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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition
period from ______ to ______
Commission file number 1-2987
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NIAGARA MOHAWK POWER CORPORATION
(Exact name of registrant as specified in its charter)
State of New York 15-0265555
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 Erie Boulevard West, Syracuse, New York 13202
(Address of principal executive offices) (zip code)
(315) 474-1511
Registrant's telephone number, including area code
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Securities registered pursuant to Section 12(b) of the
Act:
(Each class is registered on the New York Stock Exchange)
Title of each class
Common Stock ($1 par value)
Preferred Stock ($100 par Preferred Stock ($25 par
value-cumulative): value-cumulative):
3.40% Series 4.10% Series 6.10% Series 9.50% Series
3.60% Series 4.85% Series 7.72% Series Adjustable Rate -
3.90% Series 5.25% Series Series A & Series C
Securities registered pursuant to Section 12(g) of the Act: None
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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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K / X /
State the aggregate market value of the voting stock held by non-
affiliates of the registrant.
Approximately $1,227,000,000 at March 18, 1997.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
Common stock $1 par value, outstanding at March 18, 1997:
144,390,619.
Documents incorporated by reference:
Definitive Proxy Statement in connection with annual meeting of
stockholders to be held May 6, 1997 incorporated in Part III to
the extent described therein.
NIAGARA MOHAWK POWER CORPORATION
INFORMATION REQUIRED IN FORM 10-K
PART I
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Item Number
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Glossary of Terms
Item 1. Business.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Executive Officers of the Registrant
PART II
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Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.
Item 6. Selected Consolidated Financial Data.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
PART III
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Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Item 13. Certain Relationships and Related Transactions.
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
Signatures
NIAGARA MOHAWK POWER CORPORATION
GLOSSARY OF TERMS
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TERM DEFINITION
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AFC Allowance for Funds Used During Construction
BTU British Thermal Unit
Clean Air
Act Clean Air Act Amendments of 1990
CNG CNG Transmission Corporation
CNP Canadian Niagara Power Company, Limited
COPS Competitive Opportunities Proceeding
CWIP Construction Work in Progress
DEC New York State Department of Environmental Conservation
DOE U.S. Department of Energy
DSM Demand-Side Management
Dth Dekatherms
EPA U.S. Environmental Protection Agency
FAC Fuel Adjustment Clause
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fitch Fitch Investors Services, Inc.
GAC Gas Adjustment Clause
GAAP Generally Accepted Accounting Principles
GRT Gross Receipts Tax
GwHrs Gigawatt-hours
HYDRA-CO HYDRA-CO Enterprises, Inc. (former subsidiary)
IERP Integrated Electric Resource Plan
IPP Independent Power Producer
ISO Independent System Operator
Kw Kilowatt
Kwh Kilowatt-hour
MERIT Measured Equity Return Incentive Term
MGP Manufactured Gas Plant
Moody's Moody's Investors Service
MW Megawatt
Mwh Megawatt-hour
NERAM Niagara Mohawk Electric Revenue Adjustment Mechanism
NYS Supreme
Court Supreme Court of the State of New York, Albany County
NOx Nitrogen Oxide
NPL Federal National Priorities List for Uncontrolled
Hazardous Waste Sites
NRC U.S. Nuclear Regulatory Commission
NYPA New York Power Authority
NYPP New York Power Pool
NYSERDA New York State Energy Research and Development Authority
PPA Power Purchase Agreements
PRP Potentially Responsible Party
PSC New York State Public Service Commission
PURPA Public Utility Regulatory Policies Act of 1978
QF Qualifying Facility
R&D Research and Development
ROE Return on Common Stock Equity
RACT Reasonably Available Control Technology
SFAS Statement of Financial Accounting Standards No. 71
No. 71 "Accounting for the Effects of Certain Types of
Regulation"
SFAS Statement of Financial Accounting Standards No. 101
No. 101 "Regulated Enterprises - Accounting for the
Discontinuance of Application of FASB Statment
No. 71"
SFAS Statement of Financial Accounting Standards No. 106
No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions"
SFAS Statement of Financial Accounting Standards No. 109
No. 109 "Accounting for Income Taxes"
SFAS Statement of Financial Accounting Standards No. 121
No.121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of"
Six-Cent Section 66-c of the New York State Public Service Law,
Law governing minimum prices to be paid under certain PPAs
SO2 Sulfur Dioxide
S&P Standard & Poor's
Unit 1 Nine Mile Point Nuclear Station Unit No. 1
Unit 2 Nine Mile Point Nuclear Station Unit No. 2
VERP Voluntary Employee Reduction Program
NIAGARA MOHAWK POWER CORPORATION
Certain statements included in this Annual Report on Form 10-K
regarding expected capital expenditures, statements of management's
plans and objectives for the Company's future operations and
