<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-672
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Rochester Gas and Electric Corporation
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(Exact name of registrant as specified in its charter)
New York 16-0612110
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
89 East Avenue, Rochester, NY 14649
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 546-2700
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N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $5 par value, at April 30, 1996: 38,811,123
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<PAGE>
INDEX
Page No.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheet - March 31,1996 and
December 31, 1995................................... 1 - 2
Consolidated Statement of Income - Three Months Ended
March 31, 1996 and 1995.............................. 3
Consolidated Statement of Cash Flows - Three Months
Ended March 31,1996 and 1995........................ 4
Notes to Financial Statements.......................... 5 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8 -14
PART II - OTHER INFORMATION
Legal Proceedings...................................... 14
Submission of Matters to a Vote of Security Holders.... 14
Other Information...................................... 14 -15
Exhibits and Reports on Form 8-K....................... 15
Signatures............................................. 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROCHESTER GAS AND ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant
Electric $2,359,666 $2,342,981
Gas 383,907 382,071
Common 136,940 135,526
Nuclear fuel 218,725 207,525
---------- ----------
3,099,238 3,068,103
Less: Accumulated depreciation 1,370,622 1,345,552
Nuclear fuel amortization 177,728 173,326
---------- ----------
1,550,888 1,549,225
Construction work in progress 126,603 121,725
---------- ----------
Net Utility Plant 1,677,491 1,670,950
---------- ----------
Current Assets
Cash and cash equivalents 44,455 44,121
Accounts receivable, net of allowance for
doubtful accounts: 1996 - $10,650, 1995 - $11,950 155,936 121,123
Unbilled revenue receivable 54,735 64,169
Materials and supplies, at average cost:
Construction and other supplies 10,776 10,223
Fossil fuel 5,113 8,101
Gas stored underground 958 20,326
Prepayments 34,275 24,533
---------- ----------
Total Current Assets 306,248 292,596
---------- ----------
Investment in Empire 38,879 38,879
Deferred Debits
Nuclear generating plant decommissioning fund 77,355 71,540
Nine Mile Two deferred costs 32,148 32,411
Deferred finance charges - Nine Mile Two 19,242 19,242
Unamortized debt expense 15,953 16,712
Other deferred debits 29,629 21,857
Regulatory assets:
Income taxes 186,588 188,599
FERC 636 transition costs 38,816 40,965
Uranium enrichment decommissioning deferral 18,283 18,707
Deferred ice storm charges 15,914 16,553
Demand side management costs 12,438 14,759
Other regulatory assets 30,326 31,623
---------- ----------
Total Regulatory assets 302,365 311,206
---------- ----------
Total Deferred Debits 476,692 472,968
---------- ----------
Total Assets $2,499,310 $2,475,393
- ---------------------------------------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
ROCHESTER GAS AND ELECTRIC CORPORATION
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Capitalization and Liabilities 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Capitalization
Long term debt - mortgage bonds $ 575,345 $ 624,332
- promissory notes 91,900 91,900
Preferred stock redeemable at option of Company 67,000 67,000
Preferred stock subject to mandatory redemption 55,000 55,000
Common shareholders' equity:
Common stock
Authorized 50,000,000 shares; 38,635,622
shares outstanding at March 31, 1996
and 38,453,163 shares outstanding at
December 31, 1995. 691,709 687,518
Retained earnings 93,566 70,330
---------- ----------
Total common shareholders' equity 785,275 757,848
---------- ----------
Total Capitalization 1,574,520 1,596,080
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Long Term Liabilities (Department of Energy)
Nuclear waste disposal 76,051 75,077
Uranium enrichment decommissioning 15,782 15,810
---------- ----------
Total Long Term Liabilities 91,833 90,887
---------- ----------
Current Liabilities
Long term debt due within one year 18,000 18,000
Notes Payable - Empire 29,600 29,600
Accounts payable 48,934 52,578
Dividends payable 19,252 19,170
Taxes accrued 52,581 18,638
Interest accrued 15,978 12,844
Other 27,564 31,508
---------- ----------
Total Current Liabilities 211,909 182,338
---------- ----------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 369,255 377,652
Pension costs accrued 71,637 71,580
Deferred finance charges - Nine Mile Two 19,242 19,242
Other 160,914 137,614
---------- ----------
Total Deferred Credits and Other Liabilities 621,048 606,088
---------- ----------
Commitments and Other Matters (Note 2) - -
---------- ----------
Total Capitalization and Liabilities $2,499,310 $2,475,393
---------------------------------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
ROCHESTER GAS AND ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Operating Revenues
Electric $170,508 $163,499
Gas 131,816 112,867
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302,324 276,366
Electric sales to other utilities 6,871 4,753
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Total Operating Revenues 309,195 281,119
Fuel Expenses
Fuel for electric generation 11,112 11,075
Purchased electricity 8,951 7,469
Gas purchased for resale 71,759 62,546
--------- ---------
Total Fuel Expenses 91,822 81,090
Operating Revenue less Fuel Expenses 217,373 200,029
Other Operating Expenses
Operations excluding fuel expenses 61,602 56,861
Maintenance 9,512 10,523
Depreciation and amortization 23,489 22,409
Taxes - local, state and other 36,507 38,331
Federal income tax 29,397 25,348
--------- ---------
Total Other Operating Expenses 160,507 153,472
Operating Income 56,866 46,557
Other Income and Deductions
Allowance for other funds
used during construction 245 207
Federal income tax 598 1,122
Other - net 320 (3,120)
--------- ---------
Total Other Income and Deductions 1,163 (1,791)
Income before Interest Charges 58,029 44,766
Interest Charges
Long term debt 12,877 13,105
Other - net 3,382 1,853
Allowance for borrowed funds
used during construction (719) (711)
--------- ---------
Total Interest Charges 15,540 14,247
Net Income 42,489 30,519
Dividends on Preferred Stock 1,866 1,866
--------- ---------
Earnings Applicable to Common Stock $ 40,623 $ 28,653
--------- ---------
Weighted average number of shares
outstanding in each period (000's) 38,577 37,805
Earnings per Common Share $1.05 $0.75
Cash Dividends Paid per Common Share $0.45 $0.45
</TABLE>
- ------------------------------------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
ROCHESTER GAS AND ELECTRIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995*
---------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATIONS
Net income $ 42,489 $ 30,519
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization 23,489 22,409
Amortization of nuclear fuel 5,376 4,438
Deferred fuel costs - electric 5,174 1,363
Deferred fuel costs - gas 19,981 20,466
Deferred income taxes (6,385) (15,048)
Allowance for funds used during construction (964) (918)
Unbilled revenue, net 9,434 8,038
Deferred ice storm costs 639 639
Nuclear generating plant decommissioning fund (2,252) (3,221)
Pension costs accrued (1,022) 94
Post employment benefit internal reserve 1,598 973
Research and development amortization 1,228 781
Rate settlement amortizations 1,741 2,160
Changes in certain current assets and liabilities:
Accounts receivable (34,813) (30,745)
Materials and supplies - gas stored underground 19,368 18,933
- other, net 2,435 1,846
Taxes accrued 33,943 45,330
Accounts payable (3,644) (294)
Interest accrued 3,134 3,208
Other current assets and liabilities, net (14,769) (7,480)
Other, net (5,651) 6,214
--------- ---------
Total Operating $100,529 $109,705
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Utility Plant
Plant additions $(27,050) $(31,231)
Nuclear fuel additions (11,200) (11,519)
Less: Allowance for funds used during construction 964 918
--------- ---------
Additions to Utility Plant (37,286) (41,832)
Other, net (14) 5
--------- ---------
Total Investing $(37,300) $(41,827)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from:
Sale/Issue of common stock $ 4,214 $ 4,365
Short term borrowings - (49,100)
Retirement of long term debt (49,000) -
Capital stock expense (23) (3)
Dividends paid on preferred stock (1,866) (1,866)
Dividends paid on common stock (17,304) (16,951)
Other, net 1,084 (2,482)
--------- ---------
Total Financing $(62,895) $(66,037)
--------- ---------
Increase in cash and cash equivalents $ 334 $ 1,841
Cash and cash equivalents at beginning of period $ 44,121 $ 2,810
--------- ---------
Cash and cash equivalents at end of period $ 44,455 $ 4,651
--------- ---------
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Three Months Ended March 31,
- -------------------------------------------------------------------------------------------------------------
(Thousands of Dollars) 1996 1995*
---------------------------------
<S> <C> <C>
Cash Paid During the Period
Interest paid (net of capitalized amount) $ 10,075 $ 10,565
Income taxes paid $ 8,000 $ -
</TABLE>
* Reclassified for comparative purposes.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
ROCHESTER GAS AND ELECTRIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1: GENERAL
The Company, in the opinion of management, has included adjustments (which
include normal recurring adjustments) necessary for a fair statement of the
results of operations for the interim periods presented. The consolidated
financial statements for 1996 are subject to adjustment at the end of the year
when they will be audited by independent accountants. The results for these
interim periods are not necessarily indicative of results to be expected for the
year, due to seasonal, operating, and other factors. These financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Note 2. COMMITMENTS AND OTHER MATTERS
The following matters supplement the information contained in Note 10 to
the financial statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and should be read in conjunction with the
material contained in that Note.
LITIGATION WITH CO-GENERATOR
During 1995 Kamine/Besicorp Allegany L.P. (Kamine) filed a petition before
the Federal Energy Regulatory Commission (FERC) to waive certain requirements
for federal Qualified Facility status for 1994. The Company and the New York
State Public Service Commission (PSC) filed in opposition to the request.
Subsequently FERC issued an order granting the waiver request and the Company's
motion for rehearing was denied. The Company has filed a petition for review
with the U.S. Court of Appeals for the District of Columbia Circuit.
In November 1995 Kamine filed in Newark, New Jersey for protection under the
Bankruptcy laws and filed a complaint in an adversary proceeding seeking, among
other things, specific performance of the Power Purchase Agreement. Kamine
filed a motion to compel the Company to pay under its view of the terms of the
Power Purchase Agreement during the pendency of the Adversary Proceeding. After
hearing, the Bankruptcy Court denied that motion. The Court also denied various
motions made by the Company to change the venue of the proceedings to New York
State and to lift the automatic stay of the pending New York State action. The
Company has appealed to the U.S. District Court from the denial of its motions.
The PSC filed a motion to lift the stay to permit it to proceed with its
investigation of the cogeneration facility under New York State Law but the
motion was denied. Kamine sought an order requiring the Company to pay 3.7
cents per kilowatt hour for power produced during the pendency of the proceeding
but the motion was denied, although the Company was ordered to pay $1.6 million
for power delivered in October 1995 under the terms of a temporary restraining
order that had been entered by the U.S. District Court for the Western District
of New York. General Electric Capital Credit (GECC), which provided financing
to the cogeneration project, has intervened in the Adversary Proceeding as a
plaintiff. The Company has filed an answer with affirmative defenses and
counterclaims in the Adversary Proceeding. In April 1996, the Bankruptcy Court
dismissed one of the Company's counterclaims, noting that the Company could
bring that claim in a separate action at a later date. That counterclaim
alleged that GECC failed to disclose that they knew the Power Purchase Agreement
could not be performed when it was financed in August of 1993. The remaining
counterclaims seek the same relief sought in the New York State court action.
The parties are now engaged in discovery in connection with the Adversary
Proceeding. A trial date of June 18, 1996 has been scheduled in the Adversary
Proceeding. The Company has filed for an extension in the discovery period and
a delay in the trial date but the Court has not ruled on that motion.
5
<PAGE>
The existence of mandated high priced independent power purchase agreements
is a significant problem throughout the State of New York and there are various
efforts by State officials to resolve the problem. The Company continues to
work to resolve this particular dispute in a fashion that is fair and equitable
to all parties; however, we will continue to take aggressive action on behalf of
customers and the Company to assure that their interests are respected in any
resolution. The Company is unable to predict the ultimate outcome of these
legal proceedings. For further information with respect to the Kamine contract
and related litigation see the Company's 1995 Form 10-K, Item 8, Note 10 of the
Notes to Financial Statements.
1995 GAS SETTLEMENT
Under provisions of the 1995 Gas Settlement with the Staff of the PSC and
other parties, the Company faces an economic risk of remarketing $74.2 million
of excess gas capacity through 1998. The Company has entered into a marketing
agreement with CNG that is expected to result in the release of approximately
$29 million of this capacity through the period. CNG will assist the Company in
obtaining permanent replacement customers for transportation capacity the
Company will not require. The Company is also in the process of implementing
transportation and storage capacity reductions on the Empire and upstream
pipelines which represent approximately $21 million of release through the
period. To help manage the balance of the excess capacity costs at risk, the
Company has retained MidCon Gas Services Corporation which will work with the
Company to identify and implement opportunities for temporary and permanent
release of surplus pipeline capacity and advise in the management of the
Company's gas supply, transportation and storage assets consistent with the
goals of providing reliable service and reducing the cost of gas.
During the course of the negotiation of the 1995 Gas Settlement, the FERC
approved a change in rate design for the Great Lakes Gas Transmission Limited
Partnership ("Great Lakes") on which the Company holds transportation capacity.
This change resulted in a retroactive surcharge by Great Lakes to the Company in
the amount of approximately $7 million. Under the terms of the 1995 Gas
Settlement, the Company may recover a portion of the surcharge in rates charged
to customers; but the remainder may not be passed through. The Company is
vigorously contesting the Great Lakes assessment before the FERC. However on
April 25, 1996, the FERC upheld its prior determination and concluded that the
charge to the Company is proper. The Company has filed a petition for review
with the U.S. Court of Appeals and will pursue all options of appeal available
at the FERC. The ultimate outcome of the Company's appeal to the FERC and any
judicial review that may be sought following the FERC decision cannot be
predicted.
The ultimate financial impact of the 1995 Gas Settlement on the Company's
business in 1996 and subsequent years will be largely determined by the degree
of success achieved by the Company in remarketing its excess gas capacity and in
controlling its local gas distribution costs.
DECOMMISSIONING TRUST
The Nuclear Regulatory Commission (NRC) is currently considering proposals
which may impact financial funding requirements for decommissioning of nuclear
power plants. Under current NRC regulations electric utilities provide for
decommissioning funds annually over the estimated life of a plant. If
generating facilities were no longer subject to rate regulation, the related
source of income would become subject to competitive pricing; accordingly, the
NRC could require reactor licensees to provide assurance that the full estimated
cost of decommissioning will ultimately be available through some guarantee
mechanism.
The NRC is seeking public comment on a number of questions, including the
likely
6
<PAGE>
timetable for utility restructuring and deregulation and to what degree costs
will be recoverable if a large baseload plant is deemed to be non-competitive
because of high construction costs and what funding sources will be used to shut
down a plant prematurely and safely. These comments are due in late June after
which the NRC will finalize its proposal. See the Company's 1995 Form 10-K,
Item 8, Note 10 to the Financial Statements regarding the Company's plan for the
eventual decommissioning of the Ginna Nuclear Plant and its 14% share of Nine
Mile Two.
REGULATORY AND STRANDABLE ASSETS
The Company has deferred certain costs rather than recognize them on its books
when incurred. Such deferred costs are then recognized as expenses when they
are included in rates and recovered from customers. Such deferral accounting is
permitted by Statement of Financial Accounting Standards No. 71 (SFAS-71).
These deferred costs are shown as Regulatory Assets on the Company's Balance
Sheet. Such cost deferral is appropriate under traditional regulated cost-of-
service rate setting, where all prudently incurred costs are recovered through
rates. In a purely competitive pricing environment, such costs might not have
been incurred and could not have been deferred. Accordingly, if the Company's
rate setting was changed from a cost-of-service approach, and it was no longer
allowed to defer these costs under SFAS-71, these assets would be adjusted for
any impairment to recovery (see discussion under Financial Accounting Standards
No. 121). In certain cases, the entire amount could be written off.
Below is a summarization of the Regulatory Assets as of March 31, 1996.
<TABLE>
<CAPTION>
Millions
of Dollars
----------
<S> <C>
Income Taxes $186.6
Uranium Enrichment Decommissioning Deferral 18.3
Deferred Ice Storm Charges 15.9
FERC 636 Transition Costs 38.8
Demand Side Management Costs Deferred 12.5
Other, net 30.3
------
Total - Regulatory Assets $302.4
======
</TABLE>
See the Company's Form 10-K for the fiscal year ended December 31,
1995, Item 8, Note 10 of the Notes to Financial Statements, "Regulatory and
Strandable Assets" for a description of the Regulatory Assets shown above.
In a competitive electric market, strandable assets would arise when
investments are made in facilities, or costs are incurred to service customers,
and such costs are not fully recoverable in market-based rates. Examples
include purchase power contracts (e.g., the Kamine/Besicorp Allegany L.P.
contract), or high cost generating assets. Estimates of strandable assets are
highly sensitive to the competitive wholesale market price assumed in the
estimation. The amount of potentially strandable assets at March 31, 1996
cannot be determined at this time, but could be significant.
FINANCIAL ACCOUNTING STANDARDS
SFAS-121. In March 1995, the Financial Accounting Standards Board (FASB)
issued Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS-121).
SFAS-121 amends SFAS-71 to require write-off of a regulatory asset or strandable
asset if it is no longer probable that future rates will permit recovery of the
cost of the asset.
7
<PAGE>
SFAS-121 also requires a company to recognize a loss whenever events or
circumstances occur which indicate that the carrying amount of an asset may not
be fully recoverable. At March 31, 1996 the Company's regulatory assets totaled
$302.4 million. At the current time, the Company believes its regulatory assets
are probable of recovery and, accordingly, the adoption of this accounting
standard by the Company in the first quarter of 1996 has not impacted its
financial position or results of operations.
SFAS-123. SFAS-123, Accounting for Stock-Based Compensation, was adopted
by the Company in the first quarter of 1996. It recommends the use of a fair
value based method of accounting for compensation costs associated with stock-
based compensation.
The Company currently has Stock Appreciation Rights plans covering certain
employees and directors. For these plans, the Company's accounting policy has
been to use a fair value method of computing periodic compensation expense;
accordingly, the application of SFAS-123 has no significant impact on the
Company's financial position or results of operations. The aggregate amount
charged to expense as a result of these plans approximates $1.0 million
annually.
Futures Contracts. The Company periodically hedges natural gas storage
against possible changes in price. Hedges are always backed by gas commodity in
storage, and gains or losses resulting from these transactions are deferred
until the corresponding gas is withdrawn from storage and delivered to
customers. The Company had no open hedge contracts at March 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is Management's assessment of certain significant factors
affecting the financial condition and operating results of the Company.
EARNINGS SUMMARY
Earnings per common share for the current and prior year three month
periods ended March 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Earnings per share $1.05 $ .75
</TABLE>
The $.30 increase in earnings per share for the quarter is mainly
attributable to continued control of expenses coupled with the impact of an
extended period of cold weather on electric and gas sales this year, compared to
the earnings effect of unusually warm weather in the first quarter of 1995.
Future earnings will be affected, in part, by the Company's ability to
control certain costs and its ability to remarket excess gas capacity as set
under the terms of the 1995 Gas Settlement, which is discussed in Note 2.
The final outcome of the rate proposal submitted by the Company and
currently pending before the PSC as well as the impact of developing competition
in the energy marketplace are anticipated to affect future earnings.
COMPETITION
A decision in the PSC Competitive Opportunities case is expected in the
second quarter of 1996. The Company is unable to predict the outcome of that
decision
8
<PAGE>
but it could have a significant impact on the Company's business. See the
Company's Form 10-K for the fiscal year ended December 31, 1995, Item 7.-
"Competition" for a discussion of the PSC Competitve Opportunities Case, FERC
Open Transmission Proposals and the Company's Business Strategy . See Note 2 of
the Notes to Financial Statements for a discussion of Regulatory and Strandable
Assets and related accounting issues.
PSC Gas Restructuring Case. In October 1993, the PSC initiated a
proceeding to address issues involving the restructuring of gas utility services
to respond to competition. Subsequently, in December 1994, the PSC adopted a
policy to open up the natural gas market to competition on the local level.
This policy provides an opportunity for consumers to buy their gas supplies from
sources other than their utility (or local distribution company). By using the
PSC's policy principles as a guide, all gas utilities in New York State were
required to submit plans to restructure the delivery of natural gas in their
service territories.
In November 1995 the Company filed its restructuring plan with the PSC.
The Company's goals in the restructuring of the natural gas market at the local
level were:
- to allow customers a choice of gas suppliers,
- to ensure that no costs are shifted to customers choosing to remain
with the Company for their gas supply,
- to maintain the reliability of the distribution system, and
- to implement this change smoothly and successfully.
On March 28, 1996 the PSC approved utility restructuring plans designed
to open up the local natural gas market to competition and thereby allow
residential, small business and commercial/industrial users the same ability to
purchase their gas supplies from a variety of sources, other than the local
utility, that larger industrial customers already have. The key element in the
utility restructuring plans that makes it possible for customers to "shop
around" for sources of natural gas is aggregation - the ability of customers to
-----------
join together to make purchases. Aggregation is important to smaller customers,
such as residential and small business customers who individually might not have
the same degree of access to new sources of natural gas as larger customers
because of their lower usage.
On April 26, 1996 the Company filed, subject to PSC approval, updated
tariffs pursuant to the March 28 Order. This new service will be available to
customers on November 1, 1996. The Order does allow a phase in of the new
service in the first few years in order to ease possible implementation
problems.
RATES AND REGULATORY MATTERS
1995 Gas Settlement. Under provisions of the 1995 Gas Settlement, the
Company faces an economic risk of remarketing $74.2 million of excess gas
capacity through 1998. The ultimate financial impact of the 1995 Gas Settlement
on the Company's business in 1996 and subsequent years will be largely
determined by the degree of success achieved by the Company in remarketing its
excess gas capacity and in controlling its local gas distribution costs. For
further information with respect to the 1995 Gas Settlement see Note 2 of the
Notes to Financial Statements and the Company's 1995 Form 10-K Item 8, Note 10
of the Notes to Financial Statements.
1995 Rate Proposal. With the current three-year electric and gas rate
plan expiring in July 1996, the Company in July 1995 filed a request with the
PSC for new electric rate tariffs commencing in August 1996. The Company's rate
application is being litigated before a PSC Administrative Law Judge, but on May
10, 1996, the Company, PSC Staff and several other parties to the rate
application entered into a Settlement Agreement (1996 Settlement) resolving all
issues in the rate proceedings for a three-year period, commencing July 1, 1996
and concluding June 30, 1999. Under the 1996 Settlement, if approved by the
PSC, base electric rates (that is, rates excluding the Fuel Cost Adjustment
(FCA)) for the first year (commencing July 1, 1996)
9
<PAGE>
would be decreased to a level that would reduce revenues in an amount equal to
1.0 percent ($7.1 million) of the revenues that would have been produced under
the rates currently in effect. In each of the second and third years base rates
would be decreased by an additional amount equal to 0.5 percent ($3.5 million)
of the revenues that would have been produced by the rates in effect in the
immediately preceding year. In addition to these base rate reductions, the 1996
Settlement would freeze fuel costs for the three-year period unless increases
result from a settlement or adverse decision in the Kamine matter (see Note 2 of
the Notes to Financial Statements, "Litigation with Co-Generator"). The
freezing of fuel costs, combined with the foregoing base rate decreases, would
produce effective overall decreases of 3.5% for residential customers and 5.0%
to 6.0% for non-residential customers over the three year period. Certain cost
increases attributable to Kamine are subject to recovery during the 1996
Settlement period, but, the amount by which such costs may increase rates is
limited during the Settlement period.
Under the 1996 Settlement, the Company is also permitted to defer and
to recover costs associated with Generic Mandates (defined as certain
governmentally-imposed requirements and changes in accounting required by
generally accepted accounting principles) and Catastrophic Events (defined as
events that trigger a designation of part of the Company's service territory as
a disaster area or as being under a state of emergency) if such costs for any
one event exceed 3.0 percent of electric common earnings.
Under the 1996 Settlement, certain incentives and adjustments provided
for under the 1993 Settlement that currently remain unused will be available as
offsets to pass-backs to customers that would otherwise occur under the 1996
Settlement.
The Settlement establishes a Customer Service Performance Program that
provides for penalties of up to 46 basis points of the return on common equity
if the Company fails to achieve certain minimum criteria pertaining to electric
reliability and service quality.
Although the negotiated rate levels are not based on a particular return
on common equity, the 1996 Settlement provides that, if the Company achieves a
return in excess of 11.2 percent, calculated for the entire three-year period,
the Company can retain 50 percent of the excess as earnings and shall use the
remaining 50 percent to write down its investment in nuclear assets. If the
return on equity, determined on a rate year basis, falls below 8.5 percent or
increases above 14.5 percent, or pre-tax cash interest coverage falls below 2.5
times, or fuel cost changes (other than Kamine costs), result in a positive or
negative impact in excess of 10 percent of electric common earnings, then either
the Company or any other party has the right to petition the PSC for review of
the 1996 Settlement and for appropriate remedial action.
Through changes to revenue allocation and rate design, the 1996
Settlement makes rates for large industrial customers more attractive than those
currently in place. The 1996 Settlement also increases the Company's
flexibility in offering individually negotiated rate discounts to such customers
to induce them to remain in the service territory and to expand their
facilities. During the term of the 1996 Settlement, the Company will absorb, as
it has done since the inception of these rates, the difference between the
discounted rates paid under these individual contracts and the rates that would
otherwise apply.
The 1996 Settlement is expressly made subject to any modification that
may be required by a PSC decision in the Competitive Opportunities Proceeding
(discussed above). The costs of compliance with that decision are to be treated
as a Generic Mandate for purposes of the 1996 Settlement.
At this time, the Company cannot predict whether the PSC will approve the
1996 Settlement or, if it does so, when that approval will occur. To the
Company's knowledge, nearly all of the parties who participated in the
negotiations leading to execution of the 1996 Settlement support it and there is
no major opposition. To the
10
<PAGE>
extent that the PSC approves the 1996 Settlement, but such approval does not
occur by the intended effective date of July 1, 1996, the 1996 Settlement
provides a mechanism for adjusting rates to achieve the same results as if they
had gone into effect as of July 1, 1996.
1993 Rate Agreement. Under the 1993 Rate Agreement the PSC approved an
electric rate increase of 2.5% ($18.3 million) effective for the rate year
beginning July 1, 1995. A gas rate increase that would have been permitted to
take effect as of July 1, was eliminated as part of the 1995 Gas Settlement as
discussed in the Company's 1995 Form 10-K, Item 8, Note 10 of the Notes to
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1996 cash flow primarily from operations
(see Consolidated Statement of Cash Flows), provided the funds for construction
expenditures and the redemption of long-term debt. At March 31, 1996 the
Company had cash and cash equivalents of $44.5 million. Capital requirements
during 1996 are anticipated to be satisfied primarily from the combination of
internally generated funds and temporary cash investments.
PROJECTED CAPITAL AND OTHER REQUIREMENTS. The Company's capital
requirements relate primarily to expenditures for electric generation, including
the 1996 replacement of its Ginna steam generators, transmission and
distribution facilities, and gas mains and services as well as the repayment of
existing debt. The Company has no current plans to install additional baseload
generation.
Total 1996 capital requirements are currently estimated at $168 million,
of which $150 million is for construction, including replacement of the steam
generators at the Ginna Nuclear Plant and $18 million is for securities
maturities, which were payable on May 1, 1996. Approximately $38 million had
been expended for construction as of March 31, 1996, reflecting primarily
expenditures for steam generator replacement and nuclear fuel, upgrading
electric generating, transmission and distribution facilities and gas mains.
Ginna Steam Generator Replacement. Preparation for replacement of the
two steam generators at the Ginna Nuclear Plant began in 1993 and has continued
until the outage which began April 1, 1996. New steam generators were shipped
to the site in February 1996 and onsite preparation is complete. The
installation contractor arrived in early 1995 and will remain on site until the
replacement is complete in early June 1996. Cost of the replacement is
estimated at $115 million, about $40 million for the steam generators, about $50
million for the installation and the remainder for Company engineering,
radiation protection, plant support, other services and finance charges. In the
first quarter of 1996, the Company spent $16 million on this project and expects
to spend a total of $53 million this year. The PSC order approving this
project provides that certain costs over $115 million, and savings under that
amount, will be shared between the Company and its customers but the Company
does not expect to exceed that amount.
Purchased Power Requirement. Under federal and New York State laws and
regulations, the Company is required to purchase the electrical output of
unregulated cogeneration facilities which meet certain criteria (Qualifying
Facilities). The Company was compelled by regulators to enter into a contract
with Kamine/Besicorp Allegheny L.P. (Kamine) for approximately 55 megawatts of
capacity, the circumstances of which are discussed in the Company's 1995 Form
10-K under Item 8, Note 10 of the Notes to Financial Statements. The Kamine
contract and the outcome of related litigation will have an important impact on
the Company's electric rates and its ability to function effectively in a
competitive environment. The Company has no other long-term obligations to
purchase energy from Qualifying Facilities.
11
<PAGE>
Sale of Interest in Empire State Pipeline. In April, 1996 the Company's
wholly owned subsidiary, Energyline Corporation, agreed to sell its 20%
ownership interest in the Empire State Pipeline to the other co-tenants,
subsidiaries of The Coastal Corporation and Westcoast Energy Inc. The sale is
subject to PSC approval. The Company will remain a customer of Empire, which
commenced operation in November 1993. The sale of Empire is not expected to have
a material impact on the Company's financial condition.
The Company invested in Empire in 1992 because it believed there was a
need for access to an alternative supply of natural gas for its customers and
that meeting their need would best be achieved by its direct investment in the
pipeline. The Company's achievement of that goal and its current strategic
business decision to concentrate on delivering energy and energy services
directly to customers are the reasons for Energyline's decision to sell its
equity interest in Empire.
REDEMPTION OF SECURITIES. On March 7, 1996, the Company redeemed $49
million principal amount of its First Mortgage 8 3/8% Bonds, Series CC at
103.18% plus accrued interest from September 15, 1995. On May 1, 1996, the
Company redeemed $332 thousand of its First Mortgage 8% Bonds, Series Y at the
special redemption price of 100.17% plus accrued interest from February 15, 1996
under sinking and improvement fund provisions of it General Mortgage. On May 1,
1996, the Company also redeemed at maturity $18 million principal amount of its
First Mortgage 5.30% Bonds, Series V.
FINANCING. (See Form 10-K for the fiscal year ended December 31, 1995,
Item 8. Note 9. Short-Term Debt, regarding the Company's short-term borrowing
arrangements.)
During the first three months of 1996, the Company issued 182,459 shares
of Common Stock through its Automatic Dividend Reinvestment and Stock Purchase
Plan (ADR Plan) and the RG&E Savings Plus Plan (Savings Plus Plan) providing
approximately $4.2 million to help finance its capital expenditures program.
The new shares were issued at a market price above the book value per share at
the time of issuance. At March 31, 1996 the Company had Common Stock available
for issuance of 1,213,530 shares under the ADR Plan and 158,816 shares under the
Savings Plus Plan.
CAPITAL STRUCTURE. The Company's retained earnings at March 31, 1996
were $93.6 million, an increase of approximately $23.2 million compared with
December 31, 1995. The amount of long term debt decreased $49 million at March
31, 1996 as compared with December 31, 1995 due to the redemption of Series CC
First Mortgage Bonds discussed above. Common equity increased approximately
$27.4 million, reflecting an increase in retained earnings and the issuance and
sale of Common Stock as discussed under "Financing". Capitalization at March
31, 1996, including $18.0 million of long-term debt due within one year, was
comprised of 47.1 percent common equity, 7.3 percent preferred equity and 45.6
percent long-term debt. As financial market conditions warrant, the Company may,
from time to time, issue securities to permit early redemption of higher-cost
senior securities. The Company is reviewing its financing strategies as they
relate to debt and equity structures in the context of the new competitive
environment and the ability of the Company to shift from a fully regulated to a
more competitive organization.
RESULTS OF OPERATIONS
The following financial review identifies the causes of significant
changes in the amounts of revenues and expenses, comparing the three-month
period ended March 31, 1996 to the three-month period ended March 31, 1995.
OPERATING REVENUES AND SALES. Total Company revenues for the first
three months of 1996 were $28.1 million or 10% above the first three months of
1995. The higher revenues resulted from the impact of an extended period of
cold weather on electric and gas sales this year, compared to the revenue effect
of unusually warm
12
<PAGE>
weather in the first quarter of 1995, as well as higher revenue stemming from
purchased gas costs and electric rates.
Electric kilowatt-hour sales increased 9% from the first quarter of
1995 due to higher retail sales and an increase in sales to other utilities.
Gas sold and transported increased 20%, reflecting significant increases in all
customer classes including gas transportation customers.
The principal factors causing changes in Electric and Gas Department revenues
are estimated below:
<TABLE>
<CAPTION>
Comparison of
Three Months
Ended March 31,
1996 and 1995
------------------------------------------
Increase or (Decrease)
for comparison period
(Millions of Dollars)
Electric Gas
---------------------- ---------
<S> <C> <C>
Rate increases $ 4.0 $ -
Fuel costs 1.5 9.4
Weather effects (heating & cooling) 3.7 7.0
Customer consumption* (1.9) (1.2)
Other** (.3) 3.8
----- --------
Total change in customer
revenues 7.0 19.0
OEU sales 2.1 -
----- --------
Total change in operating
revenues 9.1 $ 19.0
===== ========
</TABLE>
*Customer consumption reflects retail and unbilled margins and transportation
gas less rate increases and weather effects.
**Fluctuations in other customer revenues shown in the table above are largely
the result of deferred fuel costs, revenue taxes and miscellaneous revenues.
FUEL EXPENSES. Fuel expenses increased in the first quarter of 1996
reflecting mainly higher gas purchased for resale expense in 1996 driven by
higher volumes of purchased gas resulting from colder than normal weather as
well as higher commodity costs. The colder weather also contributed to an
increase in unit purchases of electricity during this year's first quarter.
OPERATIONS EXCLUDING FUEL EXPENSES AND MAINTENANCE EXPENSES. The
increase in operations excluding fuel expenses reflects mainly the timing for
recording lump sum payroll performance incentives, employee
redeployment/outplacement costs and additional early retirement costs and an
earlier writeoff for uncollectibles. Maintenance expense was lower in the first
quarter of 1996 due to the timing of the Ginna Plant refueling and maintenance
shutdown which did not begin until April 1996 but started in March a year ago.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
due mainly to an increase in depreciable plant.
TAXES. The decrease in local, state and other taxes reflects mainly a
one-time New York State Use tax audit assessment expensed in the first quarter
of 1995.
The increase in Federal income tax reflects mainly an increase in taxable
13
<PAGE>
income which is partially offset by a variation in estimates of the effective
tax rate used in the Company's interim tax provision.
OTHER STATEMENT OF INCOME ITEMS. The increase in allowance for funds used
during construction (AFUDC) reflects mainly an increase in the amount of utility
plant under construction. Other Income and Deductions, Other-net increased
mainly due to accounting adjustments in February 1996 resulting from a FERC
Audit. Interest Charges increased due to a one-time recording of debt expense
upon the early redemption of long-term debt in March 1996.
COMMON STOCK DIVIDEND. On March 20, 1996, the Board of Directors
authorized a common stock dividend of $.45 per share, which was paid on April
25, 1996 to shareholders of record on April 2, 1996. The Company believes that
future dividend payments will need to be evaluated in the context of maintaining
the financial strength necessary to operate in a more competitive and uncertain
business environment. This will require consideration, among other things, of a
dividend payout ratio that is lower over time, reevaluating assets and managing
greater fluctuation in revenues. While the Company does not presently expect the
impact of these factors to affect the Company's ability to pay dividends at the
current rate, future dividends may be affected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information on Legal Proceedings reference is made to Note 2 of the
Notes to Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on April 24, 1996.
(b) The following Directors were elected for terms expiring at the Annual
Meeting of Shareholders in 1999: William Balderston III, Samuel T.
Hubbard. Jr., Roger W. Kober and Constance M. Mitchell. The following
Directors are continuing in office after the meeting: Angelo J.
Chiarella, Allan E. Dugan, Jay T. Holmes, Cornelius J. Murphy, Theodore
L. Levinson, Arthur M. Richardson, M. Richard Rose.
(c) The nominees for election as directors were elected by the
following vote:
<TABLE>
<CAPTION>
Shares Shares Broker
For Withheld Non-Votes
---------- --------- ---------
<S> <C> <C> <C>
William Balderston III 31,479,815 2,221,360 0
Samuel T. Hubbard, Jr. 32,691,257 1,009,918 0
Roger W. Kober 32,667,287 1,033,888 0
Constance M. Mitchell 32,691,083 1,010,092 0
</TABLE>
ITEM 5. OTHER INFORMATION
MANAGEMENT CHANGES. In March 1996 the Board of Directors elected
Thomas S. Richards to the position of President and Chief Operating Officer.
Mr. Richards, previously Senior Vice President for Energy Services, will be
responsible for all operational areas of the Company. Roger W. Kober will
remain Chairman of the Board of Directors and Chief Executive Officer and will
focus on changes in the industry and
14
<PAGE>
business strategy. In April 1996, after the Annual Meeting of Sharholders, the
Board of Directors elected Mr. Richards to the Board of Directors.
In January 1996, J. Burt Stokes was appointed Senior Vice President,
Corporate Services and Chief Financial Officer. His responsibilities include
financial services, human resource services and legal. He came to the Company
from a position as Chief Financial Officer and Acting Chief Executive Officer
for General Railway Signal Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index below.
(b) Reports on Form 8-K: None
EXHIBIT INDEX
Exhibit 3-1 Bylaws of the Company, as amended through March 20, 1996.
Exhibit 10-1* Rochester Gas and Electric Corporation Deferred Stock Unit Plan
for Non-Employee Directors effective as of December 31, 1995.
Exhibit 27 Financial Data Schedule pursuant to Item 601 (c) of
Regulation S-K.
* Denotes executive compensation plan and arrangement.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCHESTER GAS AND ELECTRIC CORPORATION
--------------------------------------
(Registrant)
Date: May 14, 1996 By /s/ J.B. STOKES
--------------------------------------
J. Burt Stokes
Senior Vice President, Corporate Services
and Chief Financial Officer
(Duly Authorized Officer)
Date: May 14, 1996 By /s/ DANIEL J. BAIER
--------------------------------------
Daniel J. Baier
Controller
(Principal Accounting Officer)
16
<PAGE>
Exhibit 3-1
ROCHESTER GAS AND ELECTRIC CORPORATION
BYLAWS
ARTICLE I
---------
SHAREHOLDERS
------------
Section 1.1 Annual Meeting An annual meeting of shareholders for the
--------------------------
election of directors and the transaction of other business shall be held on
such date and at such time as may be fixed by the Board of Directors not less
than ten days prior thereto.
Section 1.2 Special Meetings Special meetings of the shareholders may
----------------------------
be called by the Chairman of the Board of Directors or by the President, and
shall be called by the Chairman of the Board or by the Secretary at the request
in writing of a majority of the Board of Directors. Such meetings shall be held
at such time as may be fixed in the call and stated in the notice of meeting.
Any such written request shall state the purpose or purposes of the proposed
meeting.
Section 1.3 Place of Meetings Meetings of shareholders shall be held
-----------------------------
at such place, within or without the State of New York, as may be fixed in the
notice of meeting. Unless otherwise provided by action of the Board of
Directors, all meetings of shareholders shall be held at the principal office of
the Corporation in Rochester, New York.
Section 1.4 Notice of Meetings Notice of each meeting of shareholders
------------------------------
shall be in writing and shall state the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called. The notice of a
special meeting shall also state that it is being issued by or at the direction
of the person or persons calling the meeting.
A copy of the notice of any meeting shall be given, personally or by
mail, not less than ten or more than fifty days before the date of the meeting,
to each shareholder entitled to vote at such meeting. If mailed, such notice is
given when deposited in the United States mail, with postage prepaid, directed
to the shareholder at his address as it appears on the record of shareholders,
or, if he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, then directed to
him at such other address.
<PAGE>
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under the
preceding paragraphs of this Section 1.4.
Section 1.5 Inspectors of Election The Board of Directors, in advance
----------------------------------
of any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat shall, appoint two inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability.
The inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, and the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
-----------
stated and of the vote as certified by them.
Section 1.6 List of Shareholders at Meetings A list of shareholders
--------------------------------------------
as of the record date, certified by the Secretary or any Assistant Secretary or
by a transfer agent, shall be produced at any meeting of shareholders upon the
request thereat or prior thereto of any shareholder. If the right to vote at
any meeting is challenged, the inspectors of election, or person presiding
thereat, shall require such list of shareholders to be produced as evidence of
the right of the persons challenged to vote at such meeting, and all persons who
appear from such list to be
2
<PAGE>
shareholders entitled to vote thereat may vote at such meeting.
Section 1.7 Qualification of Voters Each shareholder of record of
-----------------------------------
Common Stock of the Corporation shall be entitled at each meeting of
shareholders to one vote for each share of Common Stock standing in his name on
the record of shareholders at the record date.
Section 1.8 Quorum of Shareholders The holders of a majority of the
----------------------------------
shares entitled to vote thereat shall constitute a quorum at a meeting of
shareholders for the transaction of any business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders.
The shareholders present, in person or by proxy, and entitled to vote
may, by a majority of votes cast, adjourn the meeting despite the absence of a
quorum.
Section 1.9 Vote of Shareholders Directors shall, except as otherwise
--------------------------------
required by law, be elected by a plurality of the votes cast at a meeting of
shareholders by the holder of shares entitled to vote in the election.
Whenever any corporate action, other than the election of directors,
is to be taken by vote of the shareholders, it shall, except as otherwise
required by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
Section 1.10 Proxies Each shareholder entitled to vote at a meeting
--------------------
of shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy.
Each proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Each proxy shall be revocable
at the pleasure of the shareholder executing it, except as otherwise provided by
law.
The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the Secretary or any Assistant
Secretary.
Section 1.11 Fixing Record Date For the purpose of determining the
-------------------------------
shareholders entitled to notice of or to vote at
3
<PAGE>
any meeting of shareholders or any adjournment thereof, or to express consent to
or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board of
Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty or less
than ten days before the date of such meeting, nor more than fifty days prior to
any other action.
When a determination of shareholders of record entitled to notice of
or to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof, unless the
Board of Directors fixes a new record date for the adjourned meeting.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.1 Power of Board and Qualification of Directors The
---------------------------------------------------------
business of the Corporation shall be managed by the Board of Directors, each of
whom shall be at least twenty-one years of age.
Section 2.2 Number of Directors The number of directors shall be
-------------------------------
fixed from time to time by the majority vote of the entire Board of Directors,
but in no event shall be less than nine (9) nor greater than eighteen (18)
directors. No decrease in the number of directors shall shorten the term of any
incumbent director. Any newly created directorships or any decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as possible. If the number of directors is increased
by the Board and any newly created directorships are filled by the Board,
additional directors in each class will serve until the next annual meeting of
shareholders and thereafter until their successors shall be elected and shall
qualify, which election shall be conducted in accordance with the provisions of
these Bylaws applicable to the election of the initial classified board.
Section 2.3 Election and Term of Directors Directors shall be elected
------------------------------------------
at each annual meeting of the shareholders, or, if no such election shall be
held, at a meeting called and held in accordance with the statutes of the State
of New York. Each director shall be elected to hold office until the expiration
of the term for which he is elected, and thereafter until a
4
<PAGE>
successor shall be elected and shall qualify. The directors shall be divided,
with respect to the terms for which they severally hold office, into three
classes, hereby designated as Class I, Class II and Class III. Each class shall
have at least three directors and the three classes shall be as nearly equal in
number as possible. The initial terms of office of the Class I, Class II and
Class III directors, elected at the 1992 annual meeting of shareholders, shall
expire at the next succeeding annual meeting of shareholders, the second
succeeding annual meeting of shareholders and the third succeeding annual
meeting of shareholders, respectively. At each annual meeting of shareholders
after 1992, the successors of the class of directors whose term expires at that
meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders to be held in the third year following the year of their
election. The foregoing provisions shall not apply to directors elected by
holders of Preferred Stock in the event they become entitled to exercise their
special rights to elect a majority of the Board of Directors pursuant to Article
VIII of the Restated Certificate of Incorporation. In such case, the remaining
directors to be elected by the holders of Common Stock shall be elected in the
same manner as the initial classified board. After the termination of such
special rights, the election of directors by holders of Common Stock will be
conducted in accordance with the provisions applicable to the election of the
initial classified board set forth above.
Section 2.4 Quorum of the Board; Action by the Board One-third of the
----------------------------------------------------
entire Board of Directors shall constitute a quorum for the transaction of
business and, except as otherwise provided in these Bylaws, the vote of a
majority of the directors present at the time of such vote, if a quorum is then
present, shall be the act of the Board.
Section 2.5 Meetings of the Board An annual meeting of the Board of
---------------------------------
Directors shall be held in each year directly after adjournment of the annual
shareholders' meeting. Regular meetings of the Board may be held at such times
as may from time to time be fixed by resolution of the Board. Special meetings
of the Board may be held at any time upon the call of the Chairman of the Board
of Directors, the President or any two directors.
Meetings of the Board of Directors may be held at such place, within
or without the State of New York, as from time to time may be fixed by
resolution of the Board for annual and regular meetings and in the notice of
meeting for special meetings. If no place is so fixed, meetings of the Board
shall be held at the principal office of the Corporation in Rochester, New York.
No notice need be given of annual or regular meetings
5
<PAGE>
of the Board of Directors. Notice of each special meeting of the Board shall be
given by oral, telegraphic or written notice, duly given or sent or mailed to
each director not less than one day before such meetings.
Notice of a meeting of the Board of Directors need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any
meeting of the Board of Directors.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of any
adjournment of a meeting to another time or place shall be given, in the manner
described above, to the directors who were not present at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
Section 2.6 Resignations Any director of the Corporation may resign
------------------------
at any time by giving written notice to the Board of Directors or to the
Chairman of the Board of Directors or to the President or to the Secretary of
the Corporation. Such resignation shall take effect at the time specified
therein; and unless otherwise specified therein the acceptance of such
resignation shall not be necessary to make it effective.
Section 2.7 Removal of Directors Any of the directors may be removed
--------------------------------
from office, for cause only, by action of the Board of Directors or by vote of
the shareholders.
Section 2.8 Newly Created Directorships and Vacancies Newly created
-----------------------------------------------------
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason may be filled by
vote of a majority of the directors then in office, although less than a quorum
exists. A director elected to fill a vacancy shall be elected to hold office
until the next annual meeting of the shareholders and thereafter until a
successor shall be elected and shall qualify.
Section 2.9 Nominations Except as otherwise provided under Article
-----------------------
VIII of the Restated Certificate of Incorporation relating to the rights of any
class or series of Preferred Stock to elect directors under specified
circumstances, nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote in the election of directors
6
<PAGE>
generally. However, any shareholder entitled to vote in the election of
directors generally may nominate one or more persons for election as a director
at a meeting only if written notice of such shareholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual meeting of
shareholders, ninety (90) days in advance of such meeting, and (ii) with respect
to an election to be held at a special meeting of shareholders for the election
of directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to shareholders. Each such notice shall
set forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the Company entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Company if so elected. The chairman of
the meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Section 2.10 Notice of Shareholder Business At an annual meeting of
-------------------------------------------
the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than ninety (90) days prior to the meeting. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at
7
<PAGE>
the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.10. The chairman of an annual meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
Section 2.11 Executive and Finance Committee and Other Committees of
--------------------------------------------------------------------
the Board of Directors The Board of Directors, by resolution adopted by a
- ----------------------
majority of the entire Board, shall designate from among its members an
Executive and Finance Committee consisting of three or more directors, and which
shall have all the authority of the Board, except that no such Committee shall
have authority as to the following matters:
(a) The submission to shareholders of any action that needs
shareholders' approval;
(b) The filling of vacancies in the Board or in the Executive and
Finance Committee;
(c) The fixing of compensation of the directors for serving on the
Board or on the Executive and Finance Committee;
(d) The amendment or repeal of the Bylaws, or the adoption of new
Bylaws;
(e) The amendment or repeal of any resolution of the Board which, by
its terms, shall not be so amendable or repealable;
(f) The declaration of dividends.
The Board of Directors may designate one or more directors as
alternate members of the Executive and Finance Committee, who may replace any
absent member or members at any meeting of such Committee.
A majority of the entire authorized number of members of the Executive
and Finance Committee or any other Committee authorized by the Board of
Directors shall constitute a quorum for the transaction of business and, except
as otherwise provided
8
<PAGE>
in these Bylaws, the vote of a majority of the members present at the time of
such vote, if a quorum is present at such time, shall be the act of such
Committee.
The Executive and Finance Committee shall serve at the pleasure of the
Board of Directors.
The Executive and Finance Committee shall cause to be kept regular
minutes of its proceedings, which may be transcribed in the regular minute book
of the Corporation, and all such proceedings shall be reported to the Board of
Directors at its next succeeding meeting, and shall be subject to revision or
alteration by the Board, provided that no rights of third persons shall be
affected by such revision or alteration. The Executive and Finance Committee
may, from time to time, subject to the approval of the Board of Directors,
prescribe rules and regulations for the calling and conduct of meetings of the
Committee, and other matters relating to its procedure and the exercise of its
powers.
The Board of Directors by resolution adopted by a majority of the
entire Board may designate from among its members other committees, each to
consist of at least three directors, and each of which committees shall have
authority only to the extent provided in such resolution. The Board may by
resolution designate directors to act as alternate members of a committee to
replace absent members at meetings of the committee. Such committees shall
serve at the pleasure of the Board of Directors.
Section 2.12 Action Without a Meeting Any action required or
-------------------------------------
permitted to be taken by the Board of Directors or any Committee thereof may be
taken without a meeting if all members of the Board or the Committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and written consents thereto shall be filed with the minutes of the proceedings
of the Board or Committee.
Section 2.13 Participation in Board Meetings by Conference Telephone
--------------------------------------------------------------------
Any one or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
Section 2.14 Compensation of Directors The Board of Directors shall
--------------------------------------
have authority to fix the compensation of directors for services in any
capacity.
9
<PAGE>
Section 2.15 Interest of Director in a Transaction Unless shown to be
--------------------------------------------------
unfair and unreasonable as to the Corporation at the time it is approved by the
Board of Directors, a committee of such Board or the shareholders, no contract
or other transaction between the Corporation and one or more of its directors,
or between the Corporation and any other corporation, firm, association or other
entity in which one or more of the directors are directors or officers, or are
financially interested, shall be either void or voidable irrespective of whether
such interested director or directors are present at the meeting of the Board of
Directors or of a committee thereof, which approves such contract or transaction
and irrespective of whether his or their votes are counted for such purpose. Any
such contract or transaction may be conclusively approved as fair and reasonable
by:
(a) the Board of Directors, or a duly empowered committee thereof, by
a vote sufficient for such purpose without counting the vote or votes
of such interested director or directors (and he or they may not be
counted in determining the presence of a quorum at the meeting which
approves such contract or transaction), if the fact of such common
directorship, officership or financial interest is disclosed or known
to the Board or committee (as the case may be); or
(b) the shareholders entitled to vote for the election of directors,
if such common directorship, officership or financial interest is
disclosed or known to such shareholders.
Section 2.16 Loans to Directors A loan shall not be made by the
-------------------------------
Corporation to any director unless it is authorized by vote of the shareholders.
For this purpose, the shares of the director who would be the borrower shall not
be shares entitled to vote.
Section 2.17 Indemnification of Directors and Officers (a) To the
------------------------------------------------------
full extent authorized by law, the Corporation shall indemnify any person, made
or threatened to be made, a party in any civil or criminal action or proceeding
by reason of the fact that he, his testator or intestate, is or was a director
or officer of the Corporation or any subsidiary of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise.
(b) Except as prohibited by law or as provided in paragraph (c)
below, in addition to the rights granted in paragraph (a), every person shall be
entitled as of right to be
10
<PAGE>
indemnified by the Corporation against all expenses and any liability paid or
incurred by such person in connection with any actual or threatened claim,
action, suit or proceeding, civil, criminal, administrative, investigative or
other, whether brought by or in the right of the Corporation or otherwise, in
which he or she may be involved as a party or otherwise, by reason of such
person being or having been a director or officer of the Corporation or by
reason of the fact that such person is or was serving at the request of the
Corporation as a director, officer, employee, fiduciary or other representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other entity (any such actual or threatened claim, action, suit or proceeding
hereinafter being referred to as an "action"). Such indemnification shall
include advances of any expense incurred by such person in connection with an
action prior to final disposition of such action to the maximum extent not
prohibited by the provisions of any applicable statute. As used herein,
"expense" shall include, without limitation, costs of investigation, including
experts, the costs of defense of actions and appeals therefrom and fees and
expenses of counsel selected by such person, and "liability" shall include
amounts of judgments, excise taxes, fines and penalties, amounts paid in
settlement (provided the Corporation shall have consented to such settlement,
which consent shall not be unreasonably withheld by it), and any other amounts
which the person may be obligated to pay as a result of any action.
(c) No right of indemnification under paragraph (b) shall exist for
any person unless it is determined by a court or, if not finally adjudicated by
a court, by the Board of Directors that such person did not act in bad faith or
with an active and deliberate dishonesty and which was material to the action,
or that he or she did not personally gain in fact a financial profit or other
economic advantage to which he or she was not legally entitled. In making such
a determination, the Board of Directors may act by a quorum consisting of
directors who are not parties to such action or, if such a quorum is not
obtainable or, if obtainable, such quorum is unable to make such a finding and
directs, (i) by the Board of Directors upon having received the opinion in
writing of independent legal counsel that indemnification is proper because the
standard of conduct set forth herein has been met or (ii) by the shareholders
entitled to vote in the election of directors upon a finding that such standard
has been met. Indemnification amounts shall be advanced or promptly reimbursed
by the Corporation under paragraph (b) in advance of the final disposition of
such action or proceeding and prior to the determination to be made under this
paragraph (c), subject to the obligation of the person indemnified to repay the
Corporation if, and upon a determination that, such person acted or benefited as
specified above. If indemnification is denied
11
<PAGE>
because of a finding by the Board in the absence of a judgment or other final
adjudication, such action by the Board will in no way affect the right of the
person seeking such indemnification to make application therefor in any court
having jurisdiction thereof; in such action or proceeding the issue will be
whether the director or officer met the standard of conduct set forth in this
paragraph (c), not whether the finding of the Board that he did not was correct,
and the determination of such issue will not be affected by the Board's finding.
If the judgment or other final adjudication in such action or proceeding
establishes that the director or officer met such standard, the Board shall then
find such standard to have been met and shall grant such indemnification, and
also shall grant, to the person entitled to such indemnification,
indemnification of the expenses incurred by such person in the action or
proceeding resulting in the judgment or other final adjudication that such
standard of conduct was met.
(d) The right of indemnification provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification
hereunder may be entitled under applicable law, by agreement or otherwise, and
the provisions hereof shall inure to the benefit of the heirs and legal
representatives of persons entitled to indemnification hereunder and shall be
applicable to actions commenced before or after the adoption hereof, whether
arising from acts or omissions occurring before or after the adoption hereof.
The Corporation is authorized to enter into agreements with any of its directors
or officers extending rights to indemnification and advancement of expenses to
such person to the full extent permitted by law, but the failure to enter into
any such agreement shall not affect or limit the rights of such person pursuant
to this bylaw.
(e) This provision shall be deemed to constitute a right of the
persons entitled to indemnification and may not, without the consent of such
person, be amended or repealed to have effect with respect to any event, act or
omission occurring or allegedly occurring prior to the end of the term of office
he or she is serving when such amendment or repeal is adopted.
12
<PAGE>
ARTICLE III
-----------
OFFICERS
--------
Section 3.1 Officers The Board of Directors, as soon as may be
--------------------
practicable after the annual election of directors, shall elect a Chairman of
the Board of Directors, a President, one or more Vice Presidents (one or more of
whom may be designated Executive Vice Presidents or Senior Vice Presidents), a
Controller, one or more Assistant Controllers, an Auditor, a Secretary, one or
more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers.
From time to time the Board may elect, or the Board or the Chairman of the Board
upon subsequent ratification by the Board may appoint such other officers as may
be determined to be appropriate. The Chairman of the Board and the President
shall be members of the Board of Directors. Any two or more offices may be held
by the same person, except the offices of President and Secretary.
Section 3.2 Term of Office and Removal Each officer
--------------------------------------
shall hold office for the term for which he is elected or appointed, and until
his successor has been elected or appointed and qualified. Unless otherwise
provided in the resolution of the Board of Directors electing or appointing an
officer, the term of office of each officer shall extend to and expire at the
meeting of the Board following the next annual meeting of shareholders. Any
officer may be removed by the Board, with or without cause, at any time. Removal
of an officer without cause shall be without prejudice to his contract rights,
if any, but his election or appointment as an officer shall not of itself create
contract rights.
Section 3.3 Powers and Duties The officers of the Corporation shall
-----------------------------
each have such powers and authority and perform such duties in the management of
the property and affairs of the Corporation, as from time to time may be
prescribed by the Board of Directors and, to the extent not so prescribed, they
shall each have such powers and authority and perform such duties in the
management of the property and affairs of the Corporation, subject to the
control of the Board, as generally pertain to their respective offices.
Without limitation of the foregoing:
(a) Chairman of the Board of Directors The Chairman of the Board of
---------------------------------------
Directors shall be the chief executive officer of the Corporation. He
shall preside at all meetings of the Board and of the shareholders. He
13
<PAGE>
shall ex officio be a member of the Executive and Finance Committee.
(b) President The President shall be charged with the
--------------
responsibility for the direction and supervision of the business and
affairs of the Corporation subject only to the supervision of the
Board of Directors, the Executive and Finance Committee and the
Chairman of the Board. In the absence of the Chairman of the Board, he
shall preside at all meetings of the Board and of the shareholders. In
the event of the death, resignation, removal, disability or absence of
the Chairman of the Board, the President shall possess the powers and
perform the duties of the Chairman of the Board. The President shall
ex officio be a member of the Executive and Finance Committee.
(c) Vice Presidents The Executive Vice President and Senior Vice
--------------------
Presidents (if such there be) and other Vice Presidents shall have
such powers and duties as usually pertain to their respective offices,
except as otherwise directed by the Board of Directors or by the
Executive and Finance Committee, and shall also have such powers and
duties as may from time to time be conferred upon them by the Board of
Directors, the Executive and Finance Committee, the Chairman of the
Board, or the President. In the absence of the President, the
Executive Vice President, the Senior Vice Presidents or one of the
Vice Presidents designated by the Board of Directors or by the
Chairman of the Board or by the President shall have all the powers
and perform all the duties of the President.
(d) Secretary The Secretary shall issue notices of all meetings of
--------------
shareholders and directors where notices of such meetings are required
by law or these Bylaws, and shall keep the minutes of such meetings.
He shall attend and keep the minutes of all meetings of the
shareholders, Board of Directors and Executive and Finance Committee.
He shall sign such instruments and attest such documents as require
his signature or attestation and affix the corporate seal thereto
where appropriate. Assistant Secretaries shall assist the Secretary in
the performance of his powers and duties and in his absence exercise
such powers and duties.
(e) Treasurer The Treasurer shall have custody of the corporate
--------------
funds and securities and shall deposit all monies and other financial
instruments in the name of
14
<PAGE>
the Corporation or such other name as the Board of Directors may
designate. He shall disburse the funds of the Corporation as
appropriate and Assistant Treasurers shall assist the Treasurer in the
performance of his powers and duties and in his absence exercise such
powers and duties.
(f) Controller The Controller of the Corporation shall have full
---------------
control of the books of account of the Corporation and keep true and
accurate record of all property owned by it, of its contracts, debts,
and of its revenues and expenses, and shall keep all accounting
records of the Corporation other than those relating to the deposit
and custody of monies and securities which shall be kept by the
Treasurer. The Controller shall make reports to the Chairman of the
Board of Directors, the President, and as required to the Board of
Directors or, when appropriate, to others relating to the financial
condition of the Corporation. Assistant Controllers shall assist the
Controller in the performance of his powers and duties and in his
absence exercise such powers and duties.
(g) Auditor The Auditor shall have access to all books, records,
------------
contracts, securities and materials of the Corporation for the purpose
of audit and shall exercise general supervision over the operation of
the Auditing Department. The Auditor and each member of his department
shall have no authority to make or order to be made any entry in the
Corporation's books of account nor to sign checks or exercise any of
the duties of the Treasurer. The Auditor shall be responsible to the
Controller or the President of the Corporation and shall report to the
Board of Directors when directed to do so or when in his opinion such
a report is necessary.
15
<PAGE>
ARTICLE IV
----------
SHARE CERTIFICATE AND LOSS THEREOF - TRANSFER OF SHARES
-------------------------------------------------------
Section 4.1 Form of Share Certificates The shares of the Corporation
--------------------------------------
shall be represented by certificates, in such forms as the Board of Directors
may from time to time prescribe, signed by the Chairman of the Board, or the
President, or a Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation or its employee.
In case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer at the date of issue.
Each certificate representing shares shall, when issued, state upon
the face thereof:
(a) That the Corporation is formed under the laws of the State of
New York;
(b) The name of the person or persons to whom issued; and
(c) The number, class and series, if any, of shares which such
certificate represents.
Section 4.2 Lost, Stolen or Destroyed Share Certificates No
--------------------------------------------------------
certificate or certificates for shares of the Corporation shall be issued in
place of any certificate alleged to have been lost, stolen or destroyed, except
upon production of such evidence of the loss, theft or destruction, and upon
such indemnification and payment of costs of the Corporation and its agent to
such extent and in such manner as the Board of Directors may from time to time
prescribe.
Section 4.3 Transfer of Shares Shares of the Corporation shall be
------------------------------
transferable on the books of the Corporation by the registered holder thereof in
person or by his duly
16
<PAGE>
authorized attorney, by delivery for cancellation of a certificate or
certificates for the same number of shares, with proper endorsement consisting
of either a written assignment of the certificate or a power of attorney to
sell, assign or transfer the same or the shares represented thereby, signed by
the person appearing by the certificate to be the owner of the shares
represented thereby, either written thereon or attached thereto, with such proof
of the authenticity of the signature as the Corporation or its agents may
reasonably require. Such indorsement may be either in blank or to a specified
person, and shall have affixed thereto all stock transfer stamps required by
law.
ARTICLE V
---------
OTHER MATTERS
-------------
Section 5.1 Records The Corporation shall keep (a) correct and
-------------------
complete books and records of account; (b) minutes of the proceedings of the
shareholders, Board of Directors and any committees of the Board; and (c) a
current list of the directors and officers and their resident addresses.
The Corporation shall also keep at its office in the State of New York
or at the office of its transfer agent, if any, a record containing the names
and addresses of all shareholders, the number and class of shares held by each
and the dates when they respectively became the owners of record thereof.
Section 5.2 Checks and Similar Instruments All checks and drafts on
------------------------------------------
the Corporation's bank accounts and all bills of exchange and promissory notes
and all acceptances, obligations and other instruments, for the payment of
money, shall be signed by the Treasurer (by facsimile or otherwise) on behalf of
the Corporation or by such officer or officers or person or persons as shall be
thereunto authorized from time to time by the Board of Directors or designated
by the Treasurer.
Section 5.3 Stock of Other Corporations The Board of Directors shall
---------------------------------------
have the right to authorize any officer or other person on behalf of the
Corporation to attend, act and vote at meetings of the shareholders of any
corporation in which the Corporation shall hold shares, and to exercise thereat
any and all the rights and powers incident to the ownership of such shares and
to execute waivers of notice of such meetings and calls therefor; and authority
may be given to exercise the same either on one or more designated occasions, or
generally on all occasions until revoked by the Board. In the event that the
Board shall fail to give such authority, such authority may be
17
<PAGE>
exercised by the President in person or by proxy appointed by him on behalf of
the Corporation.
Section 5.4 Corporate Seal The corporate seal shall have inscribed
--------------------------
thereon the name of the Corporation and such other appropriate legend as the
Board of Directors may from time to time determine. In lieu of the corporate
seal, when so authorized by the Board, a facsimile thereof may be affixed or
impressed or reproduced in any other manner.
Section 5.5 Fiscal Year The fiscal year of the Corporation shall be
-----------------------
the calendar year.
Section 5.6 Amendments Except as otherwise provided by these Bylaws
----------------------
and the Restated Certificate of Incorporation, the Bylaws of the Corporation may
be amended, repealed or adopted by vote of the holders of record of the shares
at the time entitled to vote in the election of any directors; provided that
Section 1.2 of Article I, Sections 2.2, 2.3, 2.7, 2.8, 2.9 and 2.10 of Article
II (as amended) and Section 5.6 of Article V of the Bylaws shall not be altered,
amended or repealed and no provision inconsistent therewith shall be adopted
without the affirmative vote of the holders of at least seventy-five percent
(75%) of the outstanding shares entitled to vote in the election of directors,
voting together as a single class. Except as otherwise provided above, Bylaws
may also be amended, repealed, or adopted by the Board of Directors, but any
Bylaw adopted by the Board may be amended or repealed by the shareholders
entitled to vote thereon as hereinabove provided.
If any Bylaw regulating an impending election of directors is adopted,
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
Bylaws so adopted, amended or repealed, together with a concise statement of the
change made.
18
<PAGE>
Adopted: March 24, 1965
Amended: May 17, 1967, effective July 1, 1967:
Section 1.2, Section 3.3 paragraphs (a), (b), (c), (f)
Amended and effective: May 15, 1968:
Section 1.2, Section 3.3 paragraphs (a), (b), (c), (f)
Amended and effective: February 17, 1971:
Section 2.9, paragraph (a) and last paragraph
Amended and effective: June 21, 1972:
Section 2.13, Section 4.1 (subparagraph (d) eliminated)
Amended and effective: October 16, 1974:
Section 2.4, Section 2.9, Section 2.10 adopted,
Sections 2.10, 2.11, 2.12 and 2.13 renumbered
Amended and effective: August 20, 1975:
Section 2.11 adopted,
Sections 2.11, 2.12, 2.13 and 2.14 renumbered
Amended and effective: October 15, 1986:
Section 2.15, existing paragraph lettered (a) and
paragraphs (b), (c), (d) and (e) added
Amended and effective: May 20, 1987:
Section 2.2
Amended and effective: June 19, 1991:
Section 3.3, paragraphs (a), (b), (c)
Amended and effective: May 20, 1992:
Sections 1.2, 2.2, 2.3, 2.7, 2.8, 5.6
Section 2.9, Section 2.10 adopted,
Sections 2.9, 2.10, 2.11, 2.12, 2.13, 2.14, 2.15
renumbered
Amended and effective: December 15, 1993:
Sections 1.1, 3.1, 3.3 paragraphs (c), (e),
and (f), 5.1, 5.2
Amended and effective: March 20, 1996:
Section 3.3 paragraphs (a), (b), (c)
19
<PAGE>
Exhibit 10-1
ROCHESTER GAS AND ELECTRIC CORPORATION
DEFERRED STOCK UNIT PLAN FOR NON-EMPLOYEE DIRECTORS
ROCHESTER GAS AND ELECTRIC CORPORATION (the "Company") establishes this
Deferred Stock Unit Plan for Non-Employee Directors (this "Plan") to provide
benefits for non-employee directors of the Company in order to serve as an
inducement for their continued service to the Company and to align the
directors' financial interests with those of the shareholders.
Section 1. Eligibility. Each director of the Company (including current
-----------
directors) who is not a current or former employee of the Company is eligible to
participate in this Plan.
Section 2. Amount of Benefit. A Deferred Stock Unit (DSU) account will be
-----------------
established for each director. Each director's DSU account will be based on the
amount of the annual retainer, the number of years of Board service and the
price of RG&E common stock. Each director will be credited annually with DSU's
equal to 75% of the annual retainer. These units will be credited quarterly
with dividend equivalents based on the common stock price used in the Company's
Automatic Dividend Reinvestment Plan which will be deemed to be reinvested as
stock units.
Section 3. Plan Start-Up Provisions. The initial DSU account for each
------------------------
director will be established as of December 31, 1995 using a $15,000 annual
retainer for each year of prior Board service, calculating the net present value
of this amount (assuming the director retires at age 70 and receives an equal
amount over the same number of years as his/her Board service) using the current
RG&E Retirement Plan discount rate of 6.75% and converting the net present value
into equivalent DSU's using the RG&E stock price on December 31, 1995 of $22.625
per share.
Beginning in 1996, and each year thereafter, each director's grant of DSU's
will be based on 75% of the annual retainer at the beginning of the year,
converted to common stock equivalent units using the average common stock price
in December of the previous year.
<PAGE>
Section 4. Vesting. The value of each director's DSU account will vest
-------
and become payable upon termination according to the following schedule:
<TABLE>
<CAPTION>
Years of Service for Director Percentage Vesting
----------------------------- ------------------
<S> <C>
10 or more 100%
9 90
8 80
7 70
6 60
5 50
less than 5 0
</TABLE>
Section 5. Payment. Upon termination from Board service, each director
-------
will receive the vested value of his/her DSU account in the form of cash which
will be determined by multiplying the number of DSU's by the average RG&E common
stock closing price for the calendar month preceding the valuation date. Except
as otherwise provided in this Plan, the annual benefits payable to each director
will be paid in either a lump sum or in up to ten annual installments, at the
director's election (election must be made at least three years in advance of
termination, as required by the Internal Revenue Code, to ensure that taxes will
not be payable until payment is made). If no election has been made, all
amounts will be paid on a lump sum basis. The first payment of benefits will
commence on or about the fifteenth day of the month following the director's
termination from the Board of Directors. Subsequent payments of benefits will
be made on or about the fifteenth day of each January thereafter. If a periodic
payment schedule is selected, the director's DSU account will continue to be
credited quarterly with dividend equivalents on the unpaid balance.
Section 6. Years of Service. A director's years of service will be
----------------
measured from the date he or she is elected to the Board of Directors or becomes
eligible to participate in this Plan. Directors will be credited with a year of
service for each 364 days of continuous service in any calendar year. The
Director will receive credit for the full calendar year in the year in which the
director is elected to the Board and the year in which he/she terminates.
Section 7. Death Benefit. If a Director dies prior to receiving the total
-------------
amount of benefits which he or she would have otherwise received under this Plan
(irrespective of whether the Director had begun receiving such benefits prior to
his or her death), the unpaid
<PAGE>
portion of those benefits will be paid to the beneficiary last designated by the
Director in writing to the Committee. If no beneficiary is designated or if the
designated beneficiary predeceases the Director, payments shall be made to the
Director's estate. In the event of the death of a beneficiary to whom payments
are being made, the remaining payments shall be made to such beneficiary's
estate. In the event payments are to be made to a beneficiary or to the estate
of a Director or a beneficiary the Committee on Directors, at its sole
discretion, may provide for the lump sum payment of the remaining payments.
Section 8. Change of Control. In the event of a Change in Control (as
-----------------
hereinafter defined), any benefits or rights accrued and unpaid to a Director
whether or not retired from the Board and for which each Director would have
otherwise received for those years of service preceding the Change of Control
will be paid in a lump sum amount. As used in this Plan, "Change of Control"
refers to any of the following:
(i) any person, group, corporation or other entity is the beneficial owner,
directly or indirectly, of 20% or more of the outstanding stock of the Company;
(ii) the purchase by any person, group, corporation or other entity (other
than the Company or a wholly-owned subsidiary of the Company) of shares pursuant
to a tender or exchange offer to acquire any stock of the Company (or securities
convertible into stock) for cash, securities or any other consideration,
provided that, after consummation of the offer, such person, group, corporation
or other entity is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Act)), directly or indirectly, of 20% or
more of the outstanding stock of the Company (calculated as provided in
paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire
stock);
(iii) the approval by the stockholders of the Company of any consolidation
or merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of stock of the Company would be
converted into cash, securities or other property, other than a consolidation or
merger of the Company in which holders of its common stock immediately prior to
the consolidation or merger have substantially the same proportionate ownership
of common stock of the surviving corporation immediately after the consolidation
or merger;
(iv) the approval by the stockholders of the Company of any
<PAGE>
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company; or
(v) a change in the majority of the members of the Board of Directors
within a 24-month period unless the election or nomination for election by the
Company's stockholders of each new Director was approved by the vote of two-
thirds of the Directors then still in office who were in office at the beginning
of the 24-month period.
Section 9. Nature of Benefits. This Plan represents a contractual
------------------
obligation on the part of the Company. All benefits payable under this Plan
will be paid out of assets of the Company that are subject to the claims of
creditors of the Company. Although it is not intended that this Plan be funded,
the Company may in its sole discretion designate or segregate certain of its
assets to be used for the payment of benefits under this Plan.
Section 10. Impact on Director's Status. Nothing contained in this Plan
---------------------------
will be construed as affecting a Director's status as a Director or length of
term as a Director.
Section 11. Assignability. Neither the benefits payable under this Plan
-------------
nor the right to receive any payment of those benefits will be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, attachment, execution or levy of any kind,
whether voluntary or involuntary, prior to actually being received by a
Director, except as set forth in this Plan. Except as otherwise provided by
law, any attempt to anticipate, alienate, sell, transfer, assign, pledge,
encumber, charge, garnish, attach or execute or levy on any benefit under this
Plan will be null and void.
Section 12. Administration of the Plan. This Plan will be administered by
--------------------------
the corporate Secretary. The Secretary will have the authority to interpret,
construe, and implement the provisions of this Plan and to adopt rules and
regulations for administering the Plan. All decisions, actions or
interpretations of the Secretary will be final, conclusive and binding on all
parties.
Section 13. Amendment. This Plan may be amended, modified, suspended or
---------
terminated by the Board of Directors of the Company at
<PAGE>
any time. No amendment, modification, suspension or termination will adversely
affect the previously accrued rights and benefits of a Director under this Plan,
unless the Director consents thereto.
Section 14. Payment of Taxes. The Company has the right to deduct from
----------------
any payments to be made under this Plan an amount sufficient for the payment of
tax withholding as required by law.
Section 15. Governing Law. This Plan will be interpreted and enforced in
-------------
accordance with the laws of the State of New York.
Section 16. Benefits and Obligations. This Plan will inure to the benefit
------------------------
of, and be binding upon, the Company, its successors and assigns and the
Directors, their respective heirs, executors and administrators.
Section 17. Effective Date. This Plan will be effective as of December
--------------
31, 1995.
IN WITNESS WHEREOF, this Plan has been duly executed by an authorized
officer of Rochester Gas and Electric Corporation on this 21st day of February,
1996.
DAVID C. HEILIGMAN
----------------------------------
David C. Heiligman
Vice President, Finance
and Corporate Secretary
Approved by the Committee on Directors 2/21/96
Approved by the Executive and Finance Committee 2/21/96
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF
CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,677,491
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 306,248
<TOTAL-DEFERRED-CHARGES> 476,692
<OTHER-ASSETS> 38,879
<TOTAL-ASSETS> 2,499,310
<COMMON> 193,178
<CAPITAL-SURPLUS-PAID-IN> 498,531
<RETAINED-EARNINGS> 93,566
<TOTAL-COMMON-STOCKHOLDERS-EQ> 785,275
55,000
67,000
<LONG-TERM-DEBT-NET> 575,345
<SHORT-TERM-NOTES> 29,600
<LONG-TERM-NOTES-PAYABLE> 91,900
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 18,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 877,190
<TOT-CAPITALIZATION-AND-LIAB> 2,499,310
<GROSS-OPERATING-REVENUE> 309,195
<INCOME-TAX-EXPENSE> 28,799
<OTHER-OPERATING-EXPENSES> 222,932
<TOTAL-OPERATING-EXPENSES> 252,329
<OPERATING-INCOME-LOSS> 56,866
<OTHER-INCOME-NET> 565
<INCOME-BEFORE-INTEREST-EXPEN> 58,029
<TOTAL-INTEREST-EXPENSE> 15,540
<NET-INCOME> 42,489
1,866
<EARNINGS-AVAILABLE-FOR-COMM> 40,623
<COMMON-STOCK-DIVIDENDS> 17,386
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 100,529
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
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