and the outcome of the sale of the
remaining fossil assets. Not included in the estimated range of the net loss is
the amount of incentive Niagara Mohawk is entitled to under POWERCHOICE. This
amount cannot be determined until all sales are concluded. The estimated range
of net loss also excludes any accounting requirements relating to the TPAs.
Niagara Mohawk will be able to begin recovery of the losses and incentives
starting in 2003.
After the auction process is complete, Niagara Mohawk has agreed not to own any
non-nuclear generating assets in the state of New York, subject to certain
exceptions provided in the POWERCHOICE agreement. Under the terms of the note
indenture prepared in connection with the financing of the MRA, Niagara Mohawk
is obligated to use 85% of the proceeds of the sale of its generation assets to
reduce outstanding debt. Proceeds on the announced sales are expected to
aggregate $860 million.
The POWERCHOICE agreement contemplated that Niagara Mohawk's nuclear plants
would remain part of its regulated business. The POWERCHOICE agreement
stipulates that absent a statewide solution, Niagara Mohawk will file a detailed
plan for analyzing other proposals regarding its nuclear assets, including the
feasibility of an auction, transfer and/or divestiture of such facilities,
within 24 months of the POWERCHOICE settlement. On January 28, 1999, Niagara
Mohawk announced plans to pursue the sale of its nuclear assets. At March 31,
1999, the net book value of Niagara Mohawk's nuclear generating assets was
approximately $1.6 billion, excluding the reserve for decommissioning. In
addition, Niagara Mohawk has other nuclear related assets of approximately
$0.5 billion. These others assets include the decommissioning trusts and
regulatory assets, primarily related to income taxes. A sale of the nuclear
plants will require approval by, among others, the PSC, FERC, NRC, and the SEC.
A sale would be contingent upon Niagara Mohawk's recovery of stranded costs
created by the sale. Niagara Mohawk is unable to predict if a sale will
occur and the timing of such sale.
The POWERCHOICE agreement also allowed Niagara Mohawk to form a holding company,
which Niagara Mohawk's shareholders approved at its 1998 annual meeting.
Niagara Mohawk received approval from the FERC, PSC, NRC and the SEC to form the
holding company. Niagara Mohawk was reorganized into a holding company structure
in accordance with its Agreement and Plan of Exchange with Niagara Mohawk
Holdings, Inc. on March 18, 1999. The outstanding shares of Niagara Mohawk's
common stock, 1.00 par value were exchanged on a share-for-share basis for
Holdings' common stock, par value of $0.01. Niagara Mohawk then became a
subsidiary of Holdings. Niagara Mohawk's preferred stock and debt were not
exchanged and will remain securities of Niagara Mohawk. Holdings is authorized
to issue 50,000,000 shares of its own preferred stock. Holdings' common stock
is listed on the New York Stock Exchange under the symbol NMK and Niagara
Mohawk's common stock was delisted. The POWERCHOICE agreement also outlines
various affiliate rules between Niagara Mohawk and its affiliated companies.
The holding company structure is intended to provide Holdings 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.
The holding company structure will permit Holdings to participate in unregulated
business opportunities as the industry evolves.
<PAGE>
FERC RULEMAKING ON OPEN ACCESS
(See Niagara Mohawk's Form 10-K for fiscal year ended December 31, 1998, Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation - "FERC Rulemaking on Open Access and Stranded Cost
Recovery.")
In April 1996, the FERC issued Order 888. Order 888 promotes competition by
requiring that public utilities owning, operating, or controlling interstate
transmission facilities file tariffs which offer others the same transmission
services they provide for themselves, under comparable terms and conditions. In
addition, FERC Order 888, required the NYPP to file reformed power pooling
agreements that establish open, non-discriminatory membership provisions and
modify any provisions that are unduly discriminatory or preferential. On
January 31, 1997, the NYPP Member Systems (the "Member Systems") submitted a
comprehensive proposal to establish a NYISO, a New York State Reliability
Council ("NYSRC") and a New York Power Exchange ("NYPE") that will foster a
fully competitive wholesale electricity market in New York State.
On June 24, 1998, FERC gave the Member Systems conditional approval to form the
NYISO and since that time several filings and settlements have been made. On
January 27, 1999, FERC conditionally approved the NYISO tariff subject to
certain modifications and on April 30, 1999, the Member Systems made a
Compliance Filing to address the modifications FERC required to be made to the
NYISO tariff. In addition, market trials began in January 1999 and will be
conducted as required prior to the NYISO start up. While Niagara Mohawk is
unable to predict when FERC will rule on the Member Systems' April 30, 1999
filing, or future filings on NYISO governance revisions, it does believe that
progress is being made in New York State toward more competitive market for
electricity, consistent with the POWERCHOICE restructuring agreement.
<PAGE>
FUTURE OF THE REGULATED NATURAL GAS INDUSTRY
(See Niagara Mohawk's Form 10-K for fiscal year ended December 31, 1998, Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation - "Other Federal and State Regulatory Initiatives - Future
of the Natural Gas Industry.")
In November 1998, the PSC issued its Policy Statement concerning the Future of
the Natural Gas Industry in New York State and Order Terminating Capacity
Assignment ("PSC Policy Statement"). The PSC Policy Statement envisions a
transitional time frame for local gas distribution companies ("LDC") to exit the
business of purchasing natural gas, and required the LDCs, including Niagara
Mohawk to submit plans outlining their rate and restructuring plans. Niagara
Mohawk has complied with the PSC Policy Statement and has filed several
proposals including its November 1998 pilot program to eliminate mandatory
capacity assignment and notification of continuation of certain capacity
assignment. Most recently, on March 11, 1999, Niagara Mohawk filed its Gas
Multi-Year Rate and Restructuring Proposal. The proposal addresses the
following issues:
(a) Niagara Mohawk's strategy for holding new contracts to a minimum, with
no planned new capacity contracting, holding enough capacity upstream of
CNG to meet design winter requirements for firm sales customers and
contract reductions to the extent possible without jeopardizing
reliability.
(b) Quantification of Niagara Mohawk's potential stranded costs and proposed
full pass-through Gas Adjustment Clause ("GAC") to recover these costs,
which are estimated to range from approximately $10 to $53 million over
the three year rate case period. The range of the potential stranded
costs is based on an estimate of the number of customers that may migrate
from Niagara Mohawk as their gas supplier to a gas marketer.
(c) A long term rate plan for the three years beginning November 1, 1999, in
which average natural gas prices would increase no more than 2.5 percent
commencing November 1, 1999, about half a percent in November 2000 and
less than two percent in November 2001.
(d) A consumer education program that will facilitate customer participation
in the commodity market through a generalized awareness program and
community based training.
(e) A plan to file for unbundled rates, which was filed on May 1, 1999.
Niagara Mohawk expects to enter into settlement discussions with PSC staff and
other interested parties regarding this proposal, but cannot predict the
outcome of such discussions.
<PAGE>
NUCLEAR MATTERS
UNIT 1: Some owners of older General Electric Company boiling water reactors,
including Niagara Mohawk, have experienced cracking in horizontal welds in the
plants' core shrouds. In response to industry findings, Niagara Mohawk
installed preemptive modifications to the Unit 1 core shroud during a 1995
refueling and maintenance outage. The core shroud, a stainless steel cylinder
inside the reactor vessel, surrounds the fuel and directs the flow of reactor
water through the fuel assemblies. Inspections conducted as part of the March
1997 refueling and maintenance outage detected cracking in vertical welds not
reinforced by the 1995 repairs. Subsequently, Niagara Mohawk filed a
comprehensive inspection and analysis report with the NRC that concluded that
the condition of the Unit 1 core shroud supported the safe operation of the
plant, and obtained NRC approval to operate Unit 1 until the Unit's next
scheduled refueling and maintenance outage in 1999, at which time the core
shroud would be reinspected. Niagara Mohawk developed a repair plan that would
be accomplished during the outage if inspections indicated that repairs were
needed. The refueling and maintenance outage at Unit 1 began on April 11, 1999.
During the core shroud reinspection, indications of crack growth within growth
rate analyzed limits were identified around a portion of one of the welds.
After careful examination and analysis, Niagara Mohawk decided to install a
repair modification on two of the shroud's vertical welds. A damaged tie rod,
previously installed to address horizontal shroud cracks was also identified.
As a result, all four rods will be repaired to correct a design deficiency.
The estimated cost of these repairs, as well as others that have extended the
duration of the refueling outage, are not expected to have a material impact on
results of operations. The plant is expected to return to service in the first
week of June 1999, slightly beyond the original expected return to service
date.
<PAGE>
YEAR 2000 READINESS DISCLOSURE
As the year 2000 approaches, Niagara Mohawk, along with other companies, could
experience potentially serious operational problems, since many computer
programs that were developed in the past may not properly recognize calendar
dates beginning with year 2000. Further, there are embedded chips contained
within generation, transmission, distribution, gas, and other equipment that may
be date sensitive. In circumstances where an embedded chip fails to recognize
the correct date, electric, gas and business operations could be adversely
affected.
PLAN: Niagara Mohawk formed a year 2000 project management office and year 2000
project managers were appointed within each business group. A year 2000 program
vice-president and an executive level steering committee were put in place to
oversee all aspects of the program. In addition to Niagara Mohawk personnel,
Niagara Mohawk has retained the services of leading computer service and
consulting firms specializing in computer systems and embedded components, which
are involved in various phases of the project. Also, Niagara Mohawk is working
closely with industry groups such as the Electric Power Research Institute
("EPRI"), North American Electric Reliability Council ("NERC"), Nuclear Energy
Institute, Nuclear Utilities Software Management Group, and other utilities. In
addition, the PSC is requiring that New York utilities have mission critical
year 2000 work, including a contingency plan, completed by July 1, 1999, and the
Nuclear Regulatory Commission is requiring Niagara Mohawk to certify that its
two nuclear plants will be year 2000 ready by July 1, 1999. A plan was
developed that established phases of the work to be done. The phases are:
- - an inventory of all systems and equipment, (including a physical walkdown
of all of the Company's substations),
- - an assessment of all systems and equipment and definition of next steps,
- - remediation,
- - testing and validation,
- - acceptance and deployment,
- - independent validation, and
- - contingency planning.
As part of the assessment phase, all the systems and equipment were prioritized
into four categories based upon their functional need and importance. The
priorities are:
- - Priority 1 - Any failure or regulatory breach that can cause an
interruption to the generation or delivery of electric or gas energy to
customers, or can jeopardize the safety of any employee, customer, or the
general public (e.g. the Energy Management System that controls the flow of
electricity and communicates information between the control center and
sub-stations).
- - Priority 2 - Any failure that can cause an interruption to customer
service or breach of significant regulatory contractual or financial
commitment (e.g. meter reading equipment).
- - Priority 3 - Any failure that can inconvenience a business partner or
significantly impact a Niagara Mohawk business group productivity (e.g.
electronic payments to vendors).
- - Priority 4 - Any failure that can adversely impact a Niagara Mohawk work
group or personal productivity, or other business processes (e.g.
applications used on a desk top computer used to accomplish day-to-day
productivity activities).
Although Niagara Mohawk has identified seven different phases of the project,
in some cases the phases are done concurrently. For example, individual
computers may be completely tested and redeployed while others are still being
remediated. Information obtained within the phases is reviewed by a subject
matter expert panel consisting of employees and consultants. Additional testing
may be performed based on the importance of the component and a recommendation
of the panel. Complete integration and interface testing will be performed on
components and systems whenever possible.
Niagara Mohawk's primary focus is on priorities 1 and 2 because of the direct
impact on customers. Although Niagara Mohawk's plan addresses completion of
all priority items prior to July 1, 1999, some exceptions may not be addressed
completely. These are scheduled, however, to be completed prior to January 1,
2000.
Niagara Mohawk's progress with its year 2000 issues for priority items 1 and 2
are as follows:
PHASE STATUS ESTIMATED COMPLETION DATE
- ---------------------- --------------- -------------------------
- - Inventory Complete
- - Assessment Complete
- - Remediation In-progress December 1998 - May 1999
- - Testing In-progress March 1999 - May 1999
- - Acceptance In-progress March 1999 - June 1999
- - Validation In-progress October 1999
- - Contingency Planning In-progress December 1998 - June 1999
Note: Each business group within Niagara Mohawk has its own schedule. The
estimated completion dates above may show a range due to different
schedules within each business group.
RISKS: Like any organization, Niagara Mohawk is dependent upon many third
parties, including suppliers of energy and materials (e.g. independent power
producers), service providers, transporters, and the government. These third
parties provide services vital to Niagara Mohawk and year 2000 problems at these
companies could adversely affect electric and gas operations. One such example
is that Niagara Mohawk expects that by the year 2000, it will be purchasing the
majority of its electric generation needs. If any of these suppliers has a year
2000 failure, it could interrupt energy supply to Niagara Mohawk's customers.
Another example of such a vital third party is telephone companies. If the
telephone companies have year 2000 failures, this could in turn affect Niagara
Mohawk's customer response capabilities and its ability to operate and maintain
the transmission and distribution system that carries electricity to businesses
and customer homes. To address these third party issues, Niagara Mohawk has
requested certificates of compliance from third parties. To date, Niagara
Mohawk has received some responses, but disclosure has been limited. Niagara
Mohawk will continue to follow up with third parties to verify the accuracy of
responses when Niagara Mohawk's relationship with such third parties is material
for its operations. However, Niagara Mohawk may not be able to verify accuracy
in all cases. With respect to generation suppliers, Niagara Mohawk has had a
higher level of contact and believes there will be an adequate amount of supply
available. The inability of suppliers to complete their year 2000 readiness
process could materially adversely impact Niagara Mohawk.
Niagara Mohawk is connected to an electric grid that links utilities throughout
the United States and Canada. This interconnection is essential to the
reliability and operational integrity of the connected utilities. If one of the
electric utilities in the grid has a failure, it could cause power fluctuations
and possible interruption of others in the grid. As a result, even if Niagara
Mohawk did an effective job of becoming compliant, it could still have customer
interruptions. Niagara Mohawk is working closely with NYPP, NERC, other
utilities, EPRI, and other industry groups to address the issue of grid
reliability.
Niagara Mohawk's gas distribution system also has the potential to be adversely
impacted by year 2000 noncompliance either by third parties or if its program
fails to identify and remediate all problem areas. From the third party natural
gas production and transmission facilities, to Niagara Mohawk's distribution
pipeline system, and ultimately, to the customer, there are computer systems and
equipment with date sensitive processing. If, despite Niagara Mohawk's and
third party's best efforts, a year 2000 failure occurs, the flow of gas to the
customer could be jeopardized.
As an example, Niagara Mohawk is connected directly to three major transmission
pipelines, and has an indirect connection with a fourth. If these pipelines are
unable to provide full gas delivery, Niagara Mohawk would implement standing
emergency procedures that could interrupt customers. To avoid such an event,
Niagara Mohawk is working with the pipelines and state agencies to reduce the
probability of any customer interruptions due to year 2000 problems.
The failure to correct for year 2000 problems, either by Niagara Mohawk or third
parties, could result in significant disruptions of Niagara Mohawk operations.
While massive disruptions due to year 2000 failures are believed to be unlikely
by both the electric and gas industries and by Niagara Mohawk, they cannot be
ruled out. Localized disruptions, similar to storm damage related disruptions
caused by unforeseen failures, either within Niagara Mohawk or by a critical
third party, such as voice or data links, are believed to be the most reasonably
likely worst case scenario for Niagara Mohawk based upon current knowledge
regarding its condition of readiness and the state of readiness of third
parties. Niagara Mohawk's business systems may also be affected by a year 2000
related failure that could temporarily interrupt the ability to communicate with
customers, collect revenue, or complete cash transactions. In addition, no
assurances can be given that the systems of vendors, interconnected utilities,
power producers and customers will not result in year 2000 problems. Since the
expected impact of these scenarios on Niagara Mohawk's operations, cash flow and
financial position cannot be determined, there is no assurance that they would
not be material. However, Niagara Mohawk's contingency plans are designed to
address these potential failures and mitigate their long-term effect.
CONTINGENCY PLANS: Niagara Mohawk's year 2000 schedules also include the
development and implementation of contingency plans in the event of year 2000
failures, both within Niagara Mohawk and by third parties. Niagara Mohawk
expects to have plans for priority 1 and 2 items completed by July 1, 1999.
Niagara Mohawk's Emergency Planning manager is responsible for overseeing and
assisting the business groups in the creation of their contingency plans. The
contingency plans will vary by business group and by the various priority levels
for different systems and equipment. A schedule has been created to track
progress of these plans.
Niagara Mohawk's contingency plans include staffing of all critical substations
and availability of backup communication systems believed to be immune from year
2000 impact. Additional staffing will be provided as needed at other Niagara
Mohawk owned generation, transmission, and distribution control points for both
gas and electric infrastructure.
On April 9, 1999, Niagara Mohawk, along with approximately 200 other electric
utilities across the United States, participated in a drill coordinated by NERC.
NERC has reported that overall, the drill was a successful exercise of backup
voice systems and manual procedures needed to operate the electric power grids
of the United States and Canada in the unlikely event of a loss of
communications due to year 2000 failures.
COSTS: Niagara Mohawk estimates that total program costs will approximate $33.3
million of which approximately $23.3 million will be expensed and $10 million
will be capitalized. Total program costs incurred through March 31, 1999 are
$13.9 million of which $9.8 million was expensed and $4.1 million was
capitalized. Niagara Mohawk expects to fund the total program costs through
operating cash flows. For a discussion of the costs of large computer projects
that Niagara Mohawk recently implemented and were year 2000 compliant, see
Niagara Mohawk's Form 10-K for the fiscal year ended December 31, 1998, Part II,
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - "Year 2000 Readiness Disclosure."
Certain statements included in this discussion regarding year 2000 compliance
are forward-looking statements as defined in Section 21E of the Securities
Exchange Act of 1934. These statements include management's best estimates for
completion dates for the various phases and priorities, testing to be performed,
costs to be spent for compliance, and the risks associated with non-compliance
either by Niagara Mohawk or third parties. These forward-looking statements are
subject to various factors which may materially affect Niagara Mohawk's efforts
with year 2000 compliance. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, which could cause a change in the estimated
completion date of a particular phase, the ability to locate and correct all
relevant software and embedded components, the compliance of critical vendors,
as well as neighboring utilities, and similar uncertainties. Niagara Mohawk's
assessments of the effects of year 2000 on Niagara Mohawk are based, in part,
upon information received from third parties and other utilities, and Niagara
Mohawk's reasonable reliance on that information. Therefore, the risk that
inaccurate information is supplied by third parties and other utilities upon
which Niagara Mohawk reasonably relied must be considered as a risk factor that
might affect Niagara Mohawk's year 2000 efforts. Niagara Mohawk is attempting
to reduce the risks by utilizing an organized approach, extensive testing and
contingency planning, and allowance of ample contingency time to address issues
identified by tests.
<PAGE>
FINANCIAL POSITION
Holdings' and Niagara Mohawk's capital structure at March 31, 1999 and December
31, 1998, was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
% 1999 1998
- ------------------------------ --------- ------------
<S> <C> <C>
HOLDINGS:
Long-term debt . . . . . . . . 64.4 64.6
Preferred stock of subsidiary. 4.9 4.9
Common equity. . . . . . . . 30.7 30.5
NIAGARA MOHAWK:
Long-term debt . . . . . . . 65.2 64.6
Preferred stock. . . . . . . . 4.9 4.9
Common equity. . . . . . . . . 29.9 30.5
</TABLE>
The culmination of the MRA has significantly increased the leverage of Niagara
Mohawk and Holdings. Through the anticipated increased operating cash flow
resulting from the MRA and POWERCHOICE agreement, including the proceeds from
the sale of the fossil and hydro generation assets, the planned rapid repayment
of debt should reduce the leverage in the capital structure of both entities.
Book value of Holdings' common stock was $17.17 per share at March 31, 1999, as
compared to $16.92 at December 31, 1998.
EBITDA for the 12 months ended March 31, 1999, was $1,245 million for Holdings,
an increase of approximately $400 million compared to the 12 months ended March
31, 1999. This increase is generated almost entirely by Niagara Mohawk. The
improvement in EBITDA is derived primarily from the impacts of the MRA and
POWERCHOICE. EBITDA represents earnings before interest charges, interest
income, income taxes, depreciation and amortization, amortization of nuclear
fuel, allowance for funds used during construction, non-cash regulatory
deferrals and other amortizations, and extraordinary items. EBITDA is a
non-GAAP measure of cash flows and is presented to provide additional
information about Holdings' and Niagara Mohawk's ability to meet its future
requirements for debt service. EBITDA should not be considered an alternative
to net income as an indicator of operating performance or as an alternative to
cash flows, as presented on the Consolidated Statement of Cash Flows, as a
measure of liquidity.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
(See Niagara Mohawk's Form 10-K for fiscal year ended December 31, 1998, Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation - "Financial Position, Liquidity and Capital Resources").
As of March 31, 1999, Niagara Mohawk has $275 million of borrowing capability
under the senior bank facility that expires on June 1, 2000. Also, Niagara
Mohawk has the ability to issue first mortgage bonds to the extent that there
have been redemptions since June 30, 1998. In addition, Niagara Mohawk is
obligated to use 85 percent of the proceeds of the sale of its generation assets
to reduce debt outstanding. The proceeds on the announced sales are expected to
aggregate $860 million.
NET CASH PROVIDED BY OPERATING ACTIVITIES increased $160.3 million for Holdings
and $160.0 million for Niagara Mohawk in the three months ended March 31, 1999
primarily due to Niagara Mohawk's receipt of federal income tax refunds in
January 1999 totaling approximately $135 million and improved operating cash
flow due to the impacts of the MRA and POWERCHOICE. (See Niagara Mohawk's Form
10-K for the fiscal year ended December 31, 1998, Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
"Financial Position, Liquidity and Capital Resources"). Offsetting these
improvements in the first quarter was a reduction in the amount of accounts
receivable sold through cash management.
Holdings' and Niagara Mohawk's NET CASH USED IN INVESTING ACTIVITIES decreased
$37.7 and $37.8 million, respectively in the three months ended March 31, 1999
as compared to the same period in 1998. In the first quarter of 1998, Niagara
Mohawk incurred higher capital additions in response to the 1998 ice storm.
Niagara Mohawk's NET CASH USED IN FINANCING ACTIVITIES decreased $88.7 million
due to the dividend and related cash transfer of Opinac to Holdings on March 31,
1999.
<PAGE>
RESULTS OF OPERATIONS
The following discussion presents the material changes in results of operations
for the three months ended March 31, 1999 in comparison to the same period in
1998. The results of operations reflect the seasonal nature of the business,
with peak electric loads in summer and winter periods. Gas sales peak
principally in the winter. The earnings for the three-month period should not
be taken as an indication of earnings for all or any part of the balance of the
year. Furthermore, future results of operations will be different from the
past in view of the June 30, 1998 termination, restatement or amendment of IPP
contracts and the implementation of POWERCHOICE. With the consummation of the
MRA and the implementation of POWERCHOICE effective September 1, 1998, Holdings
and Niagara Mohawk expect reported earnings for the five years subsequent to
POWERCHOICE to be substantially depressed as a result of the regulatory
treatment of the MRA regulatory asset. The anticipated effect of the
seasonality factor when coupled with the impact of the MRA and POWERCHOICE
would be to record a significantly higher percentage of income earned in the
first quarter compared to earnings for the balance of each year. This
discussion should also be read in conjunction with other financial and
statistical information appearing elsewhere in this report.
THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------
Holdings:
- ---------
Earnings for the first quarter of 1999 were $50.8 million or 27 cents per
share, as compared with Niagara Mohawk earnings of $11.1 million or 8 cents per
share for the first quarter of 1998. Income earned during the first quarter of
1999 will be a very significant component of earnings for the entire year.
First quarter 1999 earnings reflect the impact from Niagara Mohawk's MRA and
POWERCHOICE, which have resulted in lower aggregate fuel and purchased
electricity costs, partly offset by increased interest costs, and improved
earnings by $57.7 million or 31 cents per share. However, the amortization of
the MRA regulatory asset had a non-cash expense impact of $62.8 million or 34
cents per share. In addition, the amount of income tax expense is affected by
the level of income and the effective income tax rate. Changes in the magnitude
of tax benefits which are flowed through to customers in relation to total
pre-tax income is the principal factor causing variability in the effective tax
rate. Earnings for the first quarter of 1998 reflect the incremental costs of
the 1998 Ice Storm, which reduced earnings by $40.9 million or 28 cents per
share.
Niagara Mohawk:
- ---------------
Niagara Mohawk earnings for the first quarter of 1999 were the same as Holdings
other than the treatment of Niagara Mohawk's preferred dividend payments.
However, future earnings of Niagara Mohawk will differ from Holdings by the
earnings contribution of Opinac due to the dividend of Niagara Mohawk's interest
in Opinac to Holdings on March 31, 1999.
REVENUES
- --------
In mid-February 1999, Niagara Mohawk implemented a new Customer Service System
("CSS"). The CSS replaces existing order, billing, collections and other
infrastructural systems and is designed to provide real-time information as well
as a more flexible and streamlined billing system. The new CSS also provides
retail access and unbundled bill functionality required under POWERCHOICE, and
addresses Year 2000 compliance. These capabilities could not be developed in
the existing systems.
Niagara Mohawk, as well as other companies that have implemented similar CSS
projects have experienced transition periods, characterized by significantly
higher customer call volumes and complaints, billing and data accumulation and
reporting issues, and other problems that impact productivity and costs. In
implementing a system as complex as CSS, Niagara Mohawk anticipated that the
transition would also be complicated by changes in the information and choices
provided to customers pursuant to POWERCHOICE. Niagara Mohawk has taken steps
prior to and during the transition period to prioritize and respond to emerging
issues. Although the length and degree of the transition period cannot
presently be predicted, Niagara Mohawk is aware that transition periods at
other companies have been six months or longer.
On May 11, 1999, Niagara Mohawk was directed to file a report by May 19, 1999
with the PSC and the New York State Consumer Protection Board detailing steps
taken by Niagara Mohawk in response to problems with the CSS system. The report
will also outline how Niagara Mohawk intends to rectify on-going problems.
The transition period presents several financial exposures. Although there are
known billing issues, Niagara Mohawk believes that overall recorded revenues, as
presented in the tables below, fairly reflect the revenues of Niagara Mohawk
over this period. Outstanding accounts receivables have increased, and Niagara
Mohawk has increased the reserve for bad debts by approximately $10 million to
provide for the increased exposure to collection risk. POWERCHOICE provides for
penalties in the event certain customer related performance metrics are not met.
Although actual customer service related performance has deteriorated, Niagara
Mohawk has not yet exceeded penalty thresholds. The maximum penalty for PSC
complaints and residential customer satisfaction is $4.4 million per year.
Finally, in managing the transition period, Niagara Mohawk is evaluating the
allocation of resources. Niagara Mohawk is assessing the increased cost it will
incur to complete the transition to CSS, taking into consideration a
reprioritization of other activities, with the goal that such costs will not
have a material impact on financial position and cash flow. However, such costs
could ultimately have a material impact on expected results of operation.
<TABLE>
<CAPTION>
ELECTRIC REVENUE (THOUSANDS)
----------------------------------------
%
1999 1998 Change
------------ ----------- ------
<S> <C> <C> <C>
REGULATED:
Residential. . . . . $ 375,145 $ 336,434 11.5
Commercial . . . . . 316,059 310,038 1.9
Industrial . . . . . 103,645 123,470 (16.1)
Industrial - Special 16,386 15,977 2.6
Other. . . . . . . . 11,965 14,576 (17.9)
----------- ----------- ------
Regulated Total to
Ultimate Consumers. 823,200 800,495 2.8
Other Electric Systems. 12,291 32,923 (62.7)
Miscellaneous . . . . . 14,255 29,751 (52.1)
------------ ----------- ------
Total Regulated . . . . 849,746 863,169 (1.6)
UNREGULATED:
Wholesale & Retail . 14,932 50,352 (70.3)
------------ ----------- ------
TOTAL . . . . . . . . . $ 864,678 $ 913,521 (5.3)
============ =========== ======
</TABLE>
REGULATED ELECTRIC REVENUES decreased $13.4 million or 1.6% from the first
quarter of 1998. The new CSS system has converted all customers previously
billed on a bi-monthly basis to a monthly basis, which has resulted in an
increase in billed revenue, with corresponding decreases in accrued unbilled
revenues. In accordance with POWERCHOICE, Niagara Mohawk recognizes
changes in accrued unbilled electricrevenues in its results of operations,
whereas, in the first quarter of 1998,the effects of the changes in accrued
unbilled revenues were deferred. As a result, miscellaneous revenues, which
include the unbilled revenues, have decreased by approximately $15.5 million.
Industrial revenues have decreased in the first quarter of 1999 as compared to
1998 due to lower POWERCHOICE rates and industrial customers switching energy
providers as a result of open access. Although the industry is moving towards
open access, Niagara Mohawk still receives revenues from the delivery of energy,
which is reflected as miscellaneous revenues. Therefore overall electric
revenues were not materially impacted by open access. There were no significant
unanticipated sales variances during the quarter.
UNREGULATED ELECTRIC REVENUES decreased $35.4 million or 70.3% from the first
quarter of 1998 primarily as a result of Niagara Mohawk Energy, Inc. ("Niagara
Mohawk Energy") having reduced trading activities.
THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
GAS REVENUE (THOUSANDS)
-----------------------------------
%
1999 1998 Change
------------ ----------- ------
<S> <C> <C> <C>
REGULATED:
Residential. . . . . $ 168,980 $ 160,664 5.2
Commercial . . . . . 56,238 55,053 2.2
Industrial . . . . . 1,194 1,546 (22.8)
----------- ----------- ------
Regulated Total to
Ultimate Consumers. 226,412 217,263 4.2
Transportation of
Customer-Owned Gas 16,344 16,685 (2.0)
Spot Market Sales 286 38 652.6
Miscellaneous . . . 3,233 1,249 158.8
------------ ----------- ------
Total Regulated . . . . 246,275 235,235 4.7
UNREGULATED:
Wholesale & Retail . 8,132 14,922 (45.5)
------------ ----------- ------
TOTAL . . . . . . . . . $ 254,407 $ 250,157 1.7
============ =========== ======
</TABLE>
REGULATED GAS REVENUES increased $11.0 million or 4.7% in the first quarter of
1999 from the comparable period in 1998, primarily as a result of an increase in
sales to residential customers. This increase is attributable to colder weather
in the first quarter of 1999 as compared to the first quarter in 1998. Although
sales increased, the cost of gas supplied decreased. Since the cost of gas
delivered is a pass-through to customers, gas revenues will fluctuate as gas
commodity costs fluctuate. Revenues and sales also increased as a result of
beginning to bill customers on a monthly basis rather than a bi-monthly basis.
Most customers that were billed on a bi-monthly basis were residential.
Pursuant to the gas settlement changes in accrued unbilled gas revenues are
deferred.
UNREGULATED GAS REVENUES decreased $6.8 million or 45.5% in the first quarter of
1999 from the comparable period in 1998, primarily as a result of Niagara Mohawk
Energy having reduced trading activity. As a result, unregulated gas sales have
also decreased.
OPERATING EXPENSES
- ------------------
THREE MONTHS ENDED MARCH 31,
(NIAGARA MOHAWK ONLY)
<TABLE>
<CAPTION>
GWH COST (MILLIONS) CENTS/KWH
------------------------ ------------------------ ------------
1999 1998 % Chg 1999 1998 % Chg 1999 1998
------ ------- ------- ------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REGULATED FUEL FOR ELECTRIC GENERATION:
Coal . . . . . . . . . . . . . . . . 1,859 1,875 (0.9) $ 28.0 $ 28.3 (1.1) 1.5 1.5
Oil. . . . . . . . . . . . . . . . . 516 155 232.9 14.0 5.4 159.3 2.7 3.5
Natural Gas. . . . . . . . . . . . . 37 52 (28.8) 0.8 2.7 (70.4) 2.2 5.2
Nuclear. . . . . . . . . . . . . . . 2,342 2,226 5.2 11.3 10.5 7.6 0.5 0.5
Hydro. . . . . . . . . . . . . . . . 728 900 (19.1) - - - - -
------ -------- ------- ------- ------- ------- ----- -----
5,482 5,208 5.3 54.1 46.9 15.4 1.0 0.9
Deferral . . . . . . . . . . . 3.0 0.3 900.0
------ -------- ------- ------- ------- ------- ----- -----
Total electric generation . . . 5,482 5,208 5.3 57.1 47.2 21.0 1.0 0.9
------ -------- ------- ------- ------- ------- ----- -----
ELECTRICITY PURCHASED:
REGULATED:
IPPs:
Capacity . . . . . . . . . . $ 3.7 $ 54.4 (93.2)
Energy and taxes . . . . . . . 2,105 3,404 (38.2) 127.7 239.8 (46.7) 6.1 7.0
------- -------- ------- ------- ------- ------- ----- -----
Total IPP purchases . . . . 2,105 3,404 (38.2) 131.4 294.2 (55.3) 6.2 8.6
Other purchases . . . . . . . . . 2,074 1,981 4.7 29.3 24.4 20.1 1.4 1.2
------- -------- ------- ------- ------- ------- ----- -----
Sub-total regulated purchases. 4,179 5,385 (22.4) 160.7 318.6 (49.6) 3.8 5.9
------- -------- ------- ------- ------- ------- ----- -----
Deferral. . . . . . . . . . . . . 0.3 5.7 (94.7)
------- -------- ------- ------- ------- ------- ----- -----
Total regulated purchases . . . 4,179 5,385 (22.4) 161.0 324.3 (50.4) 3.9 6.0
------- -------- ------- ------- ------- ------- ----- -----
Total . . . . . . . . 9,661 10,593 (8.8) $218.1 $371.5 (41.3) 2.3 3.5
======= ======== ======= ======= ======= ======= ===== =====
</TABLE>
Niagara Mohawk's ELECTRICITY PURCHASED decreased $163.3 million or 50.4% in the
first quarter of 1999, primarily as a result of decreased payments to IPPs. The
decrease in IPP purchases is primarily the result of the MRA agreement, which
resulted in the termination of 18 PPAs for 1,092 MW, restatement of eight PPAs
for 535 MW and the amendment of one PPA for 42 MW.
As a result, Niagara Mohawk's load requirements were met to a greater extent
from internal sources, which resulted in an increase in FUEL FOR ELECTRIC
GENERATION of $9.9 million as compared to the first quarter in 1998. In
accordance with POWERCHOICE, the electric fuel adjustment clause was
discontinued. However, during the first quarter of 1999, Niagara Mohawk
recorded a $3.0 million liability to customers resulting from PSC audit
adjustments of prior years fuel costs.
Holdings' FUEL FOR ELECTRIC GENERATION and ELECTRICITY PURCHASED is explained by
Niagara Mohawk's activity, as well as a decrease in unregulated supply costs of
$36.3 million or 71.7% in the first quarter of 1999, primarily due to lower
sales.
Niagara Mohawk's GAS PURCHASED expense decreased $8.1 million in the first
quarter of 1999. This was a result of a 4.7 million decrease in Dth purchased
and withdrawn from storage for ultimate consumer sales ($15.8 million), a $9.2
million decrease in purchased gas costs and certain other items recognized and
recovered through the regulated gas commodity cost adjustment clause and a 12.5
% decrease in the average cost per Dth purchased ($14.9 million). These
decreases were offset by a $0.2 million increase in spot market sales (sales for
resale), which are generally from higher priced gas, and therefore, yield
margins that are substantially lower than traditional sales to ultimate
customers. Niagara Mohawk's net cost per Dth sold, as charged to expense,
excluding spot market purchases, decreased to $2.79 in 1999 from $3.19 in 1997.
Holdings' GAS PURCHASED expense reflects Niagara Mohawk's activity, as well as a
decrease of $7.3 million in the first quarter of 1999 primarily as a result of
lower unregulated sales.
OTHER OPERATION AND MAINTENANCE EXPENSES for both Holdings and Niagara Mohawk
have decreased primarily as a result of the 1998 Ice Storm charges incurred
during the first quarter of 1998.
Holdings' and Niagara Mohawk's OTHER INCOME decreased primarily due to the
recording of the MRA debt interest rate savings liability.
Holdings' and Niagara Mohawk's INTEREST CHARGES increased by $64.7 million
mainly due to the debt incurred as part of the MRA.
The increase in Holdings' and Niagara Mohawk's FEDERAL AND FOREIGN INCOME TAXES
of approximately $7.7 million is due to higher first quarter book taxable
income offset in part by a lower effective tax rate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There were no material changes in Holdings market risk or market risk strategies
during the quarter ended March 31, 1999. For a detail discussion of market
risk, see Niagara Mohawk's Form 10-K for fiscal period ended December 31, 1998,
Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
Inter-Power Litigation
- -----------------------
In March 1993, Inter-Power of New York, Inc. ("Inter-Power") filed a complaint
against Niagara Mohawk and certain of its officers and employees in the NYS
Supreme Court. Inter-Power alleged, among other matters, fraud, negligent
misrepresentation and breach of contract in connection with Niagara Mohawk's
alleged termination of a PPA in January 1993. The plaintiff sought enforcement
of the original contract or compensatory and punitive damages in an aggregate
amount that would not exceed $1 billion, excluding pre-judgment interest.
In early 1994, the NYS Supreme Court dismissed two of the plaintiff's
claims; this dismissal was upheld by the Appellate Division, Third Department of
the NYS Supreme Court. Subsequently, the NYS Supreme Court granted Niagara
Mohawk's motion for summary judgment on the remaining causes of action in
Inter-Power's complaint. In August 1994, Inter-Power appealed this decision and
on July 27, 1995, the Appellate Division, Third Department affirmed the granting
of summary judgment as to all counts, except for one dealing with an alleged
breach of the PPA relating to Niagara Mohawk's having declared the agreement
null and void on the grounds that Inter-Power had failed to provide it with
information regarding its fuel supply in a timely fashion. This one breach of
contract claim was remanded to the NYS Supreme Court for further consideration.
In January 1998, the NYS Supreme Court granted Niagara Mohawk's motion for
summary judgment on the sole remaining claim in this lawsuit and dismissed this
lawsuit in its entirety. In January 1998, Inter-Power filed a notice of appeal
and perfected the appeal in October 1998. The appeal was argued before the
Appellate Division, Third Department, on January 15, 1999. On March 18, 1999,
the Appellate Division, Third Department affirmed the dismissal of the last
remaining cause of action. On April 30, 1999, Inter-Power filed with the Court
of Appeals a motion seeking leave of court to file an appeal in this matter
and on May 10, 1999, Niagara Mohawk filed its response. Niagara Mohawk is
unable to predict the timing and outcome of this matter.
NorCon Litigation
- -----------------
On February 4, 1994, Niagara Mohawk notified NorCon Partners, LP ("NorCon") of
its demand for adequate assurance that NorCon would perform all of their future
repayment obligations as required by agreement.
On March 7, 1994, NorCon filed a complaint in the U.S. District Court seeking to
enjoin Niagara Mohawk from terminating a PPA between the parties and seeking a
declaratory judgment that Niagara Mohawk has no right to demand additional
security or other assurances of NorCon's future performance under the PPA.
NorCon sought a temporary restraining order against Niagara Mohawk to prevent
Niagara Mohawk from taking any action on its February 4, 1994 letter. On March
14, 1994, the Court entered the interim relief sought by NorCon. On April 4,
1994, Niagara Mohawk filed its answer and counterclaim for declaratory judgment
relating to Niagara Mohawk's exercise of its right to demand adequate assurance.
On November 2, 1994, NorCon filed for summary judgment. On February 6, 1996,
the U.S. District Court granted NorCon's motion for summary judgment and ruled
that under New York Law, Niagara Mohawk did not have the right to demand
adequate assurances of future performance. On March 26, 1997, the U.S. Court of
Appeals for the Second Circuit ordered that the question of whether there exists
under New York commercial law the right to demand firm security on an electric
contract should be certified to the New York Court of Appeals, the highest New
York court, for final resolution. The Second Circuit order effectively stayed
the U.S. District Court's order against Niagara Mohawk, pending final
disposition by the New York Court of Appeals. A motion to stay further
proceedings was made since this contract was included in the MRA.
NorCon subsequently dropped out of the MRA and arguments were held on
October 22, 1998 in the New York Court of Appeals at the request of Niagara
Mohawk. On December 1, 1998, the New York Court of Appeals ruled in favor of
Niagara Mohawk's right to demand adequate assurance of future performance on an
electric contract. Resolution of the remaining issues will be determined in the
U.S. District Court for the Southern District of New York. Motions for summary
judgement by the respective parties are scheduled to be argued on May 21, 1999
in the U.S. District Court. Niagara Mohawk is unable to predict the timing and
outcome of this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3 - Certificate of Amendment of Certificate of Incorporation of Niagara
Mohawk under Section 805 of the Business Corporation Law of New York filed March
19, 1999 in the office of the New York Secretary of State.
Exhibit 10-1 - Amended employment contract between Holdings, Niagara Mohawk and
William E. Davis, Chairman of the Board and Chief Executive Officer, dated March
17, 1999.
Exhibit 10-2 - Amended employment contract between Holdings and Albert J. Budney
Jr., President, dated March 17, 1999.
Exhibit 10-3 - Amended employment contract between Holdings, Niagara Mohawk and
Darlene D. Kerr, Executive Vice President - Energy Delivery, dated March 17,
1999.
Exhibit 10-4 - Amended employment contract between Holdings, Niagara Mohawk and
David J. Arrington, Senior Vice President - Human Resources, dated March 17,
1999.
Exhibit 10-5 - Amended employment contract between Holdings, Niagara Mohawk and
Thomas H. Baron, Senior Vice President - Field Operations, dated March 17, 1999.
Exhibit 10-6 - Amended employment contract between Holdings, Niagara Mohawk and
Edward J. Dienst, Senior Vice President - Customer Delivery & Asset Management,
dated March 17, 1999.
Exhibit 10-7 - Amended employment contract between Holdings, Niagara Mohawk and
William F. Edwards, Senior Vice President and Chief Financial Officer, dated
March 17, 1999.
Exhibit 10-8 - Amended employment contract between Holdings and Gary J. Lavine,
Senior Vice President - Legal & Corporate Relations, dated March 17, 1999.
Exhibit 10-9 - Amended employment contract between Holdings, Niagara Mohawk and
John H. Mueller, Senior Vice President and Chief Nuclear Officer, dated March
17, 1999.
Exhibit 10-10 - Amended employment contract between Holdings, Niagara Mohawk and
Theresa A. Flaim, Vice President - Corporate Strategic Planning, dated March 17,
1999.
Exhibit 10-11 - Amended employment contract between Holdings, Niagara Mohawk and
Kapua A. Rice, Corporate Secretary, dated March 17, 1999.
Exhibit 10-12 - Amended employment contract between Holdings, Niagara Mohawk and
Steven W. Tasker, Vice President - Controller, dated March 17, 1999.
Exhibit 11 - Computation of the Average Number of Shares of Common Stock
Outstanding for the Three Months Ended March 31, 1999 and 1998.
Exhibit 12a - Statement Showing Computations of Ratio of Earnings to Fixed
Charges for the Twelve Months Ended March 31, 1999 for Niagara Mohawk
Holdings, Inc.
Exhibit 12b - Statement Showing Computations of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
for the Twelve Months Ended March 31, 1999 for Niagara Mohawk Power
Corporation.
Exhibit 15 - Accountants' Acknowledgement Letter.
Exhibit 27a - Financial Data Schedule for Niagara Mohawk Holdings, Inc.
Exhibit 27b - Financial Data Schedule for Niagara Mohawk Power Corporation
Exhibit 99 - 1st Quarter 1999 Earnings Release for Holdings.
In accordance with Paragraph 4(iii) of Item 601(b) of Regulation S-K, the
Company agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of the agreements comprising the $804 million senior debt
facility that the Company completed with a bank group during March 1996 and
subsequently amended (effective June 30, 1998). The total amount of long-term
debt authorized under such agreement does not exceed 10 percent of the total
consolidated assets of the Company and its subsidiaries.
(b) Reports on Form 8-K:
NIAGARA MOHAWK HOLDINGS, INC.
-----------------------------
Form 8-K Reporting Date - March 18, 1999
Items Reported:
(1) Item 5. Other Events.
Registrant filed information concerning the reorganization of Niagara
Mohawk Power Corporation into a holding company structure.
(2) Item 7. Financial Statements and Exhibits.
Exhibit incorporated by reference from a previous filing with the
Securities and Exchange Commission and exhibits required to be filed
by Item 601 of Regulation S-K.
Form 8-K Reporting Date - April 5, 1999
Items Reported:
(1) Item 5. Other Events.
Niagara Mohawk issued a press release regarding the sale of its Oswego
Steam Station generating plant.
(2) Item 7. Financial Statements and Exhibits.
Exhibit required to be filed by Item 601 of Regulation S-K.
NIAGARA MOHAWK POWER CORPORATION
-----------------------------------
Form 8-K Reporting Date - January 28, 1999
Items Reported:
(1) Item 5. Other Events.
(a) Niagara Mohawk issued a press release regarding its announcement
to pursue the sale of its nuclear assets.
(b) Niagara Mohawk issued a press release regarding its annual and
fourth quarter earnings for 1998.
(2) Item 7. Financial Statements and Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
Form 8-K Reporting Date - March 18, 1999
Items Reported:
(1) Item 5. Other Events.
Registrant filed information concerning the reorganization of Niagara
Mohawk Power Corporation into a holding company structure.
Form 8-K Reporting Date - April 5, 1999
Items Reported:
(1) Item 5. Other Events.
Registrant issued a press release regarding the sale of its Oswego
Steam Station generating plant.
(2) Item 7. Financial Statements and Exhibits.
Exhibit required to be filed by Item 601 of Regulation S-K.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
NIAGARA MOHAWK HOLDINGS, INC.
(Registrant)
Date: May 17, 1999 By: /s/Steven W. Tasker
--------------------
Steven W. Tasker
Vice President-Controller and
Principal Accounting Officer
NIAGARA MOHAWK POWER CORPORATION
(Registrant)
Date: May 17, 1999 By: /s/Steven W. Tasker
--------------------
Steven W. Tasker
Vice President-Controller and
Principal Accounting Officer
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3 Certificate of Amendment of Certificate of Incorporation of Niagara
Mohawk under Section 805 of the Business Corporation Law of New
York filed March 19, 1999 in the office of the New York Secretary
of State.
10-1 Amended employment contract between Holdings, Niagara Mohawk
and William E. Davis, Chairman of the Board and Chief Executive
Officer, dated March 17, 1999.
10-2 Amended employment contract between Holdings and Albert J. Budney
Jr., President, dated March 17, 1999.
10-3 Amended employment contract between Holdings, Niagara Mohawk and
Darlene D. Kerr, Executive Vice President - Energy Delivery, dated
March 17, 1999.
10-4 Amended employment contract between Holdings, Niagara Mohawk and
David J. Arrington, Senior Vice President - Human Resources, dated
March 17, 1999.
10-5 Amended employment contract between Holdings, Niagara Mohawk and
Thomas H. Baron, Senior Vice President - Field Operations, dated
March 17, 1999.
10-6 Amended employment contract between Holdings, Niagara Mohawk and
Edward J. Dienst, Senior Vice President - Customer Delivery & Asset
Management, dated March 17, 1999.
10-7 Amended employment contract between Holdings, Niagara Mohawk and
William F. Edwards, Senior Vice President and Chief Financial
Officer, dated March 17, 1999.
10-8 Amended employment contract between Holdings and Gary J. Lavine,
Senior Vice President - Legal & Corporate Relations, dated
March 17, 1999.
10-9 Amended employment contract between Holdings, Niagara Mohawk and
John H. Mueller, Senior Vice President and Chief Nuclear Officer,
dated March 17, 1999.
10-10 Amended employment contract between Holdings, Niagara Mohawk and
Theresa A. Flaim, Vice President - Corporate Strategic Planning,
dated March 17, 1999.
10-11 Amended employment contract between Holdings, Niagara Mohawk and
Kapua A. Rice, Corporate Secretary, dated March 17, 1999.
10-12 Amended employment contract between Holdings, Niagara Mohawk and
Steven W. Tasker, Vice President - Controller, dated March 17, 1999.
11 NIAGARA MOHAWK HOLDINGS, INC.
Computation of the Average Number of Shares
of Common Stock Outstanding for the Three
Months Ended March 31, 1999 and 1998.
12a NIAGARA MOHAWK HOLDINGS, INC.
Statement Showing Computations of Ratio of
Earnings to Fixed Charges for the
Twelve Months Ended March 31, 1999.
12b NIAGARA MOHAWK POWER CORPORATION
Statement Showing Computations of Ratio of
Earnings to Fixed Charges and Ratio of
Earnings to Fixed Charges and Preferred Stock
Dividends for the Twelve Months Ended
March 1, 1999.
15 Accountants' Acknowledgement Letter.
27a NIAGARA MOHAWK HOLDINGS, INC.
Financial Data Schedule.
27b NIAGARA MOHAWK POWER CORPORATION
Financial Data Schedule.
99 1st Quarter 1999 Earnings Release for Holdings.
EXHIBIT-3
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
NIAGARA MOHAWK POWER CORPORATION
Under Section 805 of the Business Corporation Law
Pursuant to the provisions of Section 805 of the Business
Corporation Law, the undersigned, being a Senior Vice President and
the Secretary of Niagara Mohawk Power Corporation, hereby certify:
I.
The name of the Corporation is Niagara Mohawk Power
Corporation. It was originally incorporated under the name of Niagara
Hudson Public Service Corporation.
II.
The Certificate of Consolidation forming the Corporation was
filed by the Department of State on July 31, 1937.
III.
The Certificate of Incorporation, as heretofore amended, is
hereby further amended to effect changes authorized by Section 801(b)
of the Business Corporation Law, to wit: to amend the provisions
concerning the classification, number, term and removal of Directors.
The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby amended so that Article VII of the
Corporation's Certificate will read as follows:
"VII. The Board of Directors shall consist of such
number of persons as shall be fixed from time to time by
the Board of Directors pursuant to a resolution adopted by
a majority of the directors in office."
IV.
This Amendment to the Certificate of Incorporation of the
Corporation was duly authorized by the Board of Directors of the
Corporation, followed by the written consent of the sole shareholder
of the Corporation entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned have signed this
certificate of amendment on March 19, 1999 and affirm the statements
contained herein as true under the penalties of perjury.
NIAGARA MOHAWK POWER CORPORATION
By
William F. Edwards
Senior Vice President and
Chief Financial Officer
By
Kapua A. Rice
Secretary
EMPLOYMENT AGREEMENT EXHIBIT 10-1
Agreement made as of the 17th day of March, 1999, among
NIAGARA MOHAWK POWER CORPORATION (the "Company"), NIAGARA MOHAWK
HOLDINGS, INC. ("Holdings"), and William E. Davis (the "Executive").
WHEREAS, the Company and Holdings desire to employ the
Executive, and the Executive desires to accept/continue employment
with the Company and Holdings, on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and the Executive hereby
agree as follows:
1. Term of Agreement. The Company and Holdings shall
employ the Executive, and the Executive shall serve the Company and
Holdings, for the period beginning March 17, 1999 and expiring on
December 31, 2001, subject to earlier termination as provided under
paragraph 4 hereof. This Agreement shall be extended automatically by
one year commencing on January 1, 2000 and on January 1st of each year
thereafter, unless the Company, Holdings or the Executive, as the case
may be, gives notice to the contrary not later than sixty (60) days
prior to such date. Notwithstanding any such notice by the Company or
Holdings, this Agreement shall remain in effect for a period of
thirty-six months from the date of a "Change in Control" (as that term
is defined in Schedule B hereto), unless such notice was given at
least 18 months prior to the date of the Change in Control.
2. Duties. The Executive shall serve the Company and
Holdings as its Chairman of the Board and Chief Executive Officer.
During the term of this Agreement, the Executive shall, except during
vacation or sick leave, devote the whole of the Executive's time,
attention and skill to the business of the Company and Holdings during
usual business hours (and outside those hours when reasonably
necessary to the Executive's duties hereunder); faithfully and
diligently perform such duties and exercise such powers as may be from
time to time assigned to or vested in the Executive by the Company's
Board of Directors (the "Board") or the Board of Directors of Holdings
(the "Holdings Board"), or by any officer of the Company or Holdings
superior to the Executive; obey the directions of the Board and the
Holdings Board and of any officer of the Company or Holdings superior
to the Executive; and use the Executive's best efforts to promote the
interests of the Company and Holdings. The Executive may be required
in pursuance of the Executive's duties hereunder to perform services
for any company controlling, controlled by or under common control
with Holdings and the Company (such companies hereinafter collectively
called "Affiliates") and to accept such offices in any Affiliates as
the Board may require. The Executive shall obey all policies of the
Company and Holdings and applicable policies of their Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company and Holdings shall pay the Executive a
base salary at an annual rate of $599,000, which shall be payable
periodically in accordance with the Company's then prevailing payroll
practices, or such greater amount as the Company and Holdings may from
time to time determine;
b. The Executive shall be entitled to participate in
Holdings Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings Officers Incentive Compensation Plan and Long Term Incentive
Plan, and any successors thereto, in accordance with the terms
thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as the Company and Holdings generally provides to their
employees having rank and seniority comparable to the Executive.
4. Termination. The Company and Holdings shall continue
to employ the Executive, and the Executive shall continue to work for
the Company and Holdings, during the term of this Agreement, unless
the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of the Company and Holdings to the Executive in respect
of any such right or benefit, shall not be extinguished by reason of
the Executive's death. Any base salary earned and unpaid as of the
date of the Executive's death shall be paid to the Executive's estate
in accordance with paragraph 4g below.
b. By notice to the Executive, the Company or
Holdings may terminate this Agreement upon the "Disability" of the
Executive. The Executive shall be deemed to incur a Disability when
(i) a physician selected by the Company or Holdings advises the
Company or Holdings that the Executive's physical or mental condition
has rendered the Executive unable to perform the essential functions
of the Executive's position in a reasonable manner, with or without
reasonable accommodation and will continue to render him unable to
perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a
physical or mental condition, the Executive has not performed the
essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation, for a period of 12
consecutive months. Following termination of this Agreement pursuant
to clause (i) of the preceding sentence of this paragraph, the
Executive shall continue to receive his base salary under paragraph 3a
hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the short-
term disability plan and long-term disability plan of the Company or
Holdings. Thereafter, or in the event of termination of this
Agreement pursuant to clause (ii) of the preceding sentence, the
Executive shall receive benefits under the long-term disability plan
of the Company or Holdings (as applicable) in lieu of any further base
salary under paragraph 3a hereof.
c. By notice to the Executive, the Company or
Holdings may terminate the Executive's employment at any time for
"Cause". The Company or Holdings must deliver such notice within
ninety (90) days after the Holdings Board both (i) has or should have
had knowledge of conduct or an event allegedly constituting Cause, and
(ii) has reason to believe that such conduct or event could be grounds
for Cause. For purposes of this Agreement "Cause" shall mean (i) the
Executive is convicted of, or has plead guilty or nolo contendere to,
a felony; (ii) the willful and continued failure by the Executive to
perform substantially his duties with the Company or Holdings, as
applicable (other than any such failure resulting from incapacity due
to physical or mental illness) after a demand for substantial
performance is delivered to the Executive by the Company (or Holdings)
which specifically identifies the manner in which the Company (or
Holdings) believes the Executive has not substantially performed his
duties; (iii) the Executive engages in conduct that constitutes gross
neglect or willful misconduct in carrying out his duties under this
Agreement involving material economic harm to the Company, Holdings or
any of their subsidiaries; or (iv) the Executive has engaged in a
material breach of Sections 6 or 7 of this Agreement. In the event
the termination notice is based on clause (ii) of the preceding
sentence, the Executive shall have ten (10) business days following
receipt of the notice of termination to cure his conduct, to the
extent such cure is possible, and if the Executive does not cure
within the ten (10) business day period, his termination of employment
in accordance with such termination notice shall be deemed to be for
Cause. The determination of Cause shall be made by the Holdings Board
upon the recommendation of the Compensation and Succession Committee
of the Holdings Board. Following a Change in Control, such
determination shall be made in a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the
membership of the Holdings Board, excluding members who are employees
of Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Holdings Board prior to such vote). The Executive
shall not be entitled to the payment of any additional compensation
from the Company or Holdings, as applicable, except to the extent
provided in paragraph 4h hereof, in the event of the termination of
his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of the Company or Holdings
may voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company or Holdings assigns any duties to the
Executive which are materially inconsistent in any adverse respect
with the Executive's position, duties, offices, responsibilities or
reporting requirements immediately prior to a Change in Control,
including any diminution of such duties or responsibilities; or
(ii) the Company or Holdings reduces the Executive's base
salary, including salary deferrals, as in effect immediately prior to
a Change in Control; or
(iii) the Company or Holdings discontinues any bonus or
other compensation plan or any other benefit, retirement plan
(including the SERP), stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu
thereof does not make available plans providing at least comparable
benefits; or
(iv) the Company or Holdings takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company or Holdings requires the Executive to be
based at any office or location other than one within a 50-mile radius
of the office or location at which the Executive was based immediately
prior to the Change in Control; or
(vi) the Company or Holdings purports to terminate the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(vii) the Company or Holdings fails to comply with and
satisfy Section 5 hereof, provided that such successor has received
prior written notice from the Company or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. The Company or Holdings may terminate the
Executive's employment at any time without Cause.
f. In the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both) prior to
a Change in Control, the Company or Holdings (or both) shall pay the
Executive a lump sum severance benefit, equal to two years' base
salary at the rate in effect from the Company or Holdings (or both),
as applicable, as of the date of termination, plus the greater of (i)
two times the most recent annual bonus paid to the Executive under the
Annual Officers Incentive Compensation Plan of the Company or Holdings
(the ?OICP?) or any similar annual bonus plan (excluding the pro rata
bonus referred to in the next sentence) or (ii) two times the average
annual bonus paid to the Executive for the three prior years under the
OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days
or more have elapsed in the fiscal year of Holdings in which such
termination occurs, the Company or Holdings shall also pay the
Executive in a lump sum, within ninety (90) days after the end of such
fiscal year, a pro rata portion of Executive's annual bonus in an
amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the
numerator of which is the number of days in the fiscal year in which
the termination occurs through the termination date and the
denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both), prior
to a Change in Control, the Executive (and his eligible dependents)
shall be entitled to continue participation in the employee benefit
plans of the Company and Holdings for a two-year period from the date
of termination, provided, however, that if Executive cannot continue
to participate in any of the benefit plans, the Company or Holdings
(or both, if applicable), shall otherwise provide equivalent benefits
to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the
foregoing, in the event Executive becomes employed by another employer
and becomes eligible to participate in an employee benefit plan of
such employer, the benefits described herein shall be secondary to
such benefits during the period of Executive's eligibility, but only
to the extent that the Company or Holdings (or both, if applicable),
reimburses Executive for any increased cost and provides any
additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both) prior to
a Change in Control, the Executive shall be entitled to (i) be covered
by a life insurance policy providing a death benefit, equal to 2.5
times the Executive's base salary at the rate in effect from the
Company or Holdings (or both), as applicable, as of the time of
termination, payable to a beneficiary or beneficiaries designated by
the Executive, the premiums for which will be paid by the Company or
Holdings (or both, if applicable) for the balance of the Executive's
life and (ii) payment by the Company or Holdings (or both, if
applicable) of all fees and expenses of any executive recruiting,
counseling or placement firm selected by the Executive for the
purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by the Company or
Holdings (or both) without Cause or by the Executive for Good Reason,
the Company or Holdings (or both) shall pay the Executive a lump sum
severance benefit, equal to four years' base salary at the rate in
effect from the Company or Holdings (or both), as applicable, as of
the date of termination.
In addition, in the event that the Executive's employment is
terminated by the Company or Holdings (or both) without Cause or by
the Executive for Good Reason following a Change in Control, the (i)
Executive (and his eligible dependents) shall be entitled to continue
participation (the premiums for which will be paid by the Company or
Holdings) in the employee benefit plans of the Company or Holdings
providing medical, prescription drug, dental, and hospitalization
benefits for the remainder of the Executive's life (ii) the Executive
shall be entitled to continue participation (the premiums for which
will be paid by the Company or Holdings) in the other employee benefit
plans of the Company or Holdings for a four year period from the date
of termination; provided, however, that if Executive cannot continue
to participate in any of the benefit plans, the Company or Holdings
shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation
had been permitted. Notwithstanding the foregoing, in the event
Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits
described herein shall be secondary to such benefits during the period
of Executive's eligibility, but only to the extent that the Company or
Holdings reimburses Executive for any increased cost and provides any
additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by the Company or
Holdings (or both) without Cause or by the Executive for Good Reason,
the Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by the Company or Holdings for the
balance of the Executive's life and (ii) payment by the Company or
Holdings of all fees and expenses of any executive recruiting,
counseling or placement firm selected by the Executive for the
purposes of seeking new employment following his termination of
employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, the Company or Holdings (or both, if applicable) shall
pay the Executive or the Executive's estate any base salary earned and
unpaid to the date of termination.
i. Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution
(or any acceleration of any payment, award, benefit or distribution) by the
Company, Holdings or any entity which effectuates a Change in Control (or any
of its affiliated entities) to or for the benefit of the Executive (whether
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this paragraph
4i)(the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code", or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company or Holdings shall pay to the
Executive (or to the Internal Revenue Service on behalf of the
Executive) an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains
(or has had paid to the Internal Revenue Service on his behalf) an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal
rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the
amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the
Company, Holdings and the Executive within fifteen (15) business days
of the receipt of notice from the Company, Holdings or the Executive
that there has been a Payment, or such earlier time as is requested by
the Company or Holdings (or both) (collectively, the "Determination").
In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in
Control, the Executive may appoint another nationally recognized
public accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company or Holdings and the Company or Holdings
shall enter into any agreement requested by the Accounting Firm in
connection with the performance of the services hereunder. The Gross-
up Payment under subparagraph 4i with respect to any Payments shall be
made no later than thirty (30) days following such Payment. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to
such effect, and to the effect that failure to report the Excise Tax,
if any, on the Executive's applicable federal income tax return will
not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the
Company, Holdings and the Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by the Company or
Holdings should have been made ("Underpayment") or Gross-up Payments
are made by the Company or Holdings which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the
rate provided in Section 1274(b) (2) (B) of the Code) shall be
promptly paid by the Company or Holdings to or for the benefit of the
Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of the Company or Holdings. The Executive shall
cooperate, to the extent his expenses are reimbursed by the Company or
Holdings with any reasonable requests by the Company or Holdings in
connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the
Company or Holdings shall pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by the Company,
Holdings or by the Executive of the validity of, or liability under,
this Agreement or the SERP (including any contest by the Executive
about the amount of any payment pursuant to this Agreement or pursuant
to the SERP), plus in each case interest on any delayed payment at the
rate of 150% of the Prime Rate posted by the Chase Manhattan Bank,
N.A. or its successor, provided, however, that the Company or Holdings
shall not be liable for the Executive's legal fees and expenses if the
Executive's position in such contest, litigation or arbitration is
found by the neutral decision-maker to be frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive's employment
after completion of eight (8) years of continuous service with the
Company and Holdings (as determined pursuant to the SERP), the
Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits equal
to those provided by the Company to Executives on March 26, 1997 for
the remainder of the Executive's life (and his/her eligible
dependents), the cost of which shall be paid in full by the Company or
Holdings (if applicable, on the same after-tax basis to the executive
as if the Executive had continued participation in the employee
benefit plans of the Company and Holdings providing such benefits).
If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive such
benefits upon attaining age 55 and prior thereto the Executive, if
applicable, shall be entitled to the medical, prescription drug,
dental and hospitalization benefits provided by paragraphs 4f or g
above.
5. Successor Liability. The Company and Holdings shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Holdings, as applicable, to
assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company or Holdings would be
required to perform. As used in this Agreement, "Company" and
"Holdings" shall mean each such corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to the Company, Holdings and their subsidiaries and
affiliates, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of
Holdings, the Company, and their subsidiaries and affiliates learned
by him from Holdings, the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside Holdings, the
Company or any of their subsidiaries or affiliates, whether during or
after his period of service with the Company and Holdings, except (i)
as such disclosure may be required or appropriate in connection with
his work as an employee of the Company and Holdings or (ii) when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of the Company or Holdings or
by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose
or make accessible such information. The Executive agrees to give
Holdings and the Company advance written notice of any disclosure
pursuant to clause (ii) of the preceding sentence and to cooperate
with any efforts by Holdings or the Company to limit the extent of
such disclosure. Upon request by Holdings or the Company, the
Executive agrees to deliver promptly to Holdings or the Company upon
termination of his services for Holdings, the Company, or at any time
thereafter as Holdings or the Company may request, all Holdings,
Company subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to the business of
Holdings, the Company or any of their subsidiaries or affiliates and
all property of Holdings, the Company or any subsidiary or affiliate
associated therewith, which he may then possess or have under his
direct control, other than personal notes, diaries, Rolodexes and
correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by the Company and Holdings and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by the Company, Holdings or any of their
subsidiaries or affiliates in any state of the United States in which
any of them are engaged in business at the time of such termination of
employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be
prohibited from owning less than five (5%) percent of any publicly
traded corporation, whether or not such corporation is in competition
with the Company or Holdings.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by the Company,
Holdings or any of their subsidiaries, or otherwise encourage or
entice such person or entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
the Company, Holdings or any Affiliate which the Executive may
conceive or make or have conceived or made during the Executive's
employment with the Company and Holdings shall be and are the sole and
exclusive property of the Company or Holdings, as applicable, and that
the Executive, whenever requested to do so by the Company or Holdings,
at its expense, shall execute and sign any and all applications,
assignments or other instruments and do all other things which the
Company or Holdings may deem necessary or appropriate (i) to apply
for, obtain, maintain, enforce, or defend letters patent of the United
States or any foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to the Company or
Holdings the sole and exclusive right, title and interest in and to
any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with the Company or Holdings, shall be settled
by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American
Arbitration Association and shall be subject to the provisions of
Article 75 of the New York Civil Practice Law and Rules. Judgment
upon the award may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute
arises between the parties under Sections 6 or 7 hereof, or if the
Company or Holdings makes any claim under Sections 6 or 7, the Company
and Holdings shall not be required to arbitrate such dispute or claim
but shall have the right to institute judicial proceedings in any
court of competent jurisdiction with respect to such dispute or claim.
If such judicial proceedings are instituted, the parties agree that
such proceedings shall not be stayed or delayed pending the outcome of
any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. William E. Davis
88 West Lake Street
Skaneateles, NY 13152
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The Company or Holdings
may utilize certain financing vehicles, including a trust, to provide
a source of funding for their obligations under this Agreement. Any
such financing vehicles will be subject to the claims of the general
creditors of the Company or Holdings, as applicable. No such
financing vehicles shall relieve the Company, Holdings or their
successors, of their obligations to provide benefits under this
Agreement, except to the extent the Executive receives payments
directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for
the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company or Holdings (except to an Affiliate) or by the
Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company or
Holdings, whether by merger, consolidation, reorganization, purchase
of all or substantially all of the stock or assets of the Company or
Holdings, or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to the Company and Holdings that the Executive is not party
to any agreement which would prohibit the Executive from entering into
this Agreement or performing fully the Executive's obligations
hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by the Company or Holdings, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company, Holdings and the Executive
have executed this Agreement as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
William E. Davis
By:______________________________
DAVID J. ARRINGTON
Senior Vice President -
Human Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
By:_____________________________
DAVID J. ARRINGTON
Senior Vice President and Chief
Administrative Officer
SCHEDULE A
Modifications in Respect of William E. Davis ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Holdings and Niagara Mohawk Power
Corporation (the "Company") and (ii) the average of the annual
bonus earned by the Executive under the Annual Officers Incentive
Compensation Plan of the Company or Holdings ("OICP"), whether or
not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If the Executive was an
employee of the Company on December 31, 1997 and the Executive is
entitled to payment under Article 9 of the Corporation's 1995
Stock Incentive Plan ("SIP") for all or a portion of the Stock
Units and Stock Appreciation Rights granted to the Executive
under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of
(x) cash payments made with respect to Stock Units (and related
Dividend Equivalents) granted to the Executive under the SIP and
(y) the result of multiplying the number of Stock Appreciation
Rights granted to the Executive under the SIP, prorated if
applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Company's common stock on
December 31, 1997 and (2) the Base Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following eight (8)
years of continuous service with Holdings and the Company (i.e.,
60% of Earnings (as modified above) without reduction for an
Early Commencement Factor) regardless of the Executive's years of
continuous service with Holdings and the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by Holdings and the Company, at any
time, other than for Cause, (y) the termination of this Agreement
on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full
calendar month period following a Change in Control (as defined
in Schedule B of this Agreement), the Executive shall be 100%
vested in his full SERP benefit (i.e., 60% of Earnings (as
modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service
with Holdings and the Company. If the Executive is less than age
55 at the date of such termination of employment, the Executive
shall be entitled to receive benefits commencing no earlier than
age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or group
(within the meaning of Sections 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of
common stock (the "Outstanding Company Common Stock") of
Niagara Mohawk Holdings, Inc. (for purposes of this Schedule
B only, the ("Company") or (ii) the combined voting power of
the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however,
that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise
of a conversion privilege), (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a reorganization,
merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses
(i), (ii) and (iii) of subparagraph (3) of this Schedule B
are satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation, with respect
to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-2
Agreement made as of the 17th day of March, 1999, between
NIAGARA MOHAWK HOLDINGS, INC. ("Holdings"), and Albert J. Budney, Jr.
(the "Executive").
WHEREAS, Holdings desires to employ the Executive, and the
Executive desires to accept/continue employment with Holdings, on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, Holdings and the Executive hereby
agree as follows:
1. Term of Agreement. Holdings shall employ the
Executive, and the Executive shall serve Holdings, for the period
beginning March 17, 1999 and expiring on December 31, 2001, subject to
earlier termination as provided under paragraph 4 hereof. This
Agreement shall be extended automatically by one year commencing on
January 1, 2000 and on January 1st of each year thereafter, unless
either party notifies the other to the contrary not later than sixty
(60) days prior to such date. Notwithstanding any such notice by
Holdings, this Agreement shall remain in effect for a period of
thirty-six months from the date of a "Change in Control" (as that term
is defined in Schedule B hereto), unless such notice was given at
least 18 months prior to the date of the Change in Control.
2. Duties. The Executive shall serve Holdings as its
President. During the term of this Agreement, the Executive shall,
except during vacation or sick leave, devote the whole of the
Executive's time, attention and skill to the business of Holdings
during usual business hours (and outside those hours when reasonably
necessary to the Executive's duties hereunder); faithfully and
diligently perform such duties and exercise such powers as may be from
time to time assigned to or vested in the Executive by Holdings' Board
of Directors (the "Board") or by any officer of Holdings superior to
the Executive; obey the directions of the Board and of any officer of
Holdings superior to the Executive; and use the Executive's best
efforts to promote the interests of Holdings. The Executive may be
required in pursuance of the Executive's duties hereunder to perform
services for any company controlling, controlled by or under common
control with Holdings (such companies hereinafter collectively called
"Affiliates") and to accept such offices in any Affiliates as the
Board may require. The Executive shall obey all policies of Holdings
and applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. Holdings shall pay the Executive a base salary at
an annual rate of $411,000, which shall be payable periodically in
accordance with Holdings then prevailing payroll practices, or such
greater amount as Holdings may from time to time determine;
b. The Executive shall be entitled to participate in
Holdings' Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings' Officers Incentive Compensation Plan and Long Term Incentive
Plan, and any successors thereto, in accordance with the terms
thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as Holdings generally provides to its employees having rank
and seniority at Holdings comparable to the Executive.
4. Termination. Holdings shall continue to employ the
Executive, and the Executive shall continue to work for Holdings,
during the term of this Agreement, unless the Agreement is terminated
in accordance with the following provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of Holdings to the Executive in respect of any such
right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date
of the Executive's death shall be paid to the Executive's estate in
accordance with paragraph 4g below.
b. By notice to the Executive, Holdings may terminate
this Agreement upon the "Disability" of the Executive. The Executive
shall be deemed to incur a Disability when (i) a physician selected by
Holdings advises Holdings that the Executive's physical or mental
condition has rendered the Executive unable to perform the essential
functions of the Executive's position in a reasonable manner, with or
without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position
in such manner, for a period exceeding 12 consecutive months, or (ii)
due to a physical or mental condition, the Executive has not
performed the essential functions of the Executive's position in a
reasonable manner, with or without reasonable accommodation, for a
period of 12 consecutive months. Following termination of this
Agreement pursuant to clause (i) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary
under paragraph 3a hereof for a period of 12 months from the date of
his Disability, reduced by any benefits payable during such period
under Holdings' short-term disability plan and long-term disability
plan. Thereafter, or in the event of termination of this Agreement
pursuant to clause (ii) of the preceding sentence, the Executive shall
receive benefits under Holdings' long-term disability plan in lieu of
any further base salary under paragraph 3a hereof.
c. By notice to the Executive, Holdings may terminate
the Executive's employment at any time for "Cause". Holdings must
deliver such notice within ninety (90) days after the Board both (i)
has or should have had knowledge of conduct or an event allegedly
constituting Cause, and (ii) has reason to believe that such conduct
or event could be grounds for Cause. For purposes of this Agreement
"Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued
failure by the Executive to perform substantially his duties with
Holdings (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance
is delivered to the Executive by Holdings which specifically
identifies the manner in which Holdings believes the Executive has not
substantially performed his duties; (iii) the Executive engages in
conduct that constitutes gross neglect or willful misconduct in
carrying out his duties under this Agreement involving material
economic harm to Holdings or any of its subsidiaries; or (iv) the
Executive has engaged in a material breach of Sections 6 or 7 of this
Agreement. In the event the termination notice is based on clause
(ii) of the preceding sentence, the Executive shall have ten (10)
business days following receipt of the notice of termination to cure
his conduct, to the extent such cure is possible, and if the Executive
does not cure within the ten (10) business day period, his termination
of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by
the Board upon the recommendation of the Compensation and Succession
Committee of the Board. Following a Change in Control, such
determination shall be made in a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the
membership of the Board, excluding members who are employees of
Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Board prior to such vote). The Executive shall
not be entitled to the payment of any additional compensation from
Holdings, except to the extent provided in paragraph 4h hereof, in the
event of the termination of his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of Holdings, may
voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) Holdings assigns any duties to the Executive which are
materially inconsistent in any adverse respect with the Executive's
position, duties, offices, responsibilities or reporting requirements
immediately prior to a Change in Control, including any diminution of
such duties or responsibilities; or
(ii) Holdings reduces the Executive's base salary, including
salary deferrals, as in effect immediately prior to a Change in
Control; or
(iii) the Holdings or Niagara Mohawk Power Corporation (the
"Company",) discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership
plan, stock purchase plan, stock option plan, life insurance plan,
health plan, disability plan or similar plan (as the same existed
immediately prior to the Change in Control) in which the Executive
participated or was eligible to participate in immediately prior to
the Change in Control and in lieu thereof does not make available
plans providing at least comparable benefits; or
(iv) Holdings or the Company takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) Holdings requires the Executive to be based at any
office or location other than one within a 50-mile radius of the
office or location at which the Executive was based immediately prior
to the Change in Control; or
(vi) Holdings purports to terminate the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vii) Holdings fails to comply with and satisfy Section 5
hereof, provided that such successor has received prior written notice
from Holdings or from the Executive of the requirements of Section 5
hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. Holdings may terminate the Executive's employment
at any time without Cause.
f. In the event that the Executive's employment is
terminated by Holdings without Cause prior to a Change in Control,
Holdings shall pay the Executive a lump sum severance benefit, equal
to two years' base salary at the rate in effect as of the date of
termination, plus the greater of (i) two times the most recent annual
bonus paid to the Executive under the Annual Officers Incentive
Compensation Plan of Holdings or the Company (the "OICP") or any
similar annual bonus plan (excluding the pro rata bonus referred to in
the next sentence) or (ii) two times the average annual bonus paid to
the Executive for the three prior years under the OICP or such similar
plan (excluding the pro rata annual bonus referred to in the next
sentence). If one hundred eighty (180) days or more have elapsed in
Holdings' fiscal year in which such termination occurs, Holdings shall
also pay the Executive in a lump sum, within ninety (90) days after
the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been
payable to Executive under OICP or any similar plan for the fiscal
year in which Executive's termination occurs, multiplied by (B) a
fraction, the numerator of which is the number of days in the fiscal
year in which the termination occurs through the termination date and
the denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated by Holdings without cause prior to a Change in Control, the
Executive (and his eligible dependents) shall be entitled to continue
participation in the employee benefit plans of Holdings and the
Company for a two-year period from the date of termination, provided,
however, that if Executive cannot continue to participate in any of
the benefit plans, Holdings shall otherwise provide equivalent
benefits to the Executive and his dependents on the same after-tax
basis as if continued participated had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that Holdings reimburses Executive
for any increased cost and provides any additional benefits necessary
to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated by Holdings without Cause prior to a Change in Control, the
Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by Holdings for the balance of the
Executive's life and (ii) payment by Holdings of all fees and expenses
of any executive recruiting, counseling or placement firm selected by
the Executive for the purposes of seeking new employment following his
termination of employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by Holdings without
Cause or by the Executive for Good Reason, Holdings shall pay the
Executive a lump sum severance benefit, equal to four years' base
salary at the rate in effect as of the date of termination.
In addition, in the event that the Executive's employment is
terminated by Holdings without Cause or by the Executive for Good
Reason following a Change in Control, the (i) Executive (and his
eligible dependents) shall be entitled to continue participation (the
premiums for which will be paid by Holdings) in the employee benefit
plans of Holdings and the Company providing medical, prescription
drug, dental, and hospitalization benefits for the remainder of the
Executive's life (ii) the Executive shall be entitled to continue
participation (the premiums for which will be paid by Holdings) in
other employee benefit plans of Holdings and the Company for a four
year period from the date of termination; provided, however, that if
Executive cannot continue to participate in any of the benefit plans,
Holdings shall otherwise provide equivalent benefits to the Executive
and his dependents on the same after-tax basis as if continued
participation had been permitted. Notwithstanding the foregoing, in
the event Executive becomes employed by another employer and becomes
eligible to participate in an employee benefit plan of such employer,
the benefits described herein shall be secondary to such benefits
during the period of Executive's eligibility, but only to the extent
that Holdings reimburses Executive for any increased cost and provides
any additional benefits necessary to give Executive the benefits
provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by Holdings without
Cause or by the Executive for Good Reason, the Executive shall be
entitled to (i) be covered by a life insurance policy providing a
death benefit, equal to 2.5 times the Executive's base salary at the
rate in effect as of the time of termination, payable to a beneficiary
or beneficiaries designated by the Executive, the premiums for which
will be paid by Holdings for the balance of the Executive's life and
(ii) payment by Holdings of all fees and expenses of any executive
recruiting, counseling or placement firm selected by the Executive for
the purposes of seeking new employment following his termination of
employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, Holdings shall pay the Executive or the Executive's
estate any base salary earned and unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by Holdings or any entity which
effectuates a Change in Control (or any of its affiliated entities) to
or for the benefit of the Executive (whether pursuant to the terms of
this Agreement or otherwise, but determined without regard to any
additional payments required under this paragraph 4i)(the "Payments")
would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any
interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Holdings shall pay to the Executive (or to the Internal
Revenue Service on behalf of the Executive) an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any Excise Tax) imposed upon the
Gross-Up Payment, the Executive retains (or has had paid to the
Internal Revenue Service on his behalf) an amount of the Gross-Up
Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of
the inclusion of the Gross-Up Payment in the Executive's adjusted
gross income and the highest applicable marginal rate of federal
income taxation for the calendar year in which the Gross-up Payment is
to be made. For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed (i) pay federal income taxes at
the highest marginal rates of federal income taxation for the calendar
year in which the Gross-up Payment is to be made, (ii) pay applicable
state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net
of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes and (iii) have
otherwise allowable deductions for federal income tax purposes at
least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to Holdings
and the Executive within fifteen (15) business days of the receipt of
notice from Holdings or the Executive that there has been a Payment,
or such earlier time as is requested by Holdings (collectively, the
"Determination"). In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting
the Change in Control, the Executive may appoint another nationally
recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by Holdings and Holdings shall enter into
any agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-up Payment under
subparagraph 4i with respect to any Payments shall be made no later
than thirty (30) days following such Payment. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in
the imposition of a negligence or similar penalty. The Determination
by the Accounting Firm shall be binding upon the Company and the
Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by Holdings should have
been made ("Underpayment") or Gross-up Payments are made by Holdings
which should not have been made ("Overpayment"), consistent with the
calculations required to be made hereunder. In the event that the
Executive thereafter is required to make payment of any Excise Tax or
additional Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment
(together with interest at the rate provided in Section 1274(b) (2)
(B) of the Code) shall be promptly paid by Holdings to or for the
benefit of the Executive. In the event the amount of Gross-up Payment
exceeds the amount necessary to reimburse the Executive for his Excise
Tax, the Accounting Firm shall determine the amount of the Overpayment
that has been made and any such Overpayment (together with interest at
the rate provided in Section 1274(b) (2) of the Code) shall be
promptly paid by Executive (to the extent he has received a refund if
the applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of Holdings. The Executive shall
cooperate, to the extent his expenses are reimbursed by Holdings, with
any reasonable requests by Holdings in connection with any contests or
disputes with the Internal Revenue Service in connection with the
Excise Tax.
k. Upon the occurrence of a Change in Control
Holdings shall pay promptly as incurred, to the full extent permitted
by law, all legal fees and expenses which the Executive may reasonably
thereafter incur as a result of any contest, litigation or arbitration
(regardless of the outcome thereof) by Holdings, or by the Executive
of the validity of, or liability under, this Agreement or the SERP
(including any contest by the Executive about the amount of any
payment pursuant to this Agreement or pursuant to the SERP), plus in
each case interest on any delayed payment at the rate of 150% of the
Prime Rate posted by the Chase Manhattan Bank, N.A. or its successor,
provided, however, that Holdings shall not be liable for the
Executive's legal fees and expenses if the Executive's position in
such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive's employment
after completion of eight (8) years of continuous service with
Holdings and the Company (as determined pursuant to the SERP), the
Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits equal
to those provided by the Company to Executives on March 26, 1997 for
the remainder of the Executive's (and his/her eligible dependents)
life, the cost of which shall be paid in full by Holdings (if
applicable, on the same after-tax basis to the executive as if the
Executive had continued participation in employee benefit plans of
Holdings and the Company providing such benefits). If the Executive
is less than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive such benefits upon attaining
age 55 and prior thereto the Executive, if applicable, shall be
entitled to the medical, prescription drug, dental and hospitalization
benefits provided by paragraphs 4f or g above.
5. Successor Liability. Holdings shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of Holdings to assume expressly and to agree to
perform this Agreement in the same manner and to the same extent that
Holdings would be required to perform. As used in this Agreement,
"Holdings" shall mean such corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to Holdings, its subsidiaries and affiliates, including,
without limitation, customer lists, client lists, trade secrets,
pricing policies and other business affairs of Holdings, the Company,
and their subsidiaries and affiliates learned by him from Holdings,
the Company or any such subsidiary or affiliate or otherwise before or
after the date of this Agreement, and not to disclose any such
confidential matter to anyone outside Holdings, the Company or any of
their subsidiaries or affiliates, whether during or after his period
of service with Holdings, except (i) as such disclosure may be
required or appropriate in connection with his work as an employee of
Holdings or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of
Holdings or the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order
him to divulge, disclose or make accessible such information. The
Executive agrees to give Holdings advance written notice of any
disclosure pursuant to clause (ii) of the preceding sentence and to
cooperate with any efforts by Holdings to limit the extent of such
disclosure. Upon request by Holdings, the Executive agrees to deliver
promptly to Holdings upon termination of his services for Holdings, or
at any time thereafter as Holdings may request, all Holdings, Company
subsidiary or affiliate memoranda, notes, records, reports, manuals,
drawings, designs, computer file in any media and other documents (and
all copies thereof) relating to the business of Holdings, the Company
or any of their subsidiaries or affiliates and all property of
Holdings, the Company or any subsidiary or affiliate associated
therewith, which he may then possess or have under his direct control,
other than personal notes, diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by Holdings and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by Holdings or any of its subsidiaries or
affiliates in any state of the United States in which any of them are
engaged in business at the time of such termination of employment for
as long as they carry on a business therein. Notwithstanding the
preceding sentence, the Executive shall not be prohibited from owning
less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with Holdings.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by Holdings, the
Company or any of their subsidiaries or affiliates, or otherwise
encourage or entice such person or entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
Holdings or any Affiliate which the Executive may conceive or make or
have conceived or made during the Executive's employment with Holdings
shall be and are the sole and exclusive property of Holdings, and that
the Executive, whenever requested to do so by Holdings, at its
expense, shall execute and sign any and all applications, assignments
or other instruments and do all other things which Holdings may deem
necessary or appropriate (i) to apply for, obtain, maintain, enforce,
or defend letters patent of the United States or any foreign country
for any Work Product, or (ii) to assign, transfer, convey or otherwise
make available to Holdings the sole and exclusive right, title and
interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with Holdings, shall be settled by binding
arbitration in the City of Syracuse, State of New York, pursuant to
the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of
the New York Civil Practice Law and Rules. Judgment upon the award
may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute arises
between the parties under Sections 6 or 7 hereof, or if Holdings makes
any claim under Sections 6 or 7, Holdings shall not be required to
arbitrate such dispute or claim but shall have the right to institute
judicial proceedings in any court of competent jurisdiction with
respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be
stayed or delayed pending the outcome of any arbitration proceedings
hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. Albert J. Budney, Jr.
8414 Hobnail Road
Manlius, NY 13104
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. Holdings may utilize
certain financing vehicles, including a trust, to provide a source of
funding for Holdings' obligations under this Agreement. Any such
financing vehicles will be subject to the claims of the general
creditors of Holdings. No such financing vehicles shall relieve
Holdings, or its successors, of its obligation to provide benefits
under this Agreement, except to the extent the Executive receives
payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is
for the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by Holdings (except to an Affiliate) or by the Executive
without the prior written consent of the other party. This Agreement
shall be binding upon any successor to Holdings, whether by merger,
consolidation, reorganization, purchase of all or substantially all of
the stock or assets of Holdings, or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to Holdings that the Executive is not party to any agreement
which would prohibit the Executive from entering into this Agreement
or performing fully the Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by Holdings, and shall survive the
termination of this Agreement.
IN WITNESS WHEREOF, Holdings and the Executive have executed
this Agreement as of the date first written above.
_____________________________ NIAGARA MOHAWK HOLDINGS,INC.
Albert J. Budney, Jr.
By:______________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
SCHEDULE A
Modifications in Respect of Albert J. Budney, Jr. ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Holdings and Niagara Mohawk Power
Corporation (the "Company"), (if applicable), and (ii) the
average of the annual bonus earned by the Executive under the
Annual Officers Incentive Compensation Plan of the Company or
Holdings ("OICP"), whether or not deferred, in respect of the
final 36 months of the Executive's employment with Holdings and
the Company. If the Executive was an employee of the Company on
December 31, 1997 and the Executive is entitled to payment under
Article 9 of the Company's 1995 Stock Incentive Plan ("SIP") for
all or a portion of the Stock Units and Stock Appreciation Rights
granted to the Executive under SIP, there shall be taken into
account for purposes of the preceding sentence as an annual bonus
under the OICP, the sum of (x) cash payments made with respect to
Stock Units (and related Dividend Equivalents) granted to the
Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive
under the SIP, prorated if applicable to Article 9 of the SIP, by
the difference between (1) the value of one share of the
Company's common stock on December 31, 1997 and (2) the Base
Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following eight (8)
years of continuous service with Holdings and the Company (i.e.,
60% of Earnings (as modified above) without reduction for an
Early Commencement Factor) regardless of the Executive's years of
continuous service with Holdings and the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by Holdings, at any time, other than
for Cause, (y) the termination of this Agreement on account of
the Executive's Disability or (z) the Executive's termination of
employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of
this Agreement), the Executive shall be 100% vested in his full
SERP benefit (i.e., 60% of Earnings (as modified above) without
reduction for an Early Commencement Factor) regardless of the
Executive's years of continuous service with Holdings and Niagara
Mohawk Power Corporation. If the Executive is less than age 55
at the date of such termination of employment, the Executive
shall be entitled to receive benefits commencing no earlier than
age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company
Common Stock") of Niagara Mohawk Holdings, Inc. (for
purposes of this Schedule B only, "the Company") (the
"Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly
from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by
the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions
described in clauses (i), (ii) and (iii) of subparagraph (3)
of this Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or
consolidation, (i) more than 75% of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation in
substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation
and any Person beneficially owning, immediately prior to
such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger
or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled
to vote generally in the election of directors and (iii) at
least a majority of the members of the board of directors of
the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the
time of the execution of the initial agreement providing for
such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company or Niagara Mohawk Power Corporation, other
than to a corporation, with respect to which following such sale
or other disposition, (A) more than 75% of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-3
Agreement made as of the 17th day of March, 1999, among
NIAGARA MOHAWK POWER CORPORATION (the "Company"), NIAGARA MOHAWK
HOLDINGS, INC. ("Holdings") and Darlene D. Kerr (the "Executive").
WHEREAS, the Company desires to employ the Executive, and
the Executive desires to accept/continue employment with the Company,
on the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Holdings desire to take appropriate
steps to reinforce and encourage the continued dedication of the
Executive to his assigned duties without distraction about the
uncertainties of the Executive's situation in circumstances arising
from the possibility of a Change in Control (as that term is defined
in Schedule B hereto) of Holdings;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company, Holdings and the
Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the
Executive, and the Executive shall serve the Company, for the period
beginning March 17, 1999 and expiring on December 31, 2001, subject to
earlier termination as provided under paragraph 4 hereof. This
Agreement shall be extended automatically by one year commencing on
January 1, 2000 and on January 1st of each year thereafter, unless the
Company and Holdings or the Executive, as the case may be, gives
notice to the contrary not later than sixty (60) days prior to such
date. Notwithstanding any such notice by the Company and Holdings,
this Agreement shall remain in effect for a period of thirty-six
months from the date of a Change in Control, unless such notice was
given at least 18 months prior to the date of the Change in Control.
2. Duties. The Executive shall serve the Company as its
Executive Vice President and Chief Operating Officer. During the term
of this Agreement, the Executive shall, except during vacation or sick
leave, devote the whole of the Executive's time, attention and skill
to the business of the Company during usual business hours (and
outside those hours when reasonably necessary to the Executive's
duties hereunder); faithfully and diligently perform such duties and
exercise such powers as may be from time to time assigned to or vested
in the Executive by the Company's Board of Directors (the "Board") or
by any officer of the Company superior to the Executive; obey the
directions of the Board and of any officer of the Company superior to
the Executive; and use the Executive's best efforts to promote the
interests of the Company. The Executive may be required in pursuance
of the Executive's duties hereunder to perform services for any
company controlling, controlled by or under common control with the
Company (such companies hereinafter collectively called "Affiliates")
and to accept such offices in any Affiliates as the Board may require.
The Executive shall obey all policies of the Company and applicable
policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary
at an annual rate of $315,000, which shall be payable periodically in
accordance with the Company's then prevailing payroll practices, or
such greater amount as the Company may from time to time determine;
b. The Executive shall be entitled to participate in
Holdings' Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings' Officers Incentive Compensation Plan and Long Term
Incentive Plan, and any successors thereto, in accordance with the
terms thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as the Company generally provides to its employees having
rank and seniority at the Company comparable to the Executive.
4. Termination. The Company shall continue to employ the
Executive, and the Executive shall continue to work for the Company,
during the term of this Agreement, unless the Agreement is terminated
in accordance with the following provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of the Company to the Executive in respect of any such
right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date
of the Executive's death shall be paid to the Executive's estate in
accordance with paragraph 4g below.
b. By notice to the Executive, the Company may
terminate this Agreement upon the "Disability" of the Executive. The
Executive shall be deemed to incur a Disability when (i) a physician
selected by the Company advises the Company that the Executive's
physical or mental condition has rendered the Executive unable to
perform the essential functions of the Executive's position in a
reasonable manner, with or without reasonable accommodation and will
continue to render him unable to perform the essential functions of
the Executive's position in such manner, for a period exceeding 12
consecutive months, or (ii) due to a physical or mental condition, the
Executive has not performed the essential functions of the
Executive's position in a reasonable manner, with or without
reasonable accommodation, for a period of 12 consecutive months.
Following termination of this Agreement pursuant to clause (i) of the
preceding sentence of this paragraph, the Executive shall continue to
receive his base salary under paragraph 3a hereof for a period of 12
months from the date of his Disability, reduced by any benefits
payable during such period under the short-term disability plan and
long-term disability plan of the Company or Holdings. Thereafter, or
in the event of termination of this Agreement pursuant to clause (ii)
of the preceding sentence, the Executive shall receive benefits under
the long-term disability plan of the Company or Holdings (as
applicable) in lieu of any further base salary under paragraph 3a
hereof.
c. By notice to the Executive, the Company may
terminate the Executive's employment at any time for "Cause". The
Company must deliver such notice within ninety (90) days after the
Board of Directors of Holdings (the "Holdings" Board) both (i) has or
should have had knowledge of conduct or an event allegedly
constituting Cause, and (ii) has reason to believe that such conduct
or event could be grounds for Cause. For purposes of this Agreement
"Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued
failure by the Executive to perform substantially his duties with the
Company (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance
is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes the Executive has
not substantially performed his duties; (iii) the Executive engages in
conduct that constitutes gross neglect or willful misconduct in
carrying out his duties under this Agreement involving material
economic harm to Holdings, the Company or any of their subsidiaries;
or (iv) the Executive has engaged in a material breach of Sections 6
or 7 of this Agreement. In the event the termination notice is based
on clause (ii) of the preceding sentence, the Executive shall have ten
(10) business days following receipt of the notice of termination to
cure his conduct, to the extent such cure is possible, and if the
Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice
shall be deemed to be for Cause. The determination of Cause shall be
made by the Holdings Board upon the recommendation of the Compensation
and Succession Committee of the Holdings Board. Following a Change in
Control, such determination shall be made in a resolution duly adopted
by the affirmative vote of not less than three-fourths (3/4) of the
membership of the Holdings Board, excluding members who are employees
of Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Holdings Board prior to such vote). The Executive
shall not be entitled to the payment of any additional compensation
from the Company, except to the extent provided in paragraph 4h
hereof, in the event of the termination of his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of the Company, may
voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which
are materially inconsistent in any adverse respect with the
Executive's position, duties, offices, responsibilities or reporting
requirements immediately prior to a Change in Control, including any
diminution of such duties or responsibilities; or
(ii) the Company reduces the Executive's base salary,
including salary deferrals, as in effect immediately prior to a Change
in Control; or
(iii) the Company or Holdings discontinues any bonus or
other compensation plan or any other benefit, retirement plan
(including the SERP), stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu
thereof does not make available plans providing at least comparable
benefits; or
(iv) the Company or Holdings takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any
office or location other than one within a 50-mile radius of the
office or location at which the Executive was based immediately prior
to the Change in Control; or
(vi) the Company purports to terminate the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vii) the Company and Holdings fail to comply with and
satisfy Section 5 hereof, provided that such successor has received
prior written notice from the Company or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. The Company may terminate the Executive's
employment at any time without Cause.
f. In the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Company shall pay the Executive a lump sum severance
benefit, equal to two years' base salary at the rate in effect as of
the date of termination, plus the greater of (i) two times the most
recent annual bonus paid to the Executive under the Annual Officers
Incentive Compensation Plan of the Company or Holdings (the "OICP") or
any similar annual bonus plan (excluding the pro rata bonus referred
to in the next sentence) or (ii) two times the average annual bonus
paid to the Executive for the three prior years under the OICP or such
similar plan (excluding the pro rata annual bonus referred to in the
next sentence). If one hundred eighty (180) days or more have elapsed
in Holdings' fiscal year in which such termination occurs, the Company
shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's
annual bonus in an amount equal to (A) the bonus which would have been
payable to Executive under OICP or any similar plan for the fiscal
year in which Executive's termination occurs, multiplied by (B) a
fraction, the numerator of which is the number of days in the fiscal
year in which the termination occurs through the termination date and
the denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated by the Company without cause prior to a Change in Control,
the Executive (and his eligible dependents) shall be entitled to
continue participation in the employee benefit plans of the Company
and Holdings for a two-year period from the date of termination,
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participated had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and
expenses of any executive recruiting, counseling or placement firm
selected by the Executive for the purposes of seeking new employment
following his termination of employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Company or
Holdings shall pay the Executive a lump sum severance benefit, equal
to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is
terminated by the Company without Cause or by the Executive for Good
Reason following a Change in Control, the (i) Executive (and his
eligible dependents) shall be entitled to continue participation (the
premiums for which will be paid by the Company) in the employee
benefit plans of the Company or Holdings providing medical,
prescription drug, dental, and hospitalization benefits for the
remainder of the Executive's life (ii) the Executive shall be entitled
to continue participation (the premiums for which will be paid by the
Company) in the other employee benefit plans of the Company or
Holdings for a four year period from the date of termination;
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Executive shall
be entitled to (i) be covered by a life insurance policy providing a
death benefit, equal to 2.5 times the Executive's base salary at the
rate in effect as of the time of termination, payable to a beneficiary
or beneficiaries designated by the Executive, the premiums for which
will be paid by the Company for the balance of the Executive's life
and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the
Executive for the purposes of seeking new employment following his
termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, the Company shall pay the Executive or the Executive's
estate any base salary earned and unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company, Holdings or any entity
which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to
the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this paragraph
4i)(the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company or Holdings shall pay to the
Executive (or to the Internal Revenue Service on behalf of the
Executive) an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains
(or has had paid to the Internal Revenue Service on his behalf) an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal
rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the
amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations to Holdings, the
Company and the Executive within fifteen (15) business days of the
receipt of notice from Holdings, the Company or the Executive that
there has been a Payment, or such earlier time as is requested by the
Company (collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by
Holdings or the Company and Holdings or the Company shall enter into
any agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-up Payment under
subparagraph 4i with respect to any Payments shall be made no later
than thirty (30) days following such Payment. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in
the imposition of a negligence or similar penalty. The Determination
by the Accounting Firm shall be binding upon Holdings, the Company and
the Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by Holdings or the
Company should have been made ("Underpayment") or Gross-up Payments
are made by Holdings or the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the
rate provided in Section 1274(b) (2) (B) of the Code) shall be
promptly paid by Holdings or the Company to or for the benefit of the
Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of Holdings or the Company. The Executive shall
cooperate, to the extent his expenses are reimbursed by Holdings or
the Company, with any reasonable requests by Holdings or the Company
in connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control
Holdings or the Company shall pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the
Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by
Holdings, the Company, or by the Executive of the validity of, or
liability under, this Agreement or the SERP (including any contest by
the Executive about the amount of any payment pursuant to this
Agreement or pursuant to the SERP), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the
Chase Manhattan Bank, N.A. or its successor, provided, however, that
Holdings and the Company shall not be liable for the Executive's legal
fees and expenses if the Executive's position in such contest,
litigation or arbitration is found by the neutral decision-maker to be
frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive's employment
after completion of eight (8) years of continuous service with the
Company and Holdings (as determined pursuant to the SERP), the
Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits equal
to those provided by the Company to Executives on March 26, 1997 for
the remainder of the Executive's (and his/her eligible dependents)
life, the cost of which shall be paid in full by the Company (if
applicable, on the same after-tax basis to the executive as if the
Executive had continued participation in the employee benefit plans of
the Company or Holdings providing such benefits). If the Executive is
less than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive such benefits upon attaining
age 55 and prior thereto the Executive, if applicable, shall be
entitled to the medical, prescription drug, dental and hospitalization
benefits provided by paragraphs 4f or g above.
5. Successor Liability. The Company and Holdings shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Holdings, as applicable, to
assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company or Holdings would be
required to perform. As used in this Agreement, "Company" and
"Holdings" shall mean each such corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to the Company, Holdings, and their subsidiaries and
affiliates, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of
Holdings, the Company, and their subsidiaries and affiliates learned
by him from Holdings, the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside Holdings, the
Company or any of their subsidiaries or affiliates, whether during or
after his period of service with the Company, except (i) as such
disclosure may be required or appropriate in connection with his work
as an employee of the Company or (ii) when required to do so by a
court of law, by any governmental agency having supervisory authority
over the business of the Company, or Holdings or by any administrative
or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information. The Executive agrees to give Holdings and the Company
advance written notice of any disclosure pursuant to clause (ii) of
the preceding sentence and to cooperate with any efforts by Holdings
or the Company to limit the extent of such disclosure. Upon request
by Holdings or the Company, the Executive agrees to deliver promptly
to Holdings or the Company upon termination of his services for the
Company, or at any time thereafter as Holdings or the Company may
request, all Holdings or Company subsidiary or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer file in
any media and other documents (and all copies thereof) relating to the
business of Holdings, the Company or any of their subsidiaries or
affiliates and all property of Holdings, the Company or any subsidiary
or affiliate associated therewith, which he may then possess or have
under his direct control, other than personal notes, diaries,
Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by the Company and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by the Company or any of its subsidiaries
or affiliates in any state of the United States in which any of them
are engaged in business at the time of such termination of employment
for as long as they carry on a business therein. Notwithstanding the
preceding sentence, the Executive shall not be prohibited from owning
less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by the Company or any
of its subsidiaries, or otherwise encourage or entice such person or
entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
the Company or any Affiliate which the Executive may conceive or make
or have conceived or made during the Executive's employment with the
Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the
Company, at its expense, shall execute and sign any and all
applications, assignments or other instruments and do all other things
which the Company may deem necessary or appropriate (i) to apply for,
obtain, maintain, enforce, or defend letters patent of the United
States or any foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with the Company, shall be settled by binding
arbitration in the City of Syracuse, State of New York, pursuant to
the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of
the New York Civil Practice Law and Rules. Judgment upon the award
may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute arises
between the parties under Sections 6 or 7 hereof, or if the Company or
Holdings makes any claim under Sections 6 or 7, the Company or
Holdings shall not be required to arbitrate such dispute or claim but
shall have the right to institute judicial proceedings in any court of
competent jurisdiction with respect to such dispute or claim. If such
judicial proceedings are instituted, the parties agree that such
proceedings shall not be stayed or delayed pending the outcome of any
arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Ms. Darlene D. Kerr
245 Whitestone Circle
Syracuse, NY 13215
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The Company and
Holdings may utilize certain financing vehicles, including a trust, to
provide a source of funding their obligations under this Agreement.
Any such financing vehicles will be subject to the claims of the
general creditors of the Company or Holdings, as applicable. No such
financing vehicles shall relieve Holdings or the Company, or their
successors, of their obligations to provide benefits under this
Agreement, except to the extent the Executive receives payments
directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is
for the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company (except to an Affiliate) or by the Executive
without the prior written consent of the other party. This Agreement
shall be binding upon any successor to the Company or Holdings,
whether by merger, consolidation, reorganization, purchase of all or
substantially all of the stock or assets of the Company or Holdings,
or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to the Company that the Executive is not party to any
agreement which would prohibit the Executive from entering into this
Agreement or performing fully the Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by the Company or Holdings, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company or Holdings and the
Executive have executed this Agreement as of the date first written
above.
____________________________ NIAGARA MOHAWK POWER CORPORATION
Darlene D. Kerr
By:______________________________
DAVID J. ARRINGTON
Senior Vice President -
Human Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
By:______________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
SCHEDULE A
Modifications in Respect of Darlene D. Kerr ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Niagara Mohawk Power Corporation (the
"Company") and (ii) the average of the annual bonus earned by the
Executive under the Annual Officers Incentive Compensation Plan
of the Company or Holdings ("OICP"), whether or not deferred, in
respect of the final 36 months of the Executive's employment with
the Company. If the Executive was an employee of the Company on
December 31, 1997 and the Executive is entitled to payment under
Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP")
for all or a portion of the Stock Units and Stock Appreciation
Rights granted to the Executive under SIP, there shall be taken
into account for purposes of the preceding sentence as an annual
bonus under the OICP, the sum of (x) cash payments made with
respect to Stock Units (and related Dividend Equivalents) granted
to the Executive under the SIP and (y) the result of multiplying
the number of Stock Appreciation Rights granted to the Executive
under the SIP, prorated if applicable to Article 9 of the SIP, by
the difference between (1) the value of one share of the
Company's common stock on December 31, 1997 and (2) the Base
Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following eight (8)
years of continuous service with the Company (i.e., 60% of
Earnings (as modified above) without reduction for an Early
Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less
than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the
SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by the Company, at any time, other than
for Cause, (y) the termination of this Agreement on account of
the Executive's Disability or (z) the Executive's termination of
employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of
this Agreement), the Executive shall be 100% vested in his full
SERP benefit (i.e., 60% of Earnings (as modified above) without
reduction for an Early Commencement Factor) regardless of the
Executive's years of continuous service with the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company
Common Stock") of Niagara Mohawk Holdings, Inc. (for
purposes of this Schedule B only, "the Company") or (ii) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii)
and (iii) of subparagraph (3) of this Schedule B are
satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company or Niagara Mohawk Power Corporation, other
than to a corporation, with respect to which following such sale
or other disposition, (A) more than 75% of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-4
Agreement made as of the 17th day of March, 1999, among
NIAGARA MOHAWK POWER CORPORATION (the "Company"), NIAGARA MOHAWK
HOLDINGS, INC. ("Holdings"), and David J. Arrington (the "Executive").
WHEREAS, the Company and Holdings desire to employ the
Executive, and the Executive desires to accept/continue employment
with the Company and Holdings, on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and the Executive hereby
agree as follows:
1. Term of Agreement. The Company and Holdings shall
employ the Executive, and the Executive shall serve the Company and
Holdings, for the period beginning March 17, 1999 and expiring on
December 31, 2001, subject to earlier termination as provided under
paragraph 4 hereof. This Agreement shall be extended automatically by
one year commencing on January 1, 2000 and on January 1st of each year
thereafter, unless the Company, Holdings or the Executive, as the case
may be, gives notice to the contrary not later than sixty (60) days
prior to such date. Notwithstanding any such notice by the Company or
Holdings, this Agreement shall remain in effect for a period of
thirty-six months from the date of a "Change in Control" (as that term
is defined in Schedule B hereto), unless such notice was given at
least 18 months prior to the date of the Change in Control.
2. Duties. The Executive shall serve the Company and
Holdings as its Senior Vice President - Human Resources and Chief
Administrative Officer. During the term of this Agreement, the
Executive shall, except during vacation or sick leave, devote the
whole of the Executive's time, attention and skill to the business of
the Company and Holdings during usual business hours (and outside
those hours when reasonably necessary to the Executive's duties
hereunder); faithfully and diligently perform such duties and exercise
such powers as may be from time to time assigned to or vested in the
Executive by the Company's Board of Directors (the "Board") or the
Board of Directors of Holdings (the "Holdings Board"), or by any
officer of the Company or Holdings superior to the Executive; obey the
directions of the Board and the Holdings Board and of any officer of
the Company or Holdings superior to the Executive; and use the
Executive's best efforts to promote the interests of the Company and
Holdings. The Executive may be required in pursuance of the
Executive's duties hereunder to perform services for any company
controlling, controlled by or under common control with Holdings and
the Company (such companies hereinafter collectively called
"Affiliates") and to accept such offices in any Affiliates as the
Board may require. The Executive shall obey all policies of the
Company and Holdings and applicable policies of their Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company and Holdings shall pay the Executive a
base salary at an annual rate of $249,000, which shall be payable
periodically in accordance with the Company's then prevailing payroll
practices, or such greater amount as the Company and Holdings may from
time to time determine;
b. The Executive shall be entitled to participate in
Holdings Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings Officers Incentive Compensation Plan and Long Term Incentive
Plan, and any successors thereto, in accordance with the terms
thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as the Company and Holdings generally provides to their
employees having rank and seniority comparable to the Executive.
4. Termination. The Company and Holdings shall continue
to employ the Executive, and the Executive shall continue to work for
the Company and Holdings, during the term of this Agreement, unless
the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of the Company and Holdings to the Executive in respect
of any such right or benefit, shall not be extinguished by reason of
the Executive's death. Any base salary earned and unpaid as of the
date of the Executive's death shall be paid to the Executive's estate
in accordance with paragraph 4g below.
b. By notice to the Executive, the Company or
Holdings may terminate this Agreement upon the "Disability" of the
Executive. The Executive shall be deemed to incur a Disability when
(i) a physician selected by the Company or Holdings advises the
Company or Holdings that the Executive's physical or mental condition
has rendered the Executive unable to perform the essential functions
of the Executive's position in a reasonable manner, with or without
reasonable accommodation and will continue to render him unable to
perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a
physical or mental condition, the Executive has not performed the
essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation, for a period of 12
consecutive months. Following termination of this Agreement pursuant
to clause (i) of the preceding sentence of this paragraph, the
Executive shall continue to receive his base salary under paragraph 3a
hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the short-
term disability plan and long-term disability plan of the Company or
Holdings. Thereafter, or in the event of termination of this
Agreement pursuant to clause (ii) of the preceding sentence, the
Executive shall receive benefits under the long-term disability plan
of the Company or Holdings (as applicable) in lieu of any further base
salary under paragraph 3a hereof.
c. By notice to the Executive, the Company or
Holdings may terminate the Executive's employment at any time for
"Cause". The Company or Holdings must deliver such notice within
ninety (90) days after the Holdings Board both (i) has or should have
had knowledge of conduct or an event allegedly constituting Cause, and
(ii) has reason to believe that such conduct or event could be grounds
for Cause. For purposes of this Agreement "Cause" shall mean (i) the
Executive is convicted of, or has plead guilty or nolo contendere to,
a felony; (ii) the willful and continued failure by the Executive to
perform substantially his duties with the Company or Holdings, as
applicable (other than any such failure resulting from incapacity due
to physical or mental illness) after a demand for substantial
performance is delivered to the Executive by the Company (or Holdings)
which specifically identifies the manner in which the Company (or
Holdings) believes the Executive has not substantially performed his
duties; (iii) the Executive engages in conduct that constitutes gross
neglect or willful misconduct in carrying out his duties under this
Agreement involving material economic harm to the Company, Holdings or
any of their subsidiaries; or (iv) the Executive has engaged in a
material breach of Sections 6 or 7 of this Agreement. In the event
the termination notice is based on clause (ii) of the preceding
sentence, the Executive shall have ten (10) business days following
receipt of the notice of termination to cure his conduct, to the
extent such cure is possible, and if the Executive does not cure
within the ten (10) business day period, his termination of employment
in accordance with such termination notice shall be deemed to be for
Cause. The determination of Cause shall be made by the Holdings Board
upon the recommendation of the Compensation and Succession Committee
of the Holdings Board. Following a Change in Control, such
determination shall be made in a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the
membership of the Holdings Board, excluding members who are employees
of Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Holdings Board prior to such vote). The Executive
shall not be entitled to the payment of any additional compensation
from the Company or Holdings, as applicable, except to the extent
provided in paragraph 4h hereof, in the event of the termination of
his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of the Company or Holdings
may voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company or Holdings assigns any duties to the
Executive which are materially inconsistent in any adverse respect
with the Executive's position, duties, offices, responsibilities or
reporting requirements immediately prior to a Change in Control,
including any diminution of such duties or responsibilities; or
(ii) the Company or Holdings reduces the Executive's base
salary, including salary deferrals, as in effect immediately prior to
a Change in Control; or
(iii) the Company or Holdings discontinues any bonus or
other compensation plan or any other benefit, retirement plan
(including the SERP), stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu
thereof does not make available plans providing at least comparable
benefits; or
(iv) the Company or Holdings takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company or Holdings requires the Executive to be
based at any office or location other than one within a 50-mile radius
of the office or location at which the Executive was based immediately
prior to the Change in Control; or
(vi) the Company or Holdings purports to terminate the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(vii) the Company or Holdings fails to comply with and
satisfy Section 5 hereof, provided that such successor has received
prior written notice from the Company or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. The Company or Holdings may terminate the
Executive's employment at any time without Cause.
f. In the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both) prior to
a Change in Control, the Company or Holdings (or both) shall pay the
Executive a lump sum severance benefit, equal to two years' base
salary at the rate in effect from the Company or Holdings (or both),
as applicable, as of the date of termination, plus the greater of (i)
two times the most recent annual bonus paid to the Executive under the
Annual Officers Incentive Compensation Plan of the Company or Holdings
(the "OICP") or any similar annual bonus plan (excluding the pro rata
bonus referred to in the next sentence) or (ii) two times the average
annual bonus paid to the Executive for the three prior years under the
OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days
or more have elapsed in the fiscal year of Holdings in which such
termination occurs, the Company or Holdings shall also pay the
Executive in a lump sum, within ninety (90) days after the end of such
fiscal year, a pro rata portion of Executive's annual bonus in an
amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the
numerator of which is the number of days in the fiscal year in which
the termination occurs through the termination date and the
denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both), prior
to a Change in Control, the Executive (and his eligible dependents)
shall be entitled to continue participation in the employee benefit
plans of the Company and Holdings for a two-year period from the date
of termination, provided, however, that if Executive cannot continue
to participate in any of the benefit plans, the Company or Holdings
(or both, if applicable), shall otherwise provide equivalent benefits
to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the
foregoing, in the event Executive becomes employed by another employer
and becomes eligible to participate in an employee benefit plan of
such employer, the benefits described herein shall be secondary to
such benefits during the period of Executive's eligibility, but only
to the extent that the Company or Holdings (or both, if applicable),
reimburses Executive for any increased cost and provides any
additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both) prior to
a Change in Control, the Executive shall be entitled to (i) be covered
by a life insurance policy providing a death benefit, equal to 2.5
times the Executive's base salary at the rate in effect from the
Company or Holdings (or both), as applicable, as of the time of
termination, payable to a beneficiary or beneficiaries designated by
the Executive, the premiums for which will be paid by the Company or
Holdings (or both, if applicable) for the balance of the Executive's
life and (ii) payment by the Company or Holdings (or both, if
applicable) of all fees and expenses of any executive recruiting,
counseling or placement firm selected by the Executive for the
purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by the Company or
Holdings (or both) without Cause or by the Executive for Good Reason,
the Company or Holdings (or both) shall pay the Executive a lump sum
severance benefit, equal to four years' base salary at the rate in
effect from the Company or Holdings (or both), as applicable, as of
the date of termination.
In addition, in the event that the Executive's employment is
terminated by the Company or Holdings (or both) without Cause or by
the Executive for Good Reason following a Change in Control, the (i)
Executive (and his eligible dependents) shall be entitled to continue
participation (the premiums for which will be paid by the Company or
Holdings) in the employee benefit plans of the Company or Holdings
providing medical, prescription drug, dental, and hospitalization
benefits for the remainder of the Executive's life (ii) the Executive
shall be entitled to continue participation (the premiums for which
will be paid by the Company or Holdings) in the other employee benefit
plans of the Company or Holdings for a four year period from the date
of termination; provided, however, that if Executive cannot continue
to participate in any of the benefit plans, the Company or Holdings
shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation
had been permitted. Notwithstanding the foregoing, in the event
Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits
described herein shall be secondary to such benefits during the period
of Executive's eligibility, but only to the extent that the Company or
Holdings reimburses Executive for any increased cost and provides any
additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by the Company or
Holdings (or both) without Cause or by the Executive for Good Reason,
the Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by the Company or Holdings for the
balance of the Executive's life and (ii) payment by the Company or
Holdings of all fees and expenses of any executive recruiting,
counseling or placement firm selected by the Executive for the
purposes of seeking new employment following his termination of
employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, the Company or Holdings (or both, if applicable) shall
pay the Executive or the Executive's estate any base salary earned and
unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company, Holdings or any entity
which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to
the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this paragraph
4i)(the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company or Holdings shall pay to the
Executive (or to the Internal Revenue Service on behalf of the
Executive) an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains
(or has had paid to the Internal Revenue Service on his behalf) an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal
rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the
amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the
Company, Holdings and the Executive within fifteen (15) business days
of the receipt of notice from the Company, Holdings or the Executive
that there has been a Payment, or such earlier time as is requested by
the Company or Holdings (or both) (collectively, the "Determination").
In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in
Control, the Executive may appoint another nationally recognized
public accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company or Holdings and the Company or Holdings
shall enter into any agreement requested by the Accounting Firm in
connection with the performance of the services hereunder. The Gross-
up Payment under subparagraph 4i with respect to any Payments shall be
made no later than thirty (30) days following such Payment. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to
such effect, and to the effect that failure to report the Excise Tax,
if any, on the Executive's applicable federal income tax return will
not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the
Company, Holdings and the Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by the Company or
Holdings should have been made ("Underpayment") or Gross-up Payments
are made by the Company or Holdings which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the
rate provided in Section 1274(b) (2) (B) of the Code) shall be
promptly paid by the Company or Holdings to or for the benefit of the
Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of the Company or Holdings. The Executive shall
cooperate, to the extent his expenses are reimbursed by the Company or
Holdings with any reasonable requests by the Company or Holdings in
connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the Company
or Holdings shall pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by the Company,
Holdings or by the Executive of the validity of, or liability under,
this Agreement or the SERP (including any contest by the Executive
about the amount of any payment pursuant to this Agreement or pursuant
to the SERP), plus in each case interest on any delayed payment at the
rate of 150% of the Prime Rate posted by the Chase Manhattan Bank,
N.A. or its successor, provided, however, that the Company or Holdings
shall not be liable for the Executive's legal fees and expenses if the
Executive's position in such contest, litigation or arbitration is
found by the neutral decision-maker to be frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive's employment
after completion of eight (8) years of continuous service with the
Company and Holdings (as determined pursuant to the SERP), the
Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits equal
to those provided by the Company to Executives on March 26, 1997 for
the remainder of the Executive's life (and his/her eligible
dependents), the cost of which shall be paid in full by the Company or
Holdings (if applicable, on the same after-tax basis to the executive
as if the Executive had continued participation in the employee
benefit plans of the Company and Holdings providing such benefits).
If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive such
benefits upon attaining age 55 and prior thereto the Executive, if
applicable, shall be entitled to the medical, prescription drug,
dental and hospitalization benefits provided by paragraphs 4f or g
above.
5. Successor Liability. The Company and Holdings shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Holdings, as applicable, to
assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company or Holdings would be
required to perform. As used in this Agreement, "Company" and
"Holdings" shall mean each such corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to the Company, Holdings and their subsidiaries and
affiliates, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of
Holdings, the Company, and their subsidiaries and affiliates learned
by him from Holdings, the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside Holdings, the
Company or any of their subsidiaries or affiliates, whether during or
after his period of service with the Company and Holdings, except (i)
as such disclosure may be required or appropriate in connection with
his work as an employee of the Company and Holdings or (ii) when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of the Company or Holdings or
by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose
or make accessible such information. The Executive agrees to give
Holdings and the Company advance written notice of any disclosure
pursuant to clause (ii) of the preceding sentence and to cooperate
with any efforts by Holdings or the Company to limit the extent of
such disclosure. Upon request by Holdings or the Company, the
Executive agrees to deliver promptly to Holdings or the Company upon
termination of his services for Holdings, the Company, or at any time
thereafter as Holdings or the Company may request, all Holdings,
Company subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to the business of
Holdings, the Company or any of their subsidiaries or affiliates and
all property of Holdings, the Company or any subsidiary or affiliate
associated therewith, which he may then possess or have under his
direct control, other than personal notes, diaries, Rolodexes and
correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by the Company and Holdings and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by the Company, Holdings or any of their
subsidiaries or affiliates in any state of the United States in which
any of them are engaged in business at the time of such termination of
employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be
prohibited from owning less than five (5%) percent of any publicly
traded corporation, whether or not such corporation is in competition
with the Company or Holdings.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by the Company,
Holdings or any of their subsidiaries, or otherwise encourage or
entice such person or entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
the Company, Holdings or any Affiliate which the Executive may
conceive or make or have conceived or made during the Executive's
employment with the Company and Holdings shall be and are the sole and
exclusive property of the Company or Holdings, as applicable, and that
the Executive, whenever requested to do so by the Company or Holdings,
at its expense, shall execute and sign any and all applications,
assignments or other instruments and do all other things which the
Company or Holdings may deem necessary or appropriate (i) to apply
for, obtain, maintain, enforce, or defend letters patent of the United
States or any foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to the Company or
Holdings the sole and exclusive right, title and interest in and to
any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with the Company or Holdings, shall be settled
by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American
Arbitration Association and shall be subject to the provisions of
Article 75 of the New York Civil Practice Law and Rules. Judgment
upon the award may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute
arises between the parties under Sections 6 or 7 hereof, or if the
Company or Holdings makes any claim under Sections 6 or 7, the Company
and Holdings shall not be required to arbitrate such dispute or claim
but shall have the right to institute judicial proceedings in any
court of competent jurisdiction with respect to such dispute or claim.
If such judicial proceedings are instituted, the parties agree that
such proceedings shall not be stayed or delayed pending the outcome of
any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. David J. Arrington
4302 Hepatica Hill Road
Manlius, NY 13104
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The Company or
Holdings may utilize certain financing vehicles, including a trust, to
provide a source of funding for their obligations under this
Agreement. Any such financing vehicles will be subject to the claims
of the general creditors of the Company or Holdings, as applicable.
No such financing vehicles shall relieve the Company, Holdings or
their successors, of their obligations to provide benefits under this
Agreement, except to the extent the Executive receives payments
directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is
for the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company or Holdings (except to an Affiliate) or by the
Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company or
Holdings, whether by merger, consolidation, reorganization, purchase
of all or substantially all of the stock or assets of the Company or
Holdings, or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to the Company and Holdings that the Executive is not party
to any agreement which would prohibit the Executive from entering into
this Agreement or performing fully the Executive's obligations
hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by the Company or Holdings, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company, Holdings and the Executive
have executed this Agreement as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
David J. Arrington
By:______________________________
William E. Davis
Chairman of the Board and
Chief Executive Officer
NIAGARA MOHAWK HOLDINGS, INC.
By:_____________________________
William E. Davis
Chairman of the Board and
Chief Executive Officer
SCHEDULE A
Modifications in Respect of David J. Arrington ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Holdings and Niagara Mohawk Power
Corporation (the "Company") and (ii) the average of the annual
bonus earned by the Executive under the Annual Officers Incentive
Compensation Plan of the Company or Holdings ("OICP"), whether or
not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If the Executive was an
employee of the Company on December 31, 1997 and the Executive is
entitled to payment under Article 9 of the Corporation's 1995
Stock Incentive Plan ("SIP") for all or a portion of the Stock
Units and Stock Appreciation Rights granted to the Executive
under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of
(x) cash payments made with respect to Stock Units (and related
Dividend Equivalents) granted to the Executive under the SIP and
(y) the result of multiplying the number of Stock Appreciation
Rights granted to the Executive under the SIP, prorated if
applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Company's common stock on December
31, 1997 and (2) the Base Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following eight (8)
years of continuous service with Holdings and the Company (i.e.,
60% of Earnings (as modified above) without reduction for an
Early Commencement Factor) regardless of the Executive's years of
continuous service with Holdings and the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by Holdings and the Company, at any
time, other than for Cause, (y) the termination of this Agreement
on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full
calendar month period following a Change in Control (as defined
in Schedule B of this Agreement), the Executive shall be 100%
vested in his full SERP benefit (i.e., 60% of Earnings (as
modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service
with Holdings and the Company. If the Executive is less than age
55 at the date of such termination of employment, the Executive
shall be entitled to receive benefits commencing no earlier than
age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company
Common Stock") of Niagara Mohawk Holdings, Inc. (for
purposes of this Schedule B only, the ("Company") or (ii)
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii)
and (iii) of subparagraph (3) of this Schedule B are
satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation, with respect
to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-5
Agreement made as of the 17th day of March, 1999, among
NIAGARA MOHAWK POWER CORPORATION (the "Company"), NIAGARA MOHAWK
HOLDINGS, INC. ("Holdings") and Thomas H. Baron (the "Executive").
WHEREAS, the Company desires to employ the Executive, and
the Executive desires to accept/continue employment with the Company,
on the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Holdings desire to take appropriate
steps to reinforce and encourage the continued dedication of the
Executive to his assigned duties without distraction about the
uncertainties of the Executive's situation in circumstances arising
from the possibility of a Change in Control (as that term is defined
in Schedule B hereto) of Holdings;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company, Holdings and the
Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the
Executive, and the Executive shall serve the Company, for the period
beginning March 17, 1999 and expiring on December 31, 2001, subject to
earlier termination as provided under paragraph 4 hereof. This
Agreement shall be extended automatically by one year commencing on
January 1, 2000 and on January 1st of each year thereafter, unless the
Company and Holdings or the Executive, as the case may be, gives
notice to the contrary not later than sixty (60) days prior to such
date. Notwithstanding any such notice by the Company and Holdings,
this Agreement shall remain in effect for a period of thirty-six
months from the date of a Change in Control, unless such notice was
given at least 18 months prior to the date of the Change in Control.
2. Duties. The Executive shall serve the Company as its
Senior Vice President - Field Operations. During the term of this
Agreement, the Executive shall, except during vacation or sick leave,
devote the whole of the Executive's time, attention and skill to the
business of the Company during usual business hours (and outside those
hours when reasonably necessary to the Executive's duties hereunder);
faithfully and diligently perform such duties and exercise such powers
as may be from time to time assigned to or vested in the Executive by
the Company's Board of Directors (the "Board") or by any officer of
the Company superior to the Executive; obey the directions of the
Board and of any officer of the Company superior to the Executive; and
use the Executive's best efforts to promote the interests of the
Company. The Executive may be required in pursuance of the
Executive's duties hereunder to perform services for any company
controlling, controlled by or under common control with the Company
(such companies hereinafter collectively called "Affiliates") and to
accept such offices in any Affiliates as the Board may require. The
Executive shall obey all policies of the Company and applicable
policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary
at an annual rate of $226,000, which shall be payable periodically in
accordance with the Company's then prevailing payroll practices, or
such greater amount as the Company may from time to time determine;
b. The Executive shall be entitled to participate in
Holdings' Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings' Officers Incentive Compensation Plan and Long Term Incentive
Plan, and any successors thereto, in accordance with the terms
thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as the Company generally provides to its employees having
rank and seniority at the Company comparable to the Executive.
4. Termination. The Company shall continue to employ the
Executive, and the Executive shall continue to work for the Company,
during the term of this Agreement, unless the Agreement is terminated
in accordance with the following provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of the Company to the Executive in respect of any such
right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date
of the Executive's death shall be paid to the Executive's estate in
accordance with paragraph 4g below.
b. By notice to the Executive, the Company may
terminate this Agreement upon the "Disability" of the Executive. The
Executive shall be deemed to incur a Disability when (i) a physician
selected by the Company advises the Company that the Executive's
physical or mental condition has rendered the Executive unable to
perform the essential functions of the Executive's position in a
reasonable manner, with or without reasonable accommodation and will
continue to render him unable to perform the essential functions of
the Executive's position in such manner, for a period exceeding 12
consecutive months, or (ii) due to a physical or mental condition, the
Executive has not performed the essential functions of the
Executive's position in a reasonable manner, with or without
reasonable accommodation, for a period of 12 consecutive months.
Following termination of this Agreement pursuant to clause (i) of the
preceding sentence of this paragraph, the Executive shall continue to
receive his base salary under paragraph 3a hereof for a period of 12
months from the date of his Disability, reduced by any benefits
payable during such period under the short-term disability plan and
long-term disability plan of the Company or Holdings. Thereafter, or
in the event of termination of this Agreement pursuant to clause (ii)
of the preceding sentence, the Executive shall receive benefits under
the long-term disability plan of the Company or Holdings (as
applicable) in lieu of any further base salary under paragraph 3a
hereof.
c. By notice to the Executive, the Company may
terminate the Executive's employment at any time for "Cause". The
Company must deliver such notice within ninety (90) days after the
Board of Directors of Holdings (the "Holdings" Board) both (i) has or
should have had knowledge of conduct or an event allegedly
constituting Cause, and (ii) has reason to believe that such conduct
or event could be grounds for Cause. For purposes of this Agreement
"Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued
failure by the Executive to perform substantially his duties with the
Company (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance
is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes the Executive has
not substantially performed his duties; (iii) the Executive engages in
conduct that constitutes gross neglect or willful misconduct in
carrying out his duties under this Agreement involving material
economic harm to Holdings, the Company or any of their subsidiaries;
or (iv) the Executive has engaged in a material breach of Sections 6
or 7 of this Agreement. In the event the termination notice is based
on clause (ii) of the preceding sentence, the Executive shall have ten
(10) business days following receipt of the notice of termination to
cure his conduct, to the extent such cure is possible, and if the
Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice
shall be deemed to be for Cause. The determination of Cause shall be
made by the Holdings Board upon the recommendation of the Compensation
and Succession Committee of the Holdings Board. Following a Change in
Control, such determination shall be made in a resolution duly adopted
by the affirmative vote of not less than three-fourths (3/4) of the
membership of the Holdings Board, excluding members who are employees
of Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Holdings Board prior to such vote). The Executive
shall not be entitled to the payment of any additional compensation
from the Company, except to the extent provided in paragraph 4h
hereof, in the event of the termination of his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of the Company, may
voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which
are materially inconsistent in any adverse respect with the
Executive's position, duties, offices, responsibilities or reporting
requirements immediately prior to a Change in Control, including any
diminution of such duties or responsibilities; or
(ii) the Company reduces the Executive's base salary,
including salary deferrals, as in effect immediately prior to a Change
in Control; or
(iii) the Company or Holdings discontinues any bonus or
other compensation plan or any other benefit, retirement plan
(including the SERP), stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu
thereof does not make available plans providing at least comparable
benefits; or
(iv) the Company or Holdings takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any
office or location other than one within a 50-mile radius of the
office or location at which the Executive was based immediately prior
to the Change in Control; or
(vi) the Company purports to terminate the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vii) the Company and Holdings fail to comply with and
satisfy Section 5 hereof, provided that such successor has received
prior written notice from the Company or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. The Company may terminate the Executive's
employment at any time without Cause.
f. In the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Company shall pay the Executive a lump sum severance
benefit, equal to two years' base salary at the rate in effect as of
the date of termination, plus the greater of (i) two times the most
recent annual bonus paid to the Executive under the Annual Officers
Incentive Compensation Plan of the Company or Holdings (the "OICP") or
any similar annual bonus plan (excluding the pro rata bonus referred
to in the next sentence) or (ii) two times the average annual bonus
paid to the Executive for the three prior years under the OICP or such
similar plan (excluding the pro rata annual bonus referred to in the
next sentence). If one hundred eighty (180) days or more have elapsed
in Holdings' fiscal year in which such termination occurs, the Company
shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's
annual bonus in an amount equal to (A) the bonus which would have been
payable to Executive under OICP or any similar plan for the fiscal
year in which Executive's termination occurs, multiplied by (B) a
fraction, the numerator of which is the number of days in the fiscal
year in which the termination occurs through the termination date and
the denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated by the Company without cause prior to a Change in Control,
the Executive (and his eligible dependents) shall be entitled to
continue participation in the employee benefit plans of the Company
and Holdings for a two-year period from the date of termination,
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participated had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and
expenses of any executive recruiting, counseling or placement firm
selected by the Executive for the purposes of seeking new employment
following his termination of employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Company or
Holdings shall pay the Executive a lump sum severance benefit, equal
to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is
terminated by the Company without Cause or by the Executive for Good
Reason following a Change in Control, the (i) Executive (and his
eligible dependents) shall be entitled to continue participation (the
premiums for which will be paid by the Company) in the employee
benefit plans of the Company or Holdings providing medical,
prescription drug, dental, and hospitalization benefits for the
remainder of the Executive's life (ii) the Executive shall be entitled
to continue participation (the premiums for which will be paid by the
Company) in the other employee benefit plans of the Company or
Holdings for a four year period from the date of termination;
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Executive shall
be entitled to (i) be covered by a life insurance policy providing a
death benefit, equal to 2.5 times the Executive's base salary at the
rate in effect as of the time of termination, payable to a beneficiary
or beneficiaries designated by the Executive, the premiums for which
will be paid by the Company for the balance of the Executive's life
and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the
Executive for the purposes of seeking new employment following his
termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, the Company shall pay the Executive or the Executive's
estate any base salary earned and unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company, Holdings or any entity
which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to
the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this paragraph
4i)(the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company or Holdings shall pay to the
Executive (or to the Internal Revenue Service on behalf of the
Executive) an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains
(or has had paid to the Internal Revenue Service on his behalf) an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal
rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the
amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations to Holdings, the
Company and the Executive within fifteen (15) business days of the
receipt of notice from Holdings, the Company or the Executive that
there has been a Payment, or such earlier time as is requested by the
Company (collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by
Holdings or the Company and Holdings or the Company shall enter into
any agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-up Payment under
subparagraph 4i with respect to any Payments shall be made no later
than thirty (30) days following such Payment. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in
the imposition of a negligence or similar penalty. The Determination
by the Accounting Firm shall be binding upon Holdings, the Company and
the Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by Holdings or the
Company should have been made ("Underpayment") or Gross-up Payments
are made by Holdings or the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the
rate provided in Section 1274(b) (2) (B) of the Code) shall be
promptly paid by Holdings or the Company to or for the benefit of the
Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of Holdings or the Company. The Executive shall
cooperate, to the extent his expenses are reimbursed by Holdings or
the Company, with any reasonable requests by Holdings or the Company
in connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control
Holdings or the Company shall pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the
Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by
Holdings, the Company, or by the Executive of the validity of, or
liability under, this Agreement or the SERP (including any contest by
the Executive about the amount of any payment pursuant to this
Agreement or pursuant to the SERP), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the
Chase Manhattan Bank, N.A. or its successor, provided, however, that
Holdings and the Company shall not be liable for the Executive's legal
fees and expenses if the Executive's position in such contest,
litigation or arbitration is found by the neutral decision-maker to be
frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive's employment
after completion of ten (10) years of continuous service with the
Company and Holdings (as determined pursuant to the SERP), the
Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits for
the remainder of the Executive's (and his/her eligible dependents)
life, the cost of which shall be paid in full by the Company (if
applicable, on the same after-tax basis to the executive as if the
Executive had continued participation in the employee benefit plans of
the Company or Holdings providing such benefits). If the Executive is
less than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive such benefits upon attaining
age 55 and prior thereto the Executive, if applicable, shall be
entitled to the medical, prescription drug, dental and hospitalization
benefits provided by paragraphs 4f or g above.
5. Successor Liability. The Company and Holdings shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Holdings, as applicable, to
assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company or Holdings would be
required to perform. As used in this Agreement, "Company" and
"Holdings" shall mean each such corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to the Company, Holdings, and their subsidiaries and
affiliates, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of
Holdings, the Company, and their subsidiaries and affiliates learned
by him from Holdings, the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside Holdings, the
Company or any of their subsidiaries or affiliates, whether during or
after his period of service with the Company, except (i) as such
disclosure may be required or appropriate in connection with his work
as an employee of the Company or (ii) when required to do so by a
court of law, by any governmental agency having supervisory authority
over the business of the Company, or Holdings or by any administrative
or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information. The Executive agrees to give Holdings and the Company
advance written notice of any disclosure pursuant to clause (ii) of
the preceding sentence and to cooperate with any efforts by Holdings
or the Company to limit the extent of such disclosure. Upon request
by Holdings or the Company, the Executive agrees to deliver promptly
to Holdings or the Company upon termination of his services for the
Company, or at any time thereafter as Holdings or the Company may
request, all Holdings or Company subsidiary or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer file in
any media and other documents (and all copies thereof) relating to the
business of Holdings, the Company or any of their subsidiaries or
affiliates and all property of Holdings, the Company or any subsidiary
or affiliate associated therewith, which he may then possess or have
under his direct control, other than personal notes, diaries,
Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by the Company and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by the Company or any of its subsidiaries
or affiliates in any state of the United States in which any of them
are engaged in business at the time of such termination of employment
for as long as they carry on a business therein. Notwithstanding the
preceding sentence, the Executive shall not be prohibited from owning
less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by the Company or any
of its subsidiaries, or otherwise encourage or entice such person or
entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
the Company or any Affiliate which the Executive may conceive or make
or have conceived or made during the Executive's employment with the
Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the
Company, at its expense, shall execute and sign any and all
applications, assignments or other instruments and do all other things
which the Company may deem necessary or appropriate (i) to apply for,
obtain, maintain, enforce, or defend letters patent of the United
States or any foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with the Company, shall be settled by binding
arbitration in the City of Syracuse, State of New York, pursuant to
the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of
the New York Civil Practice Law and Rules. Judgment upon the award
may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute arises
between the parties under Sections 6 or 7 hereof, or if the Company or
Holdings makes any claim under Sections 6 or 7, the Company or
Holdings shall not be required to arbitrate such dispute or claim but
shall have the right to institute judicial proceedings in any court of
competent jurisdiction with respect to such dispute or claim. If such
judicial proceedings are instituted, the parties agree that such
proceedings shall not be stayed or delayed pending the outcome of any
arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. Thomas H. Baron
4953 Bryn Mawr Drive
Syracuse, NY 13215
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The Company and
Holdings may utilize certain financing vehicles, including a trust, to
provide a source of funding their obligations under this Agreement.
Any such financing vehicles will be subject to the claims of the
general creditors of the Company or Holdings, as applicable. No such
financing vehicles shall relieve Holdings or the Company, or their
successors, of their obligations to provide benefits under this
Agreement, except to the extent the Executive receives payments
directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is
for the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company (except to an Affiliate) or by the Executive
without the prior written consent of the other party. This Agreement
shall be binding upon any successor to the Company or Holdings,
whether by merger, consolidation, reorganization, purchase of all or
substantially all of the stock or assets of the Company or Holdings,
or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to the Company that the Executive is not party to any
agreement which would prohibit the Executive from entering into this
Agreement or performing fully the Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by the Company or Holdings, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company or Holdings and the
Executive have executed this Agreement as of the date first written
above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
Thomas H. Baron
By:______________________________
DAVID J. ARRINGTON
Senior Vice President -
Human Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
By:______________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
SCHEDULE A
Modifications in Respect of Thomas H. Baron ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Niagara Mohawk Power Corporation (the
"Company") and (ii) the average of the annual bonus earned by the
Executive under the Annual Officers Incentive Compensation Plan
of the Company or Holdings ("OICP'), whether or not deferred, in
respect of the final 36 months of the Executive's employment with
the Company. If the Executive was an employee of the Company on
December 31, 1997 and the Executive is entitled to payment under
Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP")
for all or a portion of the Stock Units and Stock Appreciation
Rights granted to the Executive under SIP, there shall be taken
into account for purposes of the preceding sentence as an annual
bonus under the OICP, the sum of (x) cash payments made with
respect to Stock Units (and related Dividend Equivalents) granted
to the Executive under the SIP and (y) the result of multiplying
the number of Stock Appreciation Rights granted to the Executive
under the SIP, prorated if applicable to Article 9 of the SIP, by
the difference between (1) the value of one share of the
Company's common stock on December 31, 1997 and (2) the Base
Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following ten (10)
years of continuous service with the Company (i.e., 60% of
Earnings (as modified above) without reduction for an Early
Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less
than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the
SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by the Company, at any time, other than
for Cause, (y) the termination of this Agreement on account of
the Executive's Disability or (z) the Executive's termination of
employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of
this Agreement), the Executive shall be 100% vested in his full
SERP benefit (i.e., 60% of Earnings (as modified above) without
reduction for an Early Commencement Factor) regardless of the
Executive's years of continuous service with the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company
Common Stock") of Niagara Mohawk Holdings, Inc. (for
purposes of this Schedule B only, "the Company") or (ii) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii)
and (iii) of subparagraph (3) of this Schedule B are
satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company or Niagara Mohawk Power Corporation, other
than to a corporation, with respect to which following such sale
or other disposition, (A) more than 75% of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-6
Agreement made as of the 17th day of March, 1999, among
NIAGARA MOHAWK POWER CORPORATION (the "Company"), NIAGARA MOHAWK
HOLDINGS, INC. ("Holdings") and Edward J. Dienst (the "Executive").
WHEREAS, the Company desires to employ the Executive, and
the Executive desires to accept/continue employment with the Company,
on the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Holdings desire to take appropriate
steps to reinforce and encourage the continued dedication of the
Executive to his assigned duties without distraction about the
uncertainties of the Executive's situation in circumstances arising
from the possibility of a Change in Control (as that term is defined
in Schedule B hereto) of Holdings;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company, Holdings and the
Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the
Executive, and the Executive shall serve the Company, for the period
beginning March 17, 1999 and expiring on December 31, 2001, subject to
earlier termination as provided under paragraph 4 hereof. This
Agreement shall be extended automatically by one year commencing on
January 1, 2000 and on January 1st of each year thereafter, unless the
Company and Holdings or the Executive, as the case may be, gives
notice to the contrary not later than sixty (60) days prior to such
date. Notwithstanding any such notice by the Company and Holdings,
this Agreement shall remain in effect for a period of thirty-six
months from the date of a Change in Control, unless such notice was
given at least 18 months prior to the date of the Change in Control.
2. Duties. The Executive shall serve the Company as its
Senior Vice President - Asset Management and Energy Delivery. During
the term of this Agreement, the Executive shall, except during
vacation or sick leave, devote the whole of the Executive's time,
attention and skill to the business of the Company during usual
business hours (and outside those hours when reasonably necessary to
the Executive's duties hereunder); faithfully and diligently perform
such duties and exercise such powers as may be from time to time
assigned to or vested in the Executive by the Company's Board of
Directors (the "Board") or by any officer of the Company superior to
the Executive; obey the directions of the Board and of any officer of
the Company superior to the Executive; and use the Executive's best
efforts to promote the interests of the Company. The Executive may be
required in pursuance of the Executive's duties hereunder to perform
services for any company controlling, controlled by or under common
control with the Company (such companies hereinafter collectively
called "Affiliates") and to accept such offices in any Affiliates as
the Board may require. The Executive shall obey all policies of the
Company and applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary
at an annual rate of $226,000, which shall be payable periodically in
accordance with the Company's then prevailing payroll practices, or
such greater amount as the Company may from time to time determine;
b. The Executive shall be entitled to participate in
Holdings' Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings' Officers Incentive Compensation Plan and Long Term
Incentive Plan, and any successors thereto, in accordance with the
terms thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as the Company generally provides to its employees having
rank and seniority at the Company comparable to the Executive.
4. Termination. The Company shall continue to employ the
Executive, and the Executive shall continue to work for the Company,
during the term of this Agreement, unless the Agreement is terminated
in accordance with the following provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of the Company to the Executive in respect of any such
right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date
of the Executive's death shall be paid to the Executive's estate in
accordance with paragraph 4g below.
b. By notice to the Executive, the Company may
terminate this Agreement upon the "Disability" of the Executive. The
Executive shall be deemed to incur a Disability when (i) a physician
selected by the Company advises the Company that the Executive's
physical or mental condition has rendered the Executive unable to
perform the essential functions of the Executive's position in a
reasonable manner, with or without reasonable accommodation and will
continue to render him unable to perform the essential functions of
the Executive's position in such manner, for a period exceeding 12
consecutive months, or (ii) due to a physical or mental condition, the
Executive has not performed the essential functions of the
Executive's position in a reasonable manner, with or without
reasonable accommodation, for a period of 12 consecutive months.
Following termination of this Agreement pursuant to clause (i) of the
preceding sentence of this paragraph, the Executive shall continue to
receive his base salary under paragraph 3a hereof for a period of 12
months from the date of his Disability, reduced by any benefits
payable during such period under the short-term disability plan and
long-term disability plan of the Company or Holdings. Thereafter, or
in the event of termination of this Agreement pursuant to clause (ii)
of the preceding sentence, the Executive shall receive benefits under
the long-term disability plan of the Company or Holdings (as
applicable) in lieu of any further base salary under paragraph 3a
hereof.
c. By notice to the Executive, the Company may
terminate the Executive's employment at any time for "Cause". The
Company must deliver such notice within ninety (90) days after the
Board of Directors of Holdings (the "Holdings" Board) both (i) has or
should have had knowledge of conduct or an event allegedly
constituting Cause, and (ii) has reason to believe that such conduct
or event could be grounds for Cause. For purposes of this Agreement
"Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued
failure by the Executive to perform substantially his duties with the
Company (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance
is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes the Executive has
not substantially performed his duties; (iii) the Executive engages in
conduct that constitutes gross neglect or willful misconduct in
carrying out his duties under this Agreement involving material
economic harm to Holdings, the Company or any of their subsidiaries;
or (iv) the Executive has engaged in a material breach of Sections 6
or 7 of this Agreement. In the event the termination notice is based
on clause (ii) of the preceding sentence, the Executive shall have ten
(10) business days following receipt of the notice of termination to
cure his conduct, to the extent such cure is possible, and if the
Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice
shall be deemed to be for Cause. The determination of Cause shall be
made by the Holdings Board upon the recommendation of the Compensation
and Succession Committee of the Holdings Board. Following a Change in
Control, such determination shall be made in a resolution duly adopted
by the affirmative vote of not less than three-fourths (3/4) of the
membership of the Holdings Board, excluding members who are employees
of Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Holdings Board prior to such vote). The Executive
shall not be entitled to the payment of any additional compensation
from the Company, except to the extent provided in paragraph 4h
hereof, in the event of the termination of his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of the Company, may
voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which
are materially inconsistent in any adverse respect with the
Executive's position, duties, offices, responsibilities or reporting
requirements immediately prior to a Change in Control, including any
diminution of such duties or responsibilities; or
(ii) the Company reduces the Executive's base salary,
including salary deferrals, as in effect immediately prior to a Change
in Control; or
(iii) the Company or Holdings discontinues any bonus or
other compensation plan or any other benefit, retirement plan
(including the SERP), stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu
thereof does not make available plans providing at least comparable
benefits; or
(iv) the Company or Holdings takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any
office or location other than one within a 50-mile radius of the
office or location at which the Executive was based immediately prior
to the Change in Control; or
(vi) the Company purports to terminate the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vii) the Company and Holdings fail to comply with and
satisfy Section 5 hereof, provided that such successor has received
prior written notice from the Company or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. The Company may terminate the Executive's
employment at any time without Cause.
f. In the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Company shall pay the Executive a lump sum severance
benefit, equal to two years' base salary at the rate in effect as of
the date of termination, plus the greater of (i) two times the most
recent annual bonus paid to the Executive under the Annual Officers
Incentive Compensation Plan of the Company or Holdings (the "OICP") or
any similar annual bonus plan (excluding the pro rata bonus referred
to in the next sentence) or (ii) two times the average annual bonus
paid to the Executive for the three prior years under the OICP or such
similar plan (excluding the pro rata annual bonus referred to in the
next sentence). If one hundred eighty (180) days or more have elapsed
in Holdings' fiscal year in which such termination occurs, the Company
shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's
annual bonus in an amount equal to (A) the bonus which would have been
payable to Executive under OICP or any similar plan for the fiscal
year in which Executive's termination occurs, multiplied by (B) a
fraction, the numerator of which is the number of days in the fiscal
year in which the termination occurs through the termination date and
the denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated by the Company without cause prior to a Change in Control,
the Executive (and his eligible dependents) shall be entitled to
continue participation in the employee benefit plans of the Company
and Holdings for a two-year period from the date of termination,
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participated had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and
expenses of any executive recruiting, counseling or placement firm
selected by the Executive for the purposes of seeking new employment
following his termination of employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Company or
Holdings shall pay the Executive a lump sum severance benefit, equal
to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is
terminated by the Company without Cause or by the Executive for Good
Reason following a Change in Control, the (i) Executive (and his
eligible dependents) shall be entitled to continue participation (the
premiums for which will be paid by the Company) in the employee
benefit plans of the Company or Holdings providing medical,
prescription drug, dental, and hospitalization benefits for the
remainder of the Executive's life (ii) the Executive shall be entitled
to continue participation (the premiums for which will be paid by the
Company) in the other employee benefit plans of the Company or
Holdings for a four year period from the date of termination;
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Executive shall
be entitled to (i) be covered by a life insurance policy providing a
death benefit, equal to 2.5 times the Executive's base salary at the
rate in effect as of the time of termination, payable to a beneficiary
or beneficiaries designated by the Executive, the premiums for which
will be paid by the Company for the balance of the Executive's life
and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the
Executive for the purposes of seeking new employment following his
termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, the Company shall pay the Executive or the Executive's
estate any base salary earned and unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company, Holdings or any entity
which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to
the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this paragraph
4i)(the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company or Holdings shall pay to the
Executive (or to the Internal Revenue Service on behalf of the
Executive) an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains
(or has had paid to the Internal Revenue Service on his behalf) an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal
rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the
amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations to Holdings, the
Company and the Executive within fifteen (15) business days of the
receipt of notice from Holdings, the Company or the Executive that
there has been a Payment, or such earlier time as is requested by the
Company (collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by
Holdings or the Company and Holdings or the Company shall enter into
any agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-up Payment under
subparagraph 4i with respect to any Payments shall be made no later
than thirty (30) days following such Payment. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in
the imposition of a negligence or similar penalty. The Determination
by the Accounting Firm shall be binding upon Holdings, the Company and
the Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by Holdings or the
Company should have been made ("Underpayment") or Gross-up Payments
are made by Holdings or the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the
rate provided in Section 1274(b) (2) (B) of the Code) shall be
promptly paid by Holdings or the Company to or for the benefit of the
Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of Holdings or the Company. The Executive shall
cooperate, to the extent his expenses are reimbursed by Holdings or
the Company, with any reasonable requests by Holdings or the Company
in connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control
Holdings or the Company shall pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the
Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by
Holdings, the Company, or by the Executive of the validity of, or
liability under, this Agreement or the SERP (including any contest by
the Executive about the amount of any payment pursuant to this
Agreement or pursuant to the SERP), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the
Chase Manhattan Bank, N.A. or its successor, provided, however, that
Holdings and the Company shall not be liable for the Executive's legal
fees and expenses if the Executive's position in such contest,
litigation or arbitration is found by the neutral decision-maker to be
frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive's employment
after completion of ten (10) years of continuous service with the
Company and Holdings (as determined pursuant to the SERP), the
Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits for
the remainder of the Executive's (and his/her eligible dependents)
life, the cost of which shall be paid in full by the Company (if
applicable, on the same after-tax basis to the executive as if the
Executive had continued participation in the employee benefit plans of
the Company or Holdings providing such benefits). If the Executive is
less than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive such benefits upon attaining
age 55 and prior thereto the Executive, if applicable, shall be
entitled to the medical, prescription drug, dental and hospitalization
benefits provided by paragraphs 4f or g above.
5. Successor Liability. The Company and Holdings shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Holdings, as applicable, to
assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company or Holdings would be
required to perform. As used in this Agreement, "Company" and
"Holdings" shall mean each such corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to the Company, Holdings, and their subsidiaries and
affiliates, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of
Holdings, the Company, and their subsidiaries and affiliates learned
by him from Holdings, the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside Holdings, the
Company or any of their subsidiaries or affiliates, whether during or
after his period of service with the Company, except (i) as such
disclosure may be required or appropriate in connection with his work
as an employee of the Company or (ii) when required to do so by a
court of law, by any governmental agency having supervisory authority
over the business of the Company, or Holdings or by any administrative
or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information. The Executive agrees to give Holdings and the Company
advance written notice of any disclosure pursuant to clause (ii) of
the preceding sentence and to cooperate with any efforts by Holdings
or the Company to limit the extent of such disclosure. Upon request
by Holdings or the Company, the Executive agrees to deliver promptly
to Holdings or the Company upon termination of his services for the
Company, or at any time thereafter as Holdings or the Company may
request, all Holdings or Company subsidiary or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer file in
any media and other documents (and all copies thereof) relating to the
business of Holdings, the Company or any of their subsidiaries or
affiliates and all property of Holdings, the Company or any subsidiary
or affiliate associated therewith, which he may then possess or have
under his direct control, other than personal notes, diaries,
Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by the Company and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by the Company or any of its subsidiaries
or affiliates in any state of the United States in which any of them
are engaged in business at the time of such termination of employment
for as long as they carry on a business therein. Notwithstanding the
preceding sentence, the Executive shall not be prohibited from owning
less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by the Company or any
of its subsidiaries, or otherwise encourage or entice such person or
entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
the Company or any Affiliate which the Executive may conceive or make
or have conceived or made during the Executive's employment with the
Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the
Company, at its expense, shall execute and sign any and all
applications, assignments or other instruments and do all other things
which the Company may deem necessary or appropriate (i) to apply for,
obtain, maintain, enforce, or defend letters patent of the United
States or any foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with the Company, shall be settled by binding
arbitration in the City of Syracuse, State of New York, pursuant to
the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of
the New York Civil Practice Law and Rules. Judgment upon the award
may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute arises
between the parties under Sections 6 or 7 hereof, or if the Company or
Holdings makes any claim under Sections 6 or 7, the Company or
Holdings shall not be required to arbitrate such dispute or claim but
shall have the right to institute judicial proceedings in any court of
competent jurisdiction with respect to such dispute or claim. If such
judicial proceedings are instituted, the parties agree that such
proceedings shall not be stayed or delayed pending the outcome of any
arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. Edward J. Dienst
1053 The Lane
Skaneateles, NY 13152
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The Company and
Holdings may utilize certain financing vehicles, including a trust, to
provide a source of funding their obligations under this Agreement.
Any such financing vehicles will be subject to the claims of the
general creditors of the Company or Holdings, as applicable. No such
financing vehicles shall relieve Holdings or the Company, or their
successors, of their obligations to provide benefits under this
Agreement, except to the extent the Executive receives payments
directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is
for the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company (except to an Affiliate) or by the Executive
without the prior written consent of the other party. This Agreement
shall be binding upon any successor to the Company or Holdings,
whether by merger, consolidation, reorganization, purchase of all or
substantially all of the stock or assets of the Company or Holdings,
or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to the Company that the Executive is not party to any
agreement which would prohibit the Executive from entering into this
Agreement or performing fully the Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by the Company or Holdings, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company or Holdings and the
Executive have executed this Agreement as of the date first written
above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
Edward J. Dienst
By:______________________________
DAVID J. ARRINGTON
Senior Vice President -
Human Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
By:______________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
SCHEDULE A
Modifications in Respect of Edward J. Dienst ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Niagara Mohawk Power Corporation (the
"Company") and (ii) the average of the annual bonus earned by the
Executive under the Annual Officers Incentive Compensation Plan
of the Company or Holdings ("OICP"), whether or not deferred, in
respect of the final 36 months of the Executive's employment with
the Company. If the Executive was an employee of the Company on
December 31, 1997 and the Executive is entitled to payment under
Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP")
for all or a portion of the Stock Units and Stock Appreciation
Rights granted to the Executive under SIP, there shall be taken
into account for purposes of the preceding sentence as an annual
bonus under the OICP, the sum of (x) cash payments made with
respect to Stock Units (and related Dividend Equivalents) granted
to the Executive under the SIP and (y) the result of multiplying
the number of Stock Appreciation Rights granted to the Executive
under the SIP, prorated if applicable to Article 9 of the SIP, by
the difference between (1) the value of one share of the
Company's common stock on December 31, 1997 and (2) the Base
Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following ten (10)
years of continuous service with the Company (i.e., 60% of
Earnings (as modified above) without reduction for an Early
Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less
than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the
SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by the Company, at any time, other than
for Cause, (y) the termination of this Agreement on account of
the Executive's Disability or (z) the Executive's termination of
employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of
this Agreement), the Executive shall be 100% vested in his full
SERP benefit (i.e., 60% of Earnings (as modified above) without
reduction for an Early Commencement Factor) regardless of the
Executive's years of continuous service with the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company
Common Stock") of Niagara Mohawk Holdings, Inc. (for
purposes of this Schedule B only, "the Company") or (ii) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii)
and (iii) of subparagraph (3) of this Schedule B are
satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company or Niagara Mohawk Power Corporation, other
than to a corporation, with respect to which following such sale
or other disposition, (A) more than 75% of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-7
Agreement made as of the 17th day of March, 1999, among
NIAGARA MOHAWK POWER CORPORATION (the "Company"), NIAGARA MOHAWK
HOLDINGS, INC. ("Holdings"), and William F. Edwards (the "Executive").
WHEREAS, the Company and Holdings desire to employ the
Executive, and the Executive desires to accept/continue employment
with the Company and Holdings, on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and the Executive hereby
agree as follows:
1. Term of Agreement. The Company and Holdings shall
employ the Executive, and the Executive shall serve the Company and
Holdings, for the period beginning March 17, 1999 and expiring on
December 31, 2001, subject to earlier termination as provided under
paragraph 4 hereof. This Agreement shall be extended automatically by
one year commencing on January 1, 2000 and on January 1st of each year
thereafter, unless the Company, Holdings or the Executive, as the case
may be, gives notice to the contrary not later than sixty (60) days
prior to such date. Notwithstanding any such notice by the Company or
Holdings, this Agreement shall remain in effect for a period of
thirty-six months from the date of a "Change in Control" (as that term
is defined in Schedule B hereto), unless such notice was given at
least 18 months prior to the date of the Change in Control.
2. Duties. The Executive shall serve the Company and
Holdings as its Senior Vice President and Chief Financial Officer.
During the term of this Agreement, the Executive shall, except during
vacation or sick leave, devote the whole of the Executive's time,
attention and skill to the business of the Company and Holdings during
usual business hours (and outside those hours when reasonably
necessary to the Executive's duties hereunder); faithfully and
diligently perform such duties and exercise such powers as may be from
time to time assigned to or vested in the Executive by the Company's
Board of Directors (the "Board") or the Board of Directors of Holdings
(the "Holdings Board"), or by any officer of the Company or Holdings
superior to the Executive; obey the directions of the Board and the
Holdings Board and of any officer of the Company or Holdings superior
to the Executive; and use the Executive's best efforts to promote the
interests of the Company and Holdings. The Executive may be required
in pursuance of the Executive's duties hereunder to perform services
for any company controlling, controlled by or under common control
with Holdings and the Company (such companies hereinafter collectively
called "Affiliates") and to accept such offices in any Affiliates as
the Board may require. The Executive shall obey all policies of the
Company and Holdings and applicable policies of their Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company and Holdings shall pay the Executive a
base salary at an annual rate of $249,000, which shall be payable
periodically in accordance with the Company's then prevailing payroll
practices, or such greater amount as the Company and Holdings may from
time to time determine;
b. The Executive shall be entitled to participate in
Holdings Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings Officers Incentive Compensation Plan and Long Term Incentive
Plan, and any successors thereto, in accordance with the terms
thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as the Company and Holdings generally provides to their
employees having rank and seniority comparable to the Executive.
4. Termination. The Company and Holdings shall continue
to employ the Executive, and the Executive shall continue to work for
the Company and Holdings, during the term of this Agreement, unless
the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of the Company and Holdings to the Executive in respect
of any such right or benefit, shall not be extinguished by reason of
the Executive's death. Any base salary earned and unpaid as of the
date of the Executive's death shall be paid to the Executive's estate
in accordance with paragraph 4g below.
b. By notice to the Executive, the Company or
Holdings may terminate this Agreement upon the "Disability" of the
Executive. The Executive shall be deemed to incur a Disability when
(i) a physician selected by the Company or Holdings advises the
Company or Holdings that the Executive's physical or mental condition
has rendered the Executive unable to perform the essential functions
of the Executive's position in a reasonable manner, with or without
reasonable accommodation and will continue to render him unable to
perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a
physical or mental condition, the Executive has not performed the
essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation, for a period of 12
consecutive months. Following termination of this Agreement pursuant
to clause (i) of the preceding sentence of this paragraph, the
Executive shall continue to receive his base salary under paragraph 3a
hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the short-
term disability plan and long-term disability plan of the Company or
Holdings. Thereafter, or in the event of termination of this
Agreement pursuant to clause (ii) of the preceding sentence, the
Executive shall receive benefits under the long-term disability plan
of the Company or Holdings (as applicable) in lieu of any further base
salary under paragraph 3a hereof.
c. By notice to the Executive, the Company or
Holdings may terminate the Executive's employment at any time for
"Cause". The Company or Holdings must deliver such notice within
ninety (90) days after the Holdings Board both (i) has or should have
had knowledge of conduct or an event allegedly constituting Cause, and
(ii) has reason to believe that such conduct or event could be grounds
for Cause. For purposes of this Agreement "Cause" shall mean (i) the
Executive is convicted of, or has plead guilty or nolo contendere to,
a felony; (ii) the willful and continued failure by the Executive to
perform substantially his duties with the Company or Holdings, as
applicable (other than any such failure resulting from incapacity due
to physical or mental illness) after a demand for substantial
performance is delivered to the Executive by the Company (or Holdings)
which specifically identifies the manner in which the Company (or
Holdings) believes the Executive has not substantially performed his
duties; (iii) the Executive engages in conduct that constitutes gross
neglect or willful misconduct in carrying out his duties under this
Agreement involving material economic harm to the Company, Holdings or
any of their subsidiaries; or (iv) the Executive has engaged in a
material breach of Sections 6 or 7 of this Agreement. In the event
the termination notice is based on clause (ii) of the preceding
sentence, the Executive shall have ten (10) business days following
receipt of the notice of termination to cure his conduct, to the
extent such cure is possible, and if the Executive does not cure
within the ten (10) business day period, his termination of employment
in accordance with such termination notice shall be deemed to be for
Cause. The determination of Cause shall be made by the Holdings Board
upon the recommendation of the Compensation and Succession Committee
of the Holdings Board. Following a Change in Control, such
determination shall be made in a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the
membership of the Holdings Board, excluding members who are employees
of Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Holdings Board prior to such vote). The Executive
shall not be entitled to the payment of any additional compensation
from the Company or Holdings, as applicable, except to the extent
provided in paragraph 4h hereof, in the event of the termination of
his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of the Company or Holdings
may voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company or Holdings assigns any duties to the
Executive which are materially inconsistent in any adverse respect
with the Executive's position, duties, offices, responsibilities or
reporting requirements immediately prior to a Change in Control,
including any diminution of such duties or responsibilities; or
(ii) the Company or Holdings reduces the Executive's base
salary, including salary deferrals, as in effect immediately prior to
a Change in Control; or
(iii) the Company or Holdings discontinues any bonus or
other compensation plan or any other benefit, retirement plan
(including the SERP), stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu
thereof does not make available plans providing at least comparable
benefits; or
(iv) the Company or Holdings takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company or Holdings requires the Executive to be
based at any office or location other than one within a 50-mile radius
of the office or location at which the Executive was based immediately
prior to the Change in Control; or
(vi) the Company or Holdings purports to terminate the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(vii) the Company or Holdings fails to comply with and
satisfy Section 5 hereof, provided that such successor has received
prior written notice from the Company or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. The Company or Holdings may terminate the
Executive's employment at any time without Cause.
f. In the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both) prior to
a Change in Control, the Company or Holdings (or both) shall pay the
Executive a lump sum severance benefit, equal to two years' base
salary at the rate in effect from the Company or Holdings (or both),
as applicable, as of the date of termination, plus the greater of (i)
two times the most recent annual bonus paid to the Executive under the
Annual Officers Incentive Compensation Plan of the Company or Holdings
(the "OICP") or any similar annual bonus plan (excluding the pro rata
bonus referred to in the next sentence) or (ii) two times the average
annual bonus paid to the Executive for the three prior years under the
OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days
or more have elapsed in the fiscal year of Holdings in which such
termination occurs, the Company or Holdings shall also pay the
Executive in a lump sum, within ninety (90) days after the end of such
fiscal year, a pro rata portion of Executive's annual bonus in an
amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the
numerator of which is the number of days in the fiscal year in which
the termination occurs through the termination date and the
denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both), prior
to a Change in Control, the Executive (and his eligible dependents)
shall be entitled to continue participation in the employee benefit
plans of the Company and Holdings for a two-year period from the date
of termination, provided, however, that if Executive cannot continue
to participate in any of the benefit plans, the Company or Holdings
(or both, if applicable), shall otherwise provide equivalent benefits
to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the
foregoing, in the event Executive becomes employed by another employer
and becomes eligible to participate in an employee benefit plan of
such employer, the benefits described herein shall be secondary to
such benefits during the period of Executive's eligibility, but only
to the extent that the Company or Holdings (or both, if applicable),
reimburses Executive for any increased cost and provides any
additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is
terminated without Cause by the Company or Holdings (or both) prior to
a Change in Control, the Executive shall be entitled to (i) be covered
by a life insurance policy providing a death benefit, equal to 2.5
times the Executive's base salary at the rate in effect from the
Company or Holdings (or both), as applicable, as of the time of
termination, payable to a beneficiary or beneficiaries designated by
the Executive, the premiums for which will be paid by the Company or
Holdings (or both, if applicable) for the balance of the Executive's
life and (ii) payment by the Company or Holdings (or both, if
applicable) of all fees and expenses of any executive recruiting,
counseling or placement firm selected by the Executive for the
purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by the Company or
Holdings (or both) without Cause or by the Executive for Good Reason,
the Company or Holdings (or both) shall pay the Executive a lump sum
severance benefit, equal to four years' base salary at the rate in
effect from the Company or Holdings (or both), as applicable, as of
the date of termination.
In addition, in the event that the Executive's employment is
terminated by the Company or Holdings (or both) without Cause or by
the Executive for Good Reason following a Change in Control, the (i)
Executive (and his eligible dependents) shall be entitled to continue
participation (the premiums for which will be paid by the Company or
Holdings) in the employee benefit plans of the Company or Holdings
providing medical, prescription drug, dental, and hospitalization
benefits for the remainder of the Executive's life (ii) the Executive
shall be entitled to continue participation (the premiums for which
will be paid by the Company or Holdings) in the other employee benefit
plans of the Company or Holdings for a four year period from the date
of termination; provided, however, that if Executive cannot continue
to participate in any of the benefit plans, the Company or Holdings
shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation
had been permitted. Notwithstanding the foregoing, in the event
Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits
described herein shall be secondary to such benefits during the period
of Executive's eligibility, but only to the extent that the Company or
Holdings reimburses Executive for any increased cost and provides any
additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by the Company or
Holdings (or both) without Cause or by the Executive for Good Reason,
the Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by the Company or Holdings for the
balance of the Executive's life and (ii) payment by the Company or
Holdings of all fees and expenses of any executive recruiting,
counseling or placement firm selected by the Executive for the
purposes of seeking new employment following his termination of
employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, the Company or Holdings (or both, if applicable) shall
pay the Executive or the Executive's estate any base salary earned and
unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company, Holdings or any entity
which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to
the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this paragraph
4i)(the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company or Holdings shall pay to the
Executive (or to the Internal Revenue Service on behalf of the
Executive) an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains
(or has had paid to the Internal Revenue Service on his behalf) an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal
rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the
amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the
Company, Holdings and the Executive within fifteen (15) business days
of the receipt of notice from the Company, Holdings or the Executive
that there has been a Payment, or such earlier time as is requested by
the Company or Holdings (or both) (collectively, the "Determination").
In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in
Control, the Executive may appoint another nationally recognized
public accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company or Holdings and the Company or Holdings
shall enter into any agreement requested by the Accounting Firm in
connection with the performance of the services hereunder. The Gross-
up Payment under subparagraph 4i with respect to any Payments shall be
made no later than thirty (30) days following such Payment. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to
such effect, and to the effect that failure to report the Excise Tax,
if any, on the Executive's applicable federal income tax return will
not result in the imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding upon the
Company, Holdings and the Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by the Company or
Holdings should have been made ("Underpayment") or Gross-up Payments
are made by the Company or Holdings which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the
rate provided in Section 1274(b) (2) (B) of the Code) shall be
promptly paid by the Company or Holdings to or for the benefit of the
Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of the Company or Holdings. The Executive shall
cooperate, to the extent his expenses are reimbursed by the Company or
Holdings with any reasonable requests by the Company or Holdings in
connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the
Company or Holdings shall pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by the Company,
Holdings or by the Executive of the validity of, or liability under,
this Agreement or the SERP (including any contest by the Executive
about the amount of any payment pursuant to this Agreement or pursuant
to the SERP), plus in each case interest on any delayed payment at the
rate of 150% of the Prime Rate posted by the Chase Manhattan Bank,
N.A. or its successor, provided, however, that the Company or Holdings
shall not be liable for the Executive's legal fees and expenses if the
Executive's position in such contest, litigation or arbitration is
found by the neutral decision-maker to be frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive' employment after
completion of eight (8) years of continuous service with the Company
and Holdings (as determined pursuant to the SERP), the Executive and
his eligible dependents shall be entitled to receive medical,
prescription drug, dental and hospitalization benefits equal to those
provided by the Company to Executives on March 26, 1997 for the
remainder of the Executive's life (and his/her eligible dependents),
the cost of which shall be paid in full by the Company or Holdings (if
applicable, on the same after-tax basis to the executive as if the
Executive had continued participation in the employee benefit plans of
the Company and Holdings providing such benefits). If the Executive
is less than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive such benefits upon attaining
age 55 and prior thereto the Executive, if applicable, shall be
entitled to the medical, prescription drug, dental and hospitalization
benefits provided by paragraphs 4f or g above.
5. Successor Liability. The Company and Holdings shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Holdings, as applicable, to
assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company or Holdings would be
required to perform. As used in this Agreement, "Company" and
"Holdings" shall mean each such corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to the Company, Holdings and their subsidiaries and
affiliates, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of
Holdings, the Company, and their subsidiaries and affiliates learned
by him from Holdings, the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside Holdings, the
Company or any of their subsidiaries or affiliates, whether during or
after his period of service with the Company and Holdings, except (i)
as such disclosure may be required or appropriate in connection with
his work as an employee of the Company and Holdings or (ii) when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of the Company or Holdings or
by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose
or make accessible such information. The Executive agrees to give
Holdings and the Company advance written notice of any disclosure
pursuant to clause (ii) of the preceding sentence and to cooperate
with any efforts by Holdings or the Company to limit the extent of
such disclosure. Upon request by Holdings or the Company, the
Executive agrees to deliver promptly to Holdings or the Company upon
termination of his services for Holdings, the Company, or at any time
thereafter as Holdings or the Company may request, all Holdings,
Company subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to the business of
Holdings, the Company or any of their subsidiaries or affiliates and
all property of Holdings, the Company or any subsidiary or affiliate
associated therewith, which he may then possess or have under his
direct control, other than personal notes, diaries, Rolodexes and
correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by the Company and Holdings and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by the Company, Holdings or any of their
subsidiaries or affiliates in any state of the United States in which
any of them are engaged in business at the time of such termination of
employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be
prohibited from owning less than five (5%) percent of any publicly
traded corporation, whether or not such corporation is in competition
with the Company or Holdings.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by the Company,
Holdings or any of their subsidiaries, or otherwise encourage or
entice such person or entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
the Company, Holdings or any Affiliate which the Executive may
conceive or make or have conceived or made during the Executive's
employment with the Company and Holdings shall be and are the sole and
exclusive property of the Company or Holdings, as applicable, and that
the Executive, whenever requested to do so by the Company or Holdings,
at its expense, shall execute and sign any and all applications,
assignments or other instruments and do all other things which the
Company or Holdings may deem necessary or appropriate (i) to apply
for, obtain, maintain, enforce, or defend letters patent of the United
States or any foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to the Company or
Holdings the sole and exclusive right, title and interest in and to
any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with the Company or Holdings, shall be settled
by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American
Arbitration Association and shall be subject to the provisions of
Article 75 of the New York Civil Practice Law and Rules. Judgment
upon the award may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute
arises between the parties under Sections 6 or 7 hereof, or if the
Company or Holdings makes any claim under Sections 6 or 7, the Company
and Holdings shall not be required to arbitrate such dispute or claim
but shall have the right to institute judicial proceedings in any
court of competent jurisdiction with respect to such dispute or claim.
If such judicial proceedings are instituted, the parties agree that
such proceedings shall not be stayed or delayed pending the outcome of
any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. William F. Edwards
6109 Lakeshore Road
Cicero, NY 13039
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The Company or
Holdings may utilize certain financing vehicles, including a trust, to
provide a source of funding for their obligations under this
Agreement. Any such financing vehicles will be subject to the claims
of the general creditors of the Company or Holdings, as applicable.
No such financing vehicles shall relieve the Company, Holdings or
their successors, of their obligations to provide benefits under this
Agreement, except to the extent the Executive receives payments
directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is
for the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company or Holdings (except to an Affiliate) or by the
Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company or
Holdings, whether by merger, consolidation, reorganization, purchase
of all or substantially all of the stock or assets of the Company or
Holdings, or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to the Company and Holdings that the Executive is not party
to any agreement which would prohibit the Executive from entering into
this Agreement or performing fully the Executive's obligations
hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by the Company or Holdings, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company, Holdings and the Executive
have executed this Agreement as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
William F. Edwards
By:______________________________
DAVID J. ARRINGTON
Senior Vice President -
Human Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
By:_____________________________
DAVID J. ARRINGTON
Senior Vice President and Chief
Administrative Officer
SCHEDULE A
Modifications in Respect of William F. Edwards ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Holdings and Niagara Mohawk Power
Corporation (the "Company") and (ii) the average of the annual
bonus earned by the Executive under the Annual Officers Incentive
Compensation Plan of the Company or Holdings ("OICP"), whether or
not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If the Executive was an
employee of the Company on December 31, 1997 and the Executive is
entitled to payment under Article 9 of the Corporation's 1995
Stock Incentive Plan ("SIP") for all or a portion of the Stock
Units and Stock Appreciation Rights granted to the Executive
under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of
(x) cash payments made with respect to Stock Units (and related
Dividend Equivalents) granted to the Executive under the SIP and
(y) the result of multiplying the number of Stock Appreciation
Rights granted to the Executive under the SIP, prorated if
applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Company's common stock on December
31, 1997 and (2) the Base Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following eight (8)
years of continuous service with Holdings and the Company (i.e.,
60% of Earnings (as modified above) without reduction for an
Early Commencement Factor) regardless of the Executive's years of
continuous service with Holdings and the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by Holdings and the Company, at any
time, other than for Cause, (y) the termination of this Agreement
on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full
calendar month period following a Change in Control (as defined
in Schedule B of this Agreement), the Executive shall be 100%
vested in his full SERP benefit (i.e., 60% of Earnings (as
modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service
with Holdings and the Company. If the Executive is less than age
55 at the date of such termination of employment, the Executive
shall be entitled to receive benefits commencing no earlier than
age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company
Common Stock") of Niagara Mohawk Holdings, Inc. (for
purposes of this Schedule B only, the ("Company") or (ii)
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii)
and (iii) of subparagraph (3) of this Schedule B are
satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation, with respect
to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-8
Agreement made as of the 17th day of March, 1999,
between NIAGARA MOHAWK HOLDINGS, INC. ("Holdings"), and Gary J.
Lavine (the "Executive").
WHEREAS, Holdings desires to employ the Executive, and
the Executive desires to accept/continue employment with
Holdings, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, Holdings and the
Executive hereby agree as follows:
1. Term of Agreement. Holdings shall employ the
Executive, and the Executive shall serve Holdings, for the period
beginning March 17, 1999 and expiring on December 31, 2001,
subject to earlier termination as provided under paragraph 4
hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 2000 and on January 1st of each
year thereafter, unless either party notifies the other to the
contrary not later than sixty (60) days prior to such date.
Notwithstanding any such notice by Holdings, this Agreement shall
remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B
hereto), unless such notice was given at least 18 months prior to
the date of the Change in Control.
2. Duties. The Executive shall serve Holdings as its
Senior Vice President and Chief Legal Officer. During the term
of this Agreement, the Executive shall, except during vacation or
sick leave, devote the whole of the Executive's time, attention
and skill to the business of Holdings during usual business hours
(and outside those hours when reasonably necessary to the
Executive's duties hereunder); faithfully and diligently perform
such duties and exercise such powers as may be from time to time
assigned to or vested in the Executive by Holdings' Board of
Directors (the "Board") or by any officer of Holdings superior to
the Executive; obey the directions of the Board and of any
officer of Holdings superior to the Executive; and use the
Executive's best efforts to promote the interests of Holdings.
The Executive may be required in pursuance of the Executive's
duties hereunder to perform services for any company controlling,
controlled by or under common control with Holdings (such
companies hereinafter collectively called "Affiliates") and to
accept such offices in any Affiliates as the Board may require.
The Executive shall obey all policies of Holdings and applicable
policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. Holdings shall pay the Executive a base
salary at an annual rate of $249,000, which shall be payable
periodically in accordance with Holdings then prevailing payroll
practices, or such greater amount as Holdings may from time to
time determine;
b. The Executive shall be entitled to
participate in Holdings' Supplemental Executive Retirement Plan
("SERP") according to its terms, as modified by Schedule A
hereto;
c. The Executive shall be entitled to
participate in Holdings' Officers Incentive Compensation Plan and
Long Term Incentive Plan, and any successors thereto, in
accordance with the terms thereof; and
d. The Executive shall be entitled to such
expense accounts, vacation time, sick leave, perquisites of
office, fringe benefits, insurance coverage, and other terms and
conditions of employment as Holdings generally provides to its
employees having rank and seniority at Holdings comparable to the
Executive.
4. Termination. Holdings shall continue to employ
the Executive, and the Executive shall continue to work for
Holdings, during the term of this Agreement, unless the Agreement
is terminated in accordance with the following provisions:
a. This Agreement shall terminate automatically
upon the death of the Executive. Any right or benefit accrued on
behalf of the Executive or to which the Executive became entitled
under the terms of this Agreement prior to death (other than
payment of base salary in respect of the period following the
Executive's death), and any obligation of Holdings to the
Executive in respect of any such right or benefit, shall not be
extinguished by reason of the Executive's death. Any base salary
earned and unpaid as of the date of the Executive's death shall
be paid to the Executive's estate in accordance with paragraph
4g below.
b. By notice to the Executive, Holdings may
terminate this Agreement upon the "Disability" of the Executive.
The Executive shall be deemed to incur a Disability when (i) a
physician selected by Holdings advises Holdings that the
Executive's physical or mental condition has rendered the
Executive unable to perform the essential functions of the
Executive's position in a reasonable manner, with or without
reasonable accommodation and will continue to render him unable
to perform the essential functions of the Executive's position in
such manner, for a period exceeding 12 consecutive months, or
(ii) due to a physical or mental condition, the Executive has not
performed the essential functions of the Executive's position in
a reasonable manner, with or without reasonable accommodation,
for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (i) of the preceding sentence
of this paragraph, the Executive shall continue to receive his
base salary under paragraph 3a hereof for a period of 12 months
from the date of his Disability, reduced by any benefits payable
during such period under Holdings' short-term disability plan and
long-term disability plan. Thereafter, or in the event of
termination of this Agreement pursuant to clause (ii) of the
preceding sentence, the Executive shall receive benefits under
Holdings' long-term disability plan in lieu of any further base
salary under paragraph 3a hereof.
c. By notice to the Executive, Holdings may
terminate the Executive's employment at any time for "Cause".
Holdings must deliver such notice within ninety (90) days after
the Board both (i) has or should have had knowledge of conduct or
an event allegedly constituting Cause, and (ii) has reason to
believe that such conduct or event could be grounds for Cause.
For purposes of this Agreement "Cause" shall mean (i) the
Executive is convicted of, or has plead guilty or nolo contendere
to, a felony; (ii) the willful and continued failure by the
Executive to perform substantially his duties with Holdings
(other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial
performance is delivered to the Executive by Holdings which
specifically identifies the manner in which Holdings believes the
Executive has not substantially performed his duties; (iii) the
Executive engages in conduct that constitutes gross neglect or
willful misconduct in carrying out his duties under this
Agreement involving material economic harm to Holdings or any of
its subsidiaries; or (iv) the Executive has engaged in a material
breach of Sections 6 or 7 of this Agreement. In the event the
termination notice is based on clause (ii) of the preceding
sentence, the Executive shall have ten (10) business days
following receipt of the notice of termination to cure his
conduct, to the extent such cure is possible, and if the
Executive does not cure within the ten (10) business day period,
his termination of employment in accordance with such termination
notice shall be deemed to be for Cause. The determination of
Cause shall be made by the Board upon the recommendation of the
Compensation and Succession Committee of the Board. Following a
Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the membership of the Board, excluding
members who are employees of Holdings, at a meeting called for
the purpose of determining that Executive has engaged in conduct
which constitutes Cause (and at which Executive had a reasonable
opportunity, together with his counsel, to be heard before the
Board prior to such vote). The Executive shall not be entitled
to the payment of any additional compensation from Holdings,
except to the extent provided in paragraph 4h hereof, in the
event of the termination of his employment for Cause.
d. If any of the following events, any of which
shall constitute "Good Reason", occurs within thirty-six months
after a Change in Control, the Executive, by notice of Holdings,
may voluntarily terminate the Executive's employment for Good
Reason within ninety (90) days after the Executive both (i) has
or should have had knowledge of conduct or an event allegedly
constituting Good Reason, and (ii) has reason to believe that
such conduct or event could be grounds for Good Reason. In such
event, the Executive shall be entitled to the severance benefits
set forth in paragraph 4g below.
(i) Holdings assigns any duties to the Executive which
are materially inconsistent in any adverse respect with the
Executive's position, duties, offices, responsibilities or
reporting requirements immediately prior to a Change in Control,
including any diminution of such duties or responsibilities; or
(ii) Holdings reduces the Executive's base salary,
including salary deferrals, as in effect immediately prior to a
Change in Control; or
(iii) the Holdings or Niagara Mohawk Power Corporation
(the "Company",) discontinues any bonus or other compensation
plan or any other benefit, retirement plan (including the SERP),
stock ownership plan, stock purchase plan, stock option plan,
life insurance plan, health plan, disability plan or similar plan
(as the same existed immediately prior to the Change in Control)
in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in
lieu thereof does not make available plans providing at least
comparable benefits; or
(iv) Holdings or the Company takes action which
adversely affects the Executive's participation in, or
eligibility for, or materially reduces the Executive's benefits
under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive
immediately prior to the Change in Control, or fails to provide
the Executive with the number of paid vacation days to which the
Executive was entitled immediately prior to the Change in
Control; or
(v) Holdings requires the Executive to be based at any
office or location other than one within a 50-mile radius of the
office or location at which the Executive was based immediately
prior to the Change in Control; or
(vi) Holdings purports to terminate the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(vii) Holdings fails to comply with and satisfy
Section 5 hereof, provided that such successor has received prior
written notice from Holdings or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to
determine, in good faith, whether any of the above events has
occurred.
e. Holdings may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment
is terminated by Holdings without Cause prior to a Change in
Control, Holdings shall pay the Executive a lump sum severance
benefit, equal to two years' base salary at the rate in effect as
of the date of termination, plus the greater of (i) two times the
most recent annual bonus paid to the Executive under the Annual
Officers Incentive Compensation Plan of Holdings or the Company
(the "OICP") or any similar annual bonus plan (excluding the pro
rata bonus referred to in the next sentence) or (ii) two times
the average annual bonus paid to the Executive for the three
prior years under the OICP or such similar plan (excluding the
pro rata annual bonus referred to in the next sentence). If one
hundred eighty (180) days or more have elapsed in Holdings'
fiscal year in which such termination occurs, Holdings shall also
pay the Executive in a lump sum, within ninety (90) days after
the end of such fiscal year, a pro rata portion of Executive's
annual bonus in an amount equal to (A) the bonus which would have
been payable to Executive under OICP or any similar plan for the
fiscal year in which Executive's termination occurs, multiplied
by (B) a fraction, the numerator of which is the number of days
in the fiscal year in which the termination occurs through the
termination date and the denominator of which is three hundred
sixty-five (365).
In addition, in the event that the Executive's employment is
terminated by Holdings without cause prior to a Change in
Control, the Executive (and his eligible dependents) shall be
entitled to continue participation in the employee benefit plans
of Holdings and the Company for a two-year period from the date
of termination, provided, however, that if Executive cannot
continue to participate in any of the benefit plans, Holdings
shall otherwise provide equivalent benefits to the Executive and
his dependents on the same after-tax basis as if continued
participated had been permitted. Notwithstanding the foregoing,
in the event Executive becomes employed by another employer and
becomes eligible to participate in an employee benefit plan of
such employer, the benefits described herein shall be secondary
to such benefits during the period of Executive's eligibility,
but only to the extent that Holdings reimburses Executive for any
increased cost and provides any additional benefits necessary to
give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated by Holdings without Cause prior to a Change in
Control, the Executive shall be entitled to (i) be covered by a
life insurance policy providing a death benefit, equal to 2.5
times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries
designated by the Executive, the premiums for which will be paid
by Holdings for the balance of the Executive's life and (ii)
payment by Holdings of all fees and expenses of any executive
recruiting, counseling or placement firm selected by the
Executive for the purposes of seeking new employment following
his termination of employment.
g. In the event that the Executive's employment
is terminated following a Change in Control, either by Holdings
without Cause or by the Executive for Good Reason, Holdings shall
pay the Executive a lump sum severance benefit, equal to four
years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is
terminated by Holdings without Cause or by the Executive for Good
Reason following a Change in Control, the (i) Executive (and his
eligible dependents) shall be entitled to continue participation
(the premiums for which will be paid by Holdings) in the employee
benefit plans of Holdings and the Company providing medical,
prescription drug, dental, and hospitalization benefits for the
remainder of the Executive's life (ii) the Executive shall be
entitled to continue participation (the premiums for which will
be paid by Holdings) in other employee benefit plans of Holdings
and the Company for a four year period from the date of
termination; provided, however, that if Executive cannot continue
to participate in any of the benefit plans, Holdings shall
otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued
participation had been permitted. Notwithstanding the foregoing,
in the event Executive becomes employed by another employer and
becomes eligible to participate in an employee benefit plan of
such employer, the benefits described herein shall be secondary
to such benefits during the period of Executive's eligibility,
but only to the extent that Holdings reimburses Executive for any
increased cost and provides any additional benefits necessary to
give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by Holdings
without Cause or by the Executive for Good Reason, the Executive
shall be entitled to (i) be covered by a life insurance policy
providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by Holdings for
the balance of the Executive's life and (ii) payment by Holdings
of all fees and expenses of any executive recruiting, counseling
or placement firm selected by the Executive for the purposes of
seeking new employment following his termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above,
Holdings shall pay the Executive or the Executive's estate any base
salary earned and unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment, award, benefit or distribution (or any acceleration of
any payment, award, benefit or distribution) by Holdings or any
entity which effectuates a Change in Control (or any of its
affiliated entities) to or for the benefit of the Executive
(whether pursuant to the terms of this Agreement or otherwise,
but determined without regard to any additional payments required
under this paragraph 4i)(the "Payments") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), or any interest or penalties
are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"),
then Holdings shall pay to the Executive (or to the Internal
Revenue Service on behalf of the Executive) an additional payment
(a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any Excise Tax) imposed
upon the Gross-Up Payment, the Executive retains (or has had paid
to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed
upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in
the Executive's adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-up Payment is to be made. For purposes of
determining the amount of the Gross-up Payment, the Executive
shall be deemed (i) pay federal income taxes at the highest
marginal rates of federal income taxation for the calendar year
in which the Gross-up Payment is to be made, (ii) pay applicable
state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-up Payment is
to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal
income tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under
such paragraph 4i, including whether and when a Gross-up Payment
is required, the amount of such Gross-up Payment and the
assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by
Holdings as of the date immediately prior to the Change in
Control (the "Accounting Firm") which shall provide detailed
supporting calculations both to Holdings and the Executive within
fifteen (15) business days of the receipt of notice from Holdings
or the Executive that there has been a Payment, or such earlier
time as is requested by Holdings (collectively, the
"Determination"). In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by
Holdings and Holdings shall enter into any agreement requested by
the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i
with respect to any Payments shall be made no later than thirty
(30) days following such Payment. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion to such
effect, and to the effect that failure to report the Excise Tax,
if any, on the Executive's applicable federal income tax return
will not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be
binding upon the Company and the Executive.
As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the Determination, it is
possible that Gross-up Payment which will not have been made by
Holdings should have been made ("Underpayment") or Gross-up
Payments are made by Holdings which should not have been made
("Overpayment"), consistent with the calculations required to be
made hereunder. In the event that the Executive thereafter is
required to make payment of any Excise Tax or additional Excise
Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment
(together with interest at the rate provided in Section 1274(b)
(2) (B) of the Code) shall be promptly paid by Holdings to or for
the benefit of the Executive. In the event the amount of Gross-
up Payment exceeds the amount necessary to reimburse the
Executive for his Excise Tax, the Accounting Firm shall determine
the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in
Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the
applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of Holdings. The Executive shall
cooperate, to the extent his expenses are reimbursed by Holdings,
with any reasonable requests by Holdings in connection with any
contests or disputes with the Internal Revenue Service in
connection with the Excise Tax.
k. Upon the occurrence of a Change in Control
Holdings shall pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive
may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by
Holdings, or by the Executive of the validity of, or liability
under, this Agreement or the SERP (including any contest by the
Executive about the amount of any payment pursuant to this
Agreement or pursuant to the SERP), plus in each case interest on
any delayed payment at the rate of 150% of the Prime Rate posted
by the Chase Manhattan Bank, N.A. or its successor, provided,
however, that Holdings shall not be liable for the Executive's
legal fees and expenses if the Executive's position in such
contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
l. Notwithstanding anything contained in this
Section 4 to the contrary, upon termination of the Executive's
employment after completion of eight (8) years of continuous
service with Holdings and the Company (as determined pursuant to
the SERP), the Executive and his eligible dependents shall be
entitled to receive medical, prescription drug, dental and
hospitalization benefits equal to those provided by the Company
to Executives on March 26, 1997 for the remainder of the
Executive's (and his/her eligible dependents) life, the cost of
which shall be paid in full by Holdings (if applicable, on the
same after-tax basis to the executive as if the Executive had
continued participation in employee benefit plans of Holdings
and the Company providing such benefits). If the Executive is
less than age 55 at the date of such termination of employment,
the Executive shall be entitled to receive such benefits upon
attaining age 55 and prior thereto the Executive, if applicable,
shall be entitled to the medical, prescription drug, dental and
hospitalization benefits provided by paragraphs 4f or g above.
5. Successor Liability. Holdings shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of Holdings to assume expressly and to
agree to perform this Agreement in the same manner and to the
same extent that Holdings would be required to perform. As used
in this Agreement, "Holdings" shall mean such corporation as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to
keep secret and retain in the strictest confidence all
confidential matters which relate to Holdings, its subsidiaries
and affiliates, including, without limitation, customer lists,
client lists, trade secrets, pricing policies and other business
affairs of Holdings, the Company, and their subsidiaries and
affiliates learned by him from Holdings, the Company or any such
subsidiary or affiliate or otherwise before or after the date of
this Agreement, and not to disclose any such confidential matter
to anyone outside Holdings, the Company or any of their
subsidiaries or affiliates, whether during or after his period of
service with Holdings, except (i) as such disclosure may be
required or appropriate in connection with his work as an
employee of Holdings or (ii) when required to do so by a court of
law, by any governmental agency having supervisory authority over
the business of Holdings or the Company or by any administrative
or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible
such information. The Executive agrees to give Holdings advance
written notice of any disclosure pursuant to clause (ii) of the
preceding sentence and to cooperate with any efforts by Holdings
to limit the extent of such disclosure. Upon request by
Holdings, the Executive agrees to deliver promptly to Holdings
upon termination of his services for Holdings, or at any time
thereafter as Holdings may request, all Holdings, Company
subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to the business of
Holdings, the Company or any of their subsidiaries or affiliates
and all property of Holdings, the Company or any subsidiary or
affiliate associated therewith, which he may then possess or have
under his direct control, other than personal notes, diaries,
Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by Holdings and for a period of
one year following the termination thereof for any reason (other
than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other
person, partnership, company or corporation, directly or
indirectly, acquire any financial or beneficial interest in
(except as provided in the next sentence), provide consulting
services to, be employed by, or own, manage, operate or control
any business which is in competition with a business engaged in
by Holdings or any of its subsidiaries or affiliates in any state
of the United States in which any of them are engaged in business
at the time of such termination of employment for as long as they
carry on a business therein. Notwithstanding the preceding
sentence, the Executive shall not be prohibited from owning less
than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with Holdings.
The Executive hereby covenants and agrees that, at all
times during the period of his employment and for a period of one
year immediately following the termination thereof for any reason
(other than following a Change in Control), the Executive shall
not employ or seek to employ any person employed at that time by
Holdings, the Company or any of their subsidiaries or affiliates,
or otherwise encourage or entice such person or entity to leave
such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the
fullest extent permitted by applicable law. Therefore, to the
extent any court of competent jurisdiction shall determine that
any portion of the foregoing restrictions is excessive, such
provision shall not be entirely void, but rather shall be limited
or revised only to the extent necessary to make it enforceable.
Specifically, if any court of competent jurisdiction should hold
that any portion of the foregoing description is overly broad as
to one or more states of the United States, then that state or
states shall be eliminated from the territory to which the
restrictions of paragraph (a) of this Section applies and the
restrictions shall remain applicable in all other states of the
United States.
8. No Mitigation. The Executive shall not be
required to mitigate the amount of any payments or benefits
provided for in paragraph 4f or 4g hereof by seeking other
employment or otherwise and no amounts earned by the Executive
shall be used to reduce or offset the amounts payable hereunder,
except as otherwise provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all
improvements, inventions, discoveries, formulae, processes,
methods, know-how, confidential data, trade secrets and other
proprietary information (collectively, "Work Products") within
the scope of any business of Holdings or any Affiliate which the
Executive may conceive or make or have conceived or made during
the Executive's employment with Holdings shall be and are the
sole and exclusive property of Holdings, and that the Executive,
whenever requested to do so by Holdings, at its expense, shall
execute and sign any and all applications, assignments or other
instruments and do all other things which Holdings may deem
necessary or appropriate (i) to apply for, obtain, maintain,
enforce, or defend letters patent of the United States or any
foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to Holdings the sole
and exclusive right, title and interest in and to any Work
Product.
10. Arbitration. Any dispute or controversy between
the parties relating to this Agreement (except any dispute
relating to Sections 6 or 7 hereof) or relating to or arising out
of the Executive's employment with Holdings, shall be settled by
binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the
American Arbitration Association and shall be subject to the
provisions of Article 75 of the New York Civil Practice Law and
Rules. Judgment upon the award may be entered in any court of
competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under
Sections 6 or 7 hereof, or if Holdings makes any claim under
Sections 6 or 7, Holdings shall not be required to arbitrate such
dispute or claim but shall have the right to institute judicial
proceedings in any court of competent jurisdiction with respect
to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be
stayed or delayed pending the outcome of any arbitration
proceedings hereunder.
11. Notices. Any notice or other communication
required or permitted under this Agreement shall be effective
only if it is in writing and delivered personally or sent by
certified mail, postage prepaid, or overnight delivery addressed
as follows:
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. Gary J. Lavine
6808 Holliston Circle
Fayetteville, NY 13066
or to such other address as either party may designate by notice
to the other, and shall be deemed to have been given upon
receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and
is in full substitution for any and all prior understandings or
agreements, oral or written, with respect to the Executive's
employment.
13. Amendment. This Agreement may be amended only by
an instrument in writing signed by the parties hereto, and any
provision hereof may be waived only by an instrument in writing
signed by the party or parties against whom or which enforcement
of such waiver is sought. The failure of either party hereto at
any time to require the performance by the other party hereto of
any provision hereof shall in no way affect the full right to
require such performance at any time thereafter, nor shall the
waiver by either party hereto of a breach of any provision hereof
be taken or held to be a waiver of any succeeding breach of such
provision or a waiver of the provision itself or a waiver of any
other provision of this Agreement.
14. Obligation to Provide Benefits. Holdings may
utilize certain financing vehicles, including a trust, to provide
a source of funding for Holdings' obligations under this
Agreement. Any such financing vehicles will be subject to the
claims of the general creditors of Holdings. No such financing
vehicles shall relieve Holdings, or its successors, of its
obligation to provide benefits under this Agreement, except to
the extent the Executive receives payments directly from such
financing vehicle.
15. Miscellaneous. This Agreement is binding on and
is for the benefit of the parties hereto and their respective
successors, heirs, executors, administrators and other legal
representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by Holdings (except to an
Affiliate) or by the Executive without the prior written consent
of the other party. This Agreement shall be binding upon any
successor to Holdings, whether by merger, consolidation,
reorganization, purchase of all or substantially all of the stock
or assets of Holdings, or by operation of law.
16. Severability. If any provision of this
Agreement, or portion thereof, is so broad, in scope or duration,
so as to be unenforceable, such provision or portion thereof
shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents
and warrants to Holdings that the Executive is not party to any
agreement which would prohibit the Executive from entering into
this Agreement or performing fully the Executive's obligations
hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent
independent covenants by which the Executive is and will remain
bound notwithstanding any breach by Holdings, and shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, Holdings and the Executive have
executed this Agreement as of the date first written above.
_____________________________ NIAGARA MOHAWK HOLDINGS,INC.
Gary J. Lavine
By:______________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
SCHEDULE A
Modifications in Respect of Gary J. Lavine ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified
to provide that the term "Earnings" shall mean the sum of
the (i) Executive's base annual salary, whether or not
deferred and including any elective before-tax contributions
made by the Executive to a plan qualified under Section
401(k) of the Internal Revenue Code, averaged over the final
36 months of the Executive's employment with Holdings and
Niagara Mohawk Power Corporation (the"Company"), (if
applicable), and (ii) the average of the annual bonus earned
by the Executive under the Annual Officers Incentive
Compensation Plan of the Company or Holdings ("OICP"),
whether or not deferred, in respect of the final 36 months
of the Executive's employment with Holdings and the Company.
If the Executive was an employee of the Company on December
31, 1997 and the Executive is entitled to payment under
Article 9 of the Company's 1995 Stock Incentive Plan ("SIP")
for all or a portion of the Stock Units and Stock
Appreciation Rights granted to the Executive under SIP,
there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the
sum of (x) cash payments made with respect to Stock Units
(and related Dividend Equivalents) granted to the Executive
under the SIP and (y) the result of multiplying the number
of Stock Appreciation Rights granted to the Executive under
the SIP, prorated if applicable to Article 9 of the SIP, by
the difference between (1) the value of one share of the
Company's common stock on December 31, 1997 and (2) the Base
Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified
to provide that full SERP benefits are vested following
eight (8) years of continuous service with Holdings and the
Company (i.e., 60% of Earnings (as modified above) without
reduction for an Early Commencement Factor) regardless of
the Executive's years of continuous service with Holdings
and the Company. If the Executive is less than age 55 at the
date of such termination of employment, the Executive shall
be entitled to receive benefits commencing no earlier than
age 55, calculated pursuant to Section III of the SERP
without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified
to provide that in the event of (x) the Executive's
involuntary termination of employment by Holdings, at any
time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z)
the Executive's termination of employment for Good Reason
within the 36 full calendar month period following a Change
in Control (as defined in Schedule B of this Agreement), the
Executive shall be 100% vested in his full SERP benefit
(i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the
Executive's years of continuous service with Holdings and
Niagara Mohawk Power Corporation. If the Executive is less
than age 55 at the date of such termination of employment,
the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early
Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall
apply and control participation therein and the payment of
benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in
Control" shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock
(the "Outstanding Company Common Stock") of Niagara
Mohawk Holdings, Inc. (for purposes of this Schedule B
only, "the Company") (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition
directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (ii)
any acquisition by the Company, (iii) any acquisition
by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following
such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of
subparagraph (3) of this Schedule B are satisfied; or
(2) Individuals who, as of the date hereof,
constitute the Company's Board of Directors (the
"Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to
the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as
a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or
consolidation, (i) more than 75% of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation in
substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation
and any Person beneficially owning, immediately prior to
such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger
or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled
to vote generally in the election of directors and (iii) at
least a majority of the members of the board of directors of
the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the
time of the execution of the initial agreement providing for
such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i)
a complete liquidation or dissolution of the Company or (ii)
the sale or other disposition of all or substantially all of
the assets of the Company or Niagara Mohawk Power
Corporation, other than to a corporation, with respect to
which following such sale or other disposition, (A) more
than 75% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and
(C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement
or action of the Board providing for such sale or other
disposition of assets of the Company.
EMPLOYMENT AGREEMENT EXHIBIT 10-9
Agreement made as of the 17th day of March, 1999, among
NIAGARA MOHAWK POWER CORPORATION (the "Company"), NIAGARA MOHAWK
HOLDINGS, INC. ("Holdings") and John H. Mueller (the "Executive").
WHEREAS, the Company desires to employ the Executive, and
the Executive desires to accept/continue employment with the Company,
on the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Holdings desire to take appropriate
steps to reinforce and encourage the continued dedication of the
Executive to his assigned duties without distraction about the
uncertainties of the Executive's situation in circumstances arising
from the possibility of a Change in Control (as that term is defined
in Schedule B hereto) of Holdings;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company, Holdings and the
Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the
Executive, and the Executive shall serve the Company, for the period
beginning March 17, 1999 and expiring on December 31,
2001, subject to earlier termination as provided under paragraph 4
hereof. This Agreement shall be extended automatically by one year
commencing on January 1, 2000 and on January 1st of each year
thereafter, unless the Company and Holdings or the Executive, as the
case may be, gives notice to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the
Company and Holdings, this Agreement shall remain in effect for a
period of thirty-six months from the date of a Change in Control,
unless such notice was given at least 18 months prior to the date of
the Change in Control.
2. Duties. The Executive shall serve the Company as its
Senior Vice President and Chief Nuclear Officer. During the term of
this Agreement, the Executive shall, except during vacation or sick
leave, devote the whole of the Executive's time, attention and skill
to the business of the Company during usual business hours (and
outside those hours when reasonably necessary to the Executive's
duties hereunder); faithfully and diligently perform such duties and
exercise such powers as may be from time to time assigned to or vested
in the Executive by the Company's Board of Directors (the "Board") or
by any officer of the Company superior to the Executive; obey the
directions of the Board and of any officer of the Company superior to
the Executive; and use the Executive's best efforts to promote the
interests of the Company. The Executive may be required in pursuance
of the Executive's duties hereunder to perform services for any
company controlling, controlled by or under common control with the
Company (such companies hereinafter collectively called "Affiliates")
and to accept such offices in any Affiliates as the Board may require.
The Executive shall obey all policies of the Company and applicable
policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary
at an annual rate of $289,000, which shall be payable periodically in
accordance with the Company's then prevailing payroll practices, or
such greater amount as the Company may from time to time determine;
b. The Executive shall be entitled to participate in
Holdings' Supplemental Executive Retirement Plan ("SERP") according to
its terms, as modified by Schedule A hereto;
c. The Executive shall be entitled to participate in
Holdings' Officers Incentive Compensation Plan and Long Term
Incentive Plan, and any successors thereto, in accordance with the
terms thereof; and
d. The Executive shall be entitled to such expense
accounts, vacation time, sick leave, perquisites of office, fringe
benefits, insurance coverage, and other terms and conditions of
employment as the Company generally provides to its employees having
rank and seniority at the Company comparable to the Executive.
4. Termination. The Company shall continue to employ the
Executive, and the Executive shall continue to work for the Company,
during the term of this Agreement, unless the Agreement is terminated
in accordance with the following provisions:
a. This Agreement shall terminate automatically upon
the death of the Executive. Any right or benefit accrued on behalf of
the Executive or to which the Executive became entitled under the
terms of this Agreement prior to death (other than payment of base
salary in respect of the period following the Executive's death), and
any obligation of the Company to the Executive in respect of any such
right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date
of the Executive's death shall be paid to the Executive's estate in
accordance with paragraph 4g below.
b. By notice to the Executive, the Company may
terminate this Agreement upon the "Disability" of the Executive. The
Executive shall be deemed to incur a Disability when (i) a physician
selected by the Company advises the Company that the Executive's
physical or mental condition has rendered the Executive unable to
perform the essential functions of the Executive's position in a
reasonable manner, with or without reasonable accommodation and will
continue to render him unable to perform the essential functions of
the Executive's position in such manner, for a period exceeding 12
consecutive months, or (ii) due to a physical or mental condition, the
Executive has not performed the essential functions of the
Executive's position in a reasonable manner, with or without
reasonable accommodation, for a period of 12 consecutive months.
Following termination of this Agreement pursuant to clause (i) of the
preceding sentence of this paragraph, the Executive shall continue to
receive his base salary under paragraph 3a hereof for a period of 12
months from the date of his Disability, reduced by any benefits
payable during such period under the short-term disability plan and
long-term disability plan of the Company or Holdings. Thereafter, or
in the event of termination of this Agreement pursuant to clause (ii)
of the preceding sentence, the Executive shall receive benefits under
the long-term disability plan of the Company or Holdings (as
applicable) in lieu of any further base salary under paragraph 3a
hereof.
c. By notice to the Executive, the Company may
terminate the Executive's employment at any time for "Cause". The
Company must deliver such notice within ninety (90) days after the
Board of Directors of Holdings (the "Holdings" Board) both (i) has or
should have had knowledge of conduct or an event allegedly
constituting Cause, and (ii) has reason to believe that such conduct
or event could be grounds for Cause. For purposes of this Agreement
"Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued
failure by the Executive to perform substantially his duties with the
Company (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance
is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes the Executive has
not substantially performed his duties; (iii) the Executive engages in
conduct that constitutes gross neglect or willful misconduct in
carrying out his duties under this Agreement involving material
economic harm to Holdings, the Company or any of their subsidiaries;
or (iv) the Executive has engaged in a material breach of Sections 6
or 7 of this Agreement. In the event the termination notice is based
on clause (ii) of the preceding sentence, the Executive shall have ten
(10) business days following receipt of the notice of termination to
cure his conduct, to the extent such cure is possible, and if the
Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice
shall be deemed to be for Cause. The determination of Cause shall be
made by the Holdings Board upon the recommendation of the Compensation
and Succession Committee of the Holdings Board. Following a Change in
Control, such determination shall be made in a resolution duly adopted
by the affirmative vote of not less than three-fourths (3/4) of the
membership of the Holdings Board, excluding members who are employees
of Holdings, at a meeting called for the purpose of determining that
Executive has engaged in conduct which constitutes Cause (and at which
Executive had a reasonable opportunity, together with his counsel, to
be heard before the Holdings Board prior to such vote). The Executive
shall not be entitled to the payment of any additional compensation
from the Company, except to the extent provided in paragraph 4h
hereof, in the event of the termination of his employment for Cause.
d. If any of the following events, any of which shall
constitute "Good Reason", occurs within thirty-six months after a
Change in Control, the Executive, by notice of the Company, may
voluntarily terminate the Executive's employment for Good Reason
within ninety (90) days after the Executive both (i) has or should
have had knowledge of conduct or an event allegedly constituting Good
Reason, and (ii) has reason to believe that such conduct or event
could be grounds for Good Reason. In such event, the Executive shall
be entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which
are materially inconsistent in any adverse respect with the
Executive's position, duties, offices, responsibilities or reporting
requirements immediately prior to a Change in Control, including any
diminution of such duties or responsibilities; or
(ii) the Company reduces the Executive's base salary,
including salary deferrals, as in effect immediately prior to a Change
in Control; or
(iii) the Company or Holdings discontinues any bonus or
other compensation plan or any other benefit, retirement plan
(including the SERP), stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu
thereof does not make available plans providing at least comparable
benefits; or
(iv) the Company or Holdings takes action which adversely
affects the Executive's participation in, or eligibility for, or
materially reduces the Executive's benefits under, any of the plans
described in (iii) above, or deprives the Executive of any material
fringe benefit enjoyed by the Executive immediately prior to the
Change in Control, or fails to provide the Executive with the number
of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any
office or location other than one within a 50-mile radius of the
office or location at which the Executive was based immediately prior
to the Change in Control; or
(vi) the Company purports to terminate the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vii) the Company and Holdings fail to comply with and
satisfy Section 5 hereof, provided that such successor has received
prior written notice from the Company or from the Executive of the
requirements of Section 5 hereof.
The Executive shall have the sole right to determine,
in good faith, whether any of the above events has occurred.
e. The Company may terminate the Executive's
employment at any time without Cause.
f. In the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Company shall pay the Executive a lump sum severance
benefit, equal to two years' base salary at the rate in effect as of
the date of termination, plus the greater of (i) two times the most
recent annual bonus paid to the Executive under the Annual Officers
Incentive Compensation Plan of the Company or Holdings (the "OICP") or
any similar annual bonus plan (excluding the pro rata bonus referred
to in the next sentence) or (ii) two times the average annual bonus
paid to the Executive for the three prior years under the OICP or such
similar plan (excluding the pro rata annual bonus referred to in the
next sentence). If one hundred eighty (180) days or more have elapsed
in Holdings' fiscal year in which such termination occurs, the Company
shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's
annual bonus in an amount equal to (A) the bonus which would have been
payable to Executive under OICP or any similar plan for the fiscal
year in which Executive's termination occurs, multiplied by (B) a
fraction, the numerator of which is the number of days in the fiscal
year in which the termination occurs through the termination date and
the denominator of which is three hundred sixty-five (365).
In addition, in the event that the Executive's employment is
terminated by the Company without cause prior to a Change in Control,
the Executive (and his eligible dependents) shall be entitled to
continue participation in the employee benefit plans of the Company
and Holdings for a two-year period from the date of termination,
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participated had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated by the Company without Cause prior to a Change in Control,
the Executive shall be entitled to (i) be covered by a life insurance
policy providing a death benefit, equal to 2.5 times the Executive's
base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive,
the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and
expenses of any executive recruiting, counseling or placement firm
selected by the Executive for the purposes of seeking new employment
following his termination of employment.
g. In the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Company or
Holdings shall pay the Executive a lump sum severance benefit, equal
to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is
terminated by the Company without Cause or by the Executive for Good
Reason following a Change in Control, the (i) Executive (and his
eligible dependents) shall be entitled to continue participation (the
premiums for which will be paid by the Company) in the employee
benefit plans of the Company or Holdings providing medical,
prescription drug, dental, and hospitalization benefits for the
remainder of the Executive's life (ii) the Executive shall be entitled
to continue participation (the premiums for which will be paid by the
Company) in the other employee benefit plans of the Company or
Holdings for a four year period from the date of termination;
provided, however, that if Executive cannot continue to participate in
any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed
by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits
necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is
terminated following a Change in Control, either by the Company
without Cause or by the Executive for Good Reason, the Executive shall
be entitled to (i) be covered by a life insurance policy providing a
death benefit, equal to 2.5 times the Executive's base salary at the
rate in effect as of the time of termination, payable to a beneficiary
or beneficiaries designated by the Executive, the premiums for which
will be paid by the Company for the balance of the Executive's life
and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the
Executive for the purposes of seeking new employment following his
termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c,
d, or e above, the Company shall pay the Executive or the Executive's
estate any base salary earned and unpaid to the date of termination.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company, Holdings or any entity
which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to
the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this paragraph
4i)(the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company or Holdings shall pay to the
Executive (or to the Internal Revenue Service on behalf of the
Executive) an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains
(or has had paid to the Internal Revenue Service on his behalf) an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions
disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal
rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining the
amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be
made, (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income
tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such
paragraph 4i, including whether and when a Gross-up Payment is
required, the amount of such Gross-up Payment and the assumptions to
be utilized in arriving at such determinations, shall be made by the
public accounting firm that is retained by Holdings as of the date
immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations to Holdings, the
Company and the Executive within fifteen (15) business days of the
receipt of notice from Holdings, the Company or the Executive that
there has been a Payment, or such earlier time as is requested by the
Company (collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by
Holdings or the Company and Holdings or the Company shall enter into
any agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-up Payment under
subparagraph 4i with respect to any Payments shall be made no later
than thirty (30) days following such Payment. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion to such effect, and to
the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in
the imposition of a negligence or similar penalty. The Determination
by the Accounting Firm shall be binding upon Holdings, the Company and
the Executive.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that
Gross-up Payment which will not have been made by Holdings or the
Company should have been made ("Underpayment") or Gross-up Payments
are made by Holdings or the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the
rate provided in Section 1274(b) (2) (B) of the Code) shall be
promptly paid by Holdings or the Company to or for the benefit of the
Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b) (2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable
Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of Holdings or the Company. The Executive shall
cooperate, to the extent his expenses are reimbursed by Holdings or
the Company, with any reasonable requests by Holdings or the Company
in connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control
Holdings or the Company shall pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the
Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by
Holdings, the Company, or by the Executive of the validity of, or
liability under, this Agreement or the SERP (including any contest by
the Executive about the amount of any payment pursuant to this
Agreement or pursuant to the SERP), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the
Chase Manhattan Bank, N.A. or its successor, provided, however, that
Holdings and the Company shall not be liable for the Executive's legal
fees and expenses if the Executive's position in such contest,
litigation or arbitration is found by the neutral decision-maker to be
frivolous.
l. Notwithstanding anything contained in this Section
4 to the contrary, upon termination of the Executive's employment
after completion of eight (8) years of continuous service with the
Company and Holdings (as determined pursuant to the SERP), the
Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits equal
to those provided by the Company to Executives on March 26, 1997 for
the remainder of the Executive's (and his/her eligible dependents)
life, the cost of which shall be paid in full by the Company (if
applicable, on the same after-tax basis to the executive as if the
Executive had continued participation in the employee benefit plans of
the Company or Holdings providing such benefits). If the Executive is
less than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive such benefits upon attaining
age 55 and prior thereto the Executive, if applicable, shall be
entitled to the medical, prescription drug, dental and hospitalization
benefits provided by paragraphs 4f or g above.
5. Successor Liability. The Company and Holdings shall
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company or Holdings, as applicable, to
assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company or Holdings would be
required to perform. As used in this Agreement, "Company" and
"Holdings" shall mean each such corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
6. Confidential Information. The Executive agrees to keep
secret and retain in the strictest confidence all confidential matters
which relate to the Company, Holdings, and their subsidiaries and
affiliates, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of
Holdings, the Company, and their subsidiaries and affiliates learned
by him from Holdings, the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside Holdings, the
Company or any of their subsidiaries or affiliates, whether during or
after his period of service with the Company, except (i) as such
disclosure may be required or appropriate in connection with his work
as an employee of the Company or (ii) when required to do so by a
court of law, by any governmental agency having supervisory authority
over the business of the Company, or Holdings or by any administrative
or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information. The Executive agrees to give Holdings and the Company
advance written notice of any disclosure pursuant to clause (ii) of
the preceding sentence and to cooperate with any efforts by Holdings
or the Company to limit the extent of such disclosure. Upon request
by Holdings or the Company, the Executive agrees to deliver promptly
to Holdings or the Company upon termination of his services for the
Company, or at any time thereafter as Holdings or the Company may
request, all Holdings or Company subsidiary or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer file in
any media and other documents (and all copies thereof) relating to the
business of Holdings, the Company or any of their subsidiaries or
affiliates and all property of Holdings, the Company or any subsidiary
or affiliate associated therewith, which he may then possess or have
under his direct control, other than personal notes, diaries,
Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the
Executive's employment by the Company and for a period of
one year following the termination thereof for any reason (other than
following a Change in Control), the Executive covenants and agrees
that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire
any financial or beneficial interest in (except as provided in the
next sentence), provide consulting services to, be employed by, or
own, manage, operate or control any business which is in competition
with a business engaged in by the Company or any of its subsidiaries
or affiliates in any state of the United States in which any of them
are engaged in business at the time of such termination of employment
for as long as they carry on a business therein. Notwithstanding the
preceding sentence, the Executive shall not be prohibited from owning
less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company.
The Executive hereby covenants and agrees that, at all times
during the period of his employment and for a period of one year
immediately following the termination thereof for any reason (other
than following a Change in Control), the Executive shall not employ or
seek to employ any person employed at that time by the Company or any
of its subsidiaries, or otherwise encourage or entice such person or
entity to leave such employment.
It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest
extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of
the foregoing restrictions is excessive, such provision shall not be
entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court
of competent jurisdiction should hold that any portion of the
foregoing description is overly broad as to one or more states of the
United States, then that state or states shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section
applies and the restrictions shall remain applicable in all other
states of the United States.
8. No Mitigation. The Executive shall not be required to
mitigate the amount of any payments or benefits provided for in
paragraph 4f or 4g hereof by seeking other employment or otherwise and
no amounts earned by the Executive shall be used to reduce or offset
the amounts payable hereunder, except as otherwise provided in
paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of
the Company or any Affiliate which the Executive may conceive or make
or have conceived or made during the Executive's employment with the
Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the
Company, at its expense, shall execute and sign any and all
applications, assignments or other instruments and do all other things
which the Company may deem necessary or appropriate (i) to apply for,
obtain, maintain, enforce, or defend letters patent of the United
States or any foreign country for any Work Product, or (ii) to assign,
transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the
parties relating to this Agreement (except any dispute relating to
Sections 6 or 7 hereof) or relating to or arising out of the
Executive's employment with the Company, shall be settled by binding
arbitration in the City of Syracuse, State of New York, pursuant to
the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of
the New York Civil Practice Law and Rules. Judgment upon the award
may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute arises
between the parties under Sections 6 or 7 hereof, or if the Company or
Holdings makes any claim under Sections 6 or 7, the Company or
Holdings shall not be required to arbitrate such dispute or claim but
shall have the right to institute judicial proceedings in any court of
competent jurisdiction with respect to such dispute or claim. If such
judicial proceedings are instituted, the parties agree that such
proceedings shall not be stayed or delayed pending the outcome of any
arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in
writing and delivered personally or sent by certified mail, postage
prepaid, or overnight delivery addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. John H. Mueller
2387 Sourwood Drive
Phoenix, NY 13135
or to such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto, and supersedes, and is in
full substitution for any and all prior understandings or agreements,
oral or written, with respect to the Executive's employment.
13. Amendment. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision
hereof may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The Company and
Holdings may utilize certain financing vehicles, including a trust, to
provide a source of funding their obligations under this Agreement.
Any such financing vehicles will be subject to the claims of the
general creditors of the Company or Holdings, as applicable. No such
financing vehicles shall relieve Holdings or the Company, or their
successors, of their obligations to provide benefits under this
Agreement, except to the extent the Executive receives payments
directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is
for the benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company (except to an Affiliate) or by the Executive
without the prior written consent of the other party. This Agreement
shall be binding upon any successor to the Company or Holdings,
whether by merger, consolidation, reorganization, purchase of all or
substantially all of the stock or assets of the Company or Holdings,
or by operation of law.
16. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be interpreted
to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without reference to principles of conflicts of law.
18. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
19. Performance Covenant. The Executive represents and
warrants to the Company that the Executive is not party to any
agreement which would prohibit the Executive from entering into this
Agreement or performing fully the Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the
Executive set forth in Sections 6, 7, 9 and 10 represent independent
covenants by which the Executive is and will remain bound
notwithstanding any breach by the Company or Holdings, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company or Holdings and the
Executive have executed this Agreement as of the date first written
above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
John H. Mueller
By:______________________________
DAVID J. ARRINGTON
Senior Vice President -
Human Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
By:______________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
SCHEDULE A
Modifications in Respect of John H. Mueller ("Executive")
to the Supplemental Executive Retirement Plan ("SERP")
of the Niagara Mohawk Holdings, Inc. ("Holdings")
I. Subsection 1.8 of Section I of the SERP is hereby modified to
provide that the term "Earnings" shall mean the sum of the (i)
Executive's base annual salary, whether or not deferred and
including any elective before-tax contributions made by the
Executive to a plan qualified under Section 401(k) of the
Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with Niagara Mohawk Power Corporation (the
"Company") and (ii) the average of the annual bonus earned by the
Executive under the Annual Officers Incentive Compensation Plan
of the Company or Holdings ("OICP"), whether or not deferred, in
respect of the final 36 months of the Executive's employment with
the Company. If the Executive was an employee of the Company on
December 31, 1997 and the Executive is entitled to payment under
Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP")
for all or a portion of the Stock Units and Stock Appreciation
Rights granted to the Executive under SIP, there shall be taken
into account for purposes of the preceding sentence as an annual
bonus under the OICP, the sum of (x) cash payments made with
respect to Stock Units (and related Dividend Equivalents) granted
to the Executive under the SIP and (y) the result of multiplying
the number of Stock Appreciation Rights granted to the Executive
under the SIP, prorated if applicable to Article 9 of the SIP, by
the difference between (1) the value of one share of the
Company's common stock on December 31, 1997 and (2) the Base
Value ($10.75).
II. Subsection 2.1 of Section II of the SERP is hereby modified to
provide that full SERP benefits are vested following eight (8)
years of continuous service with the Company (i.e., 60% of
Earnings (as modified above) without reduction for an Early
Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less
than age 55 at the date of such termination of employment, the
Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the
SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to
provide that in the event of (x) the Executive's involuntary
termination of employment by the Company, at any time, other than
for Cause, (y) the termination of this Agreement on account of
the Executive's Disability or (z) the Executive's termination of
employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of
this Agreement), the Executive shall be 100% vested in his full
SERP benefit (i.e., 60% of Earnings (as modified above) without
reduction for an Early Commencement Factor) regardless of the
Executive's years of continuous service with the Company. If the
Executive is less than age 55 at the date of such termination of
employment, the Executive shall be entitled to receive benefits
commencing no earlier than age 55, calculated pursuant to Section
III of the SERP without reduction for an Early Commencement
Factor.
IV. Except as provided above, the provisions of the SERP shall apply
and control participation therein and the payment of benefits
thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company
Common Stock") of Niagara Mohawk Holdings, Inc. (for
purposes of this Schedule B only, "the Company") or (ii) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii)
and (iii) of subparagraph (3) of this Schedule B are
satisfied; or
(2) Individuals who, as of the date hereof, constitute
the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company or Niagara Mohawk Power Corporation, other
than to a corporation, with respect to which following such sale
or other disposition, (A) more than 75% of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
EXHIBIT 10-10
March 17, 1999
Ms. Theresa A. Flaim
2907 Fargo Road
Baldwinsville, NY 13027
Dear Theresa:
Niagara Mohawk Holdings, Inc. ("Holdings") considers the
establishment and maintenance of a sound and vital management to be
essential to protecting and enhancing the best interests of Holdings
and its shareholders. In this connection, Holdings recognizes that,
as is the case with many publicly held corporations, the possibility
of a change in control may arise and that such possibility, and the
uncertainty and questions which it may raise among management of
Holdings and its principal subsidiary, Niagara Mohawk Power
Corporation (the "Company"), may result in the departure or
distraction of management personnel to the detriment of Holdings and
its shareholders. Accordingly, the Board of Directors of Holdings (the
"Board of Directors") has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and
dedication of members of management of Holdings and the Company to
their assigned duties without distraction in circumstances arising
from the possibility of a Change in Control of Holdings (as defined in
Section 2). Hence, the Board of Directors has authorized Holdings to
enter into this Agreement with you and certain other officers of the
Company.
In consideration of your agreements set forth below, Holdings
agrees that you shall receive the severance benefits described in this
Agreement in the event your employment with Holdings or the Company is
terminated following a Change in Control in accordance with the terms
of this Agreement.
1 TERM OF AGREEMENT.
When fully executed, this Agreement shall be effective as of the
date hereof and shall continue in effect through December 31, 2000,
provided, however, that commencing on January 1, 2000, and each
January 1 thereafter, the term of this Agreement shall automatically
be extended for one additional year unless, not later than
September 30 of the preceding year, Holdings shall have given notice
that it does not wish to extend this Agreement; and provided further,
that, notwithstanding the delivery of any such notice, this Agreement
shall continue in effect for a period of twenty-four (24) months after
a Change in Control unless such notice was given at least 18 months
prior to the date of the Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, the term "Change in Control"
shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company Common
Stock") of Niagara Mohawk Holdings, Inc. (for purposes of this
Schedule B only, the ("Company") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition
by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and (iii)
of subparagraph (3) of this Schedule B are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Company's Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
75% of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust)
of the Company or such corporation resulting from such reorganization,
merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing
for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following
such sale or other disposition, (A) more than 75% of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding the Company
and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or more
of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale
or other disposition of assets of the Company.
3 TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) Termination by Holdings or the Company. You shall be
entitled to the benefits provided under this Agreement when there has
been a Change in Control followed by the termination of your
employment by Holdings or the Company within two years following such
Change in Control, except as otherwise provided in this Agreement.
(b) Your Election to Terminate for Good Reason. You shall be
entitled to the benefits provided under this Agreement when there has
been a Change in Control followed by your election to terminate your
employment within two years following such Change in Control for Good
Reason. Such election must be made by written notice to Holdings or
the Company within ninety (90) days after you both (i) have or should
have had knowledge of conduct or an event allegedly constituting Good
Reason and (ii) have reason to believe that such conduct or event
could be grounds for Good Reason. For purposes of this Agreement, the
term "Good Reason" shall mean:
(1) the assignment to you of any duties which are
materially inconsistent in any adverse respect with your position or
a substantial alteration adverse to you in the nature or status of
your responsibilities from those in effect immediately prior to a
Change in Control;
(2) a reduction by Holdings or the Company in your base
salary, including salary deferrals, as in effect immediately prior to
a Change in Control; or
(3) Holding or the Company discontinues any bonus or other
compensation plan or any other benefit, retirement plan, stock
ownership plan, stock purchase plan, stock option plan, life insurance
plan, health plan, disability plan or similar plan (as the same
existed immediately prior to the Change in Control) in which you
participated or were eligible to participate in immediately prior to
the Change in Control and in lieu thereof does not make available
plans providing at least comparable benefits; or
(4) Holdings or the Company takes action which adversely
affects your participation in, or eligibility for, or materially
reduces your benefits under, any of the plans described in (b) (3)
above, or deprives you of any material fringe benefit enjoyed by you
immediately prior to the Change in Control, or fails to provide you
with the number of paid vacation days to which you were entitled
immediately prior to the Change in Control; or
(5) Holdings or the Company requires you to be based at any
office or location other than one within a 50-mile radius of the
office or location at which you were based immediately prior to the
Change in Control; or
(6) Holdings or the Company purports to terminate your
employment otherwise than as expressly permitted by this Agreement; or
(7) The failure of Holdings to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement as contemplated in Section 7.
You shall have the sole right to determine, in good faith,
whether any of the above events has occurred.
(c) Termination Not Resulting in Benefits. You shall not be
entitled to the benefits provided under this Agreement, whether or not
there has been a Change in Control, when the termination of your
employment is due to (1) your Retirement, (2) your termination for
Disability, (3) your termination by Holdings or the Company for Cause,
(4) your death or (5) your election to terminate for any reason not
listed in subsection 3(b) above, all as defined below.
(1) Retirement. "Retirement" shall mean termination on or
after attaining age 65.
(2) Disability. By notice to you, Holdings or the Company
may terminate this Agreement upon your "Disability". You shall be
deemed to incur a Disability when (i) a physician selected by Holdings
or the Company advises it that your physical or mental condition has
rendered you unable to perform the essential functions of your
position in a reasonable manner, with or without reasonable
accommodation and will continue to render you unable to perform the
essential functions of your position in such manner, for a period
exceeding 12 consecutive months, or (ii) due to a physical or mental
condition, you have not performed the essential functions of your
position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months.
(3) Cause. By notice to you, Holdings or the Company may
terminate your employment at any time for "Cause". Holdings or the
Company must deliver such notice within ninety (90) days after the
Board of Directors both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason
to believe that such conduct or event could be grounds for Cause. For
purposes of this Agreement ?Cause? shall mean (i) you are convicted
of, or you have plead guilty or nolo contendere to, a felony; (ii)
your willful and continued failure to perform substantially your
duties with Holdings or the Company (other than any such failure
resulting from incapacity due to physical or mental illness) after a
demand for substantial performance is delivered to you by Holdings or
the Company which specifically identifies the manner in which Holdings
or the Company believes you have not substantially performed your
duties; or (iii) you engage in conduct that constitutes gross neglect
or willful misconduct in carrying out your duties under this Agreement
involving material economic harm to the Company or any of its
subsidiaries. In the event the termination notice is based on clause
(ii) of the preceding sentence, you shall have ten (10) business days
following receipt of the notice of termination to cure your conduct,
to the extent such cure is possible, and if you do not cure within the
ten (10) business day period, your termination of employment in
accordance with such termination notice shall be deemed to be for
Cause. The determination of Cause shall be made by the Board of
Directors. Following a Change in Control, such determination shall
be made in a resolution duly adopted by the affirmative vote of not
less than three-fourths (3/4) of the membership of the Board of
Directors, excluding members who are employees of Holdings or the
Company, at a meeting called for the purpose of determining that you
have engaged in conduct which constitutes Cause (and at which you had
a reasonable opportunity, together with your counsel, to be heard
before the Board of Directors prior to such vote). You shall not be
entitled to the payment of any additional compensation from Holdings
or the Company in the event of the termination of your employment for
Cause.
(d) Notice of Termination. Any termination by either party
shall be communicated by written Notice of Termination to the other
party in accordance with Section 11. A "Notice of Termination" shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth the facts and circumstances claimed to
provide a basis for termination of your employment.
(e) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination.
4 COMPENSATION.
Where there has been a Change in Control followed by the
termination of your employment by Holdings or the Company within two
years following such Change in Control, the following severance
benefits shall be in lieu of any severance benefits to which you may
otherwise be entitled under employee benefit plans of Holdings or the
Company.
(a) Upon Termination for Disability. If your employment is
terminated for Disability, your disability benefits shall be
determined in accordance with the applicable disability plans of
Holdings or the Company then in effect.
(b) Upon Termination for Cause. If your employment is
terminated for Cause, Holdings or the Company shall pay you only your
full salary through the Date of Termination at the rate in effect at
the time the Notice of Termination is given, and Holdings and the
Company shall have no further obligations to you under this Agreement.
(c) Upon Termination for Reasons Other Than Retirement,
Disability, or Cause. If your employment is terminated (i) by
Holdings or the Company for reasons other than Retirement, Disability,
or Cause, or (ii) by you for Good Reason, you shall be entitled to the
following benefits:
(1) Holdings or the Company shall pay you your full salary
through the Date of Termination at the rate in effect at the time the
Notice of Termination is given;
(2) Holdings or the Company shall pay you a lump sum
severance benefit, equal to 24 times your monthly salary rate in
effect immediately prior to the circumstance giving rise to the Notice
of Termination. In addition, you shall be entitled to continue
participation in the employee benefit plans of Holdings and the
Company for a 24-month period from the date of termination, provided,
however, that if you cannot continue to participate in any of the
benefit plans, Holdings or the Company shall otherwise provide
equivalent benefits to you and your dependents on the same after-tax
basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event you become employed by
another employer and become eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of your eligibility, but
only to the extent that Holdings or the Company reimburses you for any
increased cost and provides any additional benefits necessary to give
you the benefits provided hereunder; and
(3) Holdings or the Company shall pay up to $25,000 in fees
and expenses of any executive recruiting, counseling, or placement
firm selected by you for purposes of seeking new employment following
the Date of Termination.
(d) The payments provided to you under this Section will be in
full and complete satisfaction of any and all obligations owing to you
under this Agreement.
5 LIMITATION ON PAYMENTS.
It is understood and agreed that no severance benefits hereunder
shall be paid to the extent that such benefits (either alone or when
aggregated with other benefits contingent on a Change in Control and
paid to or for your benefit) constitute "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, under the circumstances
set forth below, severance benefits payable under this Agreement shall
be subject to the following reduction notwithstanding anything in this
Agreement to the contrary. If the aggregate present value (as
determined pursuant to Section 280G of the Code) of severance benefits
payable under this Agreement which, together with all other payments
by the Company to you or for your benefit, would be "parachute
payments" within the meaning of Section 280G of the Code, the payments
pursuant to this Agreement shall be reduced (reducing first the
severance benefit provided in the first sentence of Section 4 (c)(2)
above hereof) to the largest amount as will result in no portion of
such payments being treated as excess parachute payments.
The determination of whether and to what extent the payments
shall be reduced under this Agreement, including apportionment among
specific payments and benefits, shall be made by you in good faith,
and such determination shall be conclusive and binding on Holdings and
the Company. Holdings or the Company shall make the calculations
referred to above within thirty days following the termination of your
employment and shall provide such calculations and the basis therefor
to you within such period. In the event a reduction is required, you
shall give notice to Holdings or the Company, within 20 days of your
receipt of such calculations and related information, of your
determination of the reduction.
6. LEGAL FEES.
Holdings or the Company shall pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which you
may reasonably incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by Holdings or the
Company, or by you of the validity of, or liability under, this
Agreement (including any contest by you about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the
Chase Manhattan Bank, N.A. or its successor, provided, however, that
Holdings and the Company shall not be liable for your legal fees and
expenses if your position in such contest, litigation or arbitration
is found by the neutral decision-maker to be frivolous.
7. SUCCESSOR LIABILITY.
Holdings will require any successor (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of Holdings to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Holdings would be required to
perform. As used in this Agreement, "Holdings" shall mean the company
as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
8. CONFIDENTIAL INFORMATION.
You agree to keep secret and retain in the strictest confidence
all confidential matters which relate to Holdings, the Company and
their subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and
other business affairs of Holdings, the Company and their subsidiaries
and affiliates learned by you from Holdings, the Company or any such
subsidiary or affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone
outside Holdings, the Company or any of their subsidiaries or
affiliates, whether during or after your period of service with
Holdings or the Company, except (i) as such disclosure may be required
or appropriate in connection with your work as an employee of Holdings
or the Company or (ii) when required to do so by a court of law, by
any governmental agency having supervisory authority over the business
of Holding or the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order
you to divulge, disclose or make accessible such information. You
agree to give Holdings and the Company advance written notice of any
disclosure pursuant to clause (ii) of the preceding sentence and to
cooperate with any efforts by Holdings or the Company to limit the
extent of such disclosure. Upon request by Holdings or the Company,
you agree to deliver promptly to Holdings or the Company upon
termination of your services for Holdings or the Company, or at any
time thereafter as Holdings or the Company may request, all Holdings,
Company, subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to business of Holdings,
the Company or any of their subsidiaries or affiliates and all
property of Holdings, the Company or any subsidiary or affiliate
associated therewith, which you may then possess or have under your
direct control, other than personal notes, diaries, Rolodexes and
correspondence.
9. NO MITIGATION.
You shall not be required to mitigate the amount of any payments
or benefits provided for in Section 4(c) hereof by seeking other
employment or otherwise and no amounts earned by you shall be used to
reduce or offset the amounts payable hereunder, except as otherwise
provided in Section 4(c).
10. ARBITRATION.
Any dispute or controversy between the parties relating to this
Agreement (except any dispute relating to Section 8 hereof) or
relating to or arising out of your employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of
New York, pursuant to the Employment Dispute Resolution Rules of the
American Arbitration Association and shall be subject to the
provisions of Article 75 of the New York Civil Practice Law and Rules.
Judgment upon the award may be entered in any court of competent
jurisdiction. Notwithstanding anything herein to the contrary, if any
dispute arises between the parties under Section 8 hereof, or if
Holdings or the Company makes any claim under Section 8, Holdings or
the Company shall not be required to arbitrate such dispute or claim
but shall have the right to institute judicial proceedings in any
court of competent jurisdiction with respect to such dispute or claim.
If such judicial proceedings are instituted, the parties agree that
such proceedings shall not be stayed or delayed pending the outcome of
any arbitration proceedings hereunder.
11. NOTICES.
For the purposes of this Agreement, all notices shall be in
writing and either hand delivered or delivered by United States
registered or certified mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below or to
such other address as either party may have furnished to the other in
writing. Notice of change of address shall be effective only upon
receipt. Notices shall be sent:
(a) To Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(b) To the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(c) To you :
Ms. Theresa A. Flaim
2907 Fargo Road
Baldwinsville, NY 13027
12. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto, and supersedes, and is in full substitution for any
and all prior understandings or agreements, oral or written, with
respect to the Executive's employment.
13. AMENDMENT.
This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived
only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The
failure of either party hereto at any time to require the performance
by the other party hereto of any provision hereof shall in no way
affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. MISCELLANEOUS.
This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by
Holdings or the Company (except to an Affiliate) or by you without the
prior written consent of the other party.
15. SEVERABILITY.
If any provision of this Agreement, or portion thereof, is so
broad, in scope or duration, so as to be unenforceable, such provision
or portion thereof shall be interpreted to be only so broad as is
enforceable.
16. GOVERNING LAW.
The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of New York
without reference to principles of conflicts of law.
17. SURVIVAL OF COVENANTS.
Your obligations set forth in Sections 8 and 10 represent
independent covenants by which you are and will remain bound
notwithstanding any breach by Holdings or the Company, and shall
survive the termination of this Agreement.
If this Agreement correctly sets forth our agreement on the
subject matter hereof, please sign and return to Holdings the enclosed
copy of this Agreement which will then constitute our entire agreement
on this subject.
NIAGARA MOHAWK POWER CORPORATION
BY: __________________________________
DAVID J. ARRINGTON
Senior Vice President-Human
Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
BY:__________________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
APPROVED AND AGREED:
__________________________________
Theresa A. Flaim
Date: _________________________
EXHIBIT 10-11
March 17, 1999
Ms. Kapua A. Rice
12 Elmridge Road
Jamesville, NY 13078
Dear Kapua:
Niagara Mohawk Holdings, Inc. ("Holdings") considers the
establishment and maintenance of a sound and vital management to be
essential to protecting and enhancing the best interests of Holdings
and its shareholders. In this connection, Holdings recognizes that,
as is the case with many publicly held corporations, the possibility
of a change in control may arise and that such possibility, and the
uncertainty and questions which it may raise among management of
Holdings and its principal subsidiary, Niagara Mohawk Power
Corporation (the "Company"), may result in the departure or
distraction of management personnel to the detriment of Holdings and
its shareholders. Accordingly, the Board of Directors of Holdings (the
"Board of Directors") has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and
dedication of members of management of Holdings and the Company to
their assigned duties without distraction in circumstances arising
from the possibility of a Change in Control of Holdings (as defined in
Section 2). Hence, the Board of Directors has authorized Holdings to
enter into this Agreement with you and certain other officers of the
Company.
In consideration of your agreements set forth below, Holdings
agrees that you shall receive the severance benefits described in this
Agreement in the event your employment with Holdings or the Company is
terminated following a Change in Control in accordance with the terms
of this Agreement.
1 TERM OF AGREEMENT.
When fully executed, this Agreement shall be effective as of the
date hereof and shall continue in effect through December 31, 2000,
provided, however, that commencing on January 1, 2000, and each
January 1 thereafter, the term of this Agreement shall automatically
be extended for one additional year unless, not later than
September 30 of the preceding year, Holdings shall have given notice
that it does not wish to extend this Agreement; and provided further,
that, notwithstanding the delivery of any such notice, this Agreement
shall continue in effect for a period of twenty-four (24) months after
a Change in Control unless such notice was given at least 18 months
prior to the date of the Change in Control.
2 CHANGE IN CONTROL.
For purposes of this Agreement, the term "Change in Control"
shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company Common
Stock") of Niagara Mohawk Holdings, Inc. (for purposes of this
Schedule B only, the ("Company") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition
by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and (iii)
of subparagraph (3) of this Schedule B are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Company's Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
75% of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust)
of the Company or such corporation resulting from such reorganization,
merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing
for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following
such sale or other disposition, (A) more than 75% of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding the Company
and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or more
of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale
or other disposition of assets of the Company.
3 TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) Termination by Holdings or the Company. You shall be
entitled to the benefits provided under this Agreement when there has
been a Change in Control followed by the termination of your
employment by Holdings or the Company within two years following such
Change in Control, except as otherwise provided in this Agreement.
(b) Your Election to Terminate for Good Reason . You shall be
entitled to the benefits provided under this Agreement when there has
been a Change in Control followed by your election to terminate your
employment within two years following such Change in Control for Good
Reason. Such election must be made by written notice to Holdings or
the Company within ninety (90) days after you both (i) have or should
have had knowledge of conduct or an event allegedly constituting Good
Reason and (ii) have reason to believe that such conduct or event
could be grounds for Good Reason. For purposes of this Agreement, the
term ?Good Reason? shall mean:
(1) the assignment to you of any duties which are
materially inconsistent in any adverse respect with your position or
a substantial alteration adverse to you in the nature or status of
your responsibilities from those in effect immediately prior to a
Change in Control;
(2) a reduction by Holdings or the Company in your base
salary, including salary deferrals, as in effect immediately prior to
a Change in Control; or
(3) Holding or the Company discontinues any bonus or other
compensation plan or any other benefit, retirement plan, stock
ownership plan, stock purchase plan, stock option plan, life insurance
plan, health plan, disability plan or similar plan (as the same
existed immediately prior to the Change in Control) in which you
participated or were eligible to participate in immediately prior to
the Change in Control and in lieu thereof does not make available
plans providing at least comparable benefits; or
(4) Holdings or the Company takes action which adversely
affects your participation in, or eligibility for, or materially
reduces your benefits under, any of the plans described in (b) (3)
above, or deprives you of any material fringe benefit enjoyed by you
immediately prior to the Change in Control, or fails to provide you
with the number of paid vacation days to which you were entitled
immediately prior to the Change in Control; or
(5) Holdings or the Company requires you to be based at any
office or location other than one within a 50-mile radius of the
office or location at which you were based immediately prior to the
Change in Control; or
(6) Holdings or the Company purports to terminate your
employment otherwise than as expressly permitted by this Agreement; or
(7) The failure of Holdings to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement as contemplated in Section 7.
You shall have the sole right to determine, in good faith,
whether any of the above events has occurred.
(c) Termination Not Resulting in Benefits. You shall not be
entitled to the benefits provided under this Agreement, whether or not
there has been a Change in Control, when the termination of your
employment is due to (1) your Retirement, (2) your termination for
Disability, (3) your termination by Holdings or the Company for Cause,
(4) your death or (5) your election to terminate for any reason not
listed in subsection 3(b) above, all as defined below.
(1) Retirement. "Retirement" shall mean termination on or
after attaining age 65.
(2) Disability. By notice to you, Holdings or the Company
may terminate this Agreement upon your "Disability". You shall be
deemed to incur a Disability when (i) a physician selected by Holdings
or the Company advises it that your physical or mental condition has
rendered you unable to perform the essential functions of your
position in a reasonable manner, with or without reasonable
accommodation and will continue to render you unable to perform the
essential functions of your position in such manner, for a period
exceeding 12 consecutive months, or (ii) due to a physical or mental
condition, you have not performed the essential functions of your
position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months.
(3) Cause. By notice to you, Holdings or the Company may
terminate your employment at any time for "Cause". Holdings or the
Company must deliver such notice within ninety (90) days after the
Board of Directors both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason
to believe that such conduct or event could be grounds for Cause. For
purposes of this Agreement "Cause" shall mean (i) you are convicted
of, or you have plead guilty or nolo contendere to, a felony; (ii)
your willful and continued failure to perform substantially your
duties with Holdings or the Company (other than any such failure
resulting from incapacity due to physical or mental illness) after a
demand for substantial performance is delivered to you by Holdings or
the Company which specifically identifies the manner in which Holdings
or the Company believes you have not substantially performed your
duties; or (iii) you engage in conduct that constitutes gross neglect
or willful misconduct in carrying out your duties under this Agreement
involving material economic harm to the Company or any of its
subsidiaries. In the event the termination notice is based on clause
(ii) of the preceding sentence, you shall have ten (10) business days
following receipt of the notice of termination to cure your conduct,
to the extent such cure is possible, and if you do not cure within the
ten (10) business day period, your termination of employment in
accordance with such termination notice shall be deemed to be for
Cause. The determination of Cause shall be made by the Board of
Directors. Following a Change in Control, such determination shall
be made in a resolution duly adopted by the affirmative vote of not
less than three-fourths (3/4) of the membership of the Board of
Directors, excluding members who are employees of Holdings or the
Company, at a meeting called for the purpose of determining that you
have engaged in conduct which constitutes Cause (and at which you had
a reasonable opportunity, together with your counsel, to be heard
before the Board of Directors prior to such vote). You shall not be
entitled to the payment of any additional compensation from Holdings
or the Company in the event of the termination of your employment for
Cause.
(d) Notice of Termination. Any termination by either party
shall be communicated by written Notice of Termination to the other
party in accordance with Section 11. A "Notice of Termination" shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth the facts and circumstances claimed to
provide a basis for termination of your employment.
(e) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination.
4 COMPENSATION.
Where there has been a Change in Control followed by the
termination of your employment by Holdings or the Company within two
years following such Change in Control, the following severance
benefits shall be in lieu of any severance benefits to which you may
otherwise be entitled under employee benefit plans of Holdings or the
Company.
(a) Upon Termination for Disability. If your employment is
terminated for Disability, your disability benefits shall be
determined in accordance with the applicable disability plans of
Holdings or the Company then in effect.
(b) Upon Termination for Cause. If your employment is
terminated for Cause, Holdings or the Company shall pay you only your
full salary through the Date of Termination at the rate in effect at
the time the Notice of Termination is given, and Holdings and the
Company shall have no further obligations to you under this Agreement.
(c) Upon Termination for Reasons Other Than Retirement,
Disability, or Cause. If your employment is terminated (i) by
Holdings or the Company for reasons other than Retirement, Disability,
or Cause, or (ii) by you for Good Reason, you shall be entitled to the
following benefits:
(1) Holdings or the Company shall pay you your full salary
through the Date of Termination at the rate in effect at the time the
Notice of Termination is given;
(2) Holdings or the Company shall pay you a lump sum
severance benefit, equal to 24 times your monthly salary rate in
effect immediately prior to the circumstance giving rise to the Notice
of Termination. In addition, you shall be entitled to continue
participation in the employee benefit plans of Holdings and the
Company for a 24-month period from the date of termination, provided,
however, that if you cannot continue to participate in any of the
benefit plans, Holdings or the Company shall otherwise provide
equivalent benefits to you and your dependents on the same after-tax
basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event you become employed by
another employer and become eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of your eligibility, but
only to the extent that Holdings or the Company reimburses you for any
increased cost and provides any additional benefits necessary to give
you the benefits provided hereunder; and
(3) Holdings or the Company shall pay up to $25,000 in fees
and expenses of any executive recruiting, counseling, or placement
firm selected by you for purposes of seeking new employment following
the Date of Termination.
