<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. 1)
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ORANGE & ROCKLAND UTILITIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
ORANGE & ROCKLAND UTILITIES, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(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:
Not Applicable
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
Not Applicable
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
Not Applicable
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
Not Applicable
- --------------------------------------------------------------------------------
/ / 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 registrations 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
[LOGO]
April 6, 1994
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Orange and Rockland Utilities, Inc. to be held in the auditorium of the
Company's Operations Center, 75 West Route 59, Spring Valley, New York, on
Wednesday, May 11, 1994, at 10:30 A.M.
As always, your management looks forward to the Annual Meeting as an
opportunity to report to you with regard to all matters, and to hear your
comments and suggestions, which in the past have often proved valuable. We
particularly invite shareholders to participate in this year's Annual Meeting.
At the Annual Meeting, the Special Committee of the Board of Directors will
present the preliminary conclusions of its investigation into the matters
described under "Recent Developments" on page 7 of the Proxy Statement. The
Board of Directors is committed to a prompt and decisive resolution of these
matters, and welcomes an opportunity to discuss them with the shareholders. If
you plan to attend the meeting, please mark the box provided on the enclosed
proxy card.
Management also invites your attention to one important proposal described
herein. Proposal 2, which calls for the removal of former Chief Executive
Officer, James F. Smith from the Board of Directors for cause, requires the
affirmative vote of 80% of all outstanding shares of the Company entitled to
vote at the Annual Meeting. As described more fully under "Recent Developments"
on page 7 of the Proxy Statement, Mr. Smith's employment was terminated for
cause based on a decision of the independent Directors, and the Company has
commenced an action against Mr. Smith seeking substantial damages based on
allegations of breaches of fiduciary duties and other misconduct, including
misappropriation of Company assets and funds, expenditures constituting waste of
Company assets, failing to maintain adequate internal controls and to supervise
subordinate employees, and knowingly permitting the personal use of Company
funds by other Company officers. As described under "Recent Developments", the
decisions to terminate Mr. Smith's employment for cause and to commence an
action against him were based on findings of the investigation conducted by the
Special Committee of the Board of Directors.
The Company strongly believes that it is not appropriate or in the best
interest of shareholders for Mr. Smith to continue to serve on the Board of
Directors, and urges shareholders to vote FOR Mr. Smith's removal for cause from
the Board of Directors pursuant to Proposal 2. We urge each shareholder to read
carefully "Recent Developments" and Proposal 2 for a description of the reasons
for the Company's belief that Mr. Smith should be removed for cause from the
Board of Directors and of Mr. Smith's statement in opposition to his proposed
removal.
The vote of every shareholder is important. Whether or not you plan to
attend the meeting, please fill in, date, sign and return your proxy promptly.
Returning your completed proxy will not prevent you from voting in person at the
meeting if you wish to do so.
Sincerely yours,
H. KENT VANDERHOEF
Acting Chairman of the Board of Directors
<PAGE> 3
ORANGE AND ROCKLAND UTILITIES, INC.
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
------------------------
NOTICE OF ANNUAL MEETING OF COMMON SHAREHOLDERS
TO THE COMMON SHAREHOLDERS:
You are hereby notified that the annual meeting of common shareholders of
Orange and Rockland Utilities, Inc. will be held at the Company's Operations
Center located at 75 West Route 59, Spring Valley, New York, on Wednesday, May
11, 1994, at 10:30 A.M. for the following purposes:
1. To elect three Directors.
2. To remove James F. Smith from the Board of Directors for cause.
3. To authorize the appointment of the firm of Arthur Andersen & Co. as
independent public accountants for the year 1994.
4. To act on such other matters as may properly come before the meeting or
any adjournments thereof.
The enclosed form of proxy has been prepared at the direction of the Board
of Directors of the Company and is sent to you at its request. The persons named
in said proxy have been designated by the Board of Directors.
IF YOU DO NOT EXPECT TO BE PRESENT PERSONALLY AND YOU WISH YOUR SHARES VOTED AT
THE MEETING, PLEASE SIGN, DATE AND RETURN THE PROXY BY MAIL IN THE POSTAGE-PAID
ENVELOPE SENT YOU HEREWITH FOR THAT PURPOSE. IF YOU LATER FIND THAT YOU CAN BE
PRESENT OR FOR ANY OTHER REASON DESIRE TO REVOKE OR CHANGE YOUR PROXY, YOU MAY
DO SO AT ANY TIME BEFORE IT IS VOTED.
The Board of Directors has fixed the close of business on March 29, 1994 as
the time when shareholders entitled to notice of and to vote at such meeting
shall be determined and all persons who are holders of record of Common Stock at
such time, and no others, shall be entitled to notice of and to vote at such
meeting and any adjournments thereof.
By Order of the Board of Directors,
H. KENT VANDERHOEF
Acting Chairman of the Board of
Directors
VICTOR A. ROQUE
Vice President, General Counsel and
Secretary
April 6, 1994
<PAGE> 4
ORANGE AND ROCKLAND UTILITIES, INC.
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
April 6, 1994
PROXY STATEMENT
ANNUAL MEETING OF COMMON SHAREHOLDERS, MAY 11, 1994
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of proxies in the accompanying form for use at the 1994
annual meeting of common shareholders of Orange and Rockland Utilities, Inc.
("Company") and any and all adjournments thereof. Each proxy may be revoked at
any time before its exercise. Every properly signed proxy will be voted unless
previously revoked. A shareholder may revoke his proxy at any time before it is
voted by filing with the Company a written revocation or a duly executed proxy
bearing a later date. A shareholder attending the meeting in person may revoke
his proxy and vote in person if he desires to do so, but attendance at the
meeting will not itself revoke his proxy. Every properly signed proxy will be
voted (or not voted) in accordance with the shareholder's specifications thereon
and will be voted as recommended by the Board of Directors if no instructions
are indicated. Should any matter other than as indicated herein properly come
before the meeting for a vote, the persons designated as proxies will vote
thereon in accordance with their best judgment.
The annual report of the Company for the year 1993 containing financial
statements, which is not a part of this proxy statement, was mailed to
shareholders commencing February 28, 1994.
The voting securities of the Company issued and outstanding on March 29,
1994 consisted of [ ] shares of Common Stock, $5 par value per share
("Common Stock"), entitling the holders thereof to one vote per share. Holders
of Common Stock of record at the close of business on that date are entitled to
notice of and to vote at the annual meeting and any adjournments thereof.
IF A SHAREHOLDER PARTICIPATES IN A DIVIDEND REINVESTMENT AND STOCK PURCHASE
PLAN, ANY PROXY GIVEN BY SUCH SHAREHOLDER WILL ALSO GOVERN THE VOTING OF ALL
FULL SHARES OF COMMON STOCK HELD FOR THE SHAREHOLDER'S ACCOUNT UNDER SUCH PLAN,
UNLESS CONTRARY INSTRUCTIONS ARE RECEIVED.
A majority of the votes entitled to be cast at the Annual Meeting
constitutes a quorum. Abstentions, votes withheld from Director nominees and
broker non-votes will be included in determining whether a quorum is present.
The election of Director nominees requires a plurality of the votes cast.
Each other matter presented to the shareholders requires the affirmative vote of
a majority of the votes cast at the Annual Meeting, except the proposal to
remove James F. Smith as a Director for cause (the "Removal Proposal") which
requires the affirmative vote of 80% of all outstanding shares of the Company
entitled to vote at the Annual Meeting. Abstentions, votes withheld from
Director nominees and broker non-votes will not be included in determining the
number of votes cast on a matter. Accordingly, because the Removal Proposal
requires approval of 80% of all outstanding shares, abstentions, broker
non-votes and other failures to vote with respect to the Removal Proposal have
the same legal effect as a vote against the Removal Proposal.
<PAGE> 5
1. ELECTION OF DIRECTORS
Under the Company's Certificate of Incorporation and By-Laws, the members
of the Board of Directors are classified into three classes, one of which is
elected at each annual meeting of common shareholders to hold office for a
three-year term until successors of such class are elected and qualified. There
are currently 12 Directors. The Board of Directors, pursuant to the Company's
Certificate of Incorporation and By-Laws, has, effective at the 1994 annual
meeting of shareholders, fixed the number of Directors at 10. However, if
Proposal 2, which calls for the removal of James F. Smith as a Director, is
approved, the Board of Directors intends to reduce the number of Directors from
10 to 9. At the 1994 Annual Meeting three Directors are to be elected, all of
whom shall be members of the class of 1997.
The Board of Directors has designated J. Fletcher Creamer, Kenneth D.
McPherson and Linda C. Taliaferro as nominees for election as Directors for
three-year terms expiring at the 1997 annual meeting of shareholders. All
nominees are presently Directors of the Company. Mr. Creamer and Ms. Taliaferro
were elected as members of the class of 1994 at the 1991 annual meeting. Mr.
McPherson was elected by the Board of Directors on May 6, 1993 to fill a
newly-created directorship. Patrick J. Chambers, Jr. and John F. White will
retire from the Board of Directors at the 1994 annual meeting and are not
candidates for reelection.
The persons named in the enclosed form of proxy, or their substitutes, will
vote, unless otherwise specified, shares represented by executed proxies for the
election as Directors of each of the three nominees. In the event that, due to
unforeseen circumstances, any nominee is unable to serve, the persons named in
the form of proxy, or their substitutes, may vote in their discretion for a
substituted nominee. The Board of Directors has no reason to believe that any
nominee will be unable to serve.
Shown below as to each nominee and each Director in the classes continuing
in office is the person's age as of March 1, 1994, business experience for the
past five years, other directorships and activities, membership on committees of
the Board of Directors of the Company, as applicable, period of service as a
Director of the Company and Common Stock ownership.
NOMINEES FOR ELECTION AS DIRECTORS
THREE-YEAR TERM EXPIRING IN 1997
<TABLE>
<S> <C>
PHOTO J. FLETCHER CREAMER, AGE 67, DIRECTOR SINCE 1987
Chairman of the Board of Directors, J. Fletcher
Creamer & Son, Inc., 101 East Broadway, Hackensack,
New Jersey, a construction company.
Trustee, Hackensack Medical Center, D.A.R.E. of New
Jersey and 200 Club of Bergen County. Director,
Commerce and Industry Association of Northern New
Jersey and the New Jersey Alliance for Action.
Member, Compensation Committee.
Mr. Creamer beneficially owns 4,659 shares of Common
Stock.
</TABLE>
<TABLE>
<S> <C>
PHOTO KENNETH D. MCPHERSON, AGE 59, DIRECTOR SINCE 1993
Senior Partner, Waters, McPherson, McNeill, P.A., 300
Lighting Way, Secaucus, New Jersey, a law firm, since
1983.
Member, Hudson County Bar Association, New Jersey
State Bar Association, American Bar Association.
Director, Bally Gaming International, Inc.
Member, Compensation Committee.
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C>
PHOTO LINDA C. TALIAFERRO, AGE 46, DIRECTOR SINCE 1990
Member, Taliaferro & Associates, 1666 Callowhill
Street, Suite 2B, Harrisburg, Pennsylvania, a law firm
she founded in 1991.
Director, Resources of the Future. Member, The Urban
League of Washington, DC, American Association of
Blacks in Energy, American Bar Association,
Pennsylvania Bar Association. Former Director,
Hospital and Foundation Board of Community General
Hospital, Harrisburg, and Please Touch Museum, a
children's museum, Philadelphia, Pennsylvania.
Ms. Taliaferro was a Commissioner of the Pennsylvania
Public Utilities Commission from 1979 until 1988, and
served as its Chair from 1983 until 1987. She was a
partner in the law firm of Reed Smith Shaw & McClay,
Harrisburg, Pennsylvania from 1988 until 1991.
Member, Audit Committee.
Ms. Taliaferro beneficially owns 53 shares of Common
Stock.
</TABLE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 1995
<TABLE>
<S> <C>
PHOTO VICTOR J. BLANCHET, JR., AGE 52, DIRECTOR SINCE 1991
President and Chief Operating Officer, since 1991, and
Acting Chief Executive Officer, since October 7, 1993,
of the Company, One Blue Hill Plaza, Pearl River, New
York.
Director, President and Chief Operating Officer of
Rockland Electric and Pike, since 1991, and Acting
Chief Executive Officer, since October 7, 1993.
Mr. Blanchet was Vice President of the Company and of
Rockland Electric Company ("Rockland Electric") and
Pike County Light & Power Company ("Pike"), the
Company's utility subsidiaries, from 1977 until April
1990, and Executive Vice President from April 1990
until January 1991. Mr. Blanchet joined the Company in
1977.
Director, Arden Hill Hospital, Arden Hill Life Care
Center, and Vice President, Glen Arden, Inc. Board
Member and Past President, Museum Village in Orange
County, a non-profit educational institution chartered
by the New York State Board of Regents. Trustee and
former President, 200 Club of Bergen County.
President, Society of Gas Lighting. Vice Chairman and
member of the Executive Committee, New York Gas Group.
Member of the Executive Committee, Energy Association
of the State of New York. Member of the Board,
American Gas Association.
Member, Executive Committee.
Mr. Blanchet beneficially owns 2,233 shares of Common
Stock.
</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C>
PHOTO FRANK A. MCDERMOTT, JR., AGE 75, DIRECTOR SINCE 1983
President, JFM Associates, Inc., 72 Pondfield Road
West, Bronxville, New York, a management consulting
firm he founded in 1983.
Trustee, The Merger Fund.
Mr. McDermott is a former Director, Executive Vice
President and Chief Financial Officer of New York
Telephone Company, retiring in 1983 from this former
operating subsidiary of American Telephone and
Telegraph Company.
Chairman, Compensation Committee and Member, Executive
Committee.
Mr. McDermott beneficially owns 697 shares of Common
Stock.
</TABLE>
<TABLE>
<S> <C>
PHOTO JAMES F. O'GRADY, JR., AGE 66, DIRECTOR SINCE 1980
President, O'Grady and Associates, Sarah Wells Trail,
Goshen, New York, a media brokerage and consulting
firm he founded in 1986, and Branson Radio Network,
Inc., Branson, Missouri, a satellite network serving
United States and international radio stations.
Director, SFX Broadcasting, Inc. and Video for
Broadcast, Inc.
Trustee, St. John's University. Honorary Director,
Horton Memorial Hospital. Director, Coalition for
Lithuanian Development. Chairperson, Communications
Advisory Council of Marist College. Member,
Communication Arts Advisory Council of St. John's
University.
Mr. O'Grady, an attorney, has been Of Counsel to the
law firm of Cahill & Cahill, Brooklyn, New York, since
1986.
Member, Compensation Committee and Executive
Committee.
Mr. O'Grady beneficially owns 600 shares of Common
Stock.
</TABLE>
<TABLE>
<S> <C>
PHOTO H. KENT VANDERHOEF, AGE 71, DIRECTOR SINCE 1976
Acting Chairman of the Board of Directors, One Blue
Hill Plaza, Pearl River, New York since October 7,
1993.
Director and former Chairman of the Board of Directors
and Chief Executive Officer, Kay-Fries, Inc.,
Rockleigh, New Jersey, a chemical manufacturer. Mr.
Vanderhoef was President of Kay-Fries until 1981 and,
from 1983 until 1990, was a consultant to that
company.
Director, Rockland Country Club Foundation.
Chairman, Executive Committee and Member, Audit Com-
mittee.
Mr. Vanderhoef beneficially owns 2,072 shares of
Common Stock.
</TABLE>
4
<PAGE> 8
TERM EXPIRING IN 1996
<TABLE>
<S> <C>
PHOTO RALPH M. BARUCH, AGE 70, DIRECTOR SINCE 1983
Consultant to Viacom International, Inc., c/o
Showtime, 1775 Broadway, New York, New York, a
diversified communications and entertainment company,
since 1987.
Trustee, Carnegie Hall, Lenox Hill Hospital and Museum
of Television & Radio. Trustee and Chairman Emeritus,
the Lauri Strauss Foundation and the National Academy
of Cable Programming.
Mr. Baruch was the founder, and served as Chief
Executive Officer of Viacom from 1971 until 1983, and
Chairman of the Board of Directors of Viacom from 1983
until 1987. From 1987 until 1992, he was President of
Ralph M. Baruch, Inc., a communications consulting
firm. Mr. Baruch was a Senior Fellow, Gannett Center
for Media Studies at Columbia University from 1987
until 1988.
Member, Compensation Committee and Executive
Committee.
Mr. Baruch beneficially owns 3,510 shares of Common
Stock.
</TABLE>
<TABLE>
<S> <C>
PHOTO MICHAEL J. DEL GIUDICE, AGE 51, DIRECTOR SINCE 1988
Investment Banker, Lazard Freres & Co., One
Rockefeller Plaza, New York, New York, an investment
banking firm, since 1987.
Trustee, The City University of New York. Chairman,
Hudson River Park Conservancy. Treasurer, Governor's
Committee on Scholastic Achievement.
Member, Audit Committee.
</TABLE>
<TABLE>
<S> <C>
PHOTO JAMES F. SMITH, AGE 57, DIRECTOR SINCE 1972*
Mr. Smith, Clubhouse Road, Tuxedo Park, New York, was
Chairman of the Board of Directors and Chief Executive
Officer from 1979 until October 7, 1993.
He also served as Chairman of the Board of Directors
and Chief Executive Officer of Rockland Electric and
Pike from 1979 until October 7, 1993.
Mr. Smith beneficially owns 10,081 shares of Common
Stock.
</TABLE>
- ---------------
*Mr. Smith's membership on the Board of Directors is the subject of Proposal 2
which calls for his removal as a Director for cause.
5
<PAGE> 9
During 1993 the Board of Directors held 14 meetings. In addition, the
following Committees of the Board of Directors held the following meetings: the
Audit Committee held six meetings; the Compensation Committee held five
meetings; the Executive Committee held seven meetings; and the Special Committee
held 17 meetings.
The Audit Committee is composed of outside Directors and has as its
functions the review of the scope and results of the independent public
accountants' examination, the review of the activities of the internal audit
group and the review of internal controls. The Compensation Committee, also
composed of outside Directors, reviews and recommends to the Board of Directors
compensation levels of all Company officers.
The Executive Committee of the Board of Directors acts as the Nominating
Committee. It evaluates candidates for nomination to the Board of Directors and
aids in attracting qualified candidates. The Executive Committee will consider
the names of qualified persons recommended in writing by shareholders.
Shareholders wishing to recommend candidates for nomination to the Board of
Directors should submit the name, qualifications and a written consent of the
candidate to Victor A. Roque, Secretary of the Company. Such submissions will be
accepted at any time and will be considered when vacancies occur.
On August 20, 1993, the Company's Board of Directors created a Special
Committee of the Board, consisting entirely of outside Directors, to conduct an
independent investigation of issues raised by the Rockland County District
Attorney and any other matters discovered in the course of the investigation as
the Special Committee deems necessary or desirable. The Special Committee was
granted full and complete power and authority to take whatever steps it deems
necessary or desirable, including retention of counsel and other advisors,
presenting to the Board of Directors periodic reports regarding its activities
and at the appropriate time its full findings, and making recommendations to the
Board of Directors with respect to any remedial measures it deems appropriate to
prevent a recurrence of any improprieties or irregularities discovered by the
investigation. The Special Committee is Chaired by Ms. Taliaferro and the other
members are Messrs. Baruch, O'Grady and White. See "Recent Developments".
Mr. Michael Del Giudice is an investment banker with Lazard Freres & Co., a
New York investment banking firm which served as a co-manager of the Company's
1993 registered public offering of $55,000,000 of debt securities. Lazard Freres
& Co., as co-manager and purchaser of approximately one quarter of the principal
amount of such debt securities, received standard underwriting discounts.
J. Fletcher Creamer & Son, Inc., of which Mr. J. Fletcher Creamer is
Chairman of the Board, has for many years performed excavation and related work
for the Company and its New Jersey utility subsidiary. Payments made in 1993 for
work contracted for pursuant to competitive price quotation totaled $104,994.
COMPENSATION OF DIRECTORS
Directors who are not current or former officers of the Company or its
subsidiaries each are paid an annual retainer of $20,000 and a fee of $900 for
each meeting such Director attends of the Board of Directors, except that,
effective October 7, 1993, the Acting Chairman of the Board of Directors is paid
a fee of $1,800 for each such meeting attended. Each such Director is also paid
a fee for each Committee meeting attended in the amount of $700 if the Committee
meeting is held on the same day as a meeting of the Board of Directors or $800
if held on a separate day. Each such Director is also paid a fee in the amount
of $900 for each meeting of the Special Committee attended. The independent
Directors of the Company approved the payment of $50,000 to Ms. Taliaferro,
Chair of the Special Committee, and $5,000 each to Messrs. Baruch, O'Grady, and
White, members of the Special Committee, for extraordinary services performed in
1993. Pursuant to a deferred compensation plan for non-employee Directors,
eligible Directors may elect to defer all or any part of their compensation for
services as a Director. In the event of a change in control of the Company, all
deferred amounts would be payable immediately.
The Company has a Post-Director Service Retainer Continuation Program
("Program") for non-employee Directors. To be eligible for the Program, a
Director must have served on the Board of Directors for a period of at least
five years ("Eligible Director"). The Program provides for the continuation to
the Eligible Director of the annual Board service retainer and any annual
Committee service retainer for a period equal to the lesser of the Eligible
Director's years of service on the Board or ten years. Payments commence (i) if
the Eligible Director is living, as of the later of the Eligible Director's
attaining age 65 or ceasing to be a member
6
<PAGE> 10
of the Board of Directors or (ii) in the case of the death of an Eligible
Director prior to the commencement of payments, following the 65th anniversary
of the Director's birth. In the event an Eligible Director dies, either while
serving on the Board or after retiring from the Board, and where payments remain
to be made, the remaining payments will be made to the Director's beneficiary.
In the event of the death of a beneficiary to whom payments are due, the
remaining payments will be made to the beneficiary's estate. Under the Company's
By-Laws, a Director cannot be 70 years of age or older upon election except
those Directors elected on or before April 11, 1990 and who were 60 years of age
or older on that date cannot be 75 years of age or older upon election. In the
event of a change in control of the Company, a Director's benefits would vest
and be paid in a lump sum cash amount equal to the present value of the payments
that would otherwise have been made.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows all of the Company's equity securities
beneficially owned by each present Director who owns shares, each of the
executive officers named on the Summary Compensation Table and by all Directors
and executive officers as a group as of March 1, 1994 the most recent
practicable date for which information is available.
<TABLE>
<CAPTION>
COMMON
SHARES OWNED
NAME BENEFICIALLY(1)(2)
--------------------------------------- ---------------------
<S> <C>
Ralph M. Baruch 3,510
Victor J. Blanchet, Jr. 2,233
Patrick J. Chambers, Jr. 3,448
J. Fletcher Creamer 4,659
Frank E. Fischer 2,320
Thomas A. Folchi, Jr. 2,332
Frank A. McDermott, Jr. 697
James F. O'Grady, Jr. 600
Victor A. Roque 448
James F. Smith 10,081
Linda C. Taliaferro 53
H. Kent Vanderhoef 2,072
John F. White 904
19 Directors and executive officers as a group 33,872
</TABLE>
- ---------------
(1) Based on information furnished to the Company by the Directors and
officers. Includes shares owned beneficially pursuant to the Company's
Management Employees' Savings Plan through December 31, 1993, the latest date
for which such information is available.
(2) As of March 1, 1994, no Director owned beneficially more than 0.074% of
the outstanding shares of Common Stock of the Company, no named executive
officer owned more than 0.025% of such shares, and Directors and officers as a
group owned 0.250% of such shares.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers to file with the Securities and Exchange
Commission ("SEC") reports of changes in ownership of common stock of the
Company. The Company believes that, during the 1993 fiscal year, all Section
16(a) filing requirements applicable to its officers and Directors were complied
with except that one report regarding one transaction which should have been
filed by Victor A. Roque with the SEC by May 10, 1993 was filed on June 10,
1993.
The table set forth as Appendix A shows all securities of the Company
purchased within the past two years by each present Director who purchased
securities during such period, the dates on which such securities were purchased
and the amount purchased on each such date.
RECENT DEVELOPMENTS
On August 16, 1993, Linda Winikow, then Vice President, was arrested by the
Rockland County (New York) District Attorney and charged with grand larceny,
commercial bribery, and making campaign contributions under a false name. In
essence, the District Attorney alleged that Ms. Winikow (i) had been coercing or
inducing certain vendors of goods or services to the Company to make
contributions to political
7
<PAGE> 11
candidates or causes, while arranging for some of those contributions to be, in
effect, reimbursed by means of false or inflated invoices paid by the Company,
and (ii) had used advertising contracts to try to influence news reports about
the Company. These illegal activities were alleged to have occurred between
March 1, 1992 and September 1, 1993. Two other former employees who reported to
Ms. Winikow were charged with grand larceny. The Company immediately placed Ms.
Winikow on a leave of absence. The District Attorney also announced that he
would commence an investigation of the Company, and the Company announced that
it would undertake its own investigation into the matters cited by the District
Attorney.
On August 20, 1993, the Company's Board of Directors created a Special
Committee of the Board, consisting entirely of outside Directors, to conduct an
independent investigation of the issues raised by the Rockland County District
Attorney and any other matters discovered in the course of the investigation as
the Special Committee deems necessary or desirable. The Special Committee was
granted full and complete power and authority to take whatever steps it deems
necessary or desirable, including retention of counsel and other advisors,
presenting to the Board of Directors periodic reports regarding its activities
and at the appropriate time its full findings, and making recommendations to the
Board of Directors with respect to any remedial measures it deems appropriate to
prevent a recurrence of any improprieties or irregularities discovered by the
investigation. The Special Committee consists of Linda C. Taliaferro, Chair,
Ralph M. Baruch, James F. O'Grady, Jr. and John F. White. The Special Committee
has retained the law firm of Stier, Anderson & Malone as investigative counsel,
and Price Waterhouse & Co. as accounting experts, to assist it in conducting its
independent investigation.
The Special Committee will present preliminary conclusions of its
investigation at the Annual Meeting of Shareholders on May 11, 1994. The Special
Committee intends to complete its investigation as promptly as practicable after
the Annual Meeting and will report its final conclusions and recommendations to
the Board of Directors at that time. Copies of an executive summary of the final
report of the investigation will be made available to shareholders.
Following its formation, the Special Committee met on 12 occasions during
the period August 20 to October 4, 1993 to review matters relating to the
investigation and to hear presentations by representatives of Stier, Anderson &
Malone. On September 7, 1993, as a result of a report by Mr. Edwin H. Stier of
Stier, Anderson & Malone regarding transactions that appeared to involve Mr.
Smith's use of Company assets for personal benefit, the Special Committee
directed Mr. Stier to interview Mr. Smith. Mr. Stier and a member of the Special
Committee met with Mr. Smith and his counsel on September 20, 1993 and reported
to the Special Committee at length with respect to that interview at a meeting
on September 22, 1993, including evidence that Mr. Smith had not been candid and
forthcoming in his responses to various questions. At a meeting of the Special
Committee on September 24, 1993, which was also attended by four other
independent Directors, there was a further report of the interview with Mr.
Smith and an extensive review of the results of the investigation to date,
including transactions involving Mr. Smith.
At a meeting of the Special Committee on October 4, 1993, Mr. Stier updated
the Special Committee regarding the matters uncovered by the investigation to
date. Mr. Stier presented evidence to the Special Committee that, in the
judgment of the Special Committee, justified a conclusion that there had been
numerous transactions involving personal use of Company assets by Mr. Smith for
the benefit of himself, his family and his friends. He also presented evidence
of many other expenditures by Mr. Smith for which it was not possible to
determine whether there was an adequate business purpose. Evidence was also
presented indicating evasion of internal accounting controls by Mr. Smith. The
Special Committee and Mr. Stier also reviewed evidence suggesting that Mr. Smith
had not properly supervised, or caused the proper supervision of, Ms. Winikow.
The Special Committee reviewed the terms of Mr. Smith's employment agreement
with the Company, which permitted the Company to terminate his employment for
cause if authorized by a majority vote of the independent Directors. There was
an extensive discussion of issues relating to whether Mr. Smith's employment
should be terminated for cause. The Special Committee unanimously decided to
recommend to the independent Directors that Mr. Smith's employment be terminated
for cause.
On October 5, 1993, eight independent Directors met to review the findings
of the Special Committee's investigation to date and the Special Committee's
October 4, 1993 recommendation. At that meeting, a lengthy report by Mr. Stier
was presented regarding various transactions involving Mr. Smith, and there was
8
<PAGE> 12
an extensive discussion of such matters and the resulting damage to the Company
that, in the judgment of the eight independent Directors present, had resulted
or was in all probability likely to result therefrom. Based on these
discussions, the eight independent Directors present unanimously determined to
terminate for cause the employment of James F. Smith as Chief Executive Officer
of the Company and to remove him as Chairman of the Board. On October 7, 1993,
the decision to terminate Mr. Smith's employment for cause was unanimously
ratified and approved by all nine independent Directors, notice of such
termination was delivered to Mr. Smith and he was suspended from all duties
effective immediately. The Board of Directors then appointed Victor J. Blanchet,
Jr. to serve as Acting Chief Executive Officer and H. Kent Vanderhoef to serve
as Acting Chairman of the Board.
Under Mr. Smith's employment agreement, "cause" is defined to include
serious, wilful misconduct or gross neglect of duties which has resulted, or in
all probability is likely to result, in material economic damage to the Company.
The principal basis for the independent Directors' determination that there was
adequate cause for Mr. Smith's termination was their judgment that the evidence
uncovered by the investigation and presented to the independent Directors
justified a conclusion that Mr. Smith had engaged in serious, wilful misconduct
and had grossly neglected his duties. Specifically, the independent Directors
determined that the evidence justified conclusions that Mr. Smith had engaged in
numerous and repeated transactions involving use of the Company's resources and
assets for the personal benefit of Mr. Smith, his family and friends; numerous
and repeated expenditures of Company funds by Mr. Smith that had no adequate
business purpose; numerous and repeated violations and evasions of the Company's
internal controls; failure by Mr. Smith to properly supervise, or cause the
proper supervision of, Ms. Winikow; numerous and repeated violations of Company
policies; failures by Mr. Smith to make candid and forthcoming disclosures in
connection with the Special Committee's investigation and other actions by Mr.
Smith to hinder and obstruct the investigation. The independent Directors
further concluded that the Company had suffered and/or in all probability was
likely to suffer material economic damage as a result of the foregoing,
including:
(i) the monetary losses caused by misappropriation or misuse of Company
funds and assets;
(ii) the adverse effect of the foregoing events on the Company's
relations with the New York Public Service Commission and, in
particular, the threatened termination by the Public Service
Commission of the Company's pending electric rate proceeding, and
the costs and burdens that would be required to satisfy the Public
Service Commission that the Company's internal controls function
satisfactorily;
(iii) the costs and legal exposure resulting from civil and criminal
proceedings and inquiries that were pending or were likely to arise;
(iv) the costs and disruption already incurred and to be suffered by the
Company as a result of the need to conduct a thorough and complete
investigation of the matters referred to above; and
(v) the substantial adverse effect on the Company arising from adverse
publicity, loss of business reputation and adverse effect on employee
morale.
The bases for Mr. Smith's termination of employment for cause were stated in the
notice of termination for cause delivered to Mr. Smith.
Subsequent to October 7, 1993, counsel to Mr. Smith requested and was
supplied with further details regarding the transactions that were the basis of
the independent Directors' determination to terminate Mr. Smith's employment for
cause. Mr. Smith had certain rights under his employment agreement with the
Company to take corrective action with respect to his termination of employment
for cause which lapsed, without any such action being taken, on December 6,
1993, at which time his termination of employment for cause became fully
effective. Mr. Smith has stated that he disputes the allegations set forth in
the notice of termination for cause. Mr. Smith has the right under his
employment agreement to contest the termination of employment for cause in an
arbitration proceeding for an undefined period. To the knowledge of the Company,
Mr. Smith has not initiated any such arbitration proceeding.
Following the effective date of Mr. Smith's termination of employment for
cause, at the request of counsel to Mr. Smith, meetings were held between
counsel to Mr. Smith and counsel to the Company to discuss the possibility of
voluntary settlement of claims between the Company and Mr. Smith. Based on those
9
<PAGE> 13
discussions, the Company determined that it did not appear that it would be
possible to settle its claims against Mr. Smith on a basis satisfactory to the
Company, and, on February 7, 1994, the Company commenced an action against Mr.
Smith in New York State Supreme Court by the filing of a Summons with Notice.
The Summons puts Mr. Smith on notice of claims for breach of his fiduciary
duties of loyalty and care, waste, conversion, fraud, and unjust enrichment
based on allegations that Mr. Smith misused Company assets and personnel and
misappropriated Company funds for his own benefit or for other improper
purposes, and failed to maintain proper management controls or to properly
supervise corporate affairs and subordinate employees.
The Company served a complaint in that action on March 16, 1994. Unless
otherwise extended, Mr. Smith's answer will be due 20 days after the complaint
was served. The complaint alleges causes of action for breaches of fiduciary
duty, inducing breach of fiduciary duty by others, fraud, conversion, unjust
enrichment, waste and an accounting of Company property and funds. More
particularly, the complaint alleges, among other things, that (i) Mr. Smith
intentionally misappropriated and converted Company funds, assets and services
to his own use by causing the Company to pay, through the submission of false
and inaccurate expense reports, for personal expenses associated with his
travel, entertainment, purchases of merchandise, use of Company vendors and use
of the Company's conference center facilities; (ii) Mr. Smith engaged in a
pattern of excessive and extravagant expenditures of Company funds in connection
with purported business travel, entertainment and Company-sponsored events that
had no legitimate business purpose or conferred little or no benefit to the
Company's business, and constituted waste of corporate assets; and (iii) Mr.
Smith failed to institute and maintain adequate internal controls, failed to
supervise subordinate employees, including Ms. Winikow and knowingly permitted,
induced and authorized the personal use of Company funds, assets and services by
other Company officers. The Company seeks an accounting by Mr. Smith of certain
Company funds and property, restitution of all amounts misappropriated, misused,
or unaccounted for, forfeiture of compensation paid or awarded by the Company to
Mr. Smith during the period in which breaches of fiduciary duties occurred,
compensatory damages in an amount not less than $5 million, and punitive
damages.
Mr. Smith currently is a Director of the Company. The Board of Directors
has recommended and will present to the shareholders at the Annual Meeting a
proposal that Mr. Smith be removed for cause as a Director of the Company. Mr.
Smith opposes the proposal of the Company to remove him as a Director. A letter
from Mr. Smith in opposition to the Company's attempt to remove him as a
Director is set forth herein. See "Proposal 2. As To The Removal of James F.
Smith From the Board of Directors For Cause".
On August 26, 1993, the Board of Directors terminated Ms. Winikow's
employment and the Company filed Orange and Rockland Utilities, Inc. v. Winikow
in the United States District Court, Southern District of New York, against Ms.
Winikow, three other former Company employees and two vendors. The Company
alleges in its complaint that the defendants had engaged in a conspiracy to
divert funds from the Company through the submission of false and fraudulent
invoices in order to pay personal expenses of and/or to provide personal
services to the defendants. The Company also alleges that the defendants made
various contributions to political candidates consisting of money and services
diverted from the Company. On October 6, 1993, Ms. Winikow pleaded guilty in the
Supreme Court of the State of New York, County of Rockland, to grand larceny (a
class D felony), commercial bribery (a class A misdemeanor), and making a
campaign contribution under a false name (an unclassified misdemeanor) and, on
November 10, 1993, the two former employees pleaded guilty to grand larceny (a
class D felony). In pleading guilty to the felony count, Ms. Winikow stated she
had been acting on behalf of the Company. The presiding judge informed Ms.
Winikow that her sentence would be based on her assistance to the prosecution in
its investigation. Ms. Winikow's sentencing on these pleas is currently
scheduled for April 7, 1994.
On November 3, 1993, the Company entered into a Joint Cooperation Agreement
with the Rockland County District Attorney's Office. The District Attorney
agreed that, in light of the Company's agreement to cooperate and the clear
demonstration by the Company's Board of Directors of their determination to
uncover all past improper activities of the types being investigated, no
criminal charges of any kind will be filed against the Company or any of its
affiliates or subsidiaries in connection with the pending investigation of the
Company. The Company agreed to cooperate with the District Attorney and to
provide access to Company books and records and to information developed by the
Special Committee's investigation. The Company also
10
<PAGE> 14
agreed to establish an office of Inspector General to monitor the conduct of
Company management and employees for a period of seven years after the
conclusion of the Special Committee's investigation. The Inspector General will
perform no managerial functions, and the duration of the Inspector General's
appointment may be modified by the parties as the circumstances warrant. The
agreement with the District Attorney also requires the Company to disband its
political action committee, OREPAC, to refrain from making political
contributions for five years and to take certain other remedial actions.
On October 14, 1993, in response to an Order of the New York Public Service
Commission, the Company agreed to an extension of the statutory suspension
period for its pending rate case to June 30, 1994 and to (i) a two-month
reduction of $115,000 per month to ratepayers in November and December 1993 (the
Company voluntarily extended this temporary rate reduction for a third month,
through January 1994, bringing the total amount refunded to New York ratepayers
to $345,000), (ii) make $3 million of its existing annual revenues ($2.25
million of electric revenues and $.75 million of gas revenues) temporary and
subject to refund, (iii) continue to cooperate fully and in a timely fashion
with the New York Public Service Commission Staff's investigation, (iv) prefile
with the New York Public Service Commission a complete and detailed analysis of
the results of the Special Committee's investigation, (v) agree that further
hearings are appropriate for evaluation of the Company's analysis and evidence,
as well as those of other parties, including the New York Public Service
Commission Staff, (vi) continue existing ratemaking mechanisms for the duration
of the further suspension period, and (vii) agree that, if by June 30, 1994 the
New York Public Service Commission Staff's investigation is not completed, then
temporary rates may be set. On December 17, 1993, the Company reported to the
Administrative Law Judge presiding over its rate case that the Company's
analysis of the results of the Special Committee's investigation will be
available no later than May 31, 1994 and proposed an additional six-month
extension of both the suspension period and the existing electric ratemaking
mechanisms to December 31, 1994.
On November 3, 1993, the New Jersey Board of Regulatory Commissioners
commenced its periodic management audit of the Company's wholly-owned
subsidiary, Rockland Electric Company. As a result of the events and
investigations described above, the New Jersey Board of Regulatory Commissioners
audit will include, in addition to a standard review of operating procedures,
policies and practices, a review of the posture of Rockland Electric Company
management regarding business ethics and a determination regarding the effect of
such events on Rockland Electric Company ratepayers.
Under an agreement with the New Jersey Board of Regulatory Commissioners to
return to customers funds misappropriated by employees, Rockland Electric
Company has agreed to refund to New Jersey ratepayers $94,100 through reductions
in the applicable fuel adjustment charges in February and March 1994. The
Company has also pledged to return any other funds that are discovered to have
been misappropriated.
On August 18, 1993, Feiner v. Orange and Rockland Utilities, Inc., a
purported ratepayer class action complaint against the Company, the Company's
wholly-owned subsidiary, Rockland Electric Company, Ms. Winikow and others, was
filed in the United States District Court, Southern District of New York. The
Feiner complaint names a number of "John Does," who are described as officers
and directors of the Company, but does not identify any current or former
officer or director by name except Ms. Winikow. The complaint alleges that the
defendants violated the Federal Racketeer Influenced and Corrupt Organizations
Act ("RICO") and New York common law by using false and misleading testimony to
obtain rate increases from the New York Public Service Commission and used funds
obtained from ratepayers in furtherance of an alleged scheme to make illegal
campaign contributions and other illegal payments. Plaintiffs seek damages in
the amount of $900 million (which they seek to treble pursuant to the RICO
statute). The Company intends to vigorously contest these claims and filed a
motion to dismiss them on February 18, 1994.
On August 31, 1993, Patents Management Corp. v. Orange and Rockland
Utilities, Inc., a purported shareholder derivative complaint, was filed in the
Supreme Court of the State of New York, County of New York, against the Company,
all but one of the Directors and several other named defendants by an alleged
shareholder of the Company. Plaintiff claims that the Company's Directors
breached their fiduciary duties by condoning the alleged wrongful acts of Ms.
Winikow or failing to exercise appropriate supervisory control over Ms. Winikow.
Plaintiff requests that the Court require each Director to indemnify the Company
11
<PAGE> 15
against all losses sustained by the Company as a result of these alleged
wrongful acts of Ms. Winikow. The Company intends to vigorously contest these
claims.
On November 23, 1993, Gross v. Orange and Rockland Utilities, Inc., a
purported shareholder class action complaint, was filed in the United States
District Court, Southern District of New York. Plaintiff alleges that various
Securities and Exchange Commission filings of the Company during the period
between March 2 and November 4, 1993 contained false and misleading information,
and thereby violated Sections 11 and 12(2) of the Securities Act of 1933, by
failing to disclose what the plaintiff alleges was a "scheme" by the Company to
make illegal political payments and campaign contributions to various public
officials and politicians. As a result, plaintiff claims, during such period
persons who purchased the Company's stock through the Company's Dividend
Reinvestment Plan did so at artificially inflated prices. The complaint seeks
unspecified money damages. The Company intends to vigorously contest these
claims.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation programs for executive officers are established
and administered by the Compensation Committee of the Board of Directors. All
members of the Compensation Committee are independent, non-employee Directors
who are not eligible to participate in any of the executive compensation
programs. For several years, the Compensation Committee has had access to an
independent compensation consultant for advice in developing and administering
these compensation programs. The Company's executive compensation programs are
based on compensation policies geared to reward outstanding executive
performance by linking the compensation paid to executive officers with enhanced
shareholder value. While actually measuring performance is a complex
undertaking, the Compensation Committee believes that this report will provide
the Company's shareholders with a detailed, clear explanation of how the
Company's executive compensation philosophy attempts to align the financial
interests of its executive officers with those of its shareholders.
An element of executive compensation is awards for the achievement of
one-year and three-year goals under an incentive compensation plan which covers
the officers and certain other key management employees of the Company
("Incentive Compensation Plan"). The Compensation Committee recommended, and the
Board of Directors agreed, that all decisions with regard to payments for the
achievement of one-year goals under the Incentive Compensation Plan be deferred
until the investigation by the Special Committee of the Board of Directors has
been completed.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is founded on the basic
philosophy that compensation should reflect corporate and individual
performance, rewarding, when appropriate, business strategies and long-term
strategic management which enhance shareholder value and customer service. Based
on this philosophy, the Company's executive compensation programs are designed
to:
- provide a strong and direct link between executive pay and Company
performance on behalf of its shareholders and customers;
- attract, motivate and retain key executives;
- compensate executives for their successful long-term strategic management
of the Company;
- establish compensation opportunities based on competitive levels among
comparably-sized companies which also represent potential markets for the
executives' talent; and
- base actual compensation goals on the achievement of the Company's annual
and long-term strategic objectives and performance relative to other
utilities
ELEMENTS OF EXECUTIVE COMPENSATION
In addition to the specific measures discussed below for each element of
pay, the Compensation Committee also monitors the overall relationship between
pay and total return to shareholders.
12
<PAGE> 16
SALARY AND TOTAL COMPENSATION
Base salaries are positioned at approximately the 75th percentile of
comparably-sized utilities. Base salary increases are based on the average of
median increases in both the utility industry and general industry, and the
Committee's judgment of officers' performance relative to their specific job
responsibilities. Total compensation, which includes base salary plus
incentives, is positioned at the average of general and utility industry median
pay levels. This positioning was chosen not only to ensure that compensation
accurately reflects the Company's marketplace for talent, which is broader than
the utility industry, but also to recognize the Company's historical performance
relative to both utility and general industry companies. Earned return on equity
and earned return on assets were at the 75th percentile of comparably-sized
utilities for the five years ending 1992, the most recent year for which data is
available. In addition, as shown on the performance chart on page 15, over the
last five years, total return to shareholders performance was comparable to
shareholder returns for the Standard & Poor's 500 Index and the Standard &
Poor's Utilities Index.
The utilities used for pay comparisons are a broader group of electric and
gas utilities than those used for performance comparisons, including those in
the S&P Utilities Index in the performance graph on page 15. The Committee
believes the groups are equally representative of the industry.
Section 162(m) of the Internal Revenue Code of 1985, as amended (the
"Code"), provides that, unless an appropriate exemption applies, a tax deduction
for the Company for remuneration of any officer named on the Summary
Compensation Table will not be allowed to the extent such remuneration in any
taxable year exceeds $1 million. As no officer of the Company received
remuneration during the 1993 fiscal year approaching $1 million, the Company has
not developed an executive compensation policy with respect to qualifying
compensation paid to its executive officers for deductibility under Section
162(m) of the Code.
INCENTIVE COMPENSATION
The Company's Incentive Compensation Plan is designed to recognize and
reward, where appropriate, outstanding management achievement. It seeks to
foster quality service to customers at optimum efficiency while returning a good
yield to shareholders.
Under the Incentive Compensation Plan, the Compensation Committee approves
the setting of goals and objectives upon which incentive compensation awards are
based and submits these goals and objectives to the Board of Directors for its
review and approval. Two components anchor the program set forth under the
Incentive Compensation Plan: an annual incentive plan based on the attainment of
three one-year objectives (the "one-year goals") which can be accomplished in
one year's time, and a long term plan based on the attainment of several
additional objectives over a three year period (the "three-year goals").
One-year and three-year goals are defined in objective and quantifiable terms.
Payouts for overall performance that substantially exceeds expectations are made
at the 150% maximum level for goals set prior to 1994. Beginning in 1994 for
one-year goals, and in 1995 for three-year goals, payouts for overall
performance that substantially exceeds expectations will be made at the 120%
maximum level. No payouts are made for performance below expectations.
ONE-YEAR GOALS
In 1993, the Company had three one-year objectives: (1) maintain a high
level of customer service by minimizing field service and customer inquiry
response time and achieving an acceptable level of customer service reliability;
(2) produce earnings per average common share for calendar year 1993 that
support continued common dividend growth; and (3) reduce electrical energy
production cost. These objectives are equally weighted. During the course of
1993, the first objective was exceeded, the second objective was not met and the
third objective was exceeded. In light of the events surrounding the departures
of Ms. Winikow and Mr. Smith from their positions with the Company, the
Committee recommended, and the Board of Directors agreed, that all decisions
(except with respect to Mr. Smith and Ms. Winikow who will not receive payments)
with regard to payments for the achievement of 1993 goals be deferred until the
investigation by the Special Committee of the Board of Directors has been
completed. See "Recent Developments." While decisions with regard to awards have
been deferred for 1993 one-year goals under the Incentive Compensation
13
<PAGE> 17
Plan, substantially all payments for the achievement of one-year goals to
management employees who do not participate in the Incentive Compensation Plan
were made as scheduled.
THREE-YEAR GOALS
The Company's three long-term incentive goals for 1992-94 are: (1) earn the
Company's allowed rate of return on equity; (2) achieve favorable retail price
comparisons based on specific measures for each energy category; and (3) achieve
demand-side management objectives for the three-year period in order to satisfy
the electric peak demand requirements of the Company's customers. These three
goals are weighted at 30%, 20% and 50%, respectively.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Blanchet was named Acting Chief Executive Officer of the Company
effective October 7, 1993. From January 1 through October 7, 1993, Mr. Blanchet
received the base salary established by the Compensation Committee for his
position as President and Chief Operating Officer of the Company. Thus, Mr.
Blanchet's base salary for this period was positioned at approximately the 75th
percentile when compared with the compensation paid by comparably-sized
utilities to their respective Presidents and Chief Operating Officers.
Effective October 7, 1993, Mr. Blanchet's total compensation for his
service to the Company as Acting Chief Executive Officer was set at median
levels when compared to Chief Executive Officers at comparably-sized utilities.
Mr. Blanchet's annual incentive award for 1993, like those of other executive
officers of the Company, will be based on the Company's attainment of its 1993
goals versus targeted levels. However, as noted above, decisions with regard to
payouts based on the achievement of the 1993 one-year goals under the Incentive
Compensation Plan have been deferred until after the completion of the
investigation. Mr. Blanchet's long-term incentive awards with respect to the
Company's 1986-1988 and 1989-1991 incentive cycles exceeded targeted levels
because the Company's actual performance exceeded targeted levels. The annual
installments of the long-term awards received by Mr. Blanchet for 1988-1991 are
reflected in the Summary Compensation Table. Mr. Blanchet's success in achieving
the 1992-1994 three-year goals can not be determined until after 1994.
Mr. Smith's employment as Chief Executive Officer was terminated for cause
pursuant to a notice of termination delivered on October 7, 1993, which became
fully effective on December 6, 1993. (See "Recent Developments"). Prior to the
termination of his employment, Mr. Smith was compensated pursuant to his
Employment Agreement with the Company, which is further described beginning on
page 19. Mr. Smith's compensation opportunity pursuant to his Employment
Agreement was designed to be the average of general and utility industry median
pay levels, while his base salary was positioned at approximately the 75th
percentile for comparably-sized utilities.
The Company ceased payment of Mr. Smith's salary as of November 30, 1993.
As a result of his termination of employment for cause, he will not receive any
payment under the Company's Incentive Compensation Plan for service in 1993 or
with respect to long-term awards for 1992-1994. Prior annual installments of Mr.
Smith's long-term awards for 1988-1991 are reflected in the Summary Compensation
Table. In a lawsuit filed on February 7, 1994, the Company seeks to recover
certain compensation paid or awarded to Mr. Smith, which may include deferred
salary and incentive compensation.
Mr. Smith was also a participant in the Company's Performance Unit
Incentive Plan which was designed by an independent compensation consultant. The
Performance Unit Incentive Plan was designed to provide Mr. Smith and other
participants with long-term incentives to develop the Company's non-regulated
business enterprises, thereby adding long-term value to shareholders'
investment. In accordance with the terms of the Performance Unit Incentive Plan,
Mr. Smith's rights under the Performance Unit Incentive Plan were cancelled as a
result of the termination of his employment with the Company for cause.
<TABLE>
<S> <C>
COMPENSATION COMMITTEE
Frank A. McDermott, Jr., Chairman James F. O'Grady, Jr.
Ralph M. Baruch Kenneth D. McPherson
J. Fletcher Creamer
</TABLE>
April 6, 1994
14
<PAGE> 18
PERFORMANCE GRAPH AND INFORMATION
Comparison of Five Year Cumulative Total Return*
Orange and Rockland Utilities, Inc., S&P 500 Index and S&P Utilities Index
<TABLE>
<CAPTION>
Measurement Period Orange and
(Fiscal Year Covered) Rockland S&P 500 S&P Utilities
<S> <C> <C> <C>
1988 100 100 100
1989 118 132 147
1990 125 128 143
1991 165 166 164
1992 190 179 178
1993 196 197 203
</TABLE>
* Assumes $100 invested on December 31, 1988 (Total Return Assumes
Reinvestment of Dividends).
As can be seen from the performance graph and data in the Cumulative Total
Return table, the Company's Common Stock has consistently gained in value in
each year during the five year period from December 31, 1988 to December 31,
1993. In fact, an investment of $100 on December 31, 1988, with the reinvestment
of dividends, was worth $196 on December 31, 1993. The average annual total rate
of return on the Company's Common Stock for the 5-year period indicated above,
including the reinvestment of dividends, was 14.4%. There can be no assurance
that this level of performance will continue to be achieved.
15
<PAGE> 19
EXECUTIVE COMPENSATION
The table below shows all compensation awarded to, earned by or paid to
persons serving as Chief Executive Officer in 1993 and each of the four other
most highly compensated executive officers of the Company for services rendered
in all capacities to the Company and its subsidiaries during the fiscal years
ended December 31, 1993, December 31, 1992 and December 31, 1991:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION
---------------------------------- AWARDS PAYOUTS
OTHER --------------------- ------- ALL
ANNUAL RESTRICTED LTIP OTHER
SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) AWARD(S)(3) SARS(3) ($)(4) ($)(5)
- ------------------------- ----- -------- -------- ------------ ----------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Victor J. Blanchet, Jr. 1993 256,401 0 0 none none 0(6) 12,808
President, Chief 1992 227,000 72,216 0 none none 94,168 9,601
Operating Officer, and 1991 200,000 81,600 0 none none 17,808 6,121
Acting Chief Executive
Officer
Patrick J. Chambers, Jr. 1993 203,750 0 13,080 none none 0(6) 9,642
Senior Vice President and 1992 194,750 52,088 4,302 none none 88,576 9,941
Chief Financial Officer 1991 185,750 66,136 206 none none 39,132 8,406
Frank E. Fischer 1993 163,250 0 2,825 none none 0(6) 5,212
Vice President 1992 156,250 35,945 1,637 none none 40,122 4,432
1991 149,250 33,170 0 none none 17,808 3,559
Thomas A. Folchi, Jr. 1993 163,250 0 3,682 none none 0(6) 4,523
Vice President 1992 156,250 29,645 1,357 none none 40,122 4,431
1991 149,250 33,170 54 none none 15,504 3,525
Victor A. Roque 1993 163,250 0 221 none none 0(6) 4,483
Vice President, General 1992 156,250 29,645 51 none none 39,568 4,236
Counsel and Secretary 1991 149,250 30,170 0 none none 10,080 3,406
James F. Smith 1993 371,917(7) 0 39,438 none none 0(6) 36,347
Former Chairman of the 1992 388,750 120,258 13,206 none none 284,966 36,019
Board of Directors and 1991 371,500 153,408 846 none none 98,808 29,658
Former Chief Executive
Officer
</TABLE>
- ---------------
(1) Pursuant to the Incentive Plan (described in the following section),
the amount of annual awards depends upon the level of achievement of one-year
goals. If performance is below a minimal level, no award is earned. Actual
amounts of annual awards earned under the Plan are shown. All decisions with
regard to payments for the achievement of 1993 goals have been deferred until
after the investigation has been concluded. Mr. Smith will not receive a
payment.
(2) Interest in excess of 120% of the long-term federal rate, with
compounding, prescribed under section 1274(d) of the Internal Revenue Code, paid
or payable on compensation deferred at the officer's election.
(3) At the end of the last fiscal year, the Company had no program or plan
that awards restricted stock, stock options or stock appreciation rights.
(4) Pursuant to the Incentive Plan, the amount of long-term awards depends
upon the achievement of long-term goals. If performance is below a minimal
level, no award is earned. Installments of long-term incentive awards earned for
the period 1986-1988 which were paid or payable in 1991, and awards earned for
the period 1989-1991 which were paid or payable in 1992 are shown.
(5) Interest earned on long-term incentive awards which were deferred under
the terms of the Incentive Plan and not at the election of the officer. In 1993,
the amounts were: Mr. Blanchet, $12,808; Mr. Chambers, $9,642; Mr. Fischer,
$5,212; Mr. Folchi, $4,523; Mr. Roque, $4,483; and Mr. Smith, $31,899. In
addition, Mr. Smith's compensation reflects the average annual premium of $4,448
for a supplemental long-term disability insurance policy purchased for him in
1991.
(6) The long-term incentive award earned for the period 1989-1991 is
payable in three annual installments which began in 1992. The first installment
was paid in February 1992. The second installment, which ordinarily would have
been made in February 1993, was approved by the Board of Directors for payout in
December 1992. Consequently, no payment of the long-term incentive award was
made in 1993.
(7) Upon notice of the termination of his employment for cause, Mr. Smith
was suspended from all duties with pay during the period in which he was
entitled to take corrective action with respect to the termination of his
employment for cause, which lapsed on December 6, 1993. However, the Company
ceased paying Mr. Smith's salary effective November 30, 1993 after Mr. Smith
filed an election to commence receiving his pension plan benefits as of such
date.
16
<PAGE> 20
LONG-TERM COMPENSATION
Company's Incentive Plan
The Company has an Incentive Compensation Plan ("Incentive Plan") for
officers and certain other key executives, as specified on an annual basis. The
Incentive Plan established a system of awards for the achievement of one-year
goals and three-year goals. Payment of the three-year award is made over a
three-year period beginning the year following the end of the cycle. The current
three-year award cycle is for the period 1992 through 1994. The Compensation
Committee of the Board of Directors approves the setting of goals and objectives
upon which incentive compensation awards are based and submits these goals and
objectives to the Board of Directors for approval. The three-year goals for the
three-year period 1992 through 1994 include the attainment of a target return on
equity, retail price comparisons for electric and gas operations and the
achievement of demand-side management objectives. At the end of each Incentive
Plan year an amount is accrued towards the payment of incentive compensation
based upon the three-year goals. The incentive compensation based upon the
three-year goals may be more or less than the portion so set aside, depending
upon the level of achievement actually attained. A portion of the three-year
award may be deferred at the discretion of the Board of Directors until the
participant's retirement, death, disability or severe hardship. The following
table sets forth the dollar value of the range of the estimated payouts under
the Incentive Plan. The amounts reported in columns (d), (e) and (f) of the
following table represent amounts estimated for fiscal year 1993 assuming,
respectively, (i) the achievement of a minimally acceptable level of performance
under the Incentive Plan (if performance is below this minimal level, no award
will be paid); (ii) the achievement of certain goals which are formulated in
each case to be attainable during the calendar year, absent major changes in
external factors over which the Company may have little control; or (iii) the
achievement of certain goals at a level which theoretically can be attained
during the calendar year, but cannot be attained if any external factors
adversely affect the achievement of the goals.
Subsidiary Performance Plan
In 1992, a Performance Unit Incentive Plan was adopted by the Company and
certain of its wholly-owned non-utility subsidiaries. The Performance Unit
Incentive Plan, administered by the Compensation Committee, was designed to
provide incentive awards to certain qualifying individuals in the Company and
its subsidiaries, including O&R Development Inc., O&R Energy, Inc. and Atlantic
Morris Broadcasting, Inc. (together, the "Participating Companies"). Pursuant to
the Performance Unit Incentive Plan, in 1992 certain key employees of the
Participating Companies, including Messrs. Smith and Chambers ("Participants"),
were granted awards entitling each of them to certain rights, measured as
Performance Units. Each Performance Unit gives each Participant the opportunity
to receive up to 1% of the combined net gain in value of the Participating
Companies over a starting net value measured as the combined initial investment
in each of the Participating Companies ("Starting Value"). If the percentage of
net gain over the Starting Value does not exceed the average corporate bond
rate, Participants will not be entitled to any payout under the Performance Unit
Incentive Plan. Under the terms of the Performance Unit Incentive Plan, the
award held by Mr. Smith has been cancelled as a result of his termination of
employment for cause.
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<PAGE> 21
With respect to the Performance Unit Plan, the following table sets forth
in column (b) the number of Performance Units awarded, while the amounts
reported in columns (d) and (e) represent amounts estimated, respectively, (i)
assuming no gain in net value over the Starting Value and (ii) based on an
average 1993 quarterly corporate bond rate of 7.15%.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
<S> <C> <C> <C> <C> <C>
ESTIMATED FUTURE PAYOUTS
UNDER
NON-STOCK PRICE-BASED PLANS
-----------------------------
NUMBER PERFORMANCE THRESHOLD TARGET MAXIMUM
NAME OF UNITS CYCLE ENDING DATE ($) ($) ($)
- --------------------------------- --------- ----------------- --------- ------- -------
Victor J. Blanchet, Jr.(1) 12/31/94 9,000 90,000 135,000
Patrick J. Chambers, Jr.(1) 12/31/94 4,120 41,200 61,800
(2) 5 12/31/97 0 53,625 (3)
Frank E. Fischer(1) 12/31/94 2,063 20,625 30,938
Thomas A. Folchi, Jr.(1) 12/31/94 2,063 20,625 30,938
Victor A. Roque(1) 12/31/94 2,063 20,625 30,938
James F. Smith(4) 12/31/94 0 0 0
(4) 0 12/31/97 0 0 0
</TABLE>
- ---------------
(1) Estimated long-term awards under the Company's Incentive Plan.
(2) Awards under the subsidiary Performance Unit Incentive Plan.
(3) Not applicable.
(4) Rights under the Performance Unit Incentive Plan and the Incentive
Compensation Plan were cancelled as a result of Mr. Smith's termination of
employment for cause.
PENSION PLAN
The following table sets forth as of January 1, 1994 the estimated
aggregate annual benefit payable under the Company's non-contributory Employees'
Retirement Plan ("Retirement Plan") as well as the Officers' Supplemental
Retirement Plan ("Supplemental Plan") to participants in the Supplemental Plan
upon retirement at age 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
125,000 62,500 75,000 78,125 81,250 84,375
150,000 75,000 90,000 93,750 97,500 101,250
175,000 87,500 105,000 109,375 113,750 118,125
200,000 100,000 120,000 125,000 130,000 135,000
225,000 112,500 135,000 140,625 146,250 151,875
250,000 125,000 150,000 156,250 162,500 168,750
300,000 150,000 180,000 187,500 195,000 202,500
400,000 200,000 240,000 250,000 260,000 270,000
450,000 225,000 270,000 281,250 292,500 303,750
500,000 250,000 300,000 312,500 325,000 337,500
550,000 275,000 330,000 343,750 357,500 371,250
600,000 300,000 360,000 375,000 390,000 405,000
650,000 325,000 390,000 406,250 422,500 438,750
</TABLE>
Compensation covered by the Retirement Plan consists of regular
compensation, which excludes any bonus, overtime, special pay or incentive
compensation. Compensation covered by the Supplemental Plan consists of regular
compensation and, in addition, for officers who have completed at least 11 years
of service, incremental portions of an amount equal to the scheduled one-year
annual award under the Company's Incentive Plan, up to 100 percent of such
amount for officers with 20 years or more of service. The current compensation
covered by the Supplemental Plan for each of the individuals listed on the
Summary Compensation Table is as follows: Mr. Blanchet, $275,638; Mr. Chambers,
$233,700; Mr. Fischer, $167,969;
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<PAGE> 22
Mr. Folchi, $175,781; Mr. Roque, $166,016; and Mr. Smith $503,533. Amounts shown
in the Pension Plan Table are calculated on the basis of years of credited
service under the Supplemental Plan. Under the Supplemental Plan, the years of
credited service for the individuals named in the Summary Compensation Table are
as follows: Mr. Blanchet, 17 years; Mr. Chambers, 22 years; Mr. Fischer, 16
years; Mr. Folchi, 23 years; Mr. Roque, 15 years; and Mr. Smith, 29 years. Under
the Retirement Plan, each individual has one year less of credited service.
Benefits payable at age 65 are reduced 1/3 of 1% for each month the participant
is under 60 years of age at the time benefits commence. Mr. Smith elected to
commence receiving his benefits payable under the Retirement Plan and
Supplemental Plan as of November 30, 1993.
The Retirement Plan provides for benefits based on modified career average
earnings. The benefit formula is (1) an amount equal to 2% of compensation for
each year of credited service after December 31, 1986 (including two additional
years of credited service at the final rate of base pay limited to $150,000) and
(2) an additional amount equal to 1 1/2% of the annual rate of compensation as
of January 1, 1987 multiplied by the number of years of credited service prior
to that date. A participant's benefits become vested upon completion of five
years of eligible service or on reaching age 65. Benefits under the Retirement
Plan are not subject to Social Security or any other offset amounts. Directors
who are not employees of the Company are not covered by the Retirement Plan. In
the event of a change in control of the Company, benefits would vest immediately
and could be increased to the extent of surplus funds held under the Retirement
Plan.
The Supplemental Plan is designed to provide additional retirement benefits
to officers of the Company who have at least five years of service as officers.
The Supplemental Plan provides for benefits calculated by applying a percentage
based on years of service to average compensation over the three years of
highest compensation, reduced by the participant's Retirement Plan benefit. For
unvested participants, benefits would vest upon termination of employment
following a change in control of the Company. The Company has established a
trust under the Supplemental Plan. Notwithstanding the creation of the trust,
the Company continues to be primarily liable for the benefits payable under the
Supplemental Plan and will be obligated to make such payments to the extent the
trust does not.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In 1988, Mr. Smith entered into an agreement with the Company which
provided (as amended) for his employment as Chief Executive Officer of the
Company for a term ending on December 1, 1995. Under the agreement Mr. Smith was
to receive a base salary of $410,500 for 1993 and was eligible for participation
in the Company's Incentive Plan (described above) and other benefit
arrangements. The agreement also provided that in the event of the termination
of Mr. Smith's employment by the Company without cause or upon constructive
termination by the Company, Mr. Smith would have received his base salary for 36
months following termination as well as one-year and three-year incentive awards
for such period on a specified basis. Constructive termination of employment was
defined in the agreement as Mr. Smith's termination of his own employment
following, among other things, a reduction in his compensation or benefits, a
loss of his position or a diminution of his duties or responsibilities or the
assignment to him of duties inconsistent with his position. Mr. Smith's
employment as Chief Executive Officer has been terminated for cause. See "Recent
Developments". As a result, he is entitled to receive only amounts earned
through the date of his termination and will not receive the payments referred
to above. In a lawsuit filed on February 7, 1994, the Company seeks to recover
certain compensation paid or awarded to Mr. Smith, which may include deferred
salary and incentive compensation.
The Company has entered into severance agreements with each of its officers
(excluding Mr. Smith, who is a party to an employment agreement described above)
in order to provide for certain payments in the event of an involuntary
termination other than for cause, or termination by the individual for good
reason, in each case within 24 months following a change in control of the
Company. The principal benefits consist of a lump-sum severance payment equal to
three times the individual's five-year average annual W-2 compensation, less one
dollar, and continuation of the individual's life, medical and dental insurance
for a period of 24 months. Payments to be made would be reduced to the extent of
payments that the individual receives under the Company's Severance Pay Plan
(described below). Payments in an amount which would otherwise cause the
imposition of the parachute payment excise tax under section 280G of the
Internal Revenue Code of 1986, as
19
<PAGE> 23
amended, could be further reduced to prevent imposition of such tax. The Company
has established a trust which, in the event of a change in control of the
Company, will be used for the payment of its obligations to its officers under
these severance agreements. Notwithstanding the creation of the trust, the
Company continues to be primarily liable for the compensation and benefits
payable to its officers (whether before or after any such change in control) and
will be obligated to make such payments to the extent that the trust does not.
The Company has a Severance Pay Plan ("Severance Plan") applicable to all
non-bargaining unit personnel with one or more years of service. The Severance
Plan provides eligible employees with specified severance pay upon a termination
of employment for the Company's convenience or following a change in control of
the Company. An employee terminated for the convenience of the Company or within
two years after a change in control of the Company is entitled to receive a
severance payment calculated under formulas based on years of service and salary
grades, with higher benefits being paid to employees in higher salary grades.
Aggregate severance payments, which cannot exceed an employee's annual
compensation, are payable monthly at the employee's final rate of compensation
or, in the event of a change in control of the Company, immediately. In
addition, pension, life and health insurance benefits are continued for eligible
employees following termination of employment for the severance period.
The Company maintains insurance providing for reimbursement, with certain
exclusions and deductions, to the Company for payments it makes to indemnify
directors and officers for losses, costs and expenses incurred by them in
actions brought against them in connection with their acts in those capacities
and to directors and officers for such losses, costs and expenses for which they
are not indemnified by the Company. In addition, such insurance covers directors
and officers and certain other persons against certain liabilities which could
arise in connection with the administration of the Company's retirement and
benefit plans. The Company's current contract for such insurance, which became
effective May 16, 1993, is with National Union Fire Insurance Company of
Pittsburgh, Pennsylvania. The annual premium cost is $218,148.
2. AS TO THE REMOVAL OF JAMES F. SMITH FROM THE
BOARD OF DIRECTORS FOR CAUSE
On October 5, 1993, the independent Directors determined to terminate for
cause the employment of James F. Smith as Chief Executive Officer of the Company
and to remove him as Chairman of the Board. On October 7, 1993, notice of his
termination for cause was delivered to Mr. Smith and he was suspended from all
duties effective immediately. See "Recent Developments" on page 7 above.
Under Mr. Smith's employment agreement, "cause" is defined to include
serious, wilful misconduct or gross neglect of duties which has resulted, or in
all probability is likely to result, in material economic damage to the Company.
The principal basis for the independent Directors' determination that there was
adequate evidence for Mr. Smith's termination was their judgment that the
evidence uncovered by the investigation and presented to the independent
Directors justified a conclusion that Mr. Smith had engaged in serious, wilful
misconduct and had grossly neglected his duties. Specifically, the independent
Directors determined that the evidence justified conclusions that Mr. Smith had
engaged in numerous and repeated transactions involving use of the Company's
resources and assets for the personal benefit of Mr. Smith, his family and
friends; numerous and repeated expenditures of Company funds by Mr. Smith that
had no adequate business purpose; numerous and repeated violations and evasions
of the Company's internal controls; failure by Mr. Smith to properly supervise,
or cause the proper supervision of, Ms. Winikow; numerous and repeated
violations of Company policies; failures by Mr. Smith to make candid and
forthcoming disclosures in connection with the Special Committee's investigation
and other actions by Mr. Smith to hinder and obstruct the investigation. The
independent Directors further concluded that the Company had suffered and/or in
all probability was likely to suffer material economic damage as a result of the
foregoing, including:
(i) the monetary losses caused by misappropriation or misuse of Company
funds and assets;
(ii) the adverse effect of the foregoing events on the Company's
relations with the New York Public Service Commission and, in
particular, the threatened termination by the Public Service
Commission of the Company's pending electric rate proceeding, and
the costs and burdens that would be required to satisfy the Public
Service Commission that the Company's internal controls function
satisfactorily;
20
<PAGE> 24
(iii) the costs and legal exposure resulting from civil and criminal
proceedings and inquiries that were pending or were likely to arise;
(iv) the costs and disruption already incurred and to be suffered by the
Company as a result of the need to conduct a thorough and complete
investigation of the matters referred to above; and
(v) the substantial adverse effect on the Company arising from adverse
publicity, loss of business reputation and adverse effect on employee
morale.
The bases for Mr. Smith's termination of employment for cause were stated in the
notice of termination for cause delivered to Mr. Smith. Mr. Smith has stated
that he disputes the allegations set forth in the notice of termination for
cause.
On February 7, 1994, the Company commenced an action against Mr. Smith in
New York State Supreme Court by the filing of a Summons with Notice. The Summons
alleges causes of action for breach of the fiduciary duties of loyalty and care,
waste, conversion, fraud, and unjust enrichment based on allegations that Mr.
Smith misused Company assets and personnel and misappropriated Company funds for
his own benefit or for other improper purposes, and failed to maintain proper
management controls or to properly supervise corporate affairs and subordinate
employees.
The Company served a complaint in that action on March 16, 1994. Unless
otherwise extended, Mr. Smith's answer will be due 20 days after the complaint
was served. The complaint alleges causes of action for breaches of fiduciary
duty, inducing breach of fiduciary duty by others, fraud, conversion, unjust
enrichment, waste and an accounting of Company property and funds. More
particularly, the complaint alleges, among other things, that (i) Mr. Smith
intentionally misappropriated and converted Company funds, assets and services
to his own use by causing the Company to pay, through the submission of false
and inaccurate expense reports, for personal expenses associated with his
travel, entertainment, purchases of merchandise, use of Company vendors and use
of the Company's conference center facilities; (ii) Mr. Smith engaged in a
pattern of excessive and extravagant expenditures of Company funds in connection
with purported business travel, entertainment and Company-sponsored events that
had no legitimate business purpose or conferred little or no benefit to the
Company's business, and constituted waste of corporate assets; and (iii) Mr.
Smith failed to institute and maintain adequate internal controls, failed to
supervise subordinate employees, including Ms. Winikow and knowingly permitted,
induced and authorized the personal use of Company funds, assets and services by
other Company officers. The Company seeks an accounting by Mr. Smith of certain
Company funds and property, restitution of all amounts misappropriated, misused,
or unaccounted for, forfeiture of compensation paid or awarded by the Company to
Mr. Smith during the period in which breaches of fiduciary duties occurred,
compensatory damages in an amount not less than $5 million and punitive damages.
Mr. Smith currently is a Director of the Company. Under the Company's
Certificate of Incorporation and By-Laws, the Directors do not have the power to
remove another Director for cause or otherwise. The Company's By-Laws (Article
III, Section 3.2) do provide that a Director may be removed by the shareholders
for cause at any time by the affirmative vote of the holders of at least 80
percent of the combined voting power of all the then-outstanding shares of stock
of all classes and series of the Company entitled to vote generally, voting
together as a single class. The By-Laws do not define "cause." The By-Laws also
provide that the Company must notify a Director of the grounds of his pending
removal and the Director is entitled to present to shareholders, at the expense
of the Company, his defense by a statement which accompanies or precedes the
Company's solicitation of proxies to remove him. If the shareholders approve the
proposal to remove Mr. Smith as a Director for cause, the Board of Directors
intends to reduce the number of Directors from 10 to 9.
On February 3, 1994, the independent Directors determined that it was in
the best interests of the Company and the shareholders that Mr. Smith be removed
for cause as a Director and approved the submission of such a proposal to the
shareholders. Because of the Board of Directors' conclusion that all matters
relating to Mr. Smith's status should be determined only by the independent
Directors, Messrs. Blanchet, Chambers, and Smith did not vote on the proposal.
The Company delivered the following
21
<PAGE> 25
letter dated February 3, 1994 to Mr. James F. Smith notifying him of the grounds
for his proposed removal for cause as a Director of the Company:
Dear Mr. Smith:
This letter will set forth the grounds of the Company's proposal to
remove you from the Board of Directors for cause, as required by Section
3.2 of the Company's By-Laws.
The independent Directors believe that any Director, to serve
effectively, must enjoy the trust and confidence of his fellow Directors.
For the reasons set forth in the notice of your termination for cause as
Chief Executive Officer, this is no longer true in your case. In addition,
you have asserted that you intend to contest your termination for cause,
and your conduct in your former capacity of Chief Executive Officer
continues to be the subject of investigation by the Special Committee. We
do not believe that a Director with such adversarial interests should
continue to serve as a Director.
In sum, the independent Directors and the Company believe that you can
no longer effectively serve the interest of the Company and its
shareholders as a Director and, accordingly believe that it is in the best
interests of the Company and its shareholders that you be removed from the
Board of Directors for cause.
Section 3.2 of the Company's By-Laws provides that you are entitled to
present to the shareholders, at the expense of the Company, a defense in
connection with your proposed removal by a statement which accompanies or
precedes the solicitation of proxies to effect your proposed removal. If
you wish to submit such a statement, please deliver it to the Company,
attention General Counsel, by no later than February 10, 1994 and, if
received by such date, such statement will be included with the Company's
proxy statement that is distributed to its shareholders.
Very truly yours,
ORANGE AND ROCKLAND UTILITIES, INC.
/s/ H. Kent Vanderhoef
H. Kent Vanderhoef
Acting Chairman of the Board
Mr. Smith's statement in opposition to his proposed removal as a Director
of the Company is set forth below.
February 10, 1994
To the Shareholders of Orange & Rockland Utilities:
I ask the shareholders of Orange & Rockland to reject the efforts of the
Board of Directors to have me removed as a Director of your Company. I have
spent most of my adult life in the service of Orange & Rockland. My only goals
have been to serve the Company and to secure its continued growth and financial
stability so that it may serve effectively and efficiently the communities of
which it is a part.