statements of future economic performance, including those
contained in or implied by the discussion under Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, are forward-looking statements as defined in
Section 21E of the Securities Exchange Act of 1934. Those forward-
looking statements include the recoverability of environmental
compliance costs through rates, anticipated capital expenditures to
comply with the Clean Air Act and the recoverability of those
expenditures through rates, the recoverability of expenditures to
comply with the clean water requirements through rates, estimates
of the cost associated with solid/hazardous wastes and their effect
on the Company, the recoverability of expenditures for legal
proceedings through rates and the assumptions described in the
Annual Report on Form 10-K underlying such forward-looking
statements. Additional forward-looking statements found in Part
II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations include statements regarding
information on the financial condition of the Company; the
agreement-in-principle to terminate or restructure selected IPP
contracts; expected future construction expenditures; debt
repayments to deleverage the Company; working capital deficits;
expected PSC approval of cost-of-service based electric rates,
including recovery of costs associated with the expected
termination or restructuring of selected IPP contracts; recovery of
costs of regulatory assets for IPP contract termination or
restructuring under PowerChoice; an expected decrease in future bad
debt expense as compared to 1996 results; the recovery of an
impairment loss through a non-bypassable fee; the continued
application of SFAS No. 71 to the electric transmission and
distribution business and nuclear operations and expected
discounts. The Company's actual results and developments may
differ materially from the results discussed in or implied by such
forward-looking statements, due to a number of important factors.
Those factors include, but are not limited to, matters described in
the context of such forward-looking statements, as well as such
other factors as set forth in the Notes to Consolidated Financial
Statements contained herein.
PART I
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ITEM 1. BUSINESS.
Niagara Mohawk Power Corporation (the Company), incorporated
in 1937 under the laws of New York State, is engaged principally in
the business of generation, purchase, transmission, distribution
and sale of electricity and the purchase, distribution, sale and
transportation of gas in New York State. See Part II, Item 8.
Financial Statements and Supplementary Data - "Note 11.
Information Regarding the Electric and Gas Businesses."
GENERAL
Until recent years, the electric and gas utility industry
operated in a relatively stable business environment, subject to
traditional cost-of-service regulation. The investment community,
both shareholders and creditors, considered utility securities to
be of low risk and high quality. Regulators tended to protect the
utility monopoly in exchange for the utility company's provision
of universal service to customers in its franchise area. Such
protection often encouraged regulators and other governmental
bodies to use utilities as vehicles to advance social programs and
collect taxes. In general, utilities and regulators were inclined
toward establishing a fair rate of return and away from particular
price considerations or incentives for aggressive, long-term cost
control. Cash flows were relatively predictable, as was the
industry's ability to sustain investment grade dividend payout and
interest coverage ratios.
Consequently, the Company's current electricity and gas prices
reflect traditional utility regulation. As such, the Company's
electricity prices include state-mandated purchased power costs
from IPPs, at costs far exceeding the Company's actual avoided
costs, as well as the costs of high taxes in New York. Avoided
costs are the costs the Company would otherwise incur to generate
power if it did not purchase electricity from another source.
While the Company was experiencing rising prices, rapid
technological advances have significantly reduced the price of new
generation and significantly improved the performance of smaller
scale generating unit technology. In addition, the current excess
supply of generating capacity has driven down the prices a
competitive market would support. Actions taken by other utilities
throughout the country to lower their prices, including those in
areas with already relatively low prices, increase the threat of
industrial relocation and the need to offer discounts to industrial
customers.
For a detailed discussion of events that occurred during 1996
and beyond in the competitive environment, federal and state
regulatory initiatives and the Company's efforts to address its
competitive disadvantages and deteriorating financial condition,
see Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following topics are discussed under the general heading
of "Business." Where applicable, the discussions make reference to
the various other items of this Form 10-K.
TOPIC
Regulation and Rates
IPPs
New York Power Authority
Purchased Power
Fuel for Electric Generation
Gas Supply
Financial Information About Industry Segments
Environmental Matters
Nuclear Operations
Construction Program
Electric Supply Planning
Electric Delivery Planning
Research and Development
Employee Relations
Liability Insