<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Northeast Utilities
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Theresa H. Allsop
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $-0- per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
------------------------------------------------------------------------
(3) Filing party:
------------------------------------------------------------------------
(4) Date filed:
------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
[NORTHEAST UTILITIES LOGO]
- --------------------------------------------------------------------------------
1998 ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
It is my pleasure to invite you to attend the 1998 Annual Meeting of
Shareholders of Northeast Utilities. The meeting will be held on Tuesday, May
12, 1998, at 10:30 a.m., at the Wayfarer Inn, Bedford, New Hampshire (directions
are on reverse side).
Information concerning the matters to be acted upon at the meeting is
provided in the accompanying Notice of Annual Meeting and Proxy Statement. In
addition, our meeting agenda will include a discussion of the operations of
Northeast Utilities system companies and a question and answer period.
Whether or not you plan to attend the meeting, it is important that you
complete, date, sign and return your proxy in the enclosed envelope as soon as
possible. This will ensure that your shares will be represented at the meeting
in accordance with your wishes.
Very truly yours,
/s/ MICHAEL G. MORRIS
Michael G. Morris
Chairman of the Board, President and
Chief Executive Officer
March 31, 1998
<PAGE> 3
WAYFARER INN
121 SOUTH RIVER ROAD
BEDFORD, NEW HAMPSHIRE
(603) 622-3766
FROM HARTFORD:
Take I-84 East to Sturbridge, Massachusetts and the Massachusetts Turnpike
(I-90). Take the Turnpike East 10 miles to Exit 10, I-290. Take I-290 East
through Worcester, Massachusetts to I-495. Take I-495 North to Route 3 (Everett
Turnpike) in Lowell, Massachusetts. Take Route 3/Everett Turnpike and travel
North for approximately 50 minutes. Take Route 101 W/Bedford Exit (2nd exit
after toll booth). Take Route 3 Exit. Stay straight at bottom of ramp. Bear left
after entering Macy's parking lot. (Approximately 2 1/2 hours).
FROM NEW YORK CITY:
Take I-95 North to New Haven, Connecticut. In New Haven, exit onto I-91
North. Follow I-91 to Hartford and then take Exit 29 (North Routes 5 and 15 to
I-84 East) onto I-84 East. Once on I-84, follow directions from Hartford, above.
(Approximately 5 hours).
FROM BOSTON:
Take I-93 North toward Manchester. Bear left at fork onto I-293, which also
becomes Route 101 West. Stay on Route 101 West and take Route 3/Bedford Exit.
Stay straight at bottom of ramp. Bear left after entering Macy's parking lot.
(Approximately 1 hour).
FROM MAINE:
Take I-95 South to Route 101 West. Travel approximately 50 minutes on Route
101 West and take Route 3/Bedford Exit. Stay straight at bottom of ramp. Bear
left after entering Macy's parking lot. (Approximately 2 hours from Portland,
Maine).
FROM BURLINGTON, VERMONT AND POINTS NORTH:
Take I-89 to I-93 South to the Hooksett toll booth. Take a left at fork and
continue South on I-293 for approximately 10 minutes. Take Route 3/Bedford Exit
and take next immediate exit (Route 3). Stay straight at bottom of ramp. Bear
left after entering Macy's parking lot. (Approximately 3 1/2 hours).
FROM ALBANY, NEW YORK AND BRATTLEBORO, VERMONT:
Take Route 9 East to Route 101, Keene, New Hampshire. Follow Route 101 East
for approximately 40 miles. Take Route 3/Bedford Exit and turn left at end of
ramp. Take a left at traffic light. Take a right at next light into Macy's
parking lot. Bear left after entering Macy's parking lot. (Approximately 3
hours).
FROM MANCHESTER AIRPORT:
As you are leaving the airport complex, take a right onto Brown Avenue.
Turn left onto I-93/101 West. Take Route 3/Bedford Exit, stay straight at bottom
of ramp into Macy's parking lot. Turn left to the Wayfarer Inn. (Approximately
15 minutes).
<PAGE> 4
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 1998
To the Shareholders of Northeast Utilities:
The Annual Meeting of Shareholders of Northeast Utilities will be held on
Tuesday, May 12, 1998, at 10:30 a.m., at the Wayfarer Inn, Bedford, New
Hampshire, for the following purposes:
1. To fix the number of Trustees at nine;
2. To elect nine Trustees for the ensuing year;
3. To approve the Employee Share Purchase Plan;
4. To approve the Incentive Plan;
5. To ratify the selection of Arthur Andersen LLP as independent auditors
for 1998; and
6. To transact any other business that may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 13, 1998 are
entitled to receive notice of and to vote at the meeting or any adjournment
thereof. You are cordially invited to be present at the meeting and to vote.
Whether or not you plan to attend the meeting, please complete, date and sign
the enclosed form of proxy and return it in the envelope enclosed for that
purpose.
By order of the Board of Trustees,
[/s/ ROBERT P. WAX]
107 Selden Street Robert P. Wax
Berlin, Connecticut Secretary
Mailing Address:
Post Office Box 270
Hartford, Connecticut 06141-0270
March 31, 1998
- --------------------------------------------------------------------------------
IMPORTANT
SHAREHOLDERS CAN HELP AVOID THE NECESSITY AND EXPENSE OF FOLLOW-UP LETTERS
TO ENSURE THAT A QUORUM IS PRESENT AT THE ANNUAL MEETING BY PROMPTLY RETURNING
THE ENCLOSED PROXY. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE, IF MAILED IN THE
UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE> 5
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Trustees of
Northeast Utilities for use at the Annual Meeting of Shareholders to be held on
May 12, 1998, and at any adjournment thereof.
Please read this proxy statement and fill in, date, sign and return the
enclosed form of proxy. The proxy may be revoked at any time before it is voted
by filing a letter with the Secretary of Northeast Utilities or by a duly
executed proxy bearing a later date. Properly executed proxies not revoked will
be voted according to their terms.
Only holders of common shares of record at the close of business on March
13, 1998 (the record date) are entitled to receive notice of and to vote at the
meeting or any adjournment thereof. On that date, there were 136,857,443 common
shares outstanding. Each such share is entitled to one vote on each matter to be
voted on at the Annual Meeting of Shareholders.
The principal office of Northeast Utilities is located at 174 Brush Hill
Avenue, West Springfield, Massachusetts. The general offices of Northeast
Utilities and its subsidiaries are located at 107 Selden Street, Berlin,
Connecticut (mailing address: Post Office Box 270, Hartford, Connecticut
06141-0270). This proxy statement and the accompanying form of proxy are being
mailed to shareholders commencing March 31, 1998.
1. NUMBER OF TRUSTEES
2. ELECTION OF TRUSTEES
Unless a shareholder specifies otherwise, the enclosed proxy will be voted
to fix the number of Trustees for the ensuing year at nine and to elect the nine
nominees named on pages 2-4 as Trustees to serve until the next Annual Meeting
and until their successors have been elected and shall have qualified. Dr.
Norman C. Rasmussen (Professor of Nuclear Engineering, Emeritus, Massachusetts
Institute of Technology), who was first elected a Trustee by shareholders in
1977, resigned as a Trustee of Northeast Utilities, effective October 14, 1997
due to health reasons. Mr. John F. Curley (a private investor) who was first
elected a Trustee by shareholders in 1997, has informed the Board that he does
not wish to stand for re-election because he has moved to a different part of
the United States. Mr. Bernard M. Fox resigned as Chairman of the Board,
President and Chief Executive Officer and a Trustee of Northeast Utilities,
effective August 19, 1997, and retired on September 1, 1997. Mr. Michael G.
Morris, a nominee who has not been previously elected a Trustee by shareholders,
was so elected by the Board of Trustees on August 19, 1997, in accordance with
its rights and responsibilities under the Declaration of Trust of Northeast
Utilities, to fill the vacancy resulting from Mr. Fox's resignation.
If one or more of the nominees should become unavailable for election, the
proxy may be voted for a substitute person or persons. However, there is no
reason to anticipate that any of the nominees will not be available.
<PAGE> 6
Set forth below is each nominee's name, age, date first elected as a
Trustee, and a brief summary of the nominee's business experience during the
past five years.
An affirmative vote of a majority of the common shares outstanding as of
the record date will be required to fix the number of Trustees at nine and to
elect the nine nominees named below.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE TO FIX
THE NUMBER OF TRUSTEES AT NINE AND FOR ELECTION OF THE NINE NOMINEES LISTED
BELOW.
<TABLE>
<S> <C>
COTTON MATHER CLEVELAND
[PHOTO OF COTTON MATHER (45 YEARS) 1992
CLEVELAND] President of Mather Associates, New London, New Hampshire (a
firm specializing in human resources and organizational
development). Ms. Cleveland is also Executive Director of
Leadership New Hampshire. She was formerly Co-Chair of the
Governor's Commission on New Hampshire in the 21st Century.
Ms. Cleveland has served on the University System of New
Hampshire Board of Trustees as Chair, Vice Chair and member.
She was an Incorporator for the New Hampshire Charitable
Foundation and is currently an Incorporator for The
Montshire Museum and for the Upper Valley Community
Foundation.
WILLIAM F. CONWAY
[PHOTO OF WILLIAM F. (67 YEARS) 1997
CONWAY] President of William F. Conway & Associates, Inc.,
Scottsdale, Arizona (a management consulting firm to the
nuclear power industry). From 1989 to 1994 (retired July,
1994), Mr. Conway was Executive Vice President-Nuclear of
Arizona Public Service Company, Phoenix, Arizona. Prior to
that, he was Senior Vice President of Nuclear Operations at
Florida Power & Light Company, Juno Beach, Florida. He is a
member of the American Nuclear Society. He served on the
Board of Directors of the Nuclear Utilities Management and
Resources Council and its Issues Management Committee. He
has also served on the Research Advisory Committee of the
Electric Power Research Institute and served as Chairman of
its Nuclear Power Division Advisory Committee. A former
Chairman of the ABB Combustion Engineering Owners Group
Executive Committee, Mr. Conway currently serves on its
Advanced Light Water Reactor Executive Advisory Committee.
Having been a member of the Institute of Nuclear Power
Operations (INPO) Board of Directors, he currently serves on
INPO's Advisory Council and is a member of the Accrediting
Board of its National Academy for Nuclear Training. Mr.
Conway is a Director of First Energy Corporation and is
Chairman of its Nuclear Committee. He also serves on the
Nuclear Safety Review Board at several nuclear facilities.
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
E. GAIL DE PLANQUE
[PHOTO OF E. GAIL DE (53 YEARS) 1995
PLANQUE] From 1991 to 1995, Dr. de Planque was a Commissioner
with the United States Nuclear Regulatory Commission.
In 1967, Dr. de Planque joined the Health and Safety
Laboratory of the United States Atomic Energy
Commission. She served at the Laboratory, now known as
the Environmental Measurements Laboratory, until
December, 1991, as Deputy Director beginning in 1982
and as Director in 1987. She is a Fellow and past
President of the American Nuclear Society, a member of
the National Academy of Engineering and the National
Council on Radiation Protection and Measurements,
Secretary of the International Nuclear Academy and a
Director of British Nuclear Fuels, Inc. She is a member
of the Texas Utilities Company's Electric Operations
Review Committee; the External Advisory Committee,
Amarillo National Resource Center for Plutonium; the
visiting Committee for the Department of Nuclear
Engineering, Massachusetts Institute of Technology; and
a consultant to the United Nation's International
Atomic Energy Agency.
ELIZABETH T. KENNAN
[PHOTO OF ELIZABETH T. (60 YEARS) 1980
KENNAN] President Emeritus of Mount Holyoke College, South
Hadley, Massachusetts. Previously President of Mount
Holyoke College. Mrs. Kennan is a Director of Kentucky
Home Mutual Insurance, Bell Atlantic, The Putnam Funds
and Talbots. She is a member of the Folger Shakespeare
Library Committee and a Director of the Council on
Library Resources.
MICHAEL G. MORRIS
[PHOTO OF MICHAEL G. (51 YEARS) 1997
MORRIS] Chairman of the Board, President and Chief Executive
Officer of Northeast Utilities and Chairman, Chief
Executive Officer and a Director of its principal
subsidiaries. Mr. Morris is also a Director of
Connecticut Yankee Atomic Power Company. From 1994 to
1997, Mr. Morris was President and Chief Executive
Officer of Consumers Energy Company, Dearborn,
Michigan. Prior to that, he was Executive Vice
President and Chief Operating Officer of Consumers
Energy Company.
WILLIAM J. PAPE II
[PHOTO OF WILLIAM J. (66 YEARS) 1974
PAPE II] Publisher, Waterbury Republican-American, Waterbury,
Connecticut (newspaper). Mr. Pape is President and
Treasurer of American-Republican, Inc. He is a Director
of Platt Bros. & Co. and Paper Delivery, Inc. He is a
Trustee of the Connecticut Policy and Economic Council,
Inc. and the Waterbury Y.M.C.A.
</TABLE>
3
<PAGE> 8
<TABLE>
<S> <C>
ROBERT E. PATRICELLI
[PHOTO OF ROBERT E. (58 YEARS) 1993
PATRICELLI] Chairman, President and Chief Executive Officer of Women's
Health USA, Inc., Avon, Connecticut (provides women's health
care services). From 1987 to 1997, he was Chairman,
President and Chief Executive Officer of Value Health, Inc.,
Avon, Connecticut. Previously Executive Vice President of
CIGNA Corporation and President of CIGNA's Affiliated
Businesses Group. Mr. Patricelli has held various positions
in the federal government, including White House Fellow in
1965; counsel to a United States Senate Subcommittee; Deputy
Undersecretary of the Department of Health, Education and
Welfare; and Administrator of the United States Urban Mass
Transportation Administration. He is a Director of Hartford
Life, Inc., Curagen Corporation, the Connecticut Business &
Industry Association, The Bushnell and Wesleyan University.
JOHN F. SWOPE
[PHOTO OF JOHN F. (59 YEARS) 1992
SWOPE] From 1995 to 1997, he was of counsel to the law firm of
Sheehan Phinney Bass + Green, Professional Association,
Manchester, New Hampshire. Previously President of Chubb
Life Insurance Company of America, Concord, New Hampshire
(retired December, 1994). He is a Director of the Public
Broadcasting Service and New Hampshire Public Television and
the New Hampshire Business Committee for the Arts. Mr. Swope
is Vice Chairman of The Currier Gallery of Art and a Trustee
of Tabor Academy and the New England Foundation for The
Arts.
JOHN F. TURNER
[PHOTO OF JOHN F. (55 YEARS) 1995
TURNER] President and Chief Executive Officer of The Conservation
Fund, Arlington, Virginia (a national nonprofit organization
dedicated to land and water conservation and economic
development). From 1989 to 1993, Mr. Turner was Director of
the United States Fish & Wildlife Service in the United
States Department of the Interior. He has also served as
President of the Wyoming State Senate. A former Chairman of
the Board of Directors of the Bank of Jackson Hole, Mr.
Turner continues as a partner in the family ranch business
in Wyoming. He is assisting schools of natural resources at
the University of Wyoming, University of Michigan and Yale
University with wildlife and land use projects. He is a
member of the National Coal Council and a Director of Land
Trust Alliance and National Wildlife Refuge Association.
</TABLE>
4
<PAGE> 9
COMMITTEE COMPOSITION AND RESPONSIBILITY
The Board of Trustees of Northeast Utilities has Audit, Compensation,
Corporate Affairs, Corporate Governance, Executive, Finance and Nuclear
Committees. The Board of Trustees does not have a Nominating Committee.
The Audit Committee meets independently with the internal and independent
auditors of Northeast Utilities and its subsidiaries to review the auditors'
activities, procedures and recommendations. Following each meeting, the
Committee reports to the full Board. The Committee recommends annually the
appointment of Northeast Utilities' independent auditors for the coming year.
The Audit Committee met four times in 1997. The members of the Committee are
Messrs. Swope (Chairman), Conway and Turner and Mmes. de Planque and Kennan,
none of whom is an employee of Northeast Utilities or its subsidiaries.
The Compensation Committee (previously called the Committee on
Organization, Compensation and Board Affairs) reviews and adjusts, as
appropriate, the compensation policies of Northeast Utilities and its
subsidiaries. Following each meeting, the Committee reports to the full Board.
The Compensation Committee met nine times in 1997. The members of the Committee
are Messrs. Patricelli (Chairman), Curley and Pape and Mmes. Cleveland and
Kennan, none of whom is an employee of Northeast Utilities or its subsidiaries.
A report from this Committee with respect to executive compensation is included
in this proxy statement.
The Corporate Affairs Committee reviews the policies and practices of
Northeast Utilities and its subsidiaries that have broad social or community
significance. Following each meeting, the Committee reports to the full Board.
The Corporate Affairs Committee met four times in 1997. The members of the
Committee are Messrs. Turner (Chairman), Pape and Swope and Ms. Cleveland, none
of whom is an employee of Northeast Utilities or its subsidiaries.
The Corporate Governance Committee (formed in January, 1998) implements and
oversees the corporate therapeutics provisions that were adopted by the Board as
part of the settlement of shareholder derivative lawsuits described on page 31
of this proxy statement. Functions of the Committee include recommending
criteria to the Board for Trustee candidates, selecting new Trustees,
recommending Trustee committee assignments, establishing and implementing an
evaluation process for the Chief Executive Officer in conjunction with the
Compensation Committee, establishing and implementing an evaluation process for
the Board and recommending a succession plan to the Board for the Chief
Executive Officer. Following each meeting, the Committee will report to the full
Board. The members of the Committee are Mmes. Kennan (Chairman) and Cleveland
and Mr. Turner, none of whom is an employee of Northeast Utilities or its
subsidiaries.
The Executive Committee is empowered to exercise all the authority of the
Board, subject to certain limitations set forth in Northeast Utilities'
Declaration of Trust, during the intervals between meetings of the Board. The
Executive Committee did not meet in 1997. The members of the Executive Committee
are Messrs. Morris (Chairman) and Swope and Mmes. de Planque and Kennan. Other
than Mr. Morris, no Committee member is an employee of Northeast Utilities or
its subsidiaries.
5
<PAGE> 10
The Finance Committee assists the Board in fulfilling its fiduciary
responsibilities relating to financial plans, policies and programs for
Northeast Utilities and its subsidiaries. Following each meeting, the Committee
reports to the full Board. The Finance Committee met two times in 1997. The
members of the Finance Committee are Messrs. Curley (Chairman), Morris and
Patricelli and Mrs. Kennan. Other than Mr. Morris, no Committee member is an
employee of Northeast Utilities or its subsidiaries.
The Nuclear Committee provides the Board with an independent basis for
overseeing the safety and effectiveness of the nuclear program of the Northeast
Utilities system. More recently, specific attention has been given to oversight
of the recovery of the three Millstone units, which were placed on the Nuclear
Regulatory Commission's (NRC) "watch list" in January, 1996; management's
attention to nuclear safety; progress in resolving issues with the NRC, the
Institute of Nuclear Power Operations and other independent evaluations of
nuclear operations; and progress in resolving employee and community concerns.
With the exception of meetings held by conference telephone, following each
meeting the Committee reports to the full Board. The Nuclear Committee met
twenty-five times in 1997. The members of the Committee are Mmes. de Planque
(Chairman) and Cleveland and Messrs. Conway, Pape and Turner, none of whom is an
employee of Northeast Utilities or its subsidiaries.
In 1997, the Board of Trustees held fourteen meetings and committees of the
Board held a total of forty-four meetings. All of the nominees for Trustee
attended 75 percent or more of the aggregate number of meetings of the Board and
the Committees of which they were members.
6
<PAGE> 11
COMMON STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
The following table provides information with respect to persons who are
known to Northeast Utilities to beneficially own more than five percent of the
common shares of Northeast Utilities. Northeast Utilities has no other class of
voting securities.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- ----------
<S> <C> <C>
Barrow, Hanley, Mewhinney & 11,386,168(1) 8.32%
Strauss, Inc.
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, TX
The Prudential Insurance Company 9,164,212(2) 6.70%
of America
751 Broad Street
Newark, NJ
</TABLE>
- ------------
(1) According to a Schedule 13G dated February 12, 1998, Barrow, Hanley,
Mewhinney & Strauss, Inc. holds 11,386,168 common shares of Northeast
Utilities. According to the Schedule 13G, Barrow, Hanley, Mewhinney &
Strauss, Inc. has sole voting power for 7,180,968 shares, shared voting
power for 4,205,200 shares and sole dispositive power for 11,386,168 shares.
(2) According to a Schedule 13G dated February 10, 1998, The Prudential
Insurance Company of America holds 9,164,212 common shares of Northeast
Utilities. According to the Schedule 13G, The Prudential Insurance Company
of America has sole voting power for 39,000 shares, shared voting power for
9,125,212 shares, sole dispositive power for 39,000 shares and shared
dispositive power for 9,125,212 shares. The Prudential Insurance Company of
America has stated that such shares were acquired in the ordinary course of
business and were not acquired for the purpose of and do not have the effect
of changing or influencing the control of the issuer.
7
<PAGE> 12
COMMON STOCK OWNERSHIP
OF MANAGEMENT
The following table provides information as of February 24, 1998, as to the
beneficial ownership of the common shares of Northeast Utilities by each nominee
for Trustee, each of the five highest paid executive officers of Northeast
Utilities and its subsidiaries, and all nominees for Trustee and executive
officers as a group. Unless otherwise noted, each nominee and executive officer
has sole voting and investment power with respect to the listed shares.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
DIRECTLY DEFERRED RESTRICTED RESTRICTED STOCK PERCENT OF
NAME OWNED SHARES(1) STOCK(2) UNITS(3) CLASS(4)
---- -------- --------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Cotton Mather Cleveland 2,193(5) 2,627
William F. Conway 3,941
E. Gail de Planque 1,281
John H. Forsgren 5,577 32,816
Elizabeth T. Kennan 3,116 375
Bruce D. Kenyon 3,373 41,615 26,840
Hugh C. MacKenzie 12,573(6) 14,933
Michael G. Morris 1,000(7)
William J. Pape II 2,726(8) 1,730
Robert E. Patricelli 5,225
John F. Swope 4,317
John F. Turner 438(9) 4,026
Robert P. Wax 4,746 10,212
All Trustees and Executive
Officers as a group (16
persons) 55,060 8,758 47,192 94,174
</TABLE>
- ---------------
(1) Receipt deferred under the Northeast Utilities Deferred Compensation Plan
for Trustees (see Compensation of Trustees on page 9). The beneficial owner
has no current voting or investment power except as provided in such plan.
(2) The beneficial owner has the right to vote but no right to dispose of
restricted stock until the restrictions have lapsed.
(3) The beneficial owner has no right to vote or dispose of restricted stock
units until the restrictions have lapsed.
(4) As of February 24, 1998, the nominees for Trustee and the executive officers
of Northeast Utilities and its subsidiaries, as a group, beneficially owned
less than one percent of the common shares outstanding.
(5) 1,416 of these shares are held in trust.
(6) Mr. MacKenzie shares voting and investment power with his wife for 1,584 of
these shares.
(7) Mr. Morris shares voting and investment power with his wife for these
shares.
(8) 500 of these shares are held in trust.
(9) Mr. Turner shares voting and investment power with his wife for these
shares.
8
<PAGE> 13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Trustees and
certain officers of Northeast Utilities to file reports of ownership and changes
in ownership with the Securities and Exchange Commission (SEC) and the New York
Stock Exchange. Based on review of copies of such forms furnished to Northeast
Utilities, or written representations that no Form 5 was required, Northeast
Utilities believes that for the year ended December 31, 1997, all such reporting
requirements were complied with in a timely manner.
COMPENSATION OF TRUSTEES
During 1997, each Trustee who was not an employee of Northeast Utilities or
its subsidiaries was compensated at an annual rate of $17,000 cash plus 250
common shares of Northeast Utilities, and received $900 for each meeting of the
Board or its Committees attended. A non-employee Trustee who participates in a
meeting of the Board or any of its Committees by conference telephone receives
$675 per meeting. Also, a non-employee Trustee who is asked by either the Board
of Trustees or the Chairman of the Board to perform extra services in the
interest of the Northeast Utilities system may receive additional compensation
of $1,000 per day plus necessary expenses. The Chairs of the Audit Committee,
the Compensation Committee, the Corporate Affairs Committee, the Finance
Committee and the Nuclear Committee were compensated at an additional annual
rate of $3,500. The Chair of the Corporate Governance Committee will also be
compensated at an additional annual rate of $3,500. In addition to the above
compensation, Mrs. Kennan is paid at the annual rate of $30,000 for the extra
services performed as Lead Trustee.
Prior to the beginning of each calendar year, each non-employee Trustee may
irrevocably elect to have all or any portion of the cash compensation paid in
the form of common shares of Northeast Utilities. Pursuant to the Northeast
Utilities Deferred Compensation Plan for Trustees, each Trustee may also
irrevocably elect to defer receipt of some or all cash and/or share
compensation.
Under the terms of the Incentive Plan, further described on pages 23-29 of
this proxy statement, non-employee Trustees will receive upon election to the
Board of Trustees and annually thereafter, nonqualified options to purchase
2,500 common shares of Northeast Utilities. Receipt of shares acquired on
exercise of options could be deferred pursuant to the terms of the Northeast
Utilities Deferred Compensation Plan for Executives.
9
<PAGE> 14
EXECUTIVE COMPENSATION
The following tables present the cash and non-cash compensation received by
the Chief Executive Officer and the next four highest paid executive officers of
Northeast Utilities, and by a former chief executive officer and one former
executive officer, in accordance with rules of the SEC. The compensation
reported for 1997 includes grants of restricted stock units and stock
appreciation rights (SARs) under the Stock Price Recovery Incentive Program,
which for these officers took the place of participation in short and long-term
incentive programs under the Executive Incentive Plan in 1996, 1997 and 1998, as
discussed in the Report on Executive Compensation on pages 16-18 of this proxy
statement. The "Securities Underlying Options/Stock Appreciation Rights" column
in the Summary Compensation Table below lists the Northeast Utilities common
shares for which options and stock appreciation rights were granted; the value
of the options and stock appreciation rights as of the date of grant is given in
the last column of the "Option/SAR Grants in Last Fiscal Year" table below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- --------------------------- ---------
SECURITIES LONG
OTHER RESTRICTED UNDERLYING TERM
ANNUAL STOCK OPTIONS/STOCK INCENTIVE ALL OTHER
COMPEN- AWARD(S) APPRECIATION PROGRAM COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION($) ($) RIGHTS PAYOUTS SATION($)
POSITION YEAR ($) ($) (NOTE 1) (NOTE 2) (#) ($) (NOTE 3)
------------------ ---- ------- --------- ---------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael G. Morris 1997 258,333 1,350,000 - - 500,000 - -
Chairman of the Board, 1996 - - - - - - -
President
and Chief Executive Officer 1995 - - - - - - -
Bruce D. Kenyon 1997 500,000 300,000 - 306,522 139,745 - -
President - Nuclear Group 1996 144,231 400,000 - 499,762 - - -
1995 - - - - - - -
John H. Forsgren 1997 350,000 50,000 - 378,787 184,382 - -
Executive Vice President and 1996 305,577 - 62,390 80,380 - - -
Chief Financial Officer 1995 - - - - - - -
Hugh C. MacKenzie 1997 270,000 - - 189,778 142,549 26,998 4,800
President - Retail Business 1996 264,904 - - - - 19,834 7,500
Group
1995 247,665 128,841 - - - 46,789 7,350
Robert P. Wax 1997 207,660 - - 129,775 97,499 6,075 4,800
Senior Vice President, 1996 193,650 - - - - 9,859 5,809
Secretary
and General Counsel 1995 183,427 96,225 - - - 17,147 5,503
Bernard M. Fox 1997 447,165 - - - 226,106 68,777 880,916
Retired Chairman of the Board, 1996 551,300 - - - - 65,420 7,500
President and Chief Executive 1995 551,300 246,168 - - - 130,165 7,350
Officer
Ted C. Feigenbaum 1997 260,000 - - - - 21,498 4,800
Executive Vice President and 1996 248,858 - - - - 14,770 7,222
Chief Nuclear Officer of 1995 185,300 - - - - - 5,553
certain subsidiaries
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL
UNDERLYING Options/SARs
OPTIONS/SARS GRANTED TO EMPLOYEES EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR PRICE ($/SH) DATE
---- -------------------- -------------------- ---------------- ----------
<S> <C> <C> <C> <C>
Michael G. Morris 500,000 (Note 4) 34.9% 9.625 8/20/2007
Bruce D. Kenyon 41,236 (Note 5) 2.9% 13.125 12/31/2001
98,509 (Note 6) 6.9% 9.75 12/31/2001
John H. Forsgren 54,408 (Note 5) 3.8% 13.125 12/31/2001
129,974 (Note 6) 9.1% 9.75 12/31/2001
Hugh C. MacKenzie 42,063 (Note 5) 2.9% 13.125 12/31/2001
100,486 (Note 6) 7.0% 9.75 12/31/2001
Robert P. Wax 28,764 (Note 5) 2.0% 13.125 12/31/2001
68,735 (Note 6) 4.8% 9.75 12/31/2001
Bernard M. Fox 226,106 (Note 5) 15.8% 13.125 12/31/2001
Ted C. Feigenbaum - N/A N/A N/A
<CAPTION>
GRANT DATE VALUE
----------------
GRANT DATE PRESENT
NAME VALUE($)
---- ---------------------------
<S> <C>
Michael G. Morris 840,744 (Note 4)
Bruce D. Kenyon 71,751 (Note 5)
66,986 (Note 6)
John H. Forsgren 94,670 (Note 5)
88,382 (Note 6)
Hugh C. MacKenzie 73,190 (Note 5)
68,330 (Note 6)
Robert P. Wax 50,049 (Note 5)
46,740 (Note 6)
Bernard M. Fox 393,424 (Note 5)
Ted C. Feigenbaum N/A
</TABLE>
10
<PAGE> 15
NOTES TO SUMMARY COMPENSATION AND OPTION/SAR GRANTS TABLES:
1. Other annual compensation for Mr. Forsgren consists of tax payments on a
restricted stock award.
2. The aggregate restricted stock holdings by the seven individuals named in the
table were, at December 31, 1997, 131,993 shares with a value of $1,559,169.
Awards shown for 1997 (except for additional awards made for Messrs. Kenyon
and Forsgren - see below) were restricted stock unit grants under the Stock
Price Recovery Incentive Program made on January 1, 1997. The number of units
in each grant will be adjusted on December 31, 1998 to reflect the relative
performance of Northeast Utilities common shares between December 31, 1996
and December 31, 1998 versus the performance of the Standard and Poor's
Electric Company Index during the same period. The adjusted units will vest
on January 4, 1999 if the recipient is still actively employed as a senior
officer of the Company (subject to earlier vesting upon death, disability or
retirement). Mr. Kenyon also received 12,200 restricted stock units on July
8, 1997, with a value at date of grant of $120,475, which will vest, as will
the restricted shares granted to him in 1996, when Millstone Station is
removed from the NRC's "watch list," provided that this occurs within three
years of Mr. Kenyon's commencement of employment (September 3, 1996) and the
Systematic Assessment of Licensee Performance and Institute of Nuclear Power
Operations ratings of Seabrook Station have not materially changed from their
1996 levels, or, if earlier, when he is transferred to a new position at the
Company or an affiliate, as defined. Mr. Forsgren also received 13,500
restricted stock units on July 8, 1997, with a value at grant of $133,313,
which will vest, as will the restricted stock granted to him in 1996, on
January 1, 1999. Any dividends paid on restricted stock and units are
reinvested into additional restricted stock and units, respectively, subject
to the same vesting schedule.
3. "All Other Compensation" consists of employer matching contributions under
the Northeast Utilities Service Company 401k Plan, generally available to all
eligible employees. It also includes, in the case of Mr. Fox, who retired
from the Company in 1997, a payment of $166,667 as a contractor to the
Company in 1997, a payment of $82,000 which had been withheld from Mr. Fox's
1995 annual bonus, $389,866, which is the approximate value at the date of
his retirement of that portion of Mr. Fox's retirement benefit in excess of
what would be payable under the Company's retirement plans, and a payment of
$237,583 for payment of taxes on an annuity that provides a portion of such
retirement benefit. See Employment Contracts and Termination of Employment
Arrangements on pages 14-15 of this proxy statement.
4. Mr. Morris received upon the commencement of his employment options to
purchase 500,000 NU common shares at a price of $9.625 commencing August 20,
1999 (250,000 shares), August 20, 2000 (125,000 shares) and August 20, 2001
(125,000 shares). The options expire August 20, 2007 or, if earlier, three
years after termination of his employment. Valued using the Black-Scholes
option pricing model, with the following assumptions: Volatility: 31.89
percent (36 months of monthly data); Risk-free rate: 6.41 percent; Dividend
yield: 7.42 percent (36 months of monthly data); Exercise price: $9.625;
Grant price: $9.625; Option term: 10 years; Exercise date: August 20, 2007.
5. These SARs were granted on January 1, 1997 under the Stock Price Recovery
Incentive Program. The total number of SARs in this grant will be adjusted on
December 31, 1998 to reflect the relative performance of Northeast Utilities
common shares between December 31, 1996 and December 31, 1998 versus the
performance of the Standard and Poor's Electric Companies Index during the
same period. This adjustment factor is assumed to be one for purposes of
valuation for this table. Valued using the Black-Scholes option pricing
model, with the following assumptions: Volatility: 25.63 percent (36 months
of monthly data); Risk-free rate: 6.17 percent, Dividend yield: 7.95 percent
(36 months of monthly data); Exercise date: December 31, 2001.
6. These SARs were granted on August 12, 1997 under the Stock Price Recovery
Incentive Program. Their value may not exceed $3.375 per SAR, which is the
value they would have if the price of a Northeast Utilities common share on
the date of exercise were $13.125 or higher. Valued using the Black-Scholes
option pricing model, assuming that the value limitation described in the
preceding sentence acts as a stock appreciation right written by the
recipient of the actual SARs to the Company, with a base price equal to
$13.125, but with other characteristics equivalent to the actual SARs, with
the following assumptions: Volatility: 31.89 percent (36 months of monthly
data); Risk-free rate: 6.22 percent; Dividend yield: 7.42 percent (36 months
of monthly data); Exercise date: December 31, 2001.
11
<PAGE> 16
PENSION BENEFITS
The table on page 13 shows the estimated annual retirement benefits payable
to an executive officer of Northeast Utilities upon retirement, assuming that
retirement occurs at age 65 and that the officer is at that time not only
eligible for a pension benefit under the Northeast Utilities Service Company
Retirement Plan (the Retirement Plan) but also eligible for the make-whole
benefit and the target benefit under the Supplemental Executive Retirement Plan
for Officers of Northeast Utilities System Companies (the Supplemental Plan).
The Supplemental Plan is a non-qualified pension plan providing supplemental
retirement income to system officers. The make-whole benefit under the
Supplemental Plan, available to all officers, makes up for benefits lost through
application of certain tax code limitations on the benefits that may be provided
under the Retirement Plan, and includes as "compensation" awards under the
Executive Incentive Compensation Program and the Executive Incentive Plan and
deferred compensation (as earned). The target benefit further supplements these
benefits and is available to officers at the Senior Vice President level and
higher who are selected by the Board of Trustees to participate in the target
benefit and who remain in the employ of Northeast Utilities companies until at
least age 60 (unless the Board of Trustees sets an earlier age).
Each of the executive officers of Northeast Utilities named in the Summary
Compensation Table on page 10 is currently eligible for a target benefit, except
Messrs. Morris and Kenyon, whose Employment Agreements provide specially
calculated retirement benefits, based on their previous arrangements with CMS
Energy/Consumers Energy Company (CMS) and South Carolina Electric and Gas,
respectively. Mr. Morris's agreement provides that upon retirement after
reaching the fifth anniversary of his employment date with the Company (or upon
disability or termination without cause or following a change of control, as
defined, of the Company) he will be entitled to receive a special retirement
benefit calculated by applying the benefit formula of the CMS Supplemental
Executive Retirement Plan to all compensation earned from the Company and to all
service rendered to the Company and CMS. If Mr. Kenyon retires with at least
three years but less than five years of service with the Company, he will be
deemed to have five years of service. In addition, if Mr. Kenyon retires with at
least three years of service with the Company, he will receive a lump sum
payment of $500,000.
12
<PAGE> 17
The benefits presented below are based on a straight life annuity beginning
at age 65 and do not take into account any reduction for joint and survivorship
annuity payments.
ANNUAL TARGET BENEFIT
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
----------------------------------------------------
FINAL AVERAGE COMPENSATION 15 20 25 30 35
- -------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 72,000 $ 96,000 $120,000 $120,000 $120,000
250,000 90,000 120,000 150,000 150,000 150,000
300,000 108,000 144,000 180,000 180,000 180,000
350,000 126,000 168,000 210,000 210,000 210,000
400,000 144,000 192,000 240,000 240,000 240,000
450,000 162,000 216,000 270,000 270,000 270,000
500,000 180,000 240,000 300,000 300,000 300,000
600,000 216,000 288,000 360,000 360,000 360,000
700,000 252,000 336,000 420,000 420,000 420,000
800,000 288,000 384,000 480,000 480,000 480,000
900,000 324,000 432,000 540,000 540,000 540,000
1,000,000 360,000 480,000 600,000 600,000 600,000
1,100,000 396,000 528,000 660,000 660,000 660,000
1,200,000 432,000 576,000 720,000 720,000 720,000
</TABLE>
Final average compensation for purposes of calculating the target benefit
is the highest average annual compensation of the participant during any 36
consecutive months compensation was earned. Compensation taken into account
under the target benefit described above includes salary, bonus, restricted
stock awards, and long-term incentive payouts shown in the Summary Compensation
Table, but does not include employer matching contributions under the 401k Plan.
In the event that an officer's employment terminates because of disability, the
retirement benefits shown above would be offset by the amount of any disability
benefits payable to the recipient that are attributable to contributions made by
Northeast Utilities and its subsidiaries under long term disability plans and
policies.
As of December 31, 1997, the five current executive officers named in the
Summary Compensation Table had the following years of credited service for
purposes of calculating target benefits under the Supplemental Plan (or in the
case of Messrs. Morris and Kenyon, for purposes of calculating the special
retirement benefits under their respective Employment Agreements): Mr.
Morris -- 9, Mr. Kenyon -- 1, Mr. Forsgren -- 1, Mr. MacKenzie -- 32, and Mr.
Wax -- 18. Assuming that retirement were to occur at age 65 for these officers,
retirement would occur with 23, 11, 15, 41 and 34 years of credited service,
respectively.
13
<PAGE> 18
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
OFFICER AGREEMENTS
Northeast Utilities Service Company (NUSCO) (or in the case of Mr. Morris,
Northeast Utilities) has entered into employment agreements (the Officer
Agreements) with each of the named executive officers and certain other
executive officers and subsidiary directors. The Officer Agreements are also
binding on Northeast Utilities and on each majority-owned subsidiary of
Northeast Utilities.
Each Officer Agreement obligates the officer to perform such duties as may
be directed by the NUSCO Board of Directors or the Northeast Utilities Board of
Trustees, protect the Company's confidential information, and refrain, while
employed by the Company and for a period of time thereafter, from competing with
the Company in a specified geographic area. Each Officer Agreement provides that
the officer's base salary will not be reduced below certain levels without the
consent of the officer, that the officer will participate in specified benefits
under the Supplemental Executive Retirement Plan or other supplemental
retirement programs (see Pension Benefits on pages 12-13), in applicable
executive incentive programs (see Report on Executive Compensation on pages
16-18), and, beginning on January 1, 1999 (January 1, 1998 for Mr. Morris's
participation in short-term programs), if the employment term has not ended, in
each short-term and long-term incentive compensation program established by the
Company for such executives generally, at an incentive opportunity level not
less than that in effect for the officer as of January 1, 1996 (or January 1,
1997 for certain officers, and, for Mr. Morris, with minimum short-term and
long-term target levels of 80 percent and 60 percent, respectively, of base
salary and maximum opportunities of 130 percent and 120 percent, respectively,
of base salary).
Each Officer Agreement provides for a specified employment term and for
automatic one-year extensions of the employment term unless at least six months'
notice of non-renewal is given by either party. The employment term may also be
ended by the Company for "cause", as defined, at any time (in which case no
supplemental retirement benefit, if any, shall be due), or by the officer on
thirty days' prior written notice for any reason. Absent "cause", the Company
may remove the officer from his or her position on sixty days' prior written
notice, but in the event the officer is so removed and signs a release of all
claims against the Company, the officer will receive one or two years' base
salary and annual incentive payments, specified employee welfare and pension
benefits, and vesting of SARs, options and restricted stock.
Under the terms of an Officer Agreement, upon any termination of employment
of the officer within two years following a change of control, as defined, if
the officer signs a release of all claims against the Company the officer will
be entitled to certain payments, including two or three times annual base salary
(or, in the case of Mr. Morris, if greater, the product of annual base salary
times one less than the number of years remaining in the initial five-year term
of his employment agreement), annual incentive payments, specified employee
welfare and pension benefits, and vesting of stock appreciation rights, options
and restricted stock. Certain of the change of control provisions may be
modified by the Board of Trustees prior to a change of control, on at least two
years' notice to the affected officer(s).
14
<PAGE> 19
Besides the terms described above, Mr. Forsgren's Officer Agreement
provides for a starting salary of $350,000 per year and a $100,000 restricted
stock grant. Mr. Kenyon's Officer Agreement provides for an initial starting
salary at $500,000 per year, a $500,000 restricted stock grant and a $400,000
cash signing bonus. Mr. Kenyon's Officer Agreement also provides for a special
retirement benefit and a special short term incentive compensation program in
lieu of a portion of the Stock Price Recovery Incentive Program. Under this
incentive program, Mr. Kenyon will be eligible to receive a payment up to 100
percent of base salary depending on his fulfillment of certain incentive goals
for each of the years ending August 31, 1997 and August 31, 1998, and for the 16
month period ending December 31, 1999. Mr. Kenyon received a payment of
$300,000, or 60 percent of his base salary, under this program during 1997. Mr.
Morris's Officer Agreement provides for an initial five-year term, base salary
of $750,000 per year subject to annual review, a $1,350,000 cash signing bonus,
a grant of stock options, and a special retirement benefit. See Summary
Compensation Table and Pension Benefits, above, for further description of these
provisions.
RETENTION BONUSES
During July, 1997, the Compensation Committee agreed to pay Messrs.
Forsgren and MacKenzie cash retention bonuses of $100,000 each, payable in July,
1998 and December, 1998, respectively.
TRANSITION AND RETIREMENT AGREEMENT
In February, 1997, Northeast Utilities entered into a Transition and
Retirement Agreement (the Transition Agreement) with Mr. Fox, and Mr. Fox
subsequently retired on September 1, 1997. The Transition Agreement obligates
Mr. Fox to maintain the confidentiality of Company information during his
employment and following his retirement, and not to compete with the Company for
certain periods of time in specified geographic areas.
The Transition Agreement provides that Mr. Fox will be engaged as a
consultant to the Board of Trustees for 24 months following his retirement, with
a fee of $500,000 for the first 12 months and $300,000 for the second 12 months,
payable in full notwithstanding Mr. Fox's death or disability during such period
or the occurrence of a change of control, as defined. The Transition Agreement
also provides that Mr. Fox will be entitled to a target benefit under the
Supplemental Executive Retirement Plan (actuarially reduced to reflect payments
beginning prior to age 57), and for vesting of all stock appreciation rights
granted to him in the Stock Price Recovery Incentive Program. Further, Mr. Fox
signed a release of claims against the Company "and all related parties" with
respect to matters arising out of his employment with the Company, and the
Company released Mr. Fox from all civil liability which may arise from his being
or having been a Trustee or officer of Northeast Utilities and its subsidiaries,
except for any liability which has been or may be asserted against Mr. Fox by
the Company as the result of an investigation conducted upon the demand of a
shareholder or by a shareholder on behalf of the Company. The Transition
Agreement is binding on each active majority-owned subsidiary of Northeast
Utilities.
The descriptions of the various agreements set forth above are for purpose
of disclosure in accordance with the proxy and other disclosure rules of the SEC
and shall not be controlling on any party; the actual terms of the agreements
themselves determine the rights and obligations of the parties.
15
<PAGE> 20
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Trustees (the Committee) is the
administrator of executive compensation for the executives of the Northeast
Utilities system (the Company) with authority to establish and interpret the
terms of the Company's executive salary and incentive programs and to make
payment of awards.
Compensation Strategy: The Committee's executive compensation goals for
1997 were to continue to provide a competitive compensation package to enable
the Company to attract and retain key executives both during this critical
period and with an eye towards the future, and to further align executive
interests with those of Northeast Utilities' shareholders and with Company
performance. The 1997 compensation of the Company's executives included base
salary and long-term incentive awards. No annual incentive awards were paid in
1997.
To achieve the compensation goal of providing a competitive package, the
Committee draws upon information from a variety of sources, including
compensation consultants, utility and general industry surveys, and other
publicly available information, including proxy statements. In 1997, the
Company's comparison groups for purposes of executive compensation consisted of
a consultant's database of over 600 companies from a broad variety of
industries, a consultant's database of over 90 electric and combination electric
and gas utilities, and a smaller group of ten electric utilities whose operating
characteristics were substantially similar to those of the Company in terms of
generation mix, revenues and customer size. Nine of the ten companies are
included in the Standard & Poor's (S&P) Electric Companies Index, which is the
index used in the share performance chart shown on page 19.
Base Salary: The target level for the base salary of each executive
reflects the median base salary level for that position within the market
comparison groups. The Committee periodically adjusts the level of base salary
to reflect considerations such as changes in responsibility, market sensitivity,
individual performance and internal equity. The Committee sets base salary
ranges for all executive officers and sets the annual base salary for each
executive officer except for the Chief Executive Officer (CEO), whose base
salary is set by the Board of Trustees following a recommendation by the
Committee. During 1997, there were no changes in the base salary structure over
1996. Because 1997 base salary levels were generally within targeted pay levels
of the comparison group, only one executive officer received a 1997 base salary
adjustment.
Incentive Pay: Consistent with its goal to recognize the importance of
retaining key executive talent and to help assure the officers' continuing
dedication to their duties to the Company and its shareholders, during 1997 the
Committee established for officers not participating in the Stock Price Recovery
Incentive Program, as described below, a one-year short-term incentive program
and a three-year long-term incentive program. The programs calculate payouts
based on actual performance against target goals with respect to either total
shareholder return or Company division measures. Each measure has a threshold
performance level (below which no amount is awarded) and an upper limit (which
will yield the maximum payout of twice the target amount). The performance
measures for the 1997 short-term incentive program were division-specific
functional and financial performance. The corporate performance measure for the
1997-1999 long-term incentive program was total shareholder return over the
three-year period. The total shareholder return goal will be met at target if
the total return on a Northeast Utilities
16
<PAGE> 21
common share for the performance period exceeds the return on the S&P Electric
Companies Index for the same period by thirty-three percent. Awards under the
1997 short-term program, if any, are expected to be made in cash in the first
quarter of 1998, and awards under the 1997-1999 long-term program are expected
to be made in Northeast Utilities common shares in the first quarter of 2000.
For 1997, target awards for participants in the short-term program ranged
from 25 percent to 30 percent, and for participants in the long-term program
from 15 percent to 25 percent of the going rate for their positions. Awards
under the short-term program can vary from those determined solely by corporate
performance, depending on individual achievement of a set of assigned goals
established for the performance year. These assigned goals vary as appropriate
from officer to officer and include, among other things, employee safety;
service reliability; nuclear operations; economic development; operating,
maintenance and capital expenditure levels; environmental initiatives; and
generating unit capacity and availability.
During 1996, the Committee determined that establishing a special Stock
Price Recovery Incentive Program for eight senior officers was in the best
interest of the Company and its shareholders. The purpose of this program is to
focus key senior officers on achieving fundamental business goals relative to
the challenges of nuclear operations and industry restructuring, with a net
effect of advancing shareholder interests through share price recovery. In
connection with the commencement of this incentive program, the Committee
terminated the participation of these officers in the 1996 short-term program
and the 1996-1998 long-term program and resolved that these officers would not
participate in the 1997 or 1998 short-term or the 1997-1999 and 1998-2000
long-term incentive programs. Awards under the Stock Price Recovery Incentive
Program will be based solely on appreciation of the price of Northeast Utilities
common shares between December 31, 1996 and December 31, 1998 against a targeted
share price goal, indexed to reflect the relative performance of a Northeast
Utilities common share compared to the performance of the S&P Electric Companies
Index during the same period. The target award of each participant is equal to
the value of the 1996, 1997, and 1998 short-term and long-term incentive
programs at target, assuming that there had been no changes in the 1997 and 1998
program target payout opportunities for these executives. There are no
individual performance goals in the program. Awards under the program are made
in restricted stock units and SARs. The SARs are exercisable from January 1,
1999 through December 31, 2001. During 1997, the Committee granted additional
SARs to the participants in the Stock Price Recovery Incentive Program as a
further retention device.
Also during 1997, the Committee made awards under the 1994-1996 long-term
incentive program. Awards, in Northeast Utilities common shares, were based on
the Company's relative ranking against a group of electric utilities with
respect to shareholder return and cost of service (COS). Achievement of goals
was less than target and resulted in awards that were 60.5 percent of target.
CEO Pay: The Committee did not increase Mr. Fox's base salary in 1997
because of Company performance. During 1997, Mr. Fox announced his intention to
take early retirement from the Company. Mr. Fox retired on September 1, 1997.
The terms of Mr. Fox's retirement arrangements are described on page 15 of this
proxy statement. Following an executive search, the Company hired Mr. Morris as
its Chairman of the
17
<PAGE> 22
Board, President and Chief Executive Officer, effective August 19, 1997. Mr.
Morris's base salary was set at $750,000, which was determined to be market
competitive. The Company paid Mr. Morris a sign-on bonus of $1.35 million,
reflecting in large part his loss of stock options from his previous employer.
CEO Long-Term Incentive Programs: During 1997, Mr. Fox was awarded 8,465
Northeast Utilities common shares in conformance with the provisions of the
1994-1996 long-term incentive program whose payouts were based on the Company's
performance under COS and shareholder return measures as described above. Mr.
Morris received, upon his employment with the Company, nonqualified stock
options to purchase 500,000 Northeast Utilities common shares at $9.625 per
share, expiring in 2007, which become exercisable in 1999 (50 percent), 2000 (25
percent), and 2001 (25 percent).
New Compensation Plans: During 1997, the Committee met with its
compensation consultants to begin the process of restructuring compensation
plans to more closely align them with the changing electric utility industry.
The new Incentive Plan was approved by the Board in January, 1998, subject to
shareholder and SEC approval. This plan is further described on pages 23-29 of
this proxy statement. The Board has approved two other new compensation plans.
The first is a Deferred Compensation Plan under the terms of which all officers
and certain other key employees of the Company may defer all or some portion of
their compensation and, to the extent they are prevented by federal tax rules
from taking full advantage of the Company's 401k Plan, receive a matching
contribution (which is also deferred and will be payable on distribution in the
form of Northeast Utilities common shares) in an amount equal to the employer
matching contribution forgone under the 401k Plan because of the application of
the federal tax rules. The second is an Employee Share Purchase Plan, also
subject to shareholder and SEC approval, under which the Company may make
available to eligible employees the opportunity to purchase Northeast Utilities
common shares at a discount from time to time. The Employee Share Purchase Plan
is further described on pages 20-22 of this proxy statement. The Committee
believes that these new plans serve the best interests of shareholders by
further aligning employees' interests with those of shareholders.
The Committee intends that the new Incentive Plan will adequately respond
to issues raised by the deductibility cap placed on executive salaries by
Section 162(m) of the Internal Revenue Code because of its use of stock options
and qualified performance-based compensation as described on pages 23-29 of this
proxy statement. The Committee believes that the Company's executive
compensation programs continue to appropriately balance shareholder and customer
interests.
Respectfully submitted,
Robert E. Patricelli, Chairman
William J. Pape II, Vice Chairman
Cotton Mather Cleveland
John F. Curley
Elizabeth T. Kennan
Dated: January 13, 1998
18
<PAGE> 23
SHARE PERFORMANCE CHART
The following chart compares the cumulative total return on an investment
in Northeast Utilities common shares with the cumulative total return of the S&P
500 Stock Index and the S&P Electric Companies Index over the last five fiscal
years, in accordance with the rules of the SEC:
<TABLE>
<CAPTION>
Measurement Period S&P Electric
(Fiscal Year Covered) NU Common Companies S&P 500
<S> <C> <C> <C>
100 100 100
1993 96 110 113
1994 94 98 112
1995 114 128 154
1996 68 128 189
1997 63 162 252
</TABLE>
19
<PAGE> 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until August, 1997, Mr. Patricelli, who is standing for re-election as a
Trustee of Northeast Utilities, was Chairman, President and Chief Executive
Officer of Value Health, Inc. ValueRx, a subsidiary of Value Health, Inc., was
one of the prescription drug providers under NUSCO's Group Insurance Plan during
1997. The total payments made by NUSCO to ValueRx during 1997 to administer the
prescription drug program were $877,285, $710,285 of which was paid to
pharmacies in dispensing fees.
The law firm of Sheehan Phinney Bass + Green, Professional Association,
provided legal services to North Atlantic Energy Service Corporation, a
subsidiary of Northeast Utilities, during 1997. Mr. Swope, who is standing for
re-election as a Trustee of Northeast Utilities, was of counsel to the firm
until June, 1997.
3. APPROVAL OF THE EMPLOYEE SHARE PURCHASE PLAN
To encourage employee ownership of the Company, the Board adopted an
employee share purchase plan (the Employee Share Purchase Plan) on January 13,
1998, effective following shareholder approval. The Employee Share Purchase Plan
generally provides eligible employees of the Company with a means to purchase,
through payroll deductions, common shares at a discount, consistent with the
provisions of the Internal Revenue Code of 1986, as amended (The Code). The
Board reserved a number of common shares equal to one-half of one percent of the
total number of outstanding common shares for issuance pursuant to the terms of
the Employee Share Purchase Plan each fiscal year, subject to adjustment in the
event of stock splits, stock dividends, recapitalization, or other changes in
the outstanding common shares. If and to the extent that the reserved shares are
not purchased by participants in any fiscal year, such shares again will be
available for purchase in subsequent years. Under current accounting rules, the
issuance of shares at a discount under the Employee Share Purchase Plan does not
adversely affect earnings. The text of the Employee Share Purchase Plan is
included in Appendix 1 of this proxy statement.
Eligibility. Regular full or part-time employees of the Company are
eligible to participate in the Employee Share Purchase Plan, on a purely
voluntary basis, if they meet certain conditions. To be eligible, an employee's
customary employment must be greater than both twenty hours per week and five
months per calendar year. The employee must also have completed one year of
service with the Company (as determined under the NUSCO Retirement Plan). An
employee who owns 5 percent or more of the total combined voting power or value
of all classes of shares of the Company will not be eligible to participate in
the Employee Share Purchase Plan. Temporary employees will not be eligible to
participate in the Employee Share Purchase Plan. Employees whose terms and
conditions of employment are subject to negotiation with a collective bargaining
agent may not participate until the agreement between the Company and such agent
provides for such participation. Approximately 6,500 employees would have been
eligible to participate as of January 1, 1998.
Share Purchases. Eligible employees participate in the Employee Share
Purchase Plan through exercising options to purchase common shares. Options may
be granted for each purchase period to eligible employees. In general, each
semi-annual calendar period will be a purchase period. Common shares will be
purchased through a participant's payroll deductions at a stated dollar amount
not less than $20 nor more than 25 percent of
20
<PAGE> 25
compensation per pay period, as determined by the participant, at a price that
will be an amount equal to the lower of 85 percent of the fair market value of
the common shares as of the first or the last trading day of each purchase
period (100 percent of the fair market value for officers who have received
stock option Grants under the Incentive Plan described on pages 23-29 of this
proxy statement), unless the Committee determines to use a different discount
between 85 percent and 100 percent. The fair market value of the common shares
will be determined as the closing price of a Northeast Utilities common share
reported as composite transactions in The Wall Street Journal for each relevant
date. No employee will be permitted to purchase common shares under the Employee
Share Purchase Plan in any calendar year whose fair market value (determined at
the beginning of each purchase period) exceeds $25,000. Each eligible employee
who elects to participate in the Employee Share Purchase Plan will, without any
action on his or her part, be automatically deemed to have exercised his or her
option on the last day of each purchase period if he or she is then employed, to
the extent that the amount withheld through payroll deduction throughout the
purchase period is sufficient to purchase, at the option price, one or more
whole common shares.
Transferability. An option granted under the Employee Share Purchase Plan
may not be transferred by an employee other than by will or by the laws of
descent and distribution. Only the employee may exercise the option during his
or her lifetime.
Withdrawals, Discontinuance or Suspension of Participation. A participant
may voluntarily suspend his or her payroll deductions at any time, but will not
be permitted to resume the payroll deductions effective again until the January
1 or July 1 following the date of suspension of payroll deductions. A
participant may change the rate of his or her payroll deductions effective on
any January 1 or July 1. A participant may withdraw shares from his or her
account at any time; provided that all shares must be held (and thus may not be
distributed or sold) for at least six months subsequent to purchase. If a
participant terminates his or her employment with the Company, his or her
participation in the Employee Share Purchase Plan will automatically terminate
as of the date of termination of employment, all amounts withheld through
payroll deduction that have not been applied to purchase common shares under the
Employee Share Purchase Plan will be paid to the participant, and the shares
held in his or her account will either be sold for the account of the terminated
participant or distributed to the terminated participant, at his or her
election.
Administration. The Employee Share Purchase Plan is administered by the
Compensation Committee of the Board, or its delegate (the Committee). All funds
received or held by the Company under the Employee Share Purchase Plan are
general assets of the Company, free of any trust or other restriction, and may
be used for any corporate purpose. No interest on such funds will be credited to
or paid to any participant under the Employee Share Purchase Plan.
Amendment and Termination. The Board may terminate, suspend or amend the
Employee Share Purchase Plan in any respect at any time, except that shareholder
approval is required to broaden the eligibility criteria or increase the number
of shares available for purchase. Unless earlier terminated, the Employee Share
Purchase Plan will continue in effect for 10 years.
21
<PAGE> 26
FEDERAL INCOME TAX TREATMENT
The Employee Share Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of section 423 of the Code. Under the
Code, an employee who elects to participate in the Employee Share Purchase Plan
will not realize income at the time the offering commences or when the shares
are actually purchased under the Employee Share Purchase Plan. If an employee
disposes of such shares after two years from the date the offering of such
shares commences under the Employee Share Purchase Plan and after one year from
the actual date of purchase of such shares under the Employee Share Purchase
Plan (collectively, the Holding Period), the employee will be required to
include in income, as capital gain for the year in which such disposition
occurs, an amount equal to the lesser of (1) the excess of the fair market value
of such shares at the time of disposition over the purchase price and (2) the
excess of the fair market value of such shares at the time the offering
commenced over the purchase price. If any employee disposes of the shares
purchased under the Employee Share Purchase Plan during the Holding Period, the
employee will be required to include in income, as compensation for the year in
which such disposition occurs, an amount equal to the excess, if any, of the
fair market value of such shares on the date of purchase over the purchase
price. The employee's basis in such shares disposed of will be increased by an
amount equal to the amount includable in his or her income as compensation, and
any gain or loss computed with reference to such adjusted basis that is
recognized at the time of disposition will be capital gain or loss, either
short-term or long-term, depending on the length of the holding period for such
shares. In the event of a disposition during the Holding Period, the Company
will be entitled to a deduction from income equal to the amount the employee is
required to include in income as a result of such disposition.
REGULATORY APPROVALS
The SEC has issued an order under the Public Utility Holding Company Act of
1935 authorizing the solicitation of proxies in favor of the Employee Share
Purchase Plan. The Company has applied for SEC authorization to issue new common
shares, subject to the limits set forth above, for purchases under the Employee
Share Purchase Plan. SEC action on the application is expected later in the
Spring of 1998.
SHARE PURCHASES UNDER EMPLOYEE SHARE PURCHASE PLAN
No purchases will be made under the Employee Share Purchase Plan until
after shareholder approval of the Employee Share Purchase Plan is obtained.
Because share purchases under the Employee Share Purchase Plan are made solely
at the election of the eligible employee, it is not possible to ascertain the
employees who will purchase shares under the Employee Share Purchase Plan in the
current fiscal year.
An affirmative vote of a majority of the common shares present or
represented at the Annual Meeting of Shareholders will be required for the
adoption of this proposal.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
22
<PAGE> 27
4. APPROVAL OF THE INCENTIVE PLAN
The Board of Trustees adopted an incentive plan (the Incentive Plan) on
January 13, 1998, effective on January 1, 1998, subject to shareholder approval,
that provides for annual incentive awards (Awards) to officers of the Company at
or above the Vice President level and grants of incentive stock options,
nonqualified stock options, restricted stock, stock appreciation rights and
performance units to selected employees of the Company, including employees who
are also Trustees of Northeast Utilities. In addition, the Incentive Plan
provides for grants of nonqualified stock options to non-employee Trustees of
Northeast Utilities and Company contractors. Grants of stock options, restricted
stock, stock appreciation rights and performance units are referred to
collectively as "Grants." Subject to adjustment in certain circumstances as
discussed below, the Incentive Plan authorizes Awards and Grants with respect to
up to one percent of the total number of outstanding common shares each fiscal
year. If and to the extent Awards or Grants under the Incentive Plan expire or
are terminated for any reason without being exercised, or the shares subject to
an Award or Grant are forfeited, or the full number of available common shares
is not made subject to Awards and Grants in any fiscal year, such shares will be
available for grant under the Incentive Plan the following year. No more than 30
percent of the shares authorized for use in any year may be used for restricted
stock or performance unit Grants in such year. The text of the Incentive Plan is
included in Appendix 2 of this proxy statement.
Administration. The Incentive Plan is administered and interpreted by the
Committee. The Committee has the authority to determine (i) the persons to whom
Awards and Grants may be made under the Incentive Plan; (ii) the type, size and
other terms and conditions of each Award or Grant; (iii) the time when the
Awards and Grants will be made and the duration of any applicable exercise or
restriction period, including the criteria for vesting and the acceleration of
vesting; and (iv) any other matters arising under the Incentive Plan. The
Committee has full power and authority to administer and interpret the Incentive
Plan, to make factual determinations and to adopt or amend such rules,
regulations, agreements and instruments for implementing the Incentive Plan and
for conduct of its business as it deems necessary or advisable, in its sole
discretion. Notwithstanding the foregoing, the Board may ratify or approve
Grants, in which case references to the "Committee" will be deemed to include
the Board. The Committee has delegated day-to-day administration of the
Incentive Plan and its Awards and Grants to the Vice President for Human
Resources of NUSCO. The Committee has delegated authority to the Chief Executive
Officer for setting and certifying the fulfillment of individual goals for, and
the allocation of Awards based on such fulfillment among, Incentive Plan
participants, except for those whose goals, performance and Awards must be
certified by a committee consisting of not less than two members of the
Compensation Committee of the Board (each member of such committee must be an
"outside director" as defined by section 162(m) of the Code, and a
"non-employee" director as defined in Rule 16b-3 under the Exchange Act) in
order to satisfy those provisions with respect to the deductibility of executive
compensation and the exemption of Awards and Grants from Section 16(b) of the
Exchange Act.
Annual Incentive Awards. Annual incentive awards are based on a comparison
of the Company's performance for the year against the financial target set for
such year. Financial targets may be based on the growth of Northeast Utilities
common share price, earnings per share, net earnings, operating earnings, return
on assets, shareholder return,
23
<PAGE> 28
return on equity, growth in assets, unit volume, sales, market share, or
strategic business criteria consisting of one or more objectives based on
meeting specified revenue goals, market penetration goals, geographic business
expansion goals, cost targets or goals relating to acquisitions or divestitures.
The actual amount of the Award for any individual may be reduced by the
Committee if (or to the extent) the employee does not satisfy the objectives
(financial or otherwise) set by the Committee for that individual at the
beginning of the fiscal year. Objectives for the fiscal year are set no later
than ninety days after the beginning of that year. Generally, Awards will be
certified as due by the Committee and paid within ninety days following the end
of the fiscal year to employees employed on the date of payment. Awards will be
pro rated for years in which a participant retires, dies or becomes disabled as
defined in the Company's long term disability plan. The maximum Award for any
individual is $3,500,000.
Grants. Grants may be made to any employees (including officers and
Trustees), non-employee Trustees of Northeast Utilities, and Company
contractors; provided, that employees whose terms and conditions of employment
are subject to negotiation with a collective bargaining agent are not eligible
for Grants until the agreement between the Company and such agent provides for
participation in the Incentive Plan. As of January 1, 1998 approximately 6,500
employees and ten Trustees (including non-employee Trustees) would have been
eligible for Grants under the Incentive Plan. During any calendar year, no
participant may receive Grants under the Incentive Plan of more than 2.5 percent
of the total number of common shares outstanding as of December 31, 1997. Grants
under the Incentive Plan may consist of (1) options intended to qualify as
incentive stock options (ISOs) within the meaning of section 422 of the Code,
(2) nonqualified stock options that are not intended so to qualify (NQSOs), (3)
restricted stock, (4) stock appreciation rights (SARs) or (5) performance units.
However, non-employee Trustees and Company contractors are only eligible for
grants of nonqualified stock options. Each non-employee Trustees will receive an
NQSO Grant for 2,500 shares upon election to the Board and an annual NQSO Grant
for 2,500 shares thereafter while serving on the Board.
Options. The exercise price to purchase common shares subject to an option
under the Incentive Plan will be determined by the Committee and may be equal to
or greater than the fair market value of a common share on the date the option
is granted. Notwithstanding the foregoing, however the exercise price of an ISO
granted to an employee who owns more than 10 percent of the total combined
voting power of all classes of the shares of Northeast Utilities may not be less
than 110 percent of the fair market value of the underlying common shares on the
date of grant. Further, the exercise price of an NQSO granted to a non-employee
Trustee of Northeast Utilities will be equal to the fair market value of the
underlying common shares on the date the option is granted. Generally, the
Committee will determine the term of each Option; provided, however, that the
exercise period may not exceed ten years from the date of grant, and the
exercise period of an ISO granted to an employee who owns more than 10 percent
of the total voting power of all outstanding stock of the Company may not exceed
five years from the date of grant. The option term of an NQSO granted to a
non-employee Trustee, however, is ten years and such options vest one-half on
the date of the grant and one-half on the first anniversary of the date of the
grant if the non-employee Trustee is still a member of the Board on such date. A
participant may pay the exercise price (i) in cash, (ii) with the approval of
the Committee, by delivering common shares owned by the participant and having a
fair market value on the date of exercise equal to the exercise price, or (iii)
by any other
24
<PAGE> 29
method approved by the Committee. The Committee may permit a participant to
instruct the Company to deliver the shares due upon the exercise to a designated
broker instead of to the participant.
Restricted Stock. The Committee may issue common shares to participants
pursuant to the Incentive Plan. Shares may be issued for cash consideration or
for no cash consideration, as the Committee determines. The number of shares
granted to each participant will be determined by the Committee, subject to the
maximum limit described above. Grants of restricted stock will be made subject
to such performance requirements, vesting provisions, transfer restrictions or
other restrictions and conditions as the Committee may determine.
Stock Appreciation Rights. The Committee may grant SARs alone or in tandem
with any stock option pursuant to the Incentive Plan. Unless the Committee
determines otherwise, the base price of an SAR will be the exercise price of the
related stock option or, if there is no related option, the fair market value of
a common share on the date of grant of the SAR. When the participant exercises
an SAR, the participant will receive the amount by which the fair market value
of the common share on the date of exercise exceeds the base price of the SAR.
The Committee will determine whether the appreciation will be paid in cash or in
shares, or in a combination of the two. To the extent a participant exercises a
tandem SAR, the related option will terminate. Similarly, upon exercise of a
stock option, the related SAR, if any, will terminate.
Performance Units. The Committee may grant performance units to
participants. Performance units may be payable in cash or, subject to the
maximum limit described above, common shares at the end of a specified
performance period. Payment will be contingent upon achieving performance goals
by the end of the performance period. The measure of a performance unit may be
based on the fair market value of a common share or such other measurement base
as the Committee specifies from the following: the growth of Northeast
Utilities' share price, earnings per share, net earnings, operating earnings,
return on assets, shareholder return, return on equity, growth in assets, unit
volume, sales, market share, or strategic business criteria consisting of one or
more objectives based on meeting specified revenue goals, market penetration
goals, geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures. The Committee will determine the performance
criteria, the length of the performance period, the maximum payment value of an
award, and the minimum performance goals required before payment will be made.
Section 162(m). Under section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration in
excess of $1,000,000 paid to the chief executive officer or to any of the other
four most highly compensated executive officers in any one year. Total
remuneration includes amounts received upon the exercise of stock options
granted under the Incentive Plan and the value of shares received when the
shares of restricted stock became transferable (or such other time when income
is recognized). An exception exists, however, for "qualified performance-based
compensation." The Incentive Plan is intended to allow Awards and Grants to meet
the requirements of "qualified performance-based compensation."
Stock options and SARs should generally meet the requirements of "qualified
performance-based compensation," if the exercise price is at least equal to the
fair market value of the common shares on the date of grant. The Committee may
grant annual
25
<PAGE> 30
incentive awards, performance units and restricted stock that are intended to be
"qualified performance-based compensation" under section 162(m) of the Code. In
that event, the Committee will establish in writing the objective performance
goals that must be met (based on the financial criteria summarized above) and
other conditions of the award before the beginning of the annual incentive
period (or within 90 days after its commencement), performance period or during
a period permitted by section 162(m) of the Code. The performance goals may
relate to the employee's business unit or the performance of the Company and its
subsidiaries as a whole, or any combination of the two. The Committee will not
have discretion to increase the amount of compensation that is payable upon
achievement of performance goals. Common shares associated with performance
units or restricted stock granted as "qualified performance-based compensation"
to any participant for any year of a performance period may not exceed 2.5
percent of the number of common shares outstanding as of December 31, 1997. If
performance units are measured with respect to other criteria, the maximum
amount that may be paid to an employee with respect to each year of a
performance period is $3,500,000. At the end of each performance period, the
Committee will certify the results of the performance goals and the extent to
which the performance goals have been met.
Transferability. Grants are generally not transferable by the participant,
except in the event of death. However, the Committee may grant NQSOs that allow
the participant to transfer the NQSOs on such terms as the Committee deems
appropriate.
Amendment and Termination. The Board may amend or terminate the Incentive
Plan at any time; provided, however, that the Board may not, without shareholder
approval, make any amendment that requires shareholder approval pursuant to
section 162(m) of the Code. The Incentive Plan will terminate on the date
immediately preceding the tenth anniversary of its effective date, unless
terminated earlier by the Board or extended by the Board with approval of the
shareholders.
Adjustment Provisions. In the event of certain transactions identified in
the Incentive Plan, the Committee shall appropriately adjust: (i) the maximum
number of common shares available for Awards and Grants and the individual share
limits, (ii) the number of shares covered by outstanding Awards and Grants,
(iii) the kind of shares issued under the Incentive Plan, and (iv) the price per
share or market value of Grants, and such adjustments will be effective and
binding for all purposes of the Incentive Plan.
Change of Control of the Company. In the event of a change of control,
unless the Committee determines otherwise, all options, restricted stock and
SARs will become fully vested, and grantees holding performance units will
receive payment in settlement of the units based on the target payment for the
performance period and the portion of the performance period that precedes the
change of control. A "change of control" will be deemed to have occurred if (i)
any person becomes a beneficial owner of securities of Northeast Utilities
representing 20 percent or more of the voting power of either the outstanding
common shares of Northeast Utilities, or the common securities of Northeast
Utilities that carry the right to vote generally in the election of the Board;
(ii) individuals who, as of the beginning of any 24-month period, constitute the
incumbent Trustees cease for any reason to constitute at least a majority of the
Trustees or cease to be able to exercise the powers of the majority of the
Trustees; (iii) consummation by Northeast Utilities of a reorganization, merger
or consolidation, where all or substantially all of the beneficial owners of the
outstanding common shares of Northeast Utilities and the
26
<PAGE> 31
common securities of Northeast Utilities that carry the right to vote generally
in the election of the Board, immediately before the transaction, will not own,
immediately after consummation of all transactions intended to constitute part
of the transaction, more than 75 percent of the then outstanding shares of
common stock and the combined voting power of the then outstanding common
securities that carry the right to vote generally in the election of the
directors of the corporation, business trust or other entity resulting from, or
being the survivor entity in, such transaction in substantially the same
proportion as their ownership immediately before such transaction in the
outstanding common shares of Northeast Utilities and the common securities of
Northeast Utilities that carry the right to vote generally in the election of
the Board; or (iv) consummation of a complete liquidation or dissolution of
Northeast Utilities or sale or other disposition of all or substantially all of
the assets of Northeast Utilities other than to a corporation, business trust or
other entity with respect to which following consummation of all transactions
intended to constitute part of such sale or disposition, more than 75 percent
of, respectively, the then outstanding common securities that carry the right to
vote generally in the election of the directors is then owned beneficially,
directly or indirectly, by all or substantially all of the beneficial owners of
the outstanding common shares of Northeast Utilities and the common securities
of Northeast Utilities that carry the right to vote generally in the election of
the Board immediately before such sale or disposition in substantially the same
proportion as their ownership of the outstanding common shares of Northeast
Utilities and the common securities of Northeast Utilities that carry the right
to vote generally in the election of the Board immediately before the sale or
disposition.
FEDERAL INCOME TAX TREATMENT
The following generally describes the current federal income tax treatment
of Awards and Grants under the Incentive Plan. Local and state tax authorities
may also tax incentive compensation awarded under the Incentive Plan, and tax
laws are subject to change.
There are no federal income tax consequences to a participant or to the
Company upon the grant of an NQSO under the Incentive Plan. Upon the exercise of
an NQSO, a participant will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the shares at the time of
exercise over the exercise price of the NQSO, and the Company generally will be
entitled to a corresponding federal income tax deduction. Upon the sale of
shares acquired by the exercise of an NQSO, a participant will have a capital
gain or loss (long-term or short-term depending upon the length of time the
shares were held) in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the exercise price plus the amount of ordinary income recognized by the
participant at the time of exercise of the NQSO).
A participant who is granted an ISO will not recognize taxable income for
purposes of the regular income tax, upon either the grant or exercise of the
ISO. However, for purposes of the alternative minimum tax imposed under the
Code, in the year in which an ISO is exercised, the amount by which the fair
market value of the shares acquired upon exercise exceeds the exercise price
will be treated as an item of adjustment and included in the computation of the
recipient's alternative minimum taxable income in the year of exercise. A
participant who disposes of the shares acquired upon exercise of an ISO after
two years from the date the ISO was granted and after one year from the date
such shares were transferred to him or her upon exercise of the ISO will
recognize long-term capital gain or
27
<PAGE> 32
loss in the amount of the difference between the amount realized on the sale and
the exercise price (or the participant's other tax basis in the shares), and the
Company will not be entitled to any tax deduction by reason of the grant or
exercise of the ISO. Generally, if a participant disposes of the shares acquired
upon exercise of an ISO before satisfying both holding period requirements (a
disqualifying disposition), his or her gain recognized on such a disposition
will be taxed as ordinary income to the extent of the difference between the
fair market value of such shares on the date of exercise and the exercise price,
and the Company will be entitled to a deduction in that amount. The gain, if
any, in excess of the amount recognized as ordinary income on such a
disqualifying disposition will be long-term or short-term capital gain,
depending upon the length of time the participant held his or her shares before
the disposition.
A participant normally will not recognize taxable income upon receiving
restricted stock, and the Company will not be entitled to a deduction, until
such stock is transferable by the participant or no longer subject to a
substantial risk of forfeiture for federal tax purposes, whichever occurs
earlier. When the stock is either transferable or no longer subject to a
substantial risk of forfeiture, the participant will recognize ordinary
compensation income in an amount equal to the fair market value of the shares
(less any amounts paid for such shares) at that time, and the Company will be
entitled to a deduction in the same amount. A participant may, however, elect to
recognize ordinary compensation income in the year the restricted stock is
awarded in an amount equal to the fair market value of the shares subject to the
restricted stock Award or Grant (less any amounts paid for such shares) at that
time, determined without regard to the restrictions. In such event, the Company
generally will be entitled to a corresponding deduction in the same year. Any
gain or loss recognized by the participant upon subsequent disposition of the
shares will be long-term or short-term capital gain or loss, depending upon the
length of time the participant held his or her shares before the disposition.
There are no federal income tax consequences to a participant or to the
Company upon the grant of an SAR under the Incentive Plan. Upon the exercise of
an SAR, if the participant receives the appreciation inherent in the SAR in
cash, the participant will recognize ordinary compensation income in an amount
equal to the cash received. If the participant receives the appreciation in
shares, the participant will recognize ordinary compensation income in an amount
equal to the fair market value of the shares received. The Company generally
will be entitled to a corresponding federal income tax deduction at the time of
the exercise of the SAR. Upon the sale of any shares acquired by the exercise of
an SAR, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the amount of ordinary income recognized by
the participant at the time of exercise of the SAR).
There are no federal income tax consequences to a participant or to the
Company upon the grant of performance units under the Incentive Plan. If the
participant receives payment of the performance units in cash, the participant
will recognize ordinary compensation income in an amount equal to the cash
received. If the participant receives payment of the performance units in
shares, the participant will recognize ordinary compensation income in an amount
equal to the fair market value of the shares received. The Company generally
will be entitled to a corresponding federal income tax deduction at the time of
the payment of the performance units. Upon the sale of any shares acquired upon
payment of
28
<PAGE> 33
the performance units, a participant will have a capital gain or loss (long-term
or short-term depending upon the length of time the shares were held) in an
amount equal to the difference between the amount realized upon the sale and the
participant's adjusted tax basis in the shares (the amount of ordinary income
recognized by the participant at the time of the payment of the performance
units).
The Company's income tax deduction in any of the foregoing cases may be
limited by the $1,000,000 limit of section 162(m) of the Code if the Award or
Grant does not qualify as "qualified performance-based compensation" under
section 162(m) of the Code (see Section 162(m) above).
Tax Withholding. The Company has the right to deduct from all Awards and
Grants paid in cash or from other wages paid to an employee of the Company, any
federal, state or local taxes required by law to be withheld with respect
thereto, and the participant or other person receiving shares under the
Incentive Plan will be required to pay to the Company the amount of any such
taxes that the Company is required to withhold with respect to such shares. A
participant may elect to satisfy the Company's income tax withholding obligation
by withholding shares received. The shares withheld may not exceed the
participant's maximum marginal tax rate for federal, state and local tax
liabilities.
REGULATORY APPROVALS
The SEC has issued an order under the Public Utility Holding Company Act of
1935 authorizing the solicitation of proxies in favor of the Incentive Plan. The
Company has applied for SEC authorization to issue new common shares, subject to
the limits set forth above, for Awards and Grants under the Incentive Plan. SEC
action on the application is expected later in the Spring of 1998.
GRANTS UNDER INCENTIVE PLAN
No Grants had been made under the Incentive Plan as of the date of this
proxy statement. The following table sets forth the number of stock options that
will be granted, assuming shareholder approval, to the group comprised of all
current Trustees who are not executive officers.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NORTHEAST UTILITIES INCENTIVE PLAN
----------------------------------
RECIPIENT DOLLAR VALUE ($) OPTION SHARES
--------- ----------------- --------------
<S> <C> <C>
CEO (Note 1) (Note 1)
A (Note 1) (Note 1)
B (Note 1) (Note 1)
C (Note 1) (Note 1)
D (Note 1) (Note 1)
Executive Group (8 persons) (Note 1) (Note 1)
Non-Executive Trustee Group (8
persons) - 20,000 shares
Non-Executive Officer Employee Group
(approximately 6,500 persons) (Note 1) (Note 1)
</TABLE>
Note 1 Benefits and amounts are not determinable, because (a) Grants have not
yet been made and (b) Awards, to be made in cash during 1999, depend on
future performance. Based on Company performance in the previous fiscal
year, there would have been no annual incentive awards made had the new
plan been available.
29
<PAGE> 34
An affirmative vote of a majority of the common shares present or
represented at the Annual Meeting of Shareholders will be required for the
adoption of this proposal.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
5. RATIFICATION OF THE SELECTION OF AUDITORS
The firm of Arthur Andersen LLP, independent public accountants, was
selected by the Board of Trustees, and approved by the shareholders, to serve as
independent auditors of Northeast Utilities and its subsidiaries for 1997.
Pursuant to the recommendation of the Audit Committee, the Board of
Trustees recommends that shareholders ratify the selection by the Board of
Trustees of Arthur Andersen LLP to audit the accounts of Northeast Utilities and
its subsidiaries for 1998. Representatives of Arthur Andersen LLP are expected
to be present at the meeting. They will have the opportunity to make a
statement, if they desire to do so, and to respond to appropriate questions
raised at the meeting.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
6. OTHER MATTERS
The Board of Trustees knows of no matters other than the foregoing to come
before the meeting. However, if any other matters come before the meeting, the
persons named in the enclosed proxy will vote in their discretion with respect
to such other matters.
Northeast Utilities' Annual Report to Shareholders for the year ended
December 31, 1997, including financial statements, is being mailed with or prior
to this proxy solicitation material. An additional copy of the Annual Report
will be mailed to any shareholder upon request.
COST OF SOLICITATION OF PROXIES
The cost of soliciting proxies on behalf of the Board of Trustees will be
borne by Northeast Utilities. In addition to the use of the mails, proxies may
be solicited by personal interview, telephone or telegraph, by Trustees,
officers or employees of Northeast Utilities or NUSCO, or by an independent
company, Morrow & Co., Inc., which has been retained to assist in the
solicitation of proxies from banks, brokerage firms, nominees and individual
shareholders for a fee of $15,000 plus reimbursement for expenses. Arrangements
will be made to reimburse brokerage firms, nominees, custodians and fiduciaries
for expenses incurred in forwarding solicitation materials to the beneficial
owners of common shares held as of March 13, 1998.
VOTING PROCEDURES
Shares held by persons who abstain from voting on any proposal and broker
non-votes will not be voted for or against the proposal. Shares held by persons
abstaining will be counted in determining whether a quorum is present for the
purpose of voting on the proposal; however, broker non-votes will not be counted
for this purpose.
30
<PAGE> 35
LEGAL PROCEEDINGS
SHAREHOLDER DERIVATIVE ACTIONS SETTLEMENT
As disclosed in last year's proxy, during the months of April, May and
June, 1996, Northeast Utilities was served with complaints having as defendants
certain current and former Trustees and certain current and former officers.
These complaints were brought as shareholder derivative actions, seeking to
recover unspecified damages for alleged losses purportedly arising out of
Northeast Utilities' operations at Millstone Station. On December 29, 1997, a
United States District Court judge entered an order, which became final on
January 28, 1998, approving a $25 million settlement of seven derivative
lawsuits and one demand letter filed by shareholders of Northeast Utilities
related to alleged mismanagement at Millstone. Under the agreement, insurers for
certain of Northeast Utilities' current and former officers and Trustees will
pay Northeast Utilities $25 million less attorneys' fees, and Northeast
Utilities has agreed to certain corporate governance enhancements. On February
2, 1998, approximately $18 million was paid to Northeast Utilities. A ruling
regarding attorneys' fees has not been made.
MILLSTONE 3 JOINT OWNERS LITIGATION
As previously disclosed in reports filed with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, The Connecticut Light and Power
Company (CL&P) and Western Massachusetts Electric Company (WMECO), through
Northeast Nuclear Energy Company, a subsidiary of Northeast Utilities, operate
Millstone Unit 3 at cost and without profit under a Sharing Agreement. The
Sharing Agreement obligates them to utilize good utility operating practices and
requires joint owners of the facility to share the risk of employee negligence
and other risks of operation and maintenance pro-rata in accordance with their
ownership shares. The Sharing Agreement also provides that CL&P and WMECO will
be liable for damages to the non-Northeast Utilities owners only for a
deliberate violation of the agreement pursuant to authorized corporate action.
On August 7, 1997, the non-Northeast Utilities owners of Millstone 3 filed
two demands for arbitration with CL&P and WMECO, as well as three lawsuits in
Suffolk and Worcester Counties, Massachusetts Superior Court against Northeast
Utilities and its current and many of its former Trustees. The non-Northeast
Utilities owners raise a number of contract, tort and statutory claims arising
out of the operation of Millstone 3, and seek to recover compensatory damages,
punitive damages, treble damages and attorneys' fees. In addition, one of the
lawsuits seeks to restrain Northeast Utilities from disposing of its shares of
the stock of WMECO and Holyoke Water Power Company, pending the outcome of the
lawsuit. The defendants, including Northeast Utilities, in the three lawsuits
have requested consolidation of those actions and have filed motions to dismiss
the lawsuits or, in the alternative, to stay the court proceedings pending the
outcome of the arbitrations.
31
<PAGE> 36
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
To be included in the proxy statement and form of proxy for the 1999 Annual
Meeting of Shareholders, proposals by shareholders must be received by Theresa
Hopkins Allsop, Assistant Secretary of Northeast Utilities, at Northeast
Utilities' general office by December 1, 1998, and must satisfy the conditions
established by the SEC.
By order of the Board of Trustees,
/s/ ROBERT P. WAX
Robert P. Wax
Secretary
ANNUAL REPORT ON FORM 10-K
Northeast Utilities will provide shareholders with a copy of its 1997
Annual Report on Form 10-K to the SEC, including the financial statements and
schedules thereto, without charge, upon receipt of a written request sent to:
THERESA HOPKINS ALLSOP
ASSISTANT SECRETARY
NORTHEAST UTILITIES
POST OFFICE BOX 270
HARTFORD, CONNECTICUT 06141-0270
32
<PAGE> 37
APPENDIX 1
NORTHEAST UTILITIES EMPLOYEE SHARE PURCHASE PLAN
ARTICLE I
PURPOSE
The purpose of the Northeast Utilities Employee Share Purchase Plan (the
"Plan") is to provide a means whereby the Company (as hereinafter defined) may
provide eligible employees an opportunity to purchase shares of Company Stock
(as hereinafter defined). The Board of Trustees of Northeast Utilities believes
that employee participation in share ownership will be to the mutual benefit of
both the employees and the Company. The Plan is intended to constitute an
"employee stock purchase plan" within the meaning of section 423 of the Internal
Revenue Code of 1986, as amended (the "Code") and is not intended and shall not
be construed as constituting an "employee benefit plan," within the meaning of
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE II
DEFINITIONS
Affiliate. "Affiliate" means each direct and indirect affiliated company
that through one or more intermediaries, controls, is controlled by, or is under
common control with NU.
Board. "Board" means the board of trustees of NU.
Code. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
Committee. "Committee" means the Board's Compensation Committee, or the
person or persons to which such committee delegates any of its functions under
the Plan.
Company. "Company" means NU and any Affiliate which is authorized by the
Board to adopt the Plan and cover its Eligible Employees and whose designation
as such has become effective upon acceptance of such status by the board of
directors of the Affiliate. An Affiliate may revoke its acceptance of such
designation at any time, but until such acceptance has been revoked, all the
provisions of the Plan, including the authority of the Board and the Committee,
and amendments thereto shall apply to the Eligible Employees of the Affiliate.
In the event the designation is revoked by the board of directors of an
Affiliate, the Plan shall be deemed terminated only with respect to such
Affiliate.
Company Stock. "Company Stock" means common shares in NU, par value $5.00.
Effective Date. "Effective Date" shall mean the first Election Date
beginning after (a) the later of the approval of the Plan (i) by the
shareholders of NU and (ii) the Securities and Exchange Commission pursuant to
the Public Utility Holding Company Act of 1935, and (b) the authorization of
elections by the Board.
Election Date. "Election Date" means each January 1 and July 1 or such
other dates as the Committee shall specify.
Eligible Employee. "Eligible Employee" means each employee of the Company
(i) who is classified by the Company as an employee (and not as an independent
A1-1
<PAGE> 38
contractor no matter how characterized by a court or administrative agency),
(ii) whose customary employment is for more than 20 hours per week and for more
than five months per year, (iii) who is not deemed for purposes of section
423(b)(3) of the Code to own shares possessing five percent or more of the total
combined voting power or value of all classes of shares of NU or any subsidiary,
and (iv) who has completed at least one Year of Service with the Company after
being classified as an employee (without regard to any retroactive
recharacterization); provided, however, that an "Eligible Employee" whose terms
and conditions of employment are subject to negotiation with a collective
bargaining agent shall be deemed not to have elected to file a Purchase
Agreement until the agreement between the Company and such collective bargaining
agent with respect to the employee provides for participation in the Plan.
Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and as the same may hereafter be amended.
Market Value. "Market Value" means the closing price of the Company Stock
as reported in the Wall Street Journal as composite transactions for the
relevant date (or the latest date for which such price was reported if such date
is not a business day), or if not available, (x) if the principal trading market
for the Company Stock is the New York Stock Exchange, the last reported sale
price thereof on the relevant date or (if there were no trades on that date) the
latest preceding date upon which a sale was reported, (y) if the principal
trading market for the Company Stock is a national securities exchange other
than the New York Stock Exchange or is the Nasdaq National Market, the last
reported sale price thereof on the relevant date or (if there were no trades on
that date) the latest preceding date upon which a sale was reported, or (z) if
the Company Stock is not principally traded on such exchange or market, the mean
between the last reported "bid" and "asked" prices of Company Stock on the
relevant date, as reported on Nasdaq or, if not so reported, as reported by the
National Daily Quotation Bureau, Inc. or as reported in a customary financial
reporting service, as applicable and as the Committee determines. If the Company
Stock is not publicly traded or, if publicly traded, is not subject to reported
transactions or "bid" or "asked" quotations as set forth above, the Fair Market
Value per share shall be as determined by the Committee.
NU. "NU" means Northeast Utilities, a Massachusetts business trust, and
its successors and assigns.
Option Participant. "Option Participant" means a Participant who is an
officer of the Company and who has received a grant of stock options under the
Northeast Utilities Incentive Plan.
Participant. "Participant" means an Eligible Employee who elects to
participate in the Plan.
Plan. "Plan" means the Northeast Utilities Employee Share Purchase Plan,
as amended from time to time.
Plan Year. "Plan Year" means each calendar year during which the Plan is
in effect.
Purchase Agreement. "Purchase Agreement" means the instrument prescribed
by the Committee pursuant to which an Eligible Employee may enroll as a
Participant and subscribe for the purchase of shares of Company Stock on the
terms and conditions offered by the Company. The Purchase Agreement is intended
to evidence the Company's
A1-2
<PAGE> 39
offer of an option to the Eligible Employee to purchase Company Stock on the
terms and conditions set forth therein and herein.
Purchase Date. "Purchase Date" means the last day of each Purchase Period.
Purchase Period. "Purchase Period" means the period that begins on each
Election Date on and following the Effective Date and ending on the day before
the next Election Date or other period specified by the Committee during which
the Participant's Company Stock purchase is funded through payroll deduction
accumulations.
Purchase Price. "Purchase Price" means the purchase price for shares of
Company Stock purchased under the Plan, determined as set forth in Section 4.03.
Year of Service. "Year of Service" means a "Year of Service" credited to a
the Participant under the Northeast Utilities Service Company Retirement Plan
prior to the Election Date.
ARTICLE III
ADMISSION TO PARTICIPATION
3.1 Initial Participation. An Eligible Employee may elect to participate
in the Plan and may become a Participant effective as of any Election Date, by
executing and filing with the Committee a Purchase Agreement at such time in
advance of such Election Date as the Committee shall prescribe. The Purchase
Agreement shall remain in effect until modified or canceled in accordance with
the terms of this Plan.
3.2 Discontinuance of Participation. A Participant may voluntarily cease
his or her participation in the Plan and stop payroll deductions at any time by
filing a notice of cessation of participation on such form and at such time in
advance of the effective date as the Committee shall prescribe. Notwithstanding
anything in the Plan to the contrary, if a Participant ceases to be an Eligible
Employee, his or her participation automatically shall cease and no further
purchase of Company Stock shall be made for the Participant.
3.3 Readmission to Participation. Any Eligible Employee who has
previously been a Participant, who has discontinued participation (whether by
cessation of eligibility or otherwise), and who wishes to be reinstated as a
Participant may again become a Participant by executing and filing with the
Committee a new Purchase Agreement. Reinstatement to Participant status shall be
effective as of any Election Date, provided the Participant files a new Purchase
Agreement with the Committee at such time in advance of the Election Date as the
Committee shall prescribe.
ARTICLE IV
COMPANY STOCK PURCHASE AND RESALE
4.1 Reservation of Shares. There shall be a number of shares of Company
Stock equal to one-half of one percent (0.5%) of the total number of shares of
Company Stock outstanding in each Plan Year reserved for issuance or transfer
under the Plan during or for that Plan Year, subject to adjustment in accordance
with the antidilution provisions hereinafter set forth. If and to the extent
that less than the full number of shares of Company Stock reserved for issuance
or transfer under the Plan, as set forth above, are actually so issued or
transferred, then the remaining shares shall again be available for issuance or
transfer under the Plan. Except as provided in Section 5.2, the aggregate
A1-3
<PAGE> 40
number of shares of Company Stock that may be purchased under the Plan shall not
exceed five percent (5%) of the total number of shares of Company Stock
outstanding as of December 31, 1997.
4.2 Limitation on Shares Available. The maximum number of shares of
Company Stock that may be purchased for each Participant on a Purchase Date is
the lesser of (a) the number of whole and fractional shares of Company Stock
that can be purchased by applying the full balance of the Participant's withheld
funds to the purchase of shares of Company Stock at the Purchase Price, or (b)
the Participant's proportionate part of the maximum number of shares of Company
Stock available under the Plan, as stated in Section 4.1. Moreover, (a) the
maximum number of shares of Company Stock that may be purchased by a Participant
during the first Purchase Period in a Plan Year is an amount determined by
dividing the $25,000 limit under Section 4.4(c) by the per share Market Value of
Company Stock as determined on the first day of such Purchase Period; and (b)
the maximum number of shares of Company Stock that may be purchased by a
Participant during the second Purchase Period in a Plan Year is an amount
determined by dividing (i) the difference determined by subtracting the total
Purchase Price paid for all shares of Company Stock purchased during the first
Purchase Period in that Plan Year from the $25,000 limit under Section 4.4(c),
by (ii) the per share Market Value of Company Stock as determined on the first
day of the second Purchase Period. Notwithstanding the foregoing, if any person
entitled to purchase shares pursuant to any offering under the Plan would be
deemed for purposes of section 423(b)(3) of the Code to own stock (including any
number of shares of Company Stock that such person would be entitled to purchase
hereunder) possessing five percent or more of the total combined voting power or
value of all classes of shares of the Company, the maximum number of shares of
Company Stock that such person shall be entitled to purchase pursuant to the
Plan shall be reduced to that number which, when added to the number of shares
that such person is deemed to own (excluding any number of shares of Company
Stock that such person would be entitled to purchase hereunder), is one less
than such five percent. Any amounts withheld from a Participant's compensation
that cannot be applied to the purchase of Company Stock by reason of the
foregoing limitation shall be returned to the Participant as soon as
practicable.
4.3 Purchase Price of Shares. The Purchase Price per share of the Company
Stock sold to Participants pursuant to any offering under the Plan shall be the
lower of (i) 85% (100%, for Option Participants) of the Market Value of such
share on the first day of the Purchase Period or (ii) 85% (100%, for Option
Participants) of the Market Value of such share on the Purchase Date.
Notwithstanding the foregoing, the Committee, acting on behalf of the Company,
may determine that the Purchase Price shall be the Market Value, or a percentage
of the Market Value, on either of such dates or the lower of such dates, so long
as the percentage shall not be lower than 85% of such Market Value.
4.4 Exercise of Purchase Privilege.
(a) Each Participant shall be granted an option to purchase shares of
Company Stock as of the first day of each Purchase Period at the Purchase Price
specified in Section 4.3. The option shall continue in effect through the
Purchase Date for the Purchase Period. Subject to the provisions of Section 4.2
above and of paragraph (c) of this Section 4.4, on each Purchase Date, the
Participant shall automatically be deemed to have exercised his or her option to
purchase shares of Company Stock, unless he or she notifies the Committee,
A1-4
<PAGE> 41
in such manner and at such time in advance of the Purchase Date as the Committee
shall prescribe, of his or her desire not to make such purchase.
(b) There shall be purchased for the Participant on each Purchase Date, at
the Purchase Price for the Purchase Period, the largest number of whole and
fractional shares of Company Stock as can be purchased with the amounts withheld
from the Participant's compensation during the Purchase Period. Each such
purchase shall be deemed to have occurred on the Purchase Date occurring at the
close of the Purchase Period for which the purchase was made.
(c) A Participant may not purchase shares of Company Stock having an
aggregate Market Value of more than $25,000, determined at the beginning of each
Purchase Period, for any calendar year in which one or more offerings under this
Plan are outstanding at any time, and a Participant may not purchase a share of
Company Stock under any offering after the expiration of the Purchase Period for
the offering.
4.5 Payroll Deductions. Each Participant shall authorize payroll
deductions from his or her compensation for the purpose of funding the purchase
of Company Stock pursuant to his or her Purchase Agreement. In the Purchase
Agreement, each Participant shall authorize an after-tax payroll deduction from
each payment of compensation during a Purchase Period of an amount not less than
$20 per paycheck and not more than 25% of such Participant's compensation. A
Participant may change the deduction to any permissible level effective as of
any Election Date. A change shall be made by the Participant's filing with the
Committee a notice in such form and at such time in advance of the date on which
the change is to be effective as the Committee shall prescribe.
4.6 Payment for Company Stock. The Purchase Price for all shares of
Company Stock purchased by a Participant under the Plan shall be paid out of the
Participant's authorized payroll deductions. All funds received or held by the
Company under the Plan are general assets of the Company, shall be held free of
any trust or other restriction, and may be used for any corporate purpose.
4.7 Share Ownership; Issuance of Certificates.
(a) The shares of Company Stock purchased by a Participant on a Purchase
Date shall, for all purposes, be deemed to have been issued or sold at the close
of business on the Purchase Date. Prior to that time, none of the rights or
privileges of a shareholder of the Company shall inure to the Participant with
respect to such shares of Company Stock. All the shares of Company Stock
purchased under the Plan shall be delivered by the Company in a manner as
determined by the Committee.
(b) The Committee, in its sole discretion, may determine that shares of
Company Stock shall be delivered by the Company by (i) issuing and delivering to
the Participant a certificate for the number of shares of Company Stock
purchased by the Participant on a Purchase Date or during a calendar year or
other period determined by the Committee, (ii) issuing and delivering
certificates for the number of shares of Company Stock purchased by all
Participants on a Purchase Date or during a calendar year or other period
determined by the Committee to a firm which is a member of the National
Association of Securities Dealers, as selected by the Committee from time to
time, which shares shall be maintained by such firm in a separate brokerage
account for each Participant, or (iii) issuing and delivering certificates for
the number of shares of Company Stock purchased by all Participants on a
Purchase Date or during the calendar year or other
A1-5
<PAGE> 42
period determined by the Committee to a bank or trust company or affiliate
thereof, as selected by the Committee from time to time, which shares may be
held by such bank or trust company or affiliate in street name, but with a
separate account maintained by such entity for each Participant reflecting such
Participant's share interests in the Company Stock. Each certificate or account,
as the case may be, may be in the name of the Participant or, if he or she so
designates on the Participant's Purchase Agreement, in the Participant's name
jointly with the Participant's spouse, with right of survivorship. A Participant
who is a resident of a jurisdiction that does not recognize such joint tenancy
may have a certificate or account held in the Participant's name as tenant in
common with the Participant's spouse, with or without right of survivorship. No
fractional shares may be purchased under the Plan and the balance of any amounts
withheld from a Participant's compensation which are not applied to the purchase
of Company Stock shall be returned to the Participant.
(c) The Committee, in its sole discretion, may impose such restrictions or
limitations as it shall determine on the resale of Company Stock, the issuance
of individual share certificates or the withdrawal from any shareholder accounts
established for a Participant.
(d) Any dividends payable with respect to shares of Company Stock credited
to a shareholder account of a Participant established pursuant to Section 4.7(b)
hereof will be reinvested in shares of Company Stock and credited to the
Participant's account.
4.8 Withdrawal of Shares or Resale of Company Stock.
(a) A Participant may request a withdrawal of shares of Company Stock
purchased for the Participant under the Plan or order the sale of such shares at
any time by making a request in such form and at such time as the Committee
shall prescribe. Notwithstanding the foregoing and section 4.7(c), no such
shares may be withdrawn, sold, or otherwise distributed for at least six months
following their purchase for the Participant.
(b) If a Participant terminates his or her employment with the Employer or
otherwise ceases to be an Eligible Employee, the Participant shall receive a
distribution of his or her shares of Company Stock held in any shareholder
account established pursuant to Section 4.7(b), unless the Participant elects to
have the shares of Company Stock sold in accordance with such procedures as the
Committee shall prescribe.
(c) If a Participant is to receive a withdrawal or distribution of shares
of Company Stock, or if shares are to be sold, the withdrawal, distribution or
sale shall be made in whole shares of Company Stock, with fractional shares paid
in cash.
ARTICLE V
SPECIAL ADJUSTMENTS
5.1 Shares Unavailable. If, on any Purchase Date, the aggregate funds
available for the purchase of Company Stock would purchase a number of shares in
excess of the number of shares of Company Stock then available for purchase
under the Plan, the number of shares of Company Stock that would otherwise be
purchased by each Participant for that Plan Year shall be proportionately
reduced on the Purchase Date in order to eliminate such excess. The balance of
any amounts withheld from a Participant's compensation which had not by such
time been applied to the purchase of Company Stock shall be returned to the
Participant.
A1-6
<PAGE> 43
5.2 Anti-Dilution Provisions. The aggregate number of shares of Company
Stock reserved for purchase under the Plan, as provided in Section 4.1, and the
calculation of the Purchase Price per share shall be appropriately adjusted to
reflect any increase or decrease in the number of issued shares of Company Stock
resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a share dividend, or other increase or decrease in
such shares, if effected without receipt of consideration by the Company. Any
such adjustment shall be made by the Committee acting with the consent of, and
subject to the approval of, the Board.
5.3 Effect of Certain Transactions. Subject to any required action by the
shareholders, if the Company shall be the surviving corporation in any merger or
consolidation, any offering hereunder shall pertain to and apply to the shares
of the Company. However, in the event of a dissolution or liquidation of the
Company, or of a merger or consolidation in which the Company is not the
surviving corporation, the Plan and any offering hereunder shall terminate upon
the effective date of such dissolution, liquidation, merger or consolidation,
and the balance of any amounts withheld from a Participant's compensation which
had not by such time been applied to the purchase of Company Stock shall be
returned to the Participant.
ARTICLE VI
MISCELLANEOUS
6.1 Non-Alienation. The right to purchase shares of Company Stock under
the Plan is personal to the Participant, is exercisable only by the Participant
during the Participant's lifetime, except as hereinafter set forth, and may not
be assigned or otherwise transferred by the Participant. If a Participant dies,
there shall be delivered to the executor, administrator or other personal
representative of the deceased Participant such shares of Company Stock and such
residual amounts as may remain to the Participant's credit from amounts withheld
from the Participant's compensation as of the Purchase Date occurring at the
close of the period in which the Participant's death occurs, including shares of
Company Stock purchased as of that date or prior thereto with moneys withheld
from the Participant's compensation.
6.2 Administrative Costs. The Company shall pay all administrative
expenses associated with the operation of the Plan including expenses of
issuance and sale of shares but excluding brokerage commissions on the sale of
shares of Company Stock pursuant to Section 4.8.
6.3 The Committee. The Committee shall have the authority and power to
administer the Plan and to make, adopt, construe, and enforce rules and
regulations not inconsistent with the provisions of the Plan and to make all
required determinations including factual determinations. The Committee shall
adopt and prescribe the contents of all forms required in connection with the
administration of the Plan, including, but not limited to, the Purchase
Agreement, payroll withholding authorizations, withdrawal documents, and all
other notices required hereunder. The Committee shall have the fullest
discretion permissible under law in the discharge of its duties. The Committee's
interpretations and decisions with respect to the Plan shall be final and
conclusive.
6.4 Amendment of the Plan. The Board may, at any time and from time to
time, amend the Plan in any respect, except that no amendment may increase the
number of
A1-7
<PAGE> 44
shares reserved for purposes of the Plan, or allow any person who is not an
Eligible Employee to become a Participant, without the approval of the
shareholders of NU.
6.5 Expiration and Termination of the Plan. The Plan shall continue in
effect for 10 years from the Effective Date, unless terminated prior to that
date pursuant to the provisions of the Plan or pursuant to action by the Board.
The Board shall have the right to terminate the Plan at any time without prior
notice to any Participant and without liability to any Participant. Upon the
expiration or termination of the Plan, the balance, if any, then standing to the
credit of each Participant from amounts withheld from the Participant's
compensation which has not, by such time, been applied to the purchase of shares
of Company Stock shall be refunded to the Participant.
6.6 Repurchase of Company Stock. The Company shall not be required to
purchase or repurchase from any Participant any of the shares of Company Stock
that the Participant acquires under the Plan.
6.7 Notice. A Purchase Agreement and any notice that a Participant files
pursuant to the Plan shall be on the form prescribed by the Committee and shall
be effective only when received by the Committee. Delivery of such forms may he
made by hand or by certified mail, sent postage prepaid, to Northeast Utilities
Service Company, 107 Selden Street, Berlin, CT 06037, Attention: Employee Stock
Purchase Plan Administrator. Delivery by any other mechanism shall be deemed
effective at the option and discretion of the Committee.
6.8 Government Regulation. The Company's obligation to sell and to
deliver the Company Stock under the Plan is at all times subject to all
approvals of any governmental authority required in connection with the
authorization, issuance, sale or delivery of such Company Stock.
6.9 Headings, Captions, Gender. The headings and captions herein are for
convenience of reference only and shall not be considered as part of the text.
The masculine shall include the feminine, and vice versa.
6.10 Severability of Provisions, Prevailing Law. The provisions of the
Plan shall be deemed severable. In the event any such provision is determined to
be unlawful or unenforceable by a court of competent jurisdiction or by reason
of a change in an applicable statute, the Plan shall continue to exist as though
such provision had never been included therein (or, in the case of a change in
an applicable statute, had been deleted as of the date of such change). The Plan
shall be governed by the laws of the state of Connecticut to the extent such
laws are not in conflict with, or superseded by, federal law.
6.11 Disclaimer of Liability. The Declaration of Trust of NU provides
that no shareholder of NU shall be held to any liability whatever for the
payment of any sum of money, or for damages or otherwise under any contract,
obligation or undertaking made, entered into or issued by the Board or by any
officer, agent or representative elected or appointed by the Board, and no such
contract, obligation or undertaking shall be enforceable against the Board or
any of them in their or his or her individual capacities or capacity and all
such contracts, obligations and undertakings shall be enforceable only against
the Board as such, and every person or entity, having any claim or demand
arising out of any such contract, obligation or undertaking shall look only to
the trust estate for the payment or satisfaction thereof.
A1-8
<PAGE> 45
APPENDIX 2
NORTHEAST UTILITIES INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of the Northeast Utilities Incentive Plan (the "Plan") is to
provide (i) designated employees of the Company (as hereinafter defined) and
(ii) non-employee members of the Board of Trustees (the "Board") of Northeast
Utilities, a Massachusetts business trust, ("NU") with the opportunity to
receive annual incentive compensation and grants of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock and
performance units. The Company believes that the Plan will assist it in
recruiting talented employees who will contribute materially to the growth of
the Company, thereby benefitting NU's shareholders, and will align the economic
interests of the participants with those of the shareholders.
ARTICLE II
ADMINISTRATION
1. Committee. The Plan shall be administered and interpreted by the
Board's Compensation Committee, or the person or persons to which such committee
delegates any of its functions under the Plan (the "Committee"). The Committee
may consist of two or more persons appointed by the Board, all of whom shall be
"outside directors" as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") and related Treasury regulations and
"non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). However, the Board may
ratify or approve any grants as it deems appropriate or as are submitted by the
Committee.
2. Committee Authority. The Committee shall have the sole authority to (i)
establish, and review the Company's and the Grantee's, as defined below,
performance against, annual goals for purpose of the annual incentives to be
distributed and determine the individuals to whom grants shall be made under the
Plan, (ii) determine the type, size and terms of the grants to be made to each
such individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan.
3. Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
A2-1
<PAGE> 46
ARTICLE III
ANNUAL INCENTIVE AWARDS
1. Eligibility for Participation. Each employee of the Company classified
as a Vice President or higher (an "Executive Employee") shall be eligible to
receive an annual incentive award (an "Award") under the Plan.
2. Annual Awards.
(a) As soon as practicable after the start of each fiscal year of NU, but
in any event within 90 days, the Committee shall set the financial target for
the Company which shall be the basis for determining the Awards to be paid to
each Executive Employee for such fiscal year. The financial target shall be
based on the growth of NU's stock price, earnings per share, net earnings,
operating earnings, return on assets, shareholder return, return on equity,
growth in assets, unit volume, sales, market share, or strategic business
criteria consisting of one or more objectives based on meeting specified revenue
goals, market penetration goals, geographic business expansion goals, cost
targets or goals relating to acquisitions or divestitures and the Committee
shall communicate the target and the percentages (including minimums and
maximums) for each Executive Employee applicable to each level of achievement
against the target set. In no event may an individual Award for an Executive
Employee exceed $3,500,000.
(b) The maximum amount of an Award for an Executive Employee shall be based
upon the Company's performance compared against the financial target set for
that fiscal year. The actual amount of the Award for any Executive Employee may
be reduced by the Committee if the Executive Employee does not satisfy one or
more of the individual financial or nonfinancial objectives set by the Committee
for that Executive Employee as of the beginning of the relevant fiscal year. Any
such objectives for an Executive Employee shall be set by the Committee and
announced to the affected Executive Employee no later than 90 days after the
commencement of the relevant fiscal year of NU.
(c) The Committee shall certify and announce the Awards that will be paid
by the Company to each Executive Employee as soon as practicable following the
final determination of the Company's financial results for the relevant fiscal
year. Payment shall normally be made, in cash, or in shares of Company Stock (as
hereinafter defined) or Options (as hereinafter defined) the value of which
shall equal the amount to be distributed, all as determined by the Committee,
within 90 days following the end of such fiscal year, provided that the
Executive Employee has not separated from employment by the Company prior to the
date that payment is due except as otherwise specifically provided in a contract
between the Company and the Executive Employee. If an Executive Employee's
employment terminated for Retirement (as hereinafter defined), death or
Disability (as hereinafter defined) a full Award shall be paid (unless such
event occurred during the fiscal year for which the Award is earned, in which
case the Award will be pro-rated as of the date of termination) when all other
payments are made in accordance with the first sentence of this Section.
ARTICLE IV
STOCK-BASED GRANTS
1. Grants. Grants under the Plan may consist of grants of incentive stock
options ("Incentive Stock Options") or nonqualified stock options ("Nonqualified
Stock Op-
A2-2
<PAGE> 47
tions")(Incentive Stock Options and Nonqualified Stock Options are collectively
referred to as "Options"), restricted stock ("Restricted Stock"), stock
appreciation rights ("SARs"), and/or performance units ("Performance Units")
(hereinafter collectively referred to as "Grants"). All Grants shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the individual in a grant
instrument or an amendment to the grant instrument (the "Grant Instrument"). The
Committee shall approve the form and provisions of each Grant Instrument. Grants
under a particular Section of the Plan need not be uniform as among the
Grantees, as defined below.
2. Eligibility for Participation.
(a) Eligible Persons. All employees of the Company ("Employees"),
including Employees who are officers or members of the Board, contractors of the
Company ("Contractors"), and members of the Board who are not Employees
("NonEmployee Trustees") shall be eligible to receive Grants under the Plan.
Contractors shall be eligible to receive Grants only of Nonqualified Stock
Options. Non-Employee Trustees shall be eligible to receive Grants only under
Article V of the Plan.
(b) Selection of Grantees. The Committee shall select the Employees and
Contractors to receive Grants and shall determine the number of shares of
Company Stock subject to a particular Grant in such manner as the Committee
determines. Employees, Contractors and Non-Employee Trustees who receive Grants
under this Plan shall hereinafter be referred to as "Grantees".
(c) Collective Bargaining Employees. Anything to the contrary in this Plan
notwithstanding, no Employee whose terms and conditions of employment are
subject to negotiation with a collective bargaining agent shall be eligible to
receive Grants under this Plan until the agreement between the Company and such
collective bargaining agent with respect to the Employee provides for
participation in the Plan.
3. Granting of Options.
(a) Number of Shares. The Committee shall determine the number of shares
of Company Stock that will be subject to each Grant of Options to Employees and
Contractors subject to the overall limits of Article IX.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422
of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified
Stock Options, all in accordance with the terms and conditions set forth
herein. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees, Contractors and
Non-Employee Trustees.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and shall be
equal to or greater than the Fair Market Value (as defined below) of a
share of Company Stock on the date the Option is granted; provided,
however, that an Incentive Stock Option may not be granted to an Employee
who, at the time of grant, owns stock possessing more than
A2-3
<PAGE> 48
10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company
Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be the closing price of the Company Stock as reported
in the Wall Street Journal as composite transactions for the relevant date
(or the latest date for which such price was reported if such date is not a
business day), or if not available, determined as follows: (x) if the
principal trading market for the Company Stock is the New York Stock
Exchange, the last reported sale price thereof on the relevant date or (if
there were no trades on that date) the latest preceding date upon which a
sale was reported, (y) if the principal trading market for the Company
Stock is a national securities exchange other than the New York Stock
Exchange or is the Nasdaq National Market, the last reported sale price
thereof on the relevant date or (if there were no trades on that date) the
latest preceding date upon which a sale was reported, or (z) if the Company
Stock is not principally traded on such exchange or market, the mean
between the last reported "bid" and "asked" prices of Company Stock on the
relevant date, as reported on Nasdaq or, if not so reported, as reported by
the National Daily Quotation Bureau, Inc. or as reported in a customary
financial reporting service, as applicable and as the Committee determines.
If the Company Stock is not publicly traded or, if publicly traded, is not
subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Fair Market Value per share shall be as determined by the
Committee.
(c) Option Term. The Committee shall determine the term of each Option.
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The Committee
may accelerate the exercisability of any or all outstanding Options at any time
for any reason.
(e) Termination of Employment, Retirement, Disability or Death.
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by, or providing service to, the Company as an
Employee, a Contractor, or a member of the Board. In the event that a
Grantee ceases to be employed by, or provide service to, the Company for
any reason other than a "Retirement," "Disability," death, or termination
for "Cause" (as hereinafter defined), any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within 90 days
after the date on which the Grantee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be
employed by, or provide service to, the Company shall terminate as of such
date.
A2-4
<PAGE> 49
(ii) In the event the Grantee ceases to be employed by, or provide
service to, the Company on account of a termination for Cause by the
Company, any Option held by the Grantee shall terminate as of the date the
Grantee ceases to be employed by, or provide service to, the Company.
(iii) In the event the Grantee ceases to be employed by, or provide
service to, the Company because the Grantee Retires or is Disabled, any
Option which is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by, or provide service to, the Company (or within such other
period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Any of the Grantee's
Options which are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by, or provide service to, the Company shall
terminate as of such date.
(iv) If the Grantee dies while employed by, or providing service to,
the Company or within 90 days after the date on which the Grantee ceases to
be employed or provide service on account of a termination specified in
Section 5(e)(i) above (or within such other period of time as may be
specified by the Committee), any Option that is otherwise exercisable by
the Grantee shall terminate unless exercised within one year after the date
on which the Grantee ceases to be employed by, or provide service to, the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by,
or provide service to, the Company shall terminate as of such date.
(v) For purposes of this Plan:
(A) "Cause" shall mean, except to the extent specified otherwise by
the Committee acting on behalf of the Company, (i) the Grantee's
conviction of a felony, (ii) in the reasonable determination of the
Committee, the Grantee's (x) commission of an act of fraud,
embezzlement, or theft in connection with the Grantee's duties in the
course of the Grantee's employment with the Company, (y) acts or
omissions causing intentional, wrongful damage to the property of the
Company or intentional and wrongful disclosure of confidential
information of the Company, or (z) engaging in gross misconduct or gross
negligence in the course of the Grantee's employment with the Company,
or (iii) the Grantee's material breach of his or her obligations under
any written agreement with the Company if such breach shall not have
been remedied within 30 days after receiving written notice from the
Committee specifying the details thereof. For purposes of this Program,
an act or omission on the part of a Grantee shall be deemed
"intentional" only if it was not due primarily to an error in judgment
or negligence and was done by Grantee not in good faith and without
reasonable belief that the act or omission was in the best interest of
the Company. In the event a Grantee's employment or service is
terminated for cause, in addition to the immediate termination of all
Grants, the Grantee shall automatically forfeit all shares underlying
any exercised portion of an Option for which the Company has not yet
delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares.
A2-5
<PAGE> 50
(B) "Disability" shall mean a Grantee's becoming disabled within
the meaning of the Company's long-term disability plan.
(C) "Employed by, or provide service to, the Company" shall mean
employment or service as an Employee, Contractor or member of the Board
(so that, for purposes of exercising Options and SARs and satisfying
conditions with respect to Restricted Stock and Performance Units, a
Grantee shall not be considered to have terminated employment or service
until the Grantee ceases to be an Employee, Contractor and member of the
Board), unless the Committee determines otherwise.
(D) "Retired" shall mean a termination of employment from the
Company on or after attaining age 65 or eligibility for normal or early
retirement under any retirement plan maintained by the Company.
(f) Exercise of Options. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee (including Company Stock acquired in connection with the exercise of an
Option or Restricted Stock, as defined below, granted under this Plan, subject
to such restrictions as the Committee deems appropriate including placing the
same restrictions on the shares of Company Stock obtained through the exchange
of the Restricted Stock) and having a Fair Market Value on the date of exercise
equal to the Exercise Price or (z) by such other method as the Committee may
approve, including payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board. Shares of Company Stock
used to exercise an Option shall have been held by the Grantee for the requisite
period of time to avoid adverse accounting consequences to the Company with
respect to the Option. The Grantee shall pay the Exercise Price and the amount
of any withholding tax due at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company exceeds $100,000, then the option, as to the
excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock
Option shall not be granted to any person who is not an Employee of the Company.
ARTICLE V
STOCK OPTION GRANTS TO NON-EMPLOYEE TRUSTEES
1. Formula Option Grants to Non-Employee Trustees. A Non-Employee Trustee
shall be entitled to receive Nonqualified Stock Options in accordance with this
Article V.
(a) Initial Grant. Each Non-Employee Trustee who first becomes a member of
the Board after the effective date of this Plan shall receive, on the date as of
which he or she first becomes a member of the Board, a grant of a Nonqualified
Stock Option to purchase 2,500 shares of Company Stock.
(b) Annual Grants. On each date that NU holds its annual meeting of
shareholders, commencing with the 1998 annual meeting, each Non-Employee Trustee
who is in office
A2-6
<PAGE> 51
immediately after the annual election of directors (other than a director who is
first elected to the Board at such meeting) shall receive a grant of a
Nonqualified Stock Option to purchase 2,500 shares of Company Stock. The date of
grant of each such annual Grant shall be the date of the annual meeting of the
Company's shareholders.
(c) Exercise Price. The Exercise Price per share of Company Stock subject
to an Option granted under this Article shall be equal to the Fair Market Value
of a share of Company Stock on the date of grant.
(d) Option Term and Exercisability. The term of each Option granted
pursuant to this Article shall be 10 years. Options granted under this Article
shall vest one-half on the date of grant and the other one-half on the first
anniversary of the date of grant if the Non-Employee Trustee is still a member
of the Board on each such date. Options shall be exercisable in accordance with
the provisions of Article IV, Section 3(e) except that only the provisions of
subsections (e)(i), (iii) where the Non-Employee Trustee ceases to serve on the
Board on or after age 70 and (iv) shall be applicable.
(e) Payment of Exercise Price.
(i) The Non-Employee Trustee shall pay the Exercise Price for an
Option (x) in cash, (y) by delivering shares of Company Stock owned by the
Non-Employee Trustee and having a Fair Market Value on the date of exercise
equal to the Exercise Price or (z) by payment through a broker in
accordance with procedures permitted by Regulation T of the Federal Reserve
Board. Shares of Company Stock used to exercise an Option shall have been
held by the Grantee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option. The
Non-Employee Trustee shall pay the Exercise Price at the time of exercise.
Shares of Company Stock shall not be issued upon exercise of an Option
until the Exercise Price is fully paid.
(ii) A Grantee may exercise an Option granted under this Article by
delivering to the Committee a notice of exercise as described below, with
accompanying payment of the Exercise Price in accordance with Subsection
(i) above. The notice of exercise may instruct the Company to deliver
shares of Company Stock due upon the exercise of the Option to any
registered broker or dealer designated by the Committee in lieu of delivery
to the Grantee, and shall designate the account into which the shares are
to be deposited.
(f) Applicability of Plan Provisions. Except as otherwise provided in this
Article, Nonqualified Stock Options granted to Non-Employee Trustees shall be
subject to the provisions of this Plan applicable to Nonqualified Stock Options
granted to other persons, provided however that (i) if an event described in
Article IV, Section 3(b) occurs, appropriate adjustments, as described in that
Section, shall be made automatically, (ii) with respect to the provisions of
Article IV, Section 3(e), the Committee shall not have discretion to modify the
terms of such provisions in the Grant Instrument, and (iii) in the event of a
Change of Control (as defined in Article XI), the provisions of Article XI,
Section 2 shall apply to Options granted pursuant to this Article, except that
the Committee shall not have discretion under subsection (c) thereof to modify
the automatic provisions of that Section.
(g) Administration. The provisions of this Article are intended to operate
automatically and not require administration. To the extent that any
administrative determinations
A2-7
<PAGE> 52
are required, any determinations with respect to the provisions of this Article
shall be made by the members of the Board who are not eligible to receive Grants
under this Article, but in no event shall such determinations affect the
eligibility of Grantees, the determination of the Exercise Price, the timing of
the Grants or the number of shares subject to Options granted hereunder. If at
any time there are not sufficient shares available under the Plan to permit an
automatic Grant as described in this Article, the Grant shall be reduced pro
rata (to zero, if necessary) so as not to exceed the number of shares then
available under the Plan.
ARTICLE VI
RESTRICTED STOCK GRANTS
1. Restricted Stock Grants. The Committee may issue or transfer shares of
Company Stock to an Employee with such restrictions as the Committee deems
appropriate ("Restricted Stock"). The following provisions are applicable to
Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or transferred
pursuant to Restricted Stock Grants may be issued or transferred in exchange for
services performed or to be performed. The Committee may establish conditions
under which restrictions on shares of Restricted Stock shall lapse over a period
of time or according to such other criteria as the Committee deems appropriate.
The period of time during which the Restricted Stock will remain subject to
restrictions will be designated in the Grant Instrument as the "Restriction
Period."
(b) Number of Shares. The Committee shall determine the number of shares
of Company Stock to be issued or transferred pursuant to a Restricted Stock
Grant and the restrictions applicable to such shares, subject to the limitations
contained in Article IX.
(c) Requirement of Employment or Service. If the Grantee ceases to be
employed by, or provide service to, the Company during a period designated in
the Grant Instrument as the Restriction Period, or if other specified conditions
are not met, the Restricted Stock Grant shall terminate as to all shares covered
by the Grant as to which the restrictions have not lapsed, and those shares of
Company Stock must be immediately returned to the Company. The Committee may,
however, provide for complete or partial exceptions to this requirement as it
deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee, as defined below. Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
A2-8
<PAGE> 53
(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
ARTICLE VII
STOCK APPRECIATION RIGHTS
1. Stock Appreciation Rights.
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee separately or in tandem with any Option (for all
or a portion of the applicable Option). Tandem SARs may be granted either at the
time the Option is granted or at any time thereafter while the Option remains
outstanding; provided, however, that, in the case of an Incentive Stock Option,
SARs may be granted only at the time of the Grant of the Incentive Stock Option.
The Committee shall establish the base amount of the SAR at the time the SAR is
granted. Unless the Committee determines otherwise, the base amount of each SAR
shall be equal to the per share Exercise Price of the related Option or, if
there is no related Option, the Fair Market Value of a share of Company Stock as
of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted to
a Grantee that shall be exercisable during a specified period shall not exceed
the number of shares of Company Stock that the Grantee may purchase upon the
exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only be exercised while the Grantee is
employed by the Company or during the applicable period after termination of
employment as described in Article IV, Section 3(e). A tandem SAR shall be
exercisable only during the period when the Option to which it is related is
also exercisable.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company
A2-9
<PAGE> 54
Stock are to be received upon exercise of an SAR, cash shall be delivered in
lieu of any fractional share.
ARTICLE VIII
PERFORMANCE UNITS
1. Performance Units.
(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee. Each Performance Unit shall represent the
right of the Grantee to receive an amount based on the value of the Performance
Unit, if performance goals established by the Committee are met. A Performance
Unit shall be based on the Fair Market Value of a share of Company Stock or on
such other measurement base as the Committee deems appropriate. The Committee
shall determine the number of Performance Units to be granted and the
requirements applicable to such Units, subject to the limitations contained in
Article IX.
(b) Performance Period and Performance Goals. When Performance Units are
granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met and the amount, if
any, to be paid with respect to the Performance Units. Payments with respect to
Performance Units shall be made in cash, in Company Stock, or in a combination
of the two, as determined by the Committee.
(d) Requirement of Employment or Service. If the Grantee ceases to be
employed by, or provide service to, the Company (as defined in Article IV,
Section 3(e)) during a Performance Period, or if other conditions established by
the Committee are not met, the Grantee's Performance Units shall be forfeited.
The Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.
(e) Designation as Qualified Performance-Based Compensation. The Committee
may determine that Performance Units granted to an Employee shall be considered
"qualified performance-based compensation" under Section 162(m) of the Code. The
provisions of this subsection (e) shall apply to Grants of Performance Units
that are to be considered "qualified performance-based compensation" under
Section 162(m) of the Code.
(i) Performance Goals. When Performance Units that are to be
considered "qualified performance-based compensation" are Granted, the
Committee shall establish in writing (i) the objective performance goals
that must be met in order for amounts to be paid under the Performance
Units, (ii) the Performance Period during which the performance goals must
be met, (iii) the threshold, target and maximum amounts that may be paid if
the performance goals are met, and (iv) any other conditions, including
without limitation provisions relating to death, disability, other
termination of employment or Change of Control, that the Committee deems
appropriate and consistent with the Plan and Section 162(m) of the Code.
The performance
A2-10
<PAGE> 55
goals may relate to the Employee's business unit or the performance of the
Company and its subsidiaries as a whole, or any combination of the
foregoing. The Committee shall use objectively determinable performance
goals based on one or more of the following criteria: stock price, earnings
per share, net earnings, operating earnings, return on assets, shareholder
return, return on equity, growth in assets, unit volume, sales, market
share, or strategic business criteria consisting of one or more objectives
based on meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.
(ii) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days
after the beginning of the Performance Period or (ii) the date on which 25%
of the Performance Period has been completed, or such other date as may be
required or permitted under applicable regulations under Section 162(m) of
the Code. The performance goals shall satisfy the requirements for
"qualified performance-based compensation," including the requirement that
the achievement of the goals be substantially uncertain at the time they
are established and that the goals be established in such a way that a
third party with knowledge of the relevant facts could determine whether
and to what extent the performance goals have been met. The Committee shall
not have discretion to increase the amount of compensation that is payable
upon achievement of the designated performance goals.
(iii) Maximum Payment. If Performance Units measured with respect to
the fair market value of Company Stock, are granted, not more than 25% of
the total number of shares of Company Stock subject to the Plan in the
aggregate may be granted to an Employee under the Performance Units for any
Performance Period. If Performance Units are measured with respect to other
criteria, the maximum amount that may be paid to an Employee with respect
to a Performance Period is $3,500,000.
(iv) Announcement of Grants. The Committee shall certify and announce
the results for each Performance Period to all Grantees immediately
following the announcement of the Company's financial results for the
Performance Period. If and to the extent that the Committee does not so
certify that the performance goals have been met, the grants of Performance
Units for the Performance Period shall be forfeited.
ARTICLE IX
AUTHORIZED SHARES
1. Shares Subject to the Plan.
(a) Shares Authorized. Subject to the adjustment specified below, the
aggregate number of common shares of NU, par value $5.00, ("Company Stock") that
may be subject to Grants of Options, or transferred on account of other Grants
or Awards, under the Plan in any fiscal year of NU is one percent of the total
number of shares of Company Stock outstanding as of the first day of such fiscal
year; provided, however, that sum of the total number of shares of Company Stock
that may be granted as Restricted Stock plus the number of Performance Units
that may be granted, in any fiscal year, shall not exceed 30% of the total
number of shares of Company Stock available under the Plan for such year; and
provided, further, that the aggregate number of shares of Common Stock that may
be
A2-11
<PAGE> 56
issued or transferred under the Plan subject to Incentive Stock Options is 10%
of the number of shares of Company Stock outstanding as of December 31, 1997.
The shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company on the open
market for purposes of the Plan. If and to the extent (i) less than the full
number of shares available for use under the Plan, as set forth above, are made
the subject of Grants or Awards in any year, or (ii) Options or SARs granted
under the Plan terminate, expire, or are canceled, forfeited, exchanged or
surrendered without having been exercised, or (iii) any shares of Restricted
Stock or Performance Units are forfeited, then the shares not made the subject
of Grants and Awards, and the shares subject to such terminated, expired,
canceled, forfeited, exchanged or surrendered Grants and Awards shall again be
available for purposes of the Plan in addition to the number of shares of
Company Stock otherwise available for Grants and Awards. No Grantee under the
Plan may receive aggregate Grants in excess of 2.5% of the total number of
shares of Company Stock outstanding as of December 31, 1997.
(b) Adjustments. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which NU is the surviving
entity, (iii) by reason of a reclassification or change in par value, or (iv) by
reason of any other extraordinary or unusual event affecting the outstanding
Company Stock as a class without NU's receipt of consideration, or if the value
of outstanding shares of Company Stock is substantially reduced as a result of a
spinoff or NU's payment of an extraordinary dividend or distribution, the
maximum number of shares of Company Stock available for Grants, the maximum
number of shares of Company Stock that any individual participating in the Plan
may be granted in any year, the number of shares covered by outstanding Grants,
the kind of shares issued under the Plan, and the price per share or the
applicable market value of such Grants shall be appropriately adjusted by the
Committee to reflect any increase or decrease in the number of, or change in the
kind or value of, issued shares of Company Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Grants; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
ARTICLE X
OPERATING RULES
1. Withholding of Taxes. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants. If the
Committee so permits, a Grantee may elect to satisfy the Company's income tax
withholding obligation with respect to an Option, SAR, Restricted Stock or
Performance Units paid in Company Stock by having shares withheld up to an
amount that does not exceed the Grantee's minimum
A2-12
<PAGE> 57
applicable withholding tax rate for federal (including FICA), state and local
tax liabilities. The election must be in a form and manner prescribed by the
Committee.
2. Transferability of Grants.
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing,
the Committee may provide, in a Grant Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members, one or more trusts for the benefit
of family members, or one or more partnerships of which family members are the
only partners, according to such terms as the Committee may determine; provided
that the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
3. Requirements for Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
4. Funding of the Plan. This Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Grants under this Plan. In no
event shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.
5. Rights of Participants. Nothing in this Plan shall entitle any
Employee or Non-Employee Director or other person to any claim or right to be
granted a Grant under this Plan except as provided in Article V. Neither this
Plan nor any action taken hereunder shall be construed as giving any individual
any rights to be retained by or in the employ of the Company or any other
employment rights.
6. No Fractional Shares. No fractional shares of Company Stock shall be
issued or delivered pursuant to the Plan or any Grant. The Committee shall
determine whether cash,
A2-13
<PAGE> 58
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
7. Headings. Section headings are for reference only. In the event of a
conflict between a title and the content of a Section, the content of the
Section shall control.
8. Effective Date of the Plan. Subject to approval by NU's shareholders,
the Plan shall be effective on January 1, 1998.
9. Definition of Company. "Company" means NU and any Affiliate which is
authorized by the Board to adopt the Plan and cover its eligible employees and
whose designation as such has become effective upon acceptance of such status by
the board of directors of the Affiliate. An Affiliate may revoke its acceptance
of such designation at any time, but until such acceptance has been revoked, all
the provisions of the Plan, including the authority of the Board and the
Committee, and amendments thereto shall apply to the eligible employees of the
Affiliate. In the event the designation is revoked by the board of directors of
an Affiliate, the Plan shall be deemed terminated only with respect to such
Affiliate. For the purposes hereof, "Affiliate" means each direct and indirect
affiliated company that directly or through one or more intermediaries,
controls, is controlled by, or is under common control with NU.
ARTICLE XI
CHANGE OF CONTROL OF NU
1. Change of Control of NU.
As used herein, a "Change of Control" shall be deemed to have occurred:
(i) When any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other
than the Company, its affiliates, or any Company or NU employee benefit
plan (including any trustee of such plan acting as trustee), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of NU representing more than 20% of
the combined voting power of either (i) the then outstanding common shares
of NU (the "Outstanding Common Shares") or (ii) the then outstanding voting
securities of NU entitled to vote generally in the election of directors
(the "Voting Securities"); or
(ii) Individuals who, as of the beginning of any twenty-four month
period, constitute the Trustees (the "Incumbent Trustees") cease for any
reason to constitute at least a majority of the Trustees or cease to be
able to exercise the powers of the majority of the Trustees, provided that
any individual becoming a trustee subsequent to the beginning of such
period whose election or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the trustees
then comprising the Incumbent Trustees shall be considered as though such
individual were a member of the Incumbent Trustees, but excluding, for this
purpose, any such individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Trustees of NU (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
A2-14
<PAGE> 59
(iii) Consummation by NU of a reorganization, merger or consolidation
(a "Business Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the Outstanding Common Shares and Voting Securities
immediately prior to such Business Combination do not, following
consummation of all transactions intended to constitute part of such
Business Combination, beneficially own, directly or indirectly, more than
75% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation, business trust or other entity resulting from or being the
surviving entity in such Business Combination in substantially the same
proportion as their ownership immediately prior to such Business
Combination of the Outstanding Common Shares and Voting Securities, as the
case may be; or
(iv) Consummation of a complete liquidation or dissolution of NU or
sale or other disposition of all or substantially all of the assets of NU
other than to a corporation, business trust or other entity with respect to
which, following consummation of all transactions intended to constitute
part of such sale or disposition, more than 75% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, is then owned beneficially,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Common Shares and Voting Securities immediately prior to such sale or
disposition in substantially the same proportion as their ownership of the
Outstanding Common Shares and Voting Securities, as the case may be,
immediately prior to such sale or disposition.
2. Consequences of a Change of Control.
(a) Notice and Acceleration. Upon a Change of Control, unless the
Committee determines otherwise, (i) the Company shall provide each Grantee with
outstanding Grants written notice of such Change of Control, (ii) all
outstanding Options and SARs shall automatically accelerate and become fully
exercisable, (iii) the restrictions and conditions on all outstanding Restricted
Stock shall immediately lapse, and (iv) Grantees holding Performance Units shall
receive a payment in settlement of such Performance Units, in an amount
determined by the Committee, based on the Grantee's target payment for the
Performance Period and the portion of the Performance Period that precedes the
Change of Control.
(b) Assumption of Grants. Upon a Change of Control where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, subject to
subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options and SARs in exchange for a payment
by the Company, in cash or Company Stock as determined by the Committee, in an
amount equal to the amount by which the then Fair Market Value of the shares of
Company Stock subject to the Grantee's unexercised
A2-15
<PAGE> 60
Options and SARs exceeds the Exercise Price of the Options or the base amount of
the SARs, as applicable, or (ii) after giving Grantees an opportunity to
exercise their outstanding Options and SARs, terminate any or all unexercised
Options and SARs at such time as the Committee deems appropriate. Such surrender
or termination shall take place as of the date of the Change of Control or such
other date as the Committee may specify.
(d) Committee. The Committee making the determinations under this Article
XI, Section 2(d) following a Change of Control must comprise the same members as
those on the Committee immediately before the Change of Control. If the
Committee members do not meet this requirement, the automatic provisions of
Subsections (a) and (b) shall apply, and the Committee shall not have discretion
to vary them.
(e) Limitations. Notwithstanding anything in the Plan to the contrary, in
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
ARTICLE XII
AMENDMENT AND TERMINATION
1. Amendment and Termination of the Plan.
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required by section 422 of the Code or section
162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Article XI, Section 2(c). The termination of the Plan shall
not impair the power and authority of the Committee with respect to an
outstanding Grant.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
ARTICLE XIII
MISCELLANEOUS
1. Grants in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees of the Company, or for
A2-16
<PAGE> 61
other proper corporate purposes, or (ii) limit the right of the Company to grant
stock options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may make a Grant to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving the
Company or any of its subsidiaries in substitution for a stock option or
restricted stock grant made by such corporation. The terms and conditions of the
substitute grants may vary from the terms and conditions required by the Plan
and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.
2. Compliance with Law. The Plan, the exercise of Options and SARs and
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In addition,
it is the intent of the Company that the Plan and applicable Grants under the
Plan comply with the applicable provisions of sections 162(m) and 422 of the
Code. To the extent that any legal requirement of section 16 of the Exchange Act
or section 162(m) or 422 of the Code as set forth in the Plan ceases to be
required under section 16 of the Exchange Act or section 162(m) or 422 of the
Code, that Plan provision shall cease to apply. The Committee may revoke any
Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Committee may also adopt
rules regarding the withholding of taxes on payments to Grantees. The Committee
may, in its sole discretion, agree to limit its authority under this Section.
3. Governing Law. The validity, construction, interpretation and effect
of the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the State of
Connecticut.
4. Disclaimer of Liability. The Declaration of Trust of NU provides that
no shareholder of NU shall be held to any liability whatever for the payment of
any sum of money, or for damages or otherwise under any contract, obligation or
undertaking made, entered into or issued by the Board or by any officer, agent
or representative elected or appointed by the Board, and no such contract,
obligation or undertaking shall be enforceable against the Board or any of them
in their or his or her individual capacities or capacity and all such contracts,
obligations and undertakings shall be enforceable only against the Board as
such, and every person or entity, having any claim or demand arising out of any
such contract, obligation or undertaking shall look only to the trust estate for
the payment or satisfaction thereof.
A2-17
<PAGE> 62
PROXY NORTHEAST UTILITIES PROXY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 12, 1998
The undersigned appoints MICHAEL G. MORRIS and WILLIAM J. PAPE II, and either
of them, proxies of the undersigned, with power of substitution, to act for and
to vote all common shares of the undersigned at the Annual Meeting or
Shareholders of Northeast Utilities to be held on May 12, 1998, and any
adjournment thereof, upon the matters set forth in the notice of said meeting
as indicated below. The proxies are further authorized to vote, in their
discretion, upon such other business as may properly come before the meeting or
any adjournment thereof.
When properly executed, this proxy will be voted as specified by the
undersigned. Unless otherwise instructed, this proxy will be voted FOR
proposals 1, 2, 3, 4 and 5.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
(OVER)
AD5955-1 REV. 1-98
<PAGE> 63
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4 AND 5.
1. Fix the number of Trustees at nine.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of the nine Trustees nominated.
[ ] FOR [ ] FOR ALL EXCEPT AS MARKED [ ] WITHHELD
TO VOTE FOR ALL NOMINEES, MARK THE "FOR" BOX. TO WITHHOLD VOTING FOR A
PARTICULAR NOMINEE(S), MARK THE "FOR ALL EXCEPT AS MARKED" BOX AND STRIKE A
LINE THROUGH THE NAME OF THE NOMINEE(S) IN THE LIST BELOW. TO WITHHOLD VOTING
ON ALL NOMINEES, MARK THE "WITHHELD" BOX.
Cotton Mather Cleveland, William F. Conway, E. Gail de Planque, Elizabeth T.
Kennan, Michael G. Morris, William J. Pape II, Robert E. Patricelli, John F.
Swope, John F. Turner.
3. Approval of Employee Share Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Ratification of Arthur Andersen LLP as independent auditors for 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby acknowledges receipt of notice of
meeting and related proxy statement.
Date...............................................1998
SIGNED.................................................
SIGNED.................................................
Please sign in the same form as name appears hereon. If
the shares are registered in more than one name, each
joint owner or fiduciary should sign. Fiduciaries and
corporate officers should indicate their titles.
I PLAN TO ATTEND THE MEETING. [ ] YES [ ] NO