I believe that my efforts have been reflected in the performance of the
Company and have brought value to you. Under my leadership as your Chief
Executive Officer for fourteen years, dividends to shareholders have increased
every year and a $100 investment in 1979 has had a cumulative total return of
$1,162.
22
<PAGE> 26
I am pleased that as a result of the Lovett Coal Reconversion Project, the
Company has moved from almost total dependence in 1979 on oil for electric
generation to reliance on a less expensive, more secure fuel mix of coal,
natural gas and oil for generation. The Company was among the first to develop a
gas marketing business following the deregulation of the natural gas industry in
the mid-1980s. The Company became nationally known for innovative rate making.
The Board of Directors purported to terminate my service as Chief Executive
Officer of the Company by a Notice of Termination dated October 7, 1993. I
dispute the allegations contained in the Notice of Termination. I contend that
the termination is designed to deny me my rights under my Employment Agreement
as well as my pension rights and I intend to enforce such rights.
I have never misused my former office, never permitted my personal
interests to interfere with the successful performance of my duties, and never
have I intentionally violated the trust you have bestowed upon me. My
compensation and performance as Chief Executive Officer of the Company have been
reviewed annually by independent Compensation and Audit Committees of the Board
of Directors and by the entire Board. I have always acted in good faith and
exercised my best judgment in hiring and in delegating responsibilities to other
members of the Company's senior management and staff to manage the affairs of
the Company. I am as disappointed as you are to learn of alleged or admitted
misconduct by one former officer of the Company, but I had no involvement in
that matter whatsoever.
I have welcomed the opportunity to serve the Company, its shareholders and
the communities in which it is involved. I can only ask you to permit me to
continue to serve you in the capacity of Director and to utilize my experience
and knowledge on your behalf.
Sincerely,
/s/ James F. Smith
James F. Smith
THE INDEPENDENT DIRECTORS OF THE COMPANY UNANIMOUSLY BELIEVE THAT THE
REMOVAL OF MR. SMITH AS A DIRECTOR FOR CAUSE WOULD BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMEND THAT THE SHAREHOLDERS
VOTE FOR THE REMOVAL OF MR. SMITH FROM THE BOARD OF DIRECTORS FOR CAUSE.
3. AS TO THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
In accordance with the recommendations of its Audit Committee, the Board of
Directors recommends that the shareholders authorize the appointment of the firm
of Arthur Andersen & Co., independent public accountants, to audit the books,
records and accounts of the Company and its subsidiaries for the year 1994.
The accounting firm of Grant Thornton audited the Company's consolidated
financial statements for 1993 and prior years. Upon recommendation of the Audit
Committee, the Board of Directors decided to solicit bids for the performance of
auditing services for the Company for 1994. Bids were received from six public
accounting firms, including Grant Thornton. Based on a review of the competing
bids, the Audit Committee concluded that the selection of Arthur Andersen & Co.
would be in the best interests of the Company. The Board of Directors of the
Company approved the recommendation of the Audit Committee.
The reports of Grant Thornton on the Company's consolidated financial
statements for the past two fiscal years did not contain an adverse opinion or a
disclaimer of opinion and the reports were not qualified or modified as to
uncertainty, audit scope or accounting principles, except that the report for
1993 has been modified by inclusion of an explanatory paragraph regarding the
uncertainty of the pending investigations of the Company and related litigation
described under "Recent Developments". Since January 1, 1992, there have been no
disagreements with Grant Thornton on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which,
if not resolved to the satisfaction of Grant Thornton, would have caused Grant
Thornton to make reference to the subject matter of such disagreements in
connection with its report.
23
<PAGE> 27
Representatives of Arthur Andersen & Co. will be present at the Annual
Meeting. They will be afforded the opportunity to make a statement, should they
desire to do so, and to respond to appropriate questions. Grant Thornton has
indicated it does not plan to attend the Annual Meeting.
While there is no legal requirement that this proposal be submitted to a
vote of the shareholders, approval of the shareholders is being requested
because the Board of Directors believes that the selection of independent public
accountants to audit the books, records and accounts of the Company and its
subsidiaries is of sufficient importance to seek such approval. If this proposal
is rejected, the Board of Directors would, in due course and having regard for
the requirements of orderly procedure, select other independent public
accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
4. AS TO OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Directors does not intend to bring any matters before the
meeting other than those referred to above and knows of no other matters which
may come before the meeting. If any other matters or motions come before the
meeting, it is the intention of the persons named in the accompanying form of
proxy to vote such proxy in accordance with their judgment on such matters or
motions, including any matters dealing with the conduct of the meeting.
DEADLINE FOR SHAREHOLDER PROPOSALS
December 7, 1994 is the date by which proposals of shareholders of the
Company intended to be presented at the 1995 Annual Meeting of Shareholders of
the Company must be received by the Company for inclusion in the Company's proxy
statement and form of proxy relating to that meeting.
MISCELLANEOUS
This solicitation is by the Board of Directors of the Company and the
expenses of solicitation, including reimbursement for postage and clerical
expenses to brokerage houses and other custodians, nominees or fiduciaries for
forwarding documents to beneficial owners of Common Stock held in their names,
will be borne by the Company. The Company has retained Morrow & Co., Inc. and
Kissel-Blake Inc. to assist with the solicitation of proxies for fees of
$31,000, plus reimbursement of out-of-pocket expenses. Approximately
employees of Morrow & Co., Inc. and Kissel-Blake Inc. will be engaged in
the solicitation of proxies on behalf of the Company. In addition, Directors,
officers or other senior managers of the Company may solicit proxies by
telephone or in person, the costs of which will be nominal. The Company
estimates that the total costs to the Company associated with the solicitation
of proxies will be $ . To date, the Company has expended
$ in expenses related to this proxy solicitation.
By Order of the Board of Directors,
H. KENT VANDERHOEF
Acting Chairman of the Board of
Directors
THE COMPANY WILL FURNISH WITHOUT CHARGE TO ANY SHAREHOLDER ENTITLED TO VOTE
AT THE ANNUAL MEETING OF COMMON SHAREHOLDERS TO BE HELD MAY 11, 1994 A COPY OF
ITS ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES
THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE YEAR 1993, UPON WRITTEN REQUEST TO VICTOR A. ROQUE, VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY, ORANGE AND ROCKLAND UTILITIES, INC., ONE BLUE HILL PLAZA,
PEARL RIVER, NEW YORK 10965.
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<PAGE> 28
APPENDIX A
The following table shows all securities of the Company purchased within
the last two years by each present Director who purchased securities during such
period, the dates on which such securities were purchased and the amount
purchased on each date. (Note: only month and year information is available for
shares acquired through the reinvestment of dividends under the Company's
Management Employee's Savings Plan.)
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
NAME DATE PURCHASED DATE PURCHASED
- -------------------------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Ralph M. Baruch 2/3/92 155 2/16/93 46
5/4/92 52 5/13/93 44
6/3/92 101 8/20/93 45
8/3/92 49 11/9/93 50
11/2/92 50 2/3/94 54
Victor J. Blanchet, Jr. 1/92 16 7/93 15
4/92 17 8/20/93 4
7/92 16 10/93 16
10/92 16 11/9/93 4
1/93 15 2/3/94 5
4/93 14
Patrick J. Chambers, Jr. 1/92 50.2058 5/13/93 0.1945
4/92 53 7/93 45.2009
7/92 49 8/20/93 0
10/92 49 10/93 49.2210
1/93 47 11/9/93 0
2/16/93 0 2/3/94 0.2415
4/93 44
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
J. Fletcher Creamer 2/3/92 20 2/16/93 62
3/2/92 3,000 5/13/93 46
5/4/92 21 8/20/93 47
8/3/92 67 11/9/93 52
11/2/92 67 2/3/94 57
Frank A. McDermott, Jr. 2/3/92 10 8/3/92 10
5/4/92 8 2/16/93 4
James F. Smith 1/92 64 1/93 60
4/92 67 4/93 56
7/92 62 7/93 57
10/92 63 10/93 62
Linda C. Taliaferro 2/3/92 1 5/13/93 1
5/4/92 1 8/20/93 1
8/3/92 1 11/9/93 1
11/2/92 1 2/3/94 1
2/16/93 1
H. Kent Vanderhoef 4/22/92 1,000
John F. White 2/3/92 13 5/13/93 11
5/4/92 14 8/20/93 12
8/3/92 12 11/9/93 13
11/2/92 14 2/3/94 14
2/16/93 12
</TABLE>
In addition, on January 30, 1992, Patrick J. Chambers, Jr. sold 836 shares
of stock he owned beneficially.
A-1
<PAGE> 29
ORANGE AND ROCKLAND UTILITIES, INC.
COMMON STOCK PROXY FOR ANNUAL MEETING, MAY 11, 1994
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby appoints H.
KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, and each of
them, proxies, with power of substitution to each to vote and act at the annual
meeting of ORANGE AND ROCKLAND UTILITIES, INC. to be held at 75 West Route 59,
Spring Valley, New York, on Wednesday, May 11, 1994, at 10:30 A.M., and at
any adjournments thereof, on and with respect to the Common Stock of the
undersigned, or on and with respect to which the undersigned is entitled to
vote or act, as indicated on the reverse side, and as set forth in the notice
and proxy statement dated April 16, 1994.
(Continued, and to be dated and signed, on other side)
I PLAN TO ATTEND MEETING [ ]
EVERY PROPERLY SIGNED PROXY WILL BE VOTED (OR NOT VOTED) IN ACCORDANCE WITH
SPECIFICATIONS MADE BELOW, AND WILL BE VOTED FOR THE ELECTION OF ALL PERSONS
NAMED AND FOR THE ACTIONS PROPOSED IF NO INSTRUCTIONS ARE INDICATED.
------ -----
COMMON D.R.S
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE FOLLOWING PROPOSALS.
Item 1-To elect the following three directors
3-Year Term -- J.F. Creamer
K.D. McPherson
L.C. Taliaferro
To withhold authority to vote for any individual nominee(s), print that
nominee's name below:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
Item 2--To remove James F. Smith from the Board of Directors for cause. [ ] [ ] [ ]
Item 3--To appoint Arthur Andersen & Co. as independent public accountants for [ ] [ ] [ ]
1994.
Item 4--In their discretion, the proxies are authorized to act on such other
matters as may properly come before the meeting or any adjournments thereof.
</TABLE>
All powers may be exercised by a majority of said proxies or said substitutes
voting or acting or, if only one votes and acts, then by that one.
Dated: , 1994
-------------------------------------
- --------------------------------------------------
Signature
- --------------------------------------------------
Signature
(NOTE: Signature should agree with name imprinted hereon. Executors,
administrators, trustees, guardians and attorneys should so indicate when
signing. If stock is registered in more than one name, each joint owner should
sign.)
IMPORTANT: PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
