<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ROCHESTER GAS AND ELECTRIC CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
<PAGE>
[Logo of Rochester Gas and Electric Corporation]
Rochester Gas and Electric Corporation
89 East Avenue . Rochester, NY 14649-0001
(716) 546-2700
================================================
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD
APRIL 15, 1998
================================================
We would like to invite you to attend our 1998 annual meeting of
shareholders. This year the meeting will be held at the Rochester Riverside
Convention Center on Wednesday, April 15, 1998 at 11 A.M. The Convention Center
is located at 123 East Main Street in downtown Rochester, New York.
The meeting is being held to elect five directors and to transact any other
business properly brought before the meeting or any adjournments.
Common shareholders of record at the close of business on February 24, 1998
are entitled to notice of and to vote on all matters at the meeting.
The proxy statement accompanying this notice contains information of
importance to you as a shareholder. We urge you to review this information and
sign and return your proxy in the enclosed envelope.
By order of the Board of Directors,
Thomas S. Richards
Chairman of the Board, President and
Chief Executive Officer
David C. Heiligman
Vice President and
Corporate Secretary
March 3, 1998
================================================
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY
================================================
<PAGE>
Rochester Gas and Electric Corporation
89 East Avenue . Rochester, NY 14649-0001
(716) 546-2700
====================
PROXY STATEMENT
====================
General
The enclosed proxy is solicited by the Board of Directors of Rochester Gas
and Electric Corporation (Company) for voting at the annual meeting of
shareholders on April 15, 1998, or at any adjournments thereof. Shareholders
may revoke their proxies at any time before they are voted.
Common shareholders of record at the close of business on February 24, 1998
are entitled to notice of and to vote at the meeting. Each share is entitled to
one vote on each matter presented at the meeting. As of February 24, 1998, the
Company had outstanding 38,862,347 shares of Common Stock.
Voting of Proxies
The enclosed proxy is for shares of Common Stock held in your name. The
proxy includes any shares held for you under the Automatic Dividend Reinvestment
and Stock Purchase Plan (ADRP) as a shareholder and, if you are an employee,
your RG&E Savings Plus Plan or Employee Stock Ownership Plan (ESOP) shares.
Your shares will be voted in accordance with your instructions on the proxy. If
you sign and return a proxy but do not provide voting instructions, your shares
will be voted for the election of all nominees for directors. If you are an
RG&E Savings Plus Plan participant and you do not vote the shares credited to
your Savings Plus account, the trustee will vote the shares in the same
proportion as shares voted by other participants in the Plan. If you are an
ADRP or ESOP participant, your shares will not be voted unless you return a
proxy.
Under the Company's bylaws, a majority of the shares entitled to vote must
be present in person or represented by proxy before any action can be taken at
the meeting. The election of the nominees for directors will be decided by
plurality vote. Shareholder proxies will be received and tabulated by an
independent agent and the vote will be certified by an independent Inspector of
Election. If a shareholder withholds a vote for one or more directors, the
shares will be counted in determining the quorum for the meeting but will not be
counted in determining the votes for those directors. If a shareholder holds
shares in a broker account and has given specific instructions, the shares will
be voted in accordance with those instructions. If no voting instructions are
given, under New York Stock Exchange rules the broker may exercise discretionary
authority and vote for the Board of Directors nominees.
Election of Directors
The Board of Directors presently consists of twelve members divided into
three classes designated as Class I, Class II and Class III with terms expiring
at the 1999, 2000 and 1998 annual meetings, respectively. Mr. William
Balderston III, a Class I director, will be retiring from the Board at the
annual meeting on April 15, 1998. Mr. Balderston has been a director since 1982
and the Board is appreciative of his contribution to the Company over the years.
After the meeting, there will be four members each in Class II and Class III and
three directors in Class I pursuant to a Bylaw requirement that the classes be
as nearly equal as possible. Five directors are to be elected at the annual
meeting, all of whom are incumbent directors of the Company.
2
<PAGE>
Ms. Susan R. Holliday is standing for election as a Class II director for a
two-year term. Ms. Holliday was elected a director by the Board on September
17, 1997.
There are four nominees standing for election as Class III directors for a
three-year term expiring at the 2001 annual meeting; Messrs. Angelo J.
Chiarella, Mark B. Grier, Jay T. Holmes and Cornelius J. Murphy. Mr. Grier was
elected a director by the Board on September 17, 1997.
The following paragraphs identify the nominees standing for election and
the continuing directors, including principal occupation and business experience
for at least five years.
Nominee - Class II
Term Expiring in 2000
Susan R. Holliday, age 42, has been President and publisher, Rochester Business
Journal since 1988. She has been a director of the Company since September
1997. Ms. Holliday is Chairman of the Rochester Regional Advisory Board, Key
Bank, N.A.
Nominees - Class III
Term Expiring in 2001
Angelo J. Chiarella, age 64, has been Vice President, Rochester Midtown, L.L.C.
(real estate development and leasing) since November 1997. Prior to assuming
his current responsibilities, Mr. Chiarella was President and Chief Executive
Officer of Midtown Holdings Corp. He is a director of Transmation, Inc. and has
been a director of RG&E since 1992.
Mark B. Grier, age 45, has been Executive Vice President, Financial Management,
The Prudential Insurance Company of America since June 1997. He served as Chief
Financial Officer of The Prudential Insurance Company of America from May 1995
to June 1997 and was Executive Vice President, The Chase Manhattan Bank, N.A.
from 1991 to May 1995. Mr. Grier has been a director of the Company since
September 1997.
Jay T. Holmes, age 55, has been an attorney and commercial arbitrator since May
1996. He served as Executive Vice President and Chief Administrative Officer
of Bausch & Lomb Incorporated from March 1995 until his retirement in May 1996.
Mr. Holmes previously held numerous executive positions at Bausch & Lomb,
serving as Senior Vice President and Chief Administrative Officer from November
1994 to March 1995 and as Senior Vice President - Corporate Affairs and
Secretary from 1983 until November 1994. Mr. Holmes has been a director of the
Company since 1992.
Cornelius J. Murphy, age 67, has served as Senior Vice President of Goodrich &
Sherwood Company (management consulting and human resource services) since 1990.
Prior to assuming his current responsibilities, Mr. Murphy held a number of
senior management positions at Eastman Kodak Company, the last of which was
Senior Vice President and Project Manager, Office of the Chief Executive until
March 1989. He is a director of Transmation, Inc. and has been a director of
RG&E since 1981.
3
<PAGE>
Continuing Directors - Class I
Term Expiring in 1999
Samuel T. Hubbard, Jr., age 48, has served as President and Chief Executive
Officer of The Alling and Cory Company (a wholesale distributor of fine printing
paper, industrial and business products) since 1986. Prior to joining Alling
and Cory, Mr. Hubbard held various management positions with Chase Lincoln First
Bank, a former subsidiary of The Chase Manhattan Corporation. He is a director
of First Empire Corporation and the Genesee Corporation. Mr. Hubbard has been a
director since 1996.
Roger W. Kober, age 64, served as Chairman of the Board and Chief Executive
Officer of the Company from March 1996 until his retirement in January 1998.
Mr. Kober served as Chairman of the Board, President and Chief Executive Officer
from January 1992 to March 1996. Mr. Kober is a director of Home Properties of
New York, Inc. He has been a director of the Company since 1988.
Constance M. Mitchell, age 69, was Program Director of the Industrial Management
Council of Rochester, New York, Inc. until her retirement in June 1989. Mrs.
Mitchell serves as a board member or officer of numerous civic and philanthropic
organizations, including the Urban League of Rochester and United Way of Greater
Rochester. Mrs. Mitchell has been a director of the Company since 1981.
Continuing Directors - Class II
Term Expiring in 2000
Allan E. Dugan, age 57, has served as Senior Vice President, Corporate Strategic
Services, Xerox Corporation (provider of document products and services) since
February 1992. Prior to assuming his current position, Mr. Dugan was Senior
Vice President and General Manager, Manufacturing Operations Worldwide. Mr.
Dugan has been a director of the Company since 1991.
Charles I. Plosser, age 49, has served as Dean (since July 1993) and John M.
Olin Distinguished Professor of Economics and Public Policy (since 1991) of the
William E. Simon Graduate School of Business Administration, University of
Rochester. He has been a director of the Company since October 1996.
Thomas S. Richards, age 54, has been Chairman of the Board, President and Chief
Executive Officer of the Company since January 1998. Mr. Richards was President
and Chief Operating Officer from March 1996 to January 1998 and has served in
numerous senior executive capacities since joining the Company as General
Counsel in October 1991. Prior to joining the Company, Mr. Richards was an
attorney with the law firm of Nixon, Hargrave, Devans & Doyle. He has been a
director of the Company since April 1996.
4
<PAGE>
Security Ownership of Management
The following table shows beneficial ownership of the Company's Common
Stock as of February 1, 1998 for each director and nominee, as well as each
executive officer named in the Summary Compensation Table. No director, nominee
or executive officer beneficially owns over .18% of the outstanding shares, and
the total beneficially owned by all directors, nominees and executive officers
as a group represents .60% of the shares outstanding.
<TABLE>
<CAPTION>
Total Shares of
Shares of Accrued Common Stock and
Common Stock Common Stock Common Stock
Name of Beneficial Owner Beneficially Owned /(1)(2)/ Equivalent Units /(3)/ Equivalent Units
<S> <C> <C> <C>
William Balderston III 1,291 9,372 10,663
Michael J. Bovalino 24,036 6,646 30,682
Angelo J. Chiarella 1,581 10,553 12,134
Allan E. Dugan 300 5,879 6,179
Mark B. Grier 0 0 0
Susan R. Holliday 1,395 1,177 2,572
Jay T. Holmes 600 11,425 12,025
Samuel T. Hubbard, Jr. 400 1,801 2,201
Roger W. Kober 69,063 13,943 83,006
Constance M. Mitchell 226 11,922 12,148
Cornelius J. Murphy 3,298 14,752 18,050
Charles I. Plosser 100 1,766 1,866
Thomas S. Richards 40,549 11,130 51,679
Robert E. Smith 29,872 7,275 37,147
J. Burt Stokes 26,552 6,685 33,237
All Directors, Nominees
and Executive Officers as
a group (17 Individuals) 232,486 122,640 355,126
</TABLE>
(1) Includes shares over which the director, nominee or executive officer has
direct or indirect voting or investment power, as well as indirect family
holdings of which the following persons disclaim beneficial ownership with
respect to shares held by their spouses: Mr. Chiarella, 281 shares; Ms.
Holliday, 324 shares; Mr. Kober, 6,518 shares; and all directors, nominees
and executive officers as a group, including the aforementioned, 7,444
shares.
(2) Includes the following shares which may be purchased pursuant to vested
stock options granted under the 1996 Performance Stock Option Plan: Mr.
Bovalino, 23,838 shares; Mr. Kober, 57,513 shares; Mr. Richards, 36,320
shares; Mr. Smith, 23,838 shares; Mr. Stokes, 23,838 shares; and all
directors, nominees and executive officers as a group, including the
aforementioned, 194,057 shares.
(3) Includes Common Stock equivalent units accrued under the Company's Long Term
Incentive Plan, 401(k) Restoration Plan, Directors' Deferred Compensation
Plan and Deferred Stock Unit Plan for Non-Employee Directors for which the
director, nominee or executive officer does not have voting rights.
Directors and officers of the Company are required by Section 16 of the
Securities Exchange Act of 1934 to file reports of their trading in Company
equity securities with the Securities and Exchange Commission. Based upon a
review of the records furnished to the Company for 1997, all required reports
were filed in a timely manner.
5
<PAGE>
Meetings and Standing Committees of the Board of Directors
The Board of Directors met twelve times during 1997. All nominees attended
at least 75% of the total meetings of the Board and the committees on which they
served.
Executive and Finance Committee. The Executive and Finance Committee, with
certain exceptions, possesses all of the authority of the Board of Directors.
During 1997, the Committee met three times. Messrs. Balderston (Chairman),
Dugan, Holmes, Kober, Murphy and Richards are currently members of the
Committee.
Audit Committee. The Audit Committee monitors the integrity of the
Company's financial statements and its financial reporting process. It reviews
management's internal controls and the Company's policies and procedures that
monitor compliance with all applicable laws, regulations and ethical business
practices. The Committee also recommends to the Board the independent auditors
to be retained by the Company for the ensuing year, reviews the results of the
auditors' examination of the Company's financial statements and recommends any
action deemed necessary. During 1997, the Committee met four times. Messrs.
Chiarella, Hubbard, Plosser and Mrs. Mitchell (Chairman) are currently members
of the Committee.
Committee on Management. The Committee on Management reviews the Company's
executive compensation and benefits program, including awards under the
Company's annual Executive Incentive Plan, Long Term Incentive Plan and the
Performance Stock Option Plan. The Committee sets the compensation of the Chief
Executive Officer and reviews the compensation levels of members of management
proposed by the Chief Executive Officer. The Committee oversees the Company's
organizational structure, corporate goals and objectives and management
development, including management succession. During 1997, the Committee met
six times. Messrs. Balderston, Dugan, Hubbard and Murphy (Chairman) are
currently members of the Committee.
Committee on Directors. The Committee on Directors is responsible for
evaluation of director performance, director compensation, director succession,
committee membership and corporate governance issues. The Committee recommends
to the Board of Directors candidates to be nominated for election as directors.
During 1997, the Committee met four times. Messrs. Balderston, Chiarella,
Holmes (Chairman) and Mrs. Mitchell are currently members of the Committee.
Shareholders wishing to recommend candidates for nomination to the Board should
submit in writing to the Secretary of the Company the name of the nominee, a
statement of qualifications and the written consent of the person so named.
Suggestions received prior to October 1, 1998 will be considered by the
Committee when recommending nominees for election at the 1999 annual meeting of
shareholders.
Report of the Committee on Management on Executive Compensation
The Committee on Management is appointed by the Board of Directors of the
Company. Its objective is to assure that executive compensation is fair and
reasonable to customers, shareholders and employees by providing competitive
compensation linked to the achievement of Company goals. The Committee provides
to the Board a detailed review of all aspects of compensation for the senior
officer positions. Members of the Committee and other members of the Board are
available to meet with management to discuss Company matters as needed.
The Committee has used the services of a compensation consulting firm to
advise it on the reasonableness of compensation paid to senior officers as
compared to other companies, including both utility companies and general
industry. The Committee has commissioned several consultant studies on
executive compensation in recent years. The studies indicated that Company
executive compensation levels were below the average for comparable utility
and general industry companies, and based on these results, the Committee has
adjusted the Company's compensation objectives to the targets discussed below.
The studies also facilitated establishment of short and long-term incentive
programs.
6
<PAGE>
Components of Compensation. The executive compensation program consists of
four components: base salary, annual incentive compensation, long-term
incentive compensation and stock options.
Base Salary. The first component is base salary, which is predicated on
competitive market conditions, level of responsibility and individual
performance. The Company's target base compensation objective for its top five
executive positions is to be competitive with utility companies in the Edison
Electric Institute (EEI) revenue class of $600 million to $2.5 billion (40
companies) between the 50th and 75th percentile of this class. The average base
pay for RG&E's executives in 1997 was 3.0% below the median base pay of those
companies.
Executive Incentive Plan. The second component is annual incentive
compensation. A substantial portion of the annual compensation of each officer
relates to, and is contingent upon, the performance of the Company, as well as
the individual contribution of each officer. As a result, a portion of each
officer's total potential compensation is variable.
The Company established an Executive Incentive Plan (EIP) in 1992, which
provides for annual performance bonus awards for key employees of the Company
that are paid upon meeting established performance objectives. Awards may range
from 5% to 25% of the midpoint of a participant's salary grade, and the amount
of an award earned, if any, will depend upon the level of the performance goal
met. If certain exceptional performance is achieved, awards may be doubled.
Performance goals are established annually by the Committee on Management and
approved by the Board of Directors. The annual award will be paid in cash in
the year following the year in which it was earned.
The EIP objectives for 1997 consisted of three categories: (1) Shareholder
Satisfaction, (2) Customer Satisfaction, and (3) Employee Satisfaction. Each
category was given equal weight. The Committee monitored the Company's
performance regarding the Plan's objectives throughout the year. Based upon
1997 performance results, the computations of which were reviewed by the
Company's independent auditors, the Board granted an EIP payout for achieving
the combined objectives: (1) Cash Flow Return on Net Assets; (2) Residential
and Business Customer Assessment scores; and (3) Employee Satisfaction Index and
Employee Performance Initiatives. Members of the Executive Management Team (six
employees) and the Executive Leadership Team (18 employees) participated in the
1997 Plan. The bonus awards for 1997, as reported in the Summary Compensation
Table, reflect the achievement of earning 119.6% of the Targeted Plan Award for
1997, as determined by the Committee and as approved by the Board of Directors.
Twenty percent of the bonus awards was based upon the achievement of individual
performance objectives, as determined by each participant's senior officer.
Long Term Incentive Plan. The third component of executive compensation is
long-term incentive compensation, which is designed to ensure the continuing
success of the Company and is directly tied to the Company's Common Stock
performance. The Company established a Long Term Incentive Plan (LTIP) in 1993.
The Committee may recommend to the Board of Directors the granting of annual
awards to key employees of 500 to 4,000 Performance Shares based on the
participant's salary grade. The Performance Shares are RG&E Common Stock
equivalents and will accumulate reinvested dividends over a three-year
performance cycle. At the end of the three-year performance cycle, the
Company's three-year annualized shareholder return on Common Stock will be
ranked with the companies which comprise the Edison Electric Institute 100 Index
(EEI 100 Index). The Committee on Management may award from 0% to 200% of each
participant's Performance Share Account based on the Company's ranking in the
peer comparison and the Company's Cash Flow Return on Net Assets results. The
number of Performance Shares payable to a participant will be valued based on
the average of the closing price of RG&E Common Stock during December of the
year prior to the awarding of such shares. Awards granted under the LTIP are
paid in cash. Participants are required to invest the after-tax proceeds in
shares of the Company's Common Stock and to retain the shares for a period of at
least three years.
The third LTIP performance cycle concluded in December 1997. The total
shareholder return during the three-year performance cycle, as compared to the
EEI 100 Index, placed RG&E in 13th position out of 93 companies. This was a
significant improvement over the previous three-year performance cycle concluded
in
7
<PAGE>
December 1996, where RG&E ranked in 88th position out of 97 companies. Based
upon RG&E's relative performance compared to the EEI 100 Index and Cash Flow
Return on Net Assets of 9.87%, which was above the target goal established in
the Corporate Business Plan, the Board of Directors approved a 190.0% payout for
1997 for Performance Shares granted in 1995. These awards were grossed up to
cover federal and state income taxes, as reported in the Summary Compensation
Table.
The Company's total executive compensation objective for its top five
executive positions is to be fully competitive at the target level of the
salary comparison group. Total compensation is defined as the combination of
base salary and short and long-term incentives. With a 119.6% EIP payout in
1997 and a LTIP payout of 190.0% for the performance cycle ending in 1997, the
average total compensation for RG&E's top five executives is 46.8% above the
median of the EEI salary comparison group. Had a target EIP award and 100%
award for the LTIP been earned without the significant increase in the Company's
three-year annualized return, the average total compensation for RG&E's top five
executives would have been 11.2% above the median of the same comparison group.
Performance Stock Option Plan. In 1996, a fourth component to executive
compensation, a Performance Stock Option Plan, was established. The Stock
Option Plan is designed to motivate management to increase shareholder value
over the long term. Under the Plan, officers and other key executives may be
awarded stock options over a ten-year period ending December 31, 2006. The
stock options are intended to more closely align the interests of management
with those of shareholders by giving management a greater interest in
significant stock price appreciation. The full benefit of the compensation
package to each executive cannot be realized unless stock price appreciation
occurs over a number of years.
In 1997, the Committee granted stock options to 25 executives, including
the Chief Executive Officer and the four highest compensated executive officers
reported in the stock option tables on page 12. In determining the number of
options, consideration was given to competitive practices and the duties and
scope of responsibilities of each executive position.
The Committee granted 504,700 options at an exercise price of $19.0625 per
share. Because they were performance related, these options became 50% vested on
October 22, 1997 after achieving a Common Stock closing price of $25 or more for
five consecutive trading days and 75% vested on December 23, 1997, after
achieving a Common Stock closing price of $30 or more for five consecutive
trading days. They will become fully vested if and when the Common Stock
closing price reaches $35 or more for five consecutive trading days.
Also in 1997, the Committee granted 50,159 options at an exercise price of
$24.75 per share. These options became 25% vested on October 22, 1997 and 50%
vested on December 23, 1997, reflecting the stock price performance discussed
above. They will become 75% vested if and when the Common Stock maintains a
closing price of $35 or more for five consecutive trading days and fully vested
if and when the Common Stock reaches and sustains a closing price of $40 or more
for five consecutive trading days. Under the provisions of the Stock Option
Plan, the Committee may grant additional options in the future.
Chief Executive Officer Compensation. With respect to Mr. Kober's base
salary for 1997, the Committee assessed his overall leadership of the Company,
including the continued implementation and adherence to a long range
comprehensive business plan to appropriately position the Company in the
competitive and rapidly changing utility environment of the 1990s, his
effectiveness in leading the corporation through this transition, continued
emphasis on employee effectiveness, the depth of his experience and his job
performance. Results reflecting improved overall customer satisfaction will be
a critical component in retaining and acquiring customers in the new competitive
marketplace. Mr. Kober led efforts to reorganize the Company to operate in an
unregulated environment. Additionally, Mr. Kober has led efforts to reach a
settlement agreement with the New York State Public Service Commission. The
Company's unregulated subsidiary, Energetix, Inc., is slated to begin operations
in early 1998. Once again, in 1997, several additional key senior executives
have been hired in support of the Company's new diverse business needs.
8
<PAGE>
The Board of Directors reviewed Mr. Kober's 1996 performance and
achievements and as a result, the Board opted to increase Mr. Kober's base pay
for 1997 by 5.0%. At this level, Mr. Kober's base pay for 1997 was 8.3% below
the median of the EEI salary comparison group.
As a result of the awards paid to Mr. Kober for the positive performance
achieved under the EIP and LTIP for 1997, his total compensation is 27.0% above
the median of the EEI salary comparison group. Had Mr. Kober received the
target award for both of these plans, his total compensation would have been
3.8% below the median of the same comparison group.
Mr. Kober was granted 4,000 Performance Shares in 1997 under the LTIP,
reduced to 1,333 shares to reflect his retirement from the Company effective
January 1, 1998. The performance cycle for these shares will end on December
31, 1999 and will be evaluated at that time.
Mr. Kober was granted 76,684 performance contingent stock options on
January 22, 1997 at an exercise price of $19.0625 per share, based upon the
average closing price of RG&E Common Stock at the time of such grant. These
options became 75% vested in 1997 at a Common Stock price of $30 per share as
discussed above. They will become 100% vested at $35 per share. The value of
these options upon full vesting will represent the achievement of an 84%
improvement in shareholder value.
Performance Shares under the LTIP and the Performance Stock Option Plan
link executive compensation directly with shareholder interests since both the
targets and the payouts are measured in terms of shareholder value.
Mr. Kober retired from the Corporation effective January 1, 1998 but was
requested by the Company's Board of Directors to continue as a director.
Committee on Management
Cornelius J. Murphy, Chairman
William Balderston III
Allan E. Dugan
Samuel T. Hubbard, Jr.
9
<PAGE>
Executive Compensation
Executive Officers. The following tables show the compensation earned by
the Company's chief executive officer and each of its four highest compensated
executive officers over the past three years.
Summary Compensation Table
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Annual
Compensation Long-Term Compensation
----------------- -----------------------
LTIP Securities All Other
Fiscal Salary Bonus Payouts Underlying Compensation
Name and Principal Position Year ($) ($) (1) ($) (2) Options (3) ($) (4)
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
ROGER W. KOBER 1997 414,425 121,809 555,698 76,684 10,361
Chairman of the Board and 1996 391,735 68,467 83,707 N/A 9,793
Chief Executive Officer (5) 1995 361,647 0 0 N/A 9,041
THOMAS S. RICHARDS 1997 246,710 73,846 277,849 48,427 6,168
President and 1996 223,825 37,265 41,853 N/A 5,596
Chief Operating Officer (6) 1995 191,852 0 0 N/A 4,796
ROBERT E. SMITH 1997 224,931 42,411 277,776 31,785 5,623
Senior Vice President, 1996 217,689 27,305 41,853 N/A 5,442
Energy Operations 1995 208,975 0 0 N/A 5,224
J. BURT STOKES 1997 198,717 42,411 277,744 31,785 4,968
Senior Vice President, 1996 190,000 27,305 41,853 N/A 4,750
Corporate Services and 1995 N/A N/A N/A N/A N/A
Chief Financial Officer
MICHAEL J. BOVALINO 1997 167,148 42,411 277,719 31,785 4,179
Senior Vice President, 1996 N/A N/A N/A N/A N/A
Energy Services (7) 1995 N/A N/A N/A N/A N/A
---------------------------------------------------------------------------------------------------
</TABLE>
N/A - Not Applicable
(1) Pursuant to the Executive Incentive Plan guidelines, the amount of annual
awards depends upon the level of achievement of one-year goals. If
performance is below a minimal level, no award is earned. Actual amounts of
annual awards earned under the plan are shown.
(2) Pursuant to the Long Term Incentive Plan guidelines, the amount of annual
awards depends upon the total shareholder return over a three-year period
ending in 1997, as compared to the companies which comprise the Edison
Electric Institute 100 Index of investor-owned electric utilities. The
Board of Directors approved a modification to the Plan in August 1996. The
Plan was modified to include a financial performance measurement which
compares the Company's Cash Flow Return on Net Assets against a pre-
established target goal identified in the Corporate Business Plan. The
table reports actual amounts earned at the end of the performance cycle,
grossed up to cover federal and state income taxes. Awards granted under
the Plan are paid in cash. Participants are required to invest the after-
tax proceeds in shares of the Company's Common Stock and to retain the
shares for a period of at least three years.
(3) Options granted in 1997 as further discussed in the table entitled "Option
Grants in Last Fiscal Year (1997)".
(4) Company contributions to RG&E Savings Plus Plan, 401(k), and the 401(k)
Restoration Plan.
(5) Mr. Kober retired from the Company effective January 1, 1998.
(6) Mr. Richards was elected Chairman of the Board, President and Chief
Executive Officer effective January 1, 1998.
(7) Mr. Bovalino was employed by the Company on January 20, 1997.
10
<PAGE>
Long Term Incentive Plan - Grants in Last Fiscal Year (1997)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Estimated Future Payouts
Under Non-Stock Price-Based Plans
Number of Performance ---------------------------------
Common or Other
Stock Period Until
Equivalent Maturation Threshold Target Maximum
Name and Principal Position Units (1) or Payout (No.) (No.) (No.)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ROGER W. KOBER 4,000 3 Years 0 - 3,999 4,000 8,000
Chairman of the Board and
Chief Executive Officer (2)
THOMAS S. RICHARDS 3,000 3 Years 0 - 2,999 3,000 6,000
President and
Chief Operating Officer
ROBERT E. SMITH 2,000 3 Years 0 - 1,999 2,000 4,000
Senior Vice President,
Energy Operations
J. BURT STOKES 2,000 3 Years 0 - 1,999 2,000 4,000
Senior Vice President,
Corporate Services and
Chief Financial Officer
MICHAEL J. BOVALINO 2,000 3 Years 0 - 1,999 2,000 4,000
Senior Vice President,
Energy Services
---------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to the Long Term Incentive Plan, in January 1997 officers were
granted a specific number of Performance Shares based upon their salary
grade. Each Performance Share is deemed to be equivalent to one share of
RG&E Common Stock. Stock dividend equivalents will be deemed to be paid and
reinvested during the length of a performance cycle. The Committee on
Management may award from 0% to 200% of each officer's Performance Share
Account at the end of a three-year performance cycle (1999 for this cycle)
based on the Company's ranking against the Edison Electric Institute 100
Index of investor-owned electric utilities for total shareholder return on a
three-year annualized basis and the Company's Cash Flow Return on Net Assets
compared to a pre-established target goal identified in the Corporate
Business Plan. The number of Performance Shares payable, if any, will be
based on the average closing price of RG&E Common Stock for December 1999.
Any award will be paid in cash by March 1, 2000. Participants are required
to invest the after-tax proceeds of any award in shares of this Company's
Common Stock and to retain the shares for a period of at least three years.
(2) The Performance Shares originally granted to Mr. Kober were reduced from
4,000 shares to 1,333 shares to reflect his retirement from the Company
effective January 1, 1998.
11
<PAGE>
Option Grants In Last Fiscal Year (1997)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Individual Grants (1)
------------------------------------------------------------------------------------------------
Percent of Total
Options Granted Exercise or Grant Date
Options to Employees in Base Price Expiration Present Value
Name Granted (#) Fiscal Year ($/Share) Date ($) (2)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Roger W. Kober 76,684 13.8 $19.0625 1/01/01 420,081
Thomas S. Richards 48,427 8.7 $19.0625 1/22/07 273,665
Robert E. Smith 31,785 5.7 $19.0625 1/22/07 174,121
J. Burt Stokes 31,785 5.7 $19.0625 1/22/07 174,121
Michael J. Bovalino 31,785 5.7 $19.0625 1/22/07 174,121
------------------------------------------------------------------------------------------------
</TABLE>
(1) The options shown in this table were granted in 1997 under the 1996
Performance Stock Option Plan. During the exercise period, the recipient of
the option grant may exercise 50% of the total options granted after the
stock price closes at $25 or more for five consecutive trading days, 75%
after the stock closes at $30 or more for five consecutive trading days and
100% after the stock closes at $35 or more for five consecutive trading
days. Options carry dividend equivalent rights which provide for a cash
payment upon exercise of an option equal to the quarterly dividend payments
per share of RG&E Common Stock paid to the Company's shareholders from the
date the option was granted to the date of exercise.
(2) The grant date valuation was calculated using the Black-Scholes option
pricing model assuming an option value ranging between $.86 to $1.08 per
share, stock price volatility of 17%, a risk-free rate of return ranging
between 6.39% to 6.56% and an annual dividend yield of 9.44%.
Aggregated Option Exercises in Last Fiscal Year (1997)
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Number Of Securities Value of Unexercised In-The-
Underlying Unexercised Money Options at Fiscal
Options at Fiscal Year End Year End (1)
- -------------------------------------------------------------------------------------------------------------
Shares
Acquired Value
Name on Exercise Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Roger W. Kober 0 0 57,513 19,171 $859,100 $286,367
Thomas S. Richards 0 0 36,320 12,107 542,530 180,848
Robert E. Smith 0 0 23,838 7,947 356,080 118,708
J. Burt Stokes 0 0 23,838 7,947 356,080 118,708
Michael J. Bovalino 0 0 23,838 7,947 356,080 118,708
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the market value of the stock at fiscal year-end less exercise
price. Does not include dividend equivalent rights from the date the option
was granted to the date of exercise at the current annual rate of $1.80 per
share.
12
<PAGE>
Employment Agreements. The Company has entered into change in control
agreements for an indefinite term with Messrs. Richards, Smith, Stokes and
Bovalino. The agreements provide that each of the officers that is a party to
the agreements is entitled to specified compensation if, within two years after
a change in control of the Company (as defined in the agreements), the officer's
employment is involuntarily terminated by the Company other than termination for
cause (as defined in the agreements) or by reason of death, disability or normal
retirement. Involuntary termination also includes the employee's resignation
following a change in duties or the employment relationship as defined in the
agreements. If an involuntary termination occurs within the two-year covered
period, Mr. Richards will receive a lump sum payment equal to three times his
annual salary and bonus (final year or final three-year average, whichever is
higher), and the other senior officers will receive two times their annual
salary and bonus, subject to reduction in order to maximize the after-tax effect
to the officer. If Mr. Richards were to reach his normal retirement (age 65)
prior to three years following his termination date (two years for the other
officers), the lump sum payment would be reduced pro-rata with a minimum payment
of one times annual salary and bonus. A payment of one times annual salary and
bonus would be payable in the case of voluntary termination during the two-year
period with a pro-rata reduction in the payment if termination occurs within one
year prior to normal retirement. Prior to retirement on January 1, 1998, Mr.
Kober had an employment agreement with the same terms as Mr. Richards' current
agreement.
Directors. Directors receive an annual retainer of $18,000, plus $800 for
each Board or committee meeting attended. Committee chairmen and Executive and
Finance Committee members receive an additional retainer of $2,500 and $1,500,
respectively. If a director attends more than one Board or committee meeting on
the same day, the fee for each subsequent meeting is $600. Officers of the
Company receive no fees for their services as directors. The total amount of
compensation paid to directors is comparable to the total compensation paid to
directors of similar sized combination electric and gas utility companies.
The Company has deferral plans under which a director's fees may either be
deferred with interest in a cash account or deferred and converted to Common
Stock equivalent units which earn dividends equal to dividends declared on the
Company's Common Stock. In either case, deferred amounts are paid in cash, in a
lump sum or over a period of up to ten years commencing no later than the
director's 70th birthday.
The Company has a Deferred Stock Unit Plan for Non-Employee Directors (the
Plan), which serves to align the directors' financial interests with those of
the shareholders. Each director's deferred stock account is based on the amount
of the annual retainer, the number of years of Board service and the price of
the Company's Common Stock. Under the Plan, each director is credited annually
with deferred stock units equal to 75% of the annual retainer. Benefits under
the Plan become partially vested after five years of service and are fully
vested after ten years. Upon cessation of membership on the Board, deferred
amounts will be payable in cash in a lump sum or in up to ten annual
installments as determined by each director.
13
<PAGE>
Shareholder Return Comparison
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the Edison Electric Institute 100 Index of
investor-owned electric utilities for the past five years. Total return was
calculated assuming investment of $100 on December 31, 1992 and reinvestment of
all dividends.
[GRAPH APPEARS HERE]
Comparison of Five-Year Cumulative Return
Among RG&E, EEI 100 Index and S&P 500 Index
<TABLE>
<CAPTION>
Measurement period RG&E EEI 100 S&P 500
(Fiscal year Covered) Index Index
- -------------------- ---- ------- -------
<S> <C> <C> <C>
Measurement PT --
12/31/92 $100 $100 $100
FYE 12/31/93 $114 $111 $110
FYE 12/31/94 $ 98 $ 98 $111
FYE 12/31/95 $115 $129 $153
FYE 12/31/96 $107 $130 $189
FYE 12/31/97 $204 $166 $251
</TABLE>
14
<PAGE>
Pension Plan Table
The Company has a non-contributory, tax qualified, defined benefit pension
plan, the RG&E Retirement Plan, and an unfunded, non-qualified plan, the RG&E
Unfunded Retirement Income Plan. All employees, including executive officers,
are eligible to participate in these plans. The annual pension benefit under
the plans, taken together, is determined by years of service and annual
compensation (salary and bonus). Under the Internal Revenue Code of 1986, the
annual benefit payable by the funded plan was limited to $125,000 for 1997. The
unfunded plan will provide those benefits which cannot be fully provided by the
funded plan. The table below may be used to calculate the approximate annual
benefits payable at normal retirement (age 65) under the two plans in specified
remuneration and years-of-service classifications. The benefits as shown may be
subject to deduction for Social Security benefits under the benefit formula.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Average
Annual Salary Retirement Benefits Based on Years of Service (2)
---------------------------------------------------------------------------------------------------
(1) 15 20 25 30 35 40 45
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000 70,200 77,700 85,200 92,700 100,200 104,500 108,200
200,000 94,500 104,500 114,500 124,500 134,500 143,200 148,200
250,000 118,700 131,200 143,700 156,200 168,700 181,200 188,200
300,000 143,000 158,000 173,000 188,000 203,000 218,000 228,200
350,000 167,300 184,800 202,300 219,800 237,300 254,800 268,200
400,000 191,500 211,500 231,500 251,500 271,500 291,500 308,200
450,000 215,800 238,300 260,800 283,300 305,800 328,300 348,200
500,000 240,000 265,100 290,100 315,100 340,100 365,100 388,200
550,000 264,300 291,900 319,400 346,900 374,400 401,900 428,200
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average annual salary includes base pay (three highest consecutive years)
and annual bonus (three highest years) during the last ten years before
retirement. The amounts shown in the salary and bonus columns in the Summary
Compensation Table (see page 10) constitute qualifying compensation under
the plans.
(2) The table is based on Retirement Plan formula pertaining to employees hired
prior to December 31, 1975. The actual pension benefit for employees hired
after December 31, 1975 will be less than the table amounts. Messrs. Kober,
Richards, Smith, Stokes and Bovalino have been credited with 32, 14, 38, 2
and 1 years of service, respectively, under the plans.
The RG&E Unfunded Retirement Income Plan will also pay Mr. Kober $292 per
month during retirement to replace retiree life insurance which the Company
canceled in 1985. This amount is payable only after retirement and is limited
to a total of 120 monthly payments, which will continue to be made to a
designated beneficiary or to the estate of a recipient who dies prior to
expiration of the 120-month period.
Miscellaneous
The Company renewed a directors and officers liability insurance policy
provided by Associated Electric and Gas Insurance Services Limited (AEGIS) for a
one-year term, effective as of January 1, 1998. The policy insures the Company
against any obligations it may incur as a result of the indemnification of its
directors and officers. The effective cost of the insurance will be zero for
1998 as the Company received a member's continuity credit which fully offset the
premium for the policy. In addition, the Company has a policy with Energy
Insurance Mutual Limited that provides excess coverage for such insurance for a
one-year term, effective as of January 1, 1998. Dividends to be received in
1998 are also expected to offset the premium for this policy. The Company
additionally renewed a fiduciary liability insurance policy carried with AEGIS,
effective as of May 1, 1997. The premium cost for this policy was $39,455 for a
one-year term.
15
<PAGE>
Independent Auditors
Price Waterhouse, the Company's independent auditors since 1958, was
recommended by the Audit Committee and approved by the Board of Directors to be
the Company's independent auditors for the year 1998. Representatives of Price
Waterhouse are expected to be present at the meeting and will have the
opportunity to make a statement if they so desire. They will also be available
to answer appropriate questions from shareholders.
Other Matters
The Board of Directors does not know of any other matters to come before
the meeting. If any other matters are properly brought before the meeting, it
is the intention of the persons named in the proxy to vote in accordance with
their judgment.
Proxies will be solicited by mail, and Company employees may also solicit
proxies by telephone or other electronic means. Morrow & Co. has been retained
to assist in soliciting proxies at a fee of $7,500, plus reasonable out-of-
pocket expenses. The Company will pay all costs associated with soliciting
proxies for the meeting. Proxy material will be mailed to shareholders on or
about March 3, 1998.
In order to be eligible for inclusion in the proxy material for the
Company's 1999 annual meeting, any shareholder proposal to take action at such
meeting must be received by the Company no later than November 3, 1998.
March 3, 1998
16
<PAGE>
RGE82 F DETACH HERE
ROCHESTER GAS AND ELECTRIC CORPORATION
89 East Avenue, Rochester, New York 14649-0001
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints T.S. Richards, M.T. Tomaino and D.C.
Heiligman and each of them as proxies, with power of substitution, to vote all
Common Stock of the undersigned, as directed on the reverse side, at the
Rochester Gas and Electric Corporation Annual Meeting of Shareholders to be held
on April 15, 1998 or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
---
LISTED NOMINEES.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
THIS IS YOUR PROXY.
[LOGO OF ROCHESTER GAS AND ELECTRIC] YOUR VOTE IS IMPORTANT.
Rochester Gas and Electric Corporation's 1998 annual meeting of shareholders
will be held at the Rochester Riverside Convention Center on Wednesday, April
15 at 11 a.m. Issues to be decided on at the meeting are listed on the attached
proxy form and described in more detail in the proxy statement. To ensure that
your shares are voted at the meeting, please complete the form, detach at the
perforation and return to the tabulating agent in the enclosed envelope.
SHAREHOLDER COMMUNICATIONS
* RG&E Business and Financial Information. You can access RG&E business and
financial information as soon as it is made public by calling our automated
investor communications system at (800) 724-8833 or visiting our Internet
site at http://www.rge.com.
* Shareholder Account Services. Shareholder services representatives are
available weekdays from 8 a.m. to 6 p.m. eastern standard time through Boston
EquiServe, RG&E's shareholder services agent, at (800) 736-3001.
Please Complete and Return the Proxy Form Below.
RGE82 5F DETACH HERE
Please mark
[X] votes as in
this example.
1. ELECTION OF DIRECTORS
Nominees:
Class II: S.R. Holliday
Class III: A.J. Chiarella, M.B. Grier, J.T. Holmes, C.J. Murphy
FOR WITHHELD
[_] [_]
[_]________________________________________
For all nominees except as noted above
2. OTHER MATTERS
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. As of March 3,
1998 the Board of Directors does not know of any other matters to
come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this
proxy will be voted FOR the election of the listed nominees for directors.
(Please sign exactly as name appears at left)
Signature: __________________________________ Date: _________________
Signature: __________________________________ Date: _________________