(d) The payments provided to you under this Section will be in
full and complete satisfaction of any and all obligations owing to you
under this Agreement.
5 LIMITATION ON PAYMENTS.
It is understood and agreed that no severance benefits hereunder
shall be paid to the extent that such benefits (either alone or when
aggregated with other benefits contingent on a Change in Control and
paid to or for your benefit) constitute "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, under the circumstances
set forth below, severance benefits payable under this Agreement shall
be subject to the following reduction notwithstanding anything in this
Agreement to the contrary. If the aggregate present value (as
determined pursuant to Section 280G of the Code) of severance benefits
payable under this Agreement which, together with all other payments
by the Company to you or for your benefit, would be "parachute
payments" within the meaning of Section 280G of the Code, the payments
pursuant to this Agreement shall be reduced (reducing first the
severance benefit provided in the first sentence of Section 4 (c)(2)
above hereof) to the largest amount as will result in no portion of
such payments being treated as excess parachute payments.
The determination of whether and to what extent the payments
shall be reduced under this Agreement, including apportionment among
specific payments and benefits, shall be made by you in good faith,
and such determination shall be conclusive and binding on Holdings and
the Company. Holdings or the Company shall make the calculations
referred to above within thirty days following the termination of your
employment and shall provide such calculations and the basis therefor
to you within such period. In the event a reduction is required, you
shall give notice to Holdings or the Company, within 20 days of your
receipt of such calculations and related information, of your
determination of the reduction.
6. LEGAL FEES.
Holdings or the Company shall pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which you
may reasonably incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by Holdings or the
Company, or by you of the validity of, or liability under, this
Agreement (including any contest by you about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the
Chase Manhattan Bank, N.A. or its successor, provided, however, that
Holdings and the Company shall not be liable for your legal fees and
expenses if your position in such contest, litigation or arbitration
is found by the neutral decision-maker to be frivolous.
7 SUCCESSOR LIABILITY.
Holdings will require any successor (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of Holdings to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Holdings would be required to
perform. As used in this Agreement, "Holdings" shall mean the company
as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
8. CONFIDENTIAL INFORMATION.
You agree to keep secret and retain in the strictest confidence
all confidential matters which relate to Holdings, the Company and
their subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and
other business affairs of Holdings, the Company and their subsidiaries
and affiliates learned by you from Holdings, the Company or any such
subsidiary or affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone
outside Holdings, the Company or any of their subsidiaries or
affiliates, whether during or after your period of service with
Holdings or the Company, except (i) as such disclosure may be required
or appropriate in connection with your work as an employee of Holdings
or the Company or (ii) when required to do so by a court of law, by
any governmental agency having supervisory authority over the business
of Holding or the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order
you to divulge, disclose or make accessible such information. You
agree to give Holdings and the Company advance written notice of any
disclosure pursuant to clause (ii) of the preceding sentence and to
cooperate with any efforts by Holdings or the Company to limit the
extent of such disclosure. Upon request by Holdings or the Company,
you agree to deliver promptly to Holdings or the Company upon
termination of your services for Holdings or the Company, or at any
time thereafter as Holdings or the Company may request, all Holdings,
Company, subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to business of Holdings,
the Company or any of their subsidiaries or affiliates and all
property of Holdings, the Company or any subsidiary or affiliate
associated therewith, which you may then possess or have under your
direct control, other than personal notes, diaries, Rolodexes and
correspondence.
9. NO MITIGATION.
You shall not be required to mitigate the amount of any payments
or benefits provided for in Section 4(c) hereof by seeking other
employment or otherwise and no amounts earned by you shall be used to
reduce or offset the amounts payable hereunder, except as otherwise
provided in Section 4(c).
10. ARBITRATION.
Any dispute or controversy between the parties relating to this
Agreement (except any dispute relating to Section 8 hereof) or
relating to or arising out of your employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of
New York, pursuant to the Employment Dispute Resolution Rules of the
American Arbitration Association and shall be subject to the
provisions of Article 75 of the New York Civil Practice Law and Rules.
Judgment upon the award may be entered in any court of competent
jurisdiction. Notwithstanding anything herein to the contrary, if any
dispute arises between the parties under Section 8 hereof, or if
Holdings or the Company makes any claim under Section 8, Holdings or
the Company shall not be required to arbitrate such dispute or claim
but shall have the right to institute judicial proceedings in any
court of competent jurisdiction with respect to such dispute or claim.
If such judicial proceedings are instituted, the parties agree that
such proceedings shall not be stayed or delayed pending the outcome of
any arbitration proceedings hereunder.
11. NOTICES.
For the purposes of this Agreement, all notices shall be in
writing and either hand delivered or delivered by United States
registered or certified mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below or to
such other address as either party may have furnished to the other in
writing. Notice of change of address shall be effective only upon
receipt. Notices shall be sent:
(a) To Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(b) To the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(c) To you :
Ms. Kapua A. Rice
12 Elmridge Road
Jamesville, NY 13078
12. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto, and supersedes, and is in full substitution for any
and all prior understandings or agreements, oral or written, with
respect to the Executive's employment.
13. AMENDMENT.
This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived
only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The
failure of either party hereto at any time to require the performance
by the other party hereto of any provision hereof shall in no way
affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. MISCELLANEOUS.
This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by
Holdings or the Company (except to an Affiliate) or by you without the
prior written consent of the other party.
15. SEVERABILITY.
If any provision of this Agreement, or portion thereof, is so
broad, in scope or duration, so as to be unenforceable, such provision
or portion thereof shall be interpreted to be only so broad as is
enforceable.
16. GOVERNING LAW.
The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of New York
without reference to principles of conflicts of law.
17. SURVIVAL OF COVENANTS.
Your obligations set forth in Sections 8 and 10 represent
independent covenants by which you are and will remain bound
notwithstanding any breach by Holdings or the Company, and shall
survive the termination of this Agreement.
If this Agreement correctly sets forth our agreement on the
subject matter hereof, please sign and return to Holdings the enclosed
copy of this Agreement which will then constitute our entire agreement
on this subject.
NIAGARA MOHAWK POWER CORPORATION
BY: __________________________________
DAVID J. ARRINGTON
Senior Vice President-Human
Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
BY:__________________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
APPROVED AND AGREED:
__________________________________
Kapua A. Rice
Date: _________________________
EXHIBIT 10-12
March 17, 1999
Mr. Steven W. Tasker
1719 North Road
Tully, NY 13159
Dear Steven:
Niagara Mohawk Holdings, Inc. ("Holdings") considers the
establishment and maintenance of a sound and vital management to be
essential to protecting and enhancing the best interests of Holdings
and its shareholders. In this connection, Holdings recognizes that,
as is the case with many publicly held corporations, the possibility
of a change in control may arise and that such possibility, and the
uncertainty and questions which it may raise among management of
Holdings and its principal subsidiary, Niagara Mohawk Power
Corporation (the "Company"), may result in the departure or
distraction of management personnel to the detriment of Holdings and
its shareholders. Accordingly, the Board of Directors of Holdings (the
"Board of Directors") has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and
dedication of members of management of Holdings and the Company to
their assigned duties without distraction in circumstances arising
from the possibility of a Change in Control of Holdings (as defined in
Section 2). Hence, the Board of Directors has authorized Holdings to
enter into this Agreement with you and certain other officers of the
Company.
In consideration of your agreements set forth below, Holdings
agrees that you shall receive the severance benefits described in this
Agreement in the event your employment with Holdings or the Company is
terminated following a Change in Control in accordance with the terms
of this Agreement.
1 TERM OF AGREEMENT.
When fully executed, this Agreement shall be effective as of the
date hereof and shall continue in effect through December 31, 2000,
provided, however, that commencing on January 1, 2000, and each
January 1 thereafter, the term of this Agreement shall automatically
be extended for one additional year unless, not later than
September 30 of the preceding year, Holdings shall have given notice
that it does not wish to extend this Agreement; and provided further,
that, notwithstanding the delivery of any such notice, this Agreement
shall continue in effect for a period of twenty-four (24) months after
a Change in Control unless such notice was given at least 18 months
prior to the date of the Change in Control.
2 CHANGE IN CONTROL.
For purposes of this Agreement, the term "Change in Control"
shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock (the "Outstanding Company Common
Stock") of Niagara Mohawk Holdings, Inc. (for purposes of this
Schedule B only, the ("Company") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition
by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and (iii)
of subparagraph (3) of this Schedule B are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Company's Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
75% of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust)
of the Company or such corporation resulting from such reorganization,
merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 20% or more of the Outstanding Company Common
stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing
for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following
such sale or other disposition, (A) more than 75% of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding the Company
and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or more
of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Board providing for such sale
or other disposition of assets of the Company.
3 TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) Termination by Holdings or the Company. You shall be
entitled to the benefits provided under this Agreement when there has
been a Change in Control followed by the termination of your
employment by Holdings or the Company within two years following such
Change in Control, except as otherwise provided in this Agreement.
(b) Your Election to Terminate for Good Reason . You shall be
entitled to the benefits provided under this Agreement when there has
been a Change in Control followed by your election to terminate your
employment within two years following such Change in Control for Good
Reason. Such election must be made by written notice to Holdings or
the Company within ninety (90) days after you both (i) have or should
have had knowledge of conduct or an event allegedly constituting Good
Reason and (ii) have reason to believe that such conduct or event
could be grounds for Good Reason. For purposes of this Agreement, the
term "Good Reason" shall mean:
(1) the assignment to you of any duties which are
materially inconsistent in any adverse respect with your position or
a substantial alteration adverse to you in the nature or status of
your responsibilities from those in effect immediately prior to a
Change in Control;
(2) a reduction by Holdings or the Company in your base
salary, including salary deferrals, as in effect immediately prior to
a Change in Control; or
(3) Holding or the Company discontinues any bonus or other
compensation plan or any other benefit, retirement plan, stock
ownership plan, stock purchase plan, stock option plan, life insurance
plan, health plan, disability plan or similar plan (as the same
existed immediately prior to the Change in Control) in which you
participated or were eligible to participate in immediately prior to
the Change in Control and in lieu thereof does not make available
plans providing at least comparable benefits; or
(4) Holdings or the Company takes action which adversely
affects your participation in, or eligibility for, or materially
reduces your benefits under, any of the plans described in (b) (3)
above, or deprives you of any material fringe benefit enjoyed by you
immediately prior to the Change in Control, or fails to provide you
with the number of paid vacation days to which you were entitled
immediately prior to the Change in Control; or
(5) Holdings or the Company requires you to be based at any
office or location other than one within a 50-mile radius of the
office or location at which you were based immediately prior to the
Change in Control; or
(6) Holdings or the Company purports to terminate your
employment otherwise than as expressly permitted by this Agreement; or
(7) The failure of Holdings to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement as contemplated in Section 7.
You shall have the sole right to determine, in good faith,
whether any of the above events has occurred.
(c) Termination Not Resulting in Benefits. You shall not be
entitled to the benefits provided under this Agreement, whether or not
there has been a Change in Control, when the termination of your
employment is due to (1) your Retirement, (2) your termination for
Disability, (3) your termination by Holdings or the Company for Cause,
(4) your death or (5) your election to terminate for any reason not
listed in subsection 3(b) above, all as defined below.
(1) Retirement. "Retirement" shall mean termination on or
after attaining age 65.
(2) Disability. By notice to you, Holdings or the Company
may terminate this Agreement upon your "Disability". You shall be
deemed to incur a Disability when (i) a physician selected by Holdings
or the Company advises it that your physical or mental condition has
rendered you unable to perform the essential functions of your
position in a reasonable manner, with or without reasonable
accommodation and will continue to render you unable to perform the
essential functions of your position in such manner, for a period
exceeding 12 consecutive months, or (ii) due to a physical or mental
condition, you have not performed the essential functions of your
position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months.
(3) Cause. By notice to you, Holdings or the Company may
terminate your employment at any time for "Cause". Holdings or the
Company must deliver such notice within ninety (90) days after the
Board of Directors both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason
to believe that such conduct or event could be grounds for Cause. For
purposes of this Agreement ?Cause? shall mean (i) you are convicted
of, or you have plead guilty or nolo contendere to, a felony; (ii)
your willful and continued failure to perform substantially your
duties with Holdings or the Company (other than any such failure
resulting from incapacity due to physical or mental illness) after a
demand for substantial performance is delivered to you by Holdings or
the Company which specifically identifies the manner in which Holdings
or the Company believes you have not substantially performed your
duties; or (iii) you engage in conduct that constitutes gross neglect
or willful misconduct in carrying out your duties under this Agreement
involving material economic harm to the Company or any of its
subsidiaries. In the event the termination notice is based on clause
(ii) of the preceding sentence, you shall have ten (10) business days
following receipt of the notice of termination to cure your conduct,
to the extent such cure is possible, and if you do not cure within the
ten (10) business day period, your termination of employment in
accordance with such termination notice shall be deemed to be for
Cause. The determination of Cause shall be made by the Board of
Directors. Following a Change in Control, such determination shall
be made in a resolution duly adopted by the affirmative vote of not
less than three-fourths (3/4) of the membership of the Board of
Directors, excluding members who are employees of Holdings or the
Company, at a meeting called for the purpose of determining that you
have engaged in conduct which constitutes Cause (and at which you had
a reasonable opportunity, together with your counsel, to be heard
before the Board of Directors prior to such vote). You shall not be
entitled to the payment of any additional compensation from Holdings
or the Company in the event of the termination of your employment for
Cause.
(d) Notice of Termination. Any termination by either party
shall be communicated by written Notice of Termination to the other
party in accordance with Section 11. A "Notice of Termination" shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth the facts and circumstances claimed to
provide a basis for termination of your employment.
(e) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination.
4 COMPENSATION.
Where there has been a Change in Control followed by the
termination of your employment by Holdings or the Company within two
years following such Change in Control, the following severance
benefits shall be in lieu of any severance benefits to which you may
otherwise be entitled under employee benefit plans of Holdings or the
Company.
(a) Upon Termination for Disability. If your employment is
terminated for Disability, your disability benefits shall be
determined in accordance with the applicable disability plans of
Holdings or the Company then in effect.
(b) Upon Termination for Cause. If your employment is
terminated for Cause, Holdings or the Company shall pay you only your
full salary through the Date of Termination at the rate in effect at
the time the Notice of Termination is given, and Holdings and the
Company shall have no further obligations to you under this Agreement.
(c) Upon Termination for Reasons Other Than Retirement,
Disability, or Cause. If your employment is terminated (i) by
Holdings or the Company for reasons other than Retirement, Disability,
or Cause, or (ii) by you for Good Reason, you shall be entitled to the
following benefits:
(1) Holdings or the Company shall pay you your full salary
through the Date of Termination at the rate in effect at the time the
Notice of Termination is given;
(2) Holdings or the Company shall pay you a lump sum
severance benefit, equal to 24 times your monthly salary rate in
effect immediately prior to the circumstance giving rise to the Notice
of Termination. In addition, you shall be entitled to continue
participation in the employee benefit plans of Holdings and the
Company for a 24-month period from the date of termination, provided,
however, that if you cannot continue to participate in any of the
benefit plans, Holdings or the Company shall otherwise provide
equivalent benefits to you and your dependents on the same after-tax
basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event you become employed by
another employer and become eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of your eligibility, but
only to the extent that Holdings or the Company reimburses you for any
increased cost and provides any additional benefits necessary to give
you the benefits provided hereunder; and
(3) Holdings or the Company shall pay up to $25,000 in fees
and expenses of any executive recruiting, counseling, or placement
firm selected by you for purposes of seeking new employment following
the Date of Termination.
(d) The payments provided to you under this Section will be in
full and complete satisfaction of any and all obligations owing to you
under this Agreement.
5 LIMITATION ON PAYMENTS.
It is understood and agreed that no severance benefits hereunder
shall be paid to the extent that such benefits (either alone or when
aggregated with other benefits contingent on a Change in Control and
paid to or for your benefit) constitute "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, under the circumstances
set forth below, severance benefits payable under this Agreement shall
be subject to the following reduction notwithstanding anything in this
Agreement to the contrary. If the aggregate present value (as
determined pursuant to Section 280G of the Code) of severance benefits
payable under this Agreement which, together with all other payments
by the Company to you or for your benefit, would be "parachute
payments" within the meaning of Section 280G of the Code, the payments
pursuant to this Agreement shall be reduced (reducing first the
severance benefit provided in the first sentence of Section 4 (c)(2)
above hereof) to the largest amount as will result in no portion of
such payments being treated as excess parachute payments.
The determination of whether and to what extent the payments
shall be reduced under this Agreement, including apportionment among
specific payments and benefits, shall be made by you in good faith,
and such determination shall be conclusive and binding on Holdings and
the Company. Holdings or the Company shall make the calculations
referred to above within thirty days following the termination of your
employment and shall provide such calculations and the basis therefor
to you within such period. In the event a reduction is required, you
shall give notice to Holdings or the Company, within 20 days of your
receipt of such calculations and related information, of your
determination of the reduction.
6. LEGAL FEES.
Holdings or the Company shall pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which you
may reasonably incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by Holdings or the
Company, or by you of the validity of, or liability under, this
Agreement (including any contest by you about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the rate of 150% of the Prime Rate posted by the
Chase Manhattan Bank, N.A. or its successor, provided, however, that
Holdings and the Company shall not be liable for your legal fees and
expenses if your position in such contest, litigation or arbitration
is found by the neutral decision-maker to be frivolous.
7 SUCCESSOR LIABILITY.
Holdings will require any successor (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of Holdings to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Holdings would be required to
perform. As used in this Agreement, "Holdings" shall mean the company
as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
8. CONFIDENTIAL INFORMATION.
You agree to keep secret and retain in the strictest confidence
all confidential matters which relate to Holdings, the Company and
their subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and
other business affairs of Holdings, the Company and their subsidiaries
and affiliates learned by you from Holdings, the Company or any such
subsidiary or affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone
outside Holdings, the Company or any of their subsidiaries or
affiliates, whether during or after your period of service with
Holdings or the Company, except (i) as such disclosure may be required
or appropriate in connection with your work as an employee of Holdings
or the Company or (ii) when required to do so by a court of law, by
any governmental agency having supervisory authority over the business
of Holding or the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order
you to divulge, disclose or make accessible such information. You
agree to give Holdings and the Company advance written notice of any
disclosure pursuant to clause (ii) of the preceding sentence and to
cooperate with any efforts by Holdings or the Company to limit the
extent of such disclosure. Upon request by Holdings or the Company,
you agree to deliver promptly to Holdings or the Company upon
termination of your services for Holdings or the Company, or at any
time thereafter as Holdings or the Company may request, all Holdings,
Company, subsidiary or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to business of Holdings,
the Company or any of their subsidiaries or affiliates and all
property of Holdings, the Company or any subsidiary or affiliate
associated therewith, which you may then possess or have under your
direct control, other than personal notes, diaries, Rolodexes and
correspondence.
9. NO MITIGATION.
You shall not be required to mitigate the amount of any payments
or benefits provided for in Section 4(c) hereof by seeking other
employment or otherwise and no amounts earned by you shall be used to
reduce or offset the amounts payable hereunder, except as otherwise
provided in Section 4(c).
10. ARBITRATION.
Any dispute or controversy between the parties relating to this
Agreement (except any dispute relating to Section 8 hereof) or
relating to or arising out of your employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of
New York, pursuant to the Employment Dispute Resolution Rules of the
American Arbitration Association and shall be subject to the
provisions of Article 75 of the New York Civil Practice Law and Rules.
Judgment upon the award may be entered in any court of competent
jurisdiction. Notwithstanding anything herein to the contrary, if any
dispute arises between the parties under Section 8 hereof, or if
Holdings or the Company makes any claim under Section 8, Holdings or
the Company shall not be required to arbitrate such dispute or claim
but shall have the right to institute judicial proceedings in any
court of competent jurisdiction with respect to such dispute or claim.
If such judicial proceedings are instituted, the parties agree that
such proceedings shall not be stayed or delayed pending the outcome of
any arbitration proceedings hereunder.
11. NOTICES.
For the purposes of this Agreement, all notices shall be in
writing and either hand delivered or delivered by United States
registered or certified mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below or to
such other address as either party may have furnished to the other in
writing. Notice of change of address shall be effective only upon
receipt. Notices shall be sent:
(a) To Holdings:
Niagara Mohawk Holdings, Inc.
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(b) To the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(c) To you :
Mr. Steven W. Tasker
1719 North Road
Tully, NY 13159
12. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto, and supersedes, and is in full substitution for any
and all prior understandings or agreements, oral or written, with
respect to the Executive's employment.
13. AMENDMENT.
This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived
only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The
failure of either party hereto at any time to require the performance
by the other party hereto of any provision hereof shall in no way
affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of
any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
14. MISCELLANEOUS.
This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by
Holdings or the Company (except to an Affiliate) or by you without the
prior written consent of the other party.
15. SEVERABILITY.
If any provision of this Agreement, or portion thereof, is so
broad, in scope or duration, so as to be unenforceable, such provision
or portion thereof shall be interpreted to be only so broad as is
enforceable.
16. GOVERNING LAW.
The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of New York
without reference to principles of conflicts of law.
17. SURVIVAL OF COVENANTS.
Your obligations set forth in Sections 8 and 10 represent
independent covenants by which you are and will remain bound
notwithstanding any breach by Holdings or the Company, and shall
survive the termination of this Agreement.
If this Agreement correctly sets forth our agreement on the
subject matter hereof, please sign and return to Holdings the enclosed
copy of this Agreement which will then constitute our entire agreement
on this subject.
NIAGARA MOHAWK POWER CORPORATION
BY: __________________________________
DAVID J. ARRINGTON
Senior Vice President-Human
Resources and Chief
Administrative Officer
NIAGARA MOHAWK HOLDINGS, INC.
BY:__________________________________
DAVID J. ARRINGTON
Senior Vice President and
Chief Administrative Officer
APPROVED AND AGREED:
__________________________________
Steven W. Tasker
Date: _________________________
<PAGE>
EXHIBIT 11
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
Computation of the Average Number of Shares of Common Stock Outstanding
For the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
(4)
Average Number of
Shares Outstanding
As Shown on the
Consolidated
(1) (2) (3) Statement of
Shares of Number of Share Income
Common Days Days (3 divided by number
For The Three Months Ended Stock Outstanding (2 x 1) of Days in Period)
- -------------------------- ----------- ----------- -------------- -------------------
<C> <C> <C> <C>
MARCH 18 - MARCH 31, 1999 187,364,863 14 2,623,108,082 187,364,863
=========== ============== ===================
March 1 - March 31, 1998 144,419,351 90 12,997,741,590 144,419,351
=========== ============== ===================
</TABLE>
Note 1: On March 18, 1999, the common stock of Niagara Mohawk was exchanged
on a share-for-share basis with Holdings. The number of shares of
common stock outstanding for the three months ended March 31, 1998
is Niagara Mohawk's.
Note 2: Earnings per share calculated on both a primary and fully
diluted basis are the same due to the effects of rounding.
<PAGE>
EXHIBIT 12A
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
Statement Showing Computation of Ratio of Earnings to Fixed Charges
for the Twelve Months Ended March 31, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C>
A. Net Income (Loss) . . . . . . . . . . . . . . . $(117,688)
B. Taxes Based on Income or Profits. . . . . . . . (58,983)
----------
C. Earnings, Before Income Taxes . . . . . . . . . (176,671)
D. Fixed Charges (a). . . . . . . . . . . . . . . 533,095
----------
E. Earnings Before Income Taxes and Fixed Charges. $ 356,424
==========
F. Ratio of Earnings to Fixed Charges (E / D). . . 0.67
==========
</TABLE>
(a) Includes a portion of rentals deemed representative of the interest
factor ($25,405) and earnings required to cover subsidiary preferred
stock dividends ($36,356).
<PAGE>
EXHIBIT 12B
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
Statement Showing Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
for the Twelve Months Ended March 31, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C>
A. Net Income (Loss) . . . . . . . . . . . . . . . $ (81,332)
B. Taxes Based on Income or Profits. . . . . . . . (58,983)
----------------
C. Earnings, Before Income Taxes . . . . . . . . . (140,315)
D. Fixed Charges (a). . . . . . . . . . . . . . . 496,739
----------------
E. Earnings Before Income Taxes and Fixed Charges. $ 356,424
================
Preferred Dividend Factor:
H. Preferred Dividend Requirements . . . . . . . . $ 36,356
I. Ratio of Pre-tax Income to Net Income (C / A) . NOT APPLICABLE
----------------
J. Preferred Dividend Factor (H x I) . . . . . . . 36,356
K. Fixed Charges as Above (D). . . . . . . . . . . 496,739
----------------
L. Fixed Charges and Preferred Dividends Combined. $ 533,095
================
M. Ratio of Earnings to Fixed Charges (E / D). . . 0.72
================
N. Ratio of Earnings to Fixed Charges and
Preferred Dividends Combined (E / L) . . . . 0.67
================
</TABLE>
(a> Includes a portion of rentals deemed representative of the interest
factor ($25,405).
<PAGE>
EXHIBIT 15
May 17, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that our report dated May 17, 1999 on our review of interim
financial information of Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power
Corporation as of and for the period ended March 31, 1999 and included in
Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power Corporation quarterly
report on Form 10-Q for the quarter then ended is incorporated by reference in
Niagara Mohawk Holdings, Inc. Registration Statement on Form S-8 (No. 333-13781)
and in the Prospectus constituting part of the Registration Statement on Form
S-3 (No. 333-55923); and incorporated by reference in Niagara Mohawk Power
Corporation Registration Statements on Form S-8 (Nos. 33-36189 and 33-42771) and
in the Prospectus constituting part of the Registration Statements on Form S-3
(Nos. 33-50703, 33-51073, 33-54827, and 33-55546) and in the Prospectus/Proxy
Statement constituting part of the Registration Statement on Form S-4 (No.
333-49769).
Yours very truly,
/s/PricewaterhouseCoopers LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, AND
CONSOLIDATED STATEMENT OF CASH FLOWS OF NIAGARA MOHAWK HOLDINGS, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001079182
<NAME> Niagara Mohawk Holdings, Inc.
<MULTIPLIER> 1000
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, AND
CONSOLIDATED STATEMENT OF CASH FLOWS OF NIAGARA MOHAWK POWER CORPORATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000071932
<NAME> Niagara Mohawk Power Corporation
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</TABLE>
EXHIBIT 99
NIAGARA MOHAWK HOLDINGS REPORTS FIRST-QUARTER RESULTS
CASH FLOW CONTINUES TO IMPROVE
SYRACUSE, May 17 -- Niagara Mohawk Holdings, Inc. (NYSE: NMK) today
reported results for its first quarter ended March 31, 1999. Niagara Mohawk
Holdings, Inc. is the parent company of Niagara Mohawk Power Corporation
(Niagara Mohawk), a regulated energy delivery company with the largest service
territory in New York State.
As anticipated, cash flow during the first quarter of 1999 continued to improve
as a result of Niagara Mohawk's Master Restructuring Agreement (MRA) entered
into in 1998 with a group of Independent Power Producers (IPPs), and the
POWERCHOICE agreement. Earnings before interest, taxes, depreciation and
amortization (EBITDA) for the 12 months ended March 31, 1999, were $1,245
million, an increase of approximately $400 million compared to the 12 months
ended March 31, 1998. The significant improvement in EBITDA is due primarily to
a reduction in payments to the IPPs.
The company reported earnings in the first quarter of 1999 of $50.8 million, or
27 cents per share, as compared to $11.1 million, or 8 cents per share, for the
first quarter in 1998. Earnings in the first quarter of 1999 reflect the
impacts of the MRA and POWERCHOICE. Niagara Mohawk's lower aggregate fuel and
purchased power costs, partly offset by increased interest charges, improved
earnings by $57.7 million, or 31 cents per share, during the first quarter.
However, the non-cash amortization of the MRA regulatory asset reduced earnings
in the first quarter by $62.8 million, or 34 cents per share. Earnings in the
first quarter of 1998 reflected the incremental costs of a major ice storm,
which reduced earnings in the first quarter of 1998 by $40.9 million, or 28
cents per share.
The company reported a loss of $117.7 million, or a loss of 67 cents per
share, for the 12 months ended March 31, 1999, as compared to earnings of $63.5
million, or 44 cents per share, for the same period in 1998. The loss for the
12-month period ended March 31, 1999, reflects the impacts of the MRA and
POWERCHOICE which includes the impact of the one-time, non-cash POWERCHOICE
charge taken in June 1998, of $171.1 million after-tax, or 97 cents per share.
The increased cash flow from operations, together with the expected
proceeds from the sale of its generating assets and a $135 million cash refund
from the Internal Revenue Service received earlier this year, will allow Niagara
Mohawk to retire more than $1 billion in debt this year. "We are committed to
follow through on our strategy to retire capital and rebuild shareholder value,"
said William E. Davis, chairman and chief executive officer of Niagara Mohawk
Holdings.
Electric revenues in the first quarter of 1999 were $849.7 million, down
1.6 percent from the first quarter of 1998, primarily due to POWERCHOICE rate
reductions and lower wholesale sales. For the 12 months ended March 31, 1999,
electric revenues were $3,247.7 million, down 1.4 percent compared to the same
period in 1998.
Natural gas revenues for the first quarter of 1999 were $246.3 million, up
4.7 percent from the first quarter of 1998, primarily as a result of increased
sales due to colder weather during the first quarter of 1999. For the 12 months
ended March 31, 1999, natural gas revenues were $576.3 million, down 4.9 percent
compared to the same period in 1998.
Non-utility revenues for the 3 months and 12 months ended March 31, 1999,
were down compared to revenues for same periods in 1998, largely as a result of
reduced trading activities at Niagara Mohawk Energy, an unregulated subsidiary.
The Consolidated Statements of Income will be filed today with the
Securities and Exchange Commission as an exhibit in Form 10-Q.
NOTE: This release contains statements that constitute forward-looking
information. 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. Such forward-looking statements are not
guarantees of future performance or results and involve certain risks
and uncertainties. Actual results or developments may differ materially
from the forward-looking statements as a result of various factors.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NIAGARA MOHAWK HOLDINGS, INC.
In thousands of dollars
Three Months Ended Twelve Months Ended
March 31, March 31,
1999 1998* 1999* 1998*
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . $ 849,746 $ 863,169 $3,247,721 $3,295,241
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . 246,275 235,235 576,269 605,735
Non-utility . . . . . . . . . . . . . . . . . . . . . . 23,113 65,493 123,697 174,237
- ------------------------------------------------------- -------------- ------------ ----------- -----------
1,119,134 1,163,897 3,947,687 4,075,213
-------------- ------------ ----------- -----------
OPERATING EXPENSES:
Fuel for electric generation. . . . . . . . . . . . . . 57,094 47,198 249,878 189,188
Electricity purchased . . . . . . . . . . . . . . . . . 175,292 374,919 926,558 1,367,766
Gas purchased . . . . . . . . . . . . . . . . . . . . . 115,258 130,673 292,426 351,061
Other operation and maintenance expenses. . . . . . . . 206,343 264,319 890,938 900,955
POWERCHOICE charge. . . . . . . . . . . . . . . . . . . - - 263,227 -
Amortization of MRA regulatory asset. . . . . . . . . . 96,625 - 225,458 -
Depreciation and amortization . . . . . . . . . . . . . 94,816 88,059 362,676 343,968
Other taxes . . . . . . . . . . . . . . . . . . . . . . 121,858 127,160 455,210 472,520
- ------------------------------------------------------- -------------- ------------ ----------- -----------
867,286 1,032,328 3,666,371 3,625,458
-------------- ------------ ----------- ----------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . 251,848 131,569 281,316 449,755
Other income (deductions) . . . . . . . . . . . . . . . (1,403) 6,953 40,232 33,566
- ------------------------------------------------------- -------------- ------------ ----------- ----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . 250,445 138,522 321,548 483,321
Interest charges. . . . . . . . . . . . . . . . . . . . 130,275 65,590 461,863 271,958
Preferred dividend requirement of subsidiary. . . . . . 9,024 9,223 36,356 37,221
- ------------------------------------------------------- -------------- ------------ ----------- ----------
INCOME (LOSS) BEFORE FEDERAL & FOREIGN INCOME TAXES . . 111,146 63,709 (176,671) 174,142
Federal & foreign income taxes. . . . . . . . . . . . . 60,314 52,569 (58,983) 110,687
- ------------------------------------------------------- -------------- ------------ ----------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . $ 50,832 $ 11,140 $ (117,688) $ 63,455
- ------------------------------------------------------- -------------- ------------ ----------- ----------
AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING (IN THOUSANDS). . . . . . . . . 187,365 144,419 176,776 144,412
BASIC AND DILUTED EARNINGS PER AVERAGE
SHARE OF COMMON STOCK . . . . . . . . . . . . . . $ 0.27 $ 0.08 $ (0.67) $ 0.44
- ------------------------------------------------------- -------------- ------------ ----------- ----------
Other Operating Data:
Earnings before interest charges, interest income,
income taxes, depreciation and amortization, and other
regulatory adjustments (EBITDA) . . . . . . . . . . . . $ 488,597 - $ 1,245,498 -
Net cash interest . . . . . . . . . . . . . . . . . . . $ 109,650 - $ 390,423 -
Ratio of EBITDA to net cash interest. . . . . . . . . . 4.5 - 3.2 -
</TABLE>
NOTES:
* Prior period consolidated financial statements have been prepared from
Niagara Mohawk's prior period consolidated financial statements, except
that accounts have been reclassified to reflect the Niagara Mohawk
Holdings structure.
- - The above information is not given in connection with any sale or offer to
sell or buy any stock or security.
- - The Company files periodic reports pursuant to the Securities Exchange Act
of 1934. Accordingly, with respect to the financial information set forth
above, you are requested to refer to such filings for more detailed
information.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC.
- ----------------------------
(Unaudited)
EARNINGS REPORT
---------------
(In thousands of dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998* 1999* 1998*
-------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Revenues . . . . . . . . . . $ 1,119,134 $ 1,163,897 $3,947,687 $4,075,213
Operating Income . . . . . . . . . . . $ 251,848 $ 131,569 $ 281,316 $ 449,755
Net Income (Loss). . . . . . . . . . . $ 50,832 $ 11,140 $ (117,688) $ 63,455
Average number of shares of common
stock outstanding (in thousands) . . 187,365 144,419 176,776 144,412
Basic and diluted earnings (loss) per
average share of common stock. . . . $ 0.27 $ 0.08 $ (0.67) $ 0.44
EBITDA . . . . . . . . . . . . . . . . $ 488,597 -- $1,245,498 --
Net Cash Interest. . . . . . . . . . . $ 109,650 -- $ 390,423 --
Ratio of EBITDA to Net Cash Interest . 4.5 3.2
</TABLE>
* Prior period consolidated financial statements have been prepared from
Niagara Mohawk's prior period consolidated financial statements, except
that accounts have been reclassified to reflect the Niagara Mohawk Holdings
structure.
Note 1: The above information is not given in connection with any sale or
offer to sell or buy any stock or security.
Note 2: The company files periodic reports pursuant to the Securities
Exchange Act of 1934. Accordingly, with respect to the financial
information set forth above, you are requested to refer to such
filings for more detailed information.
<PAGE>
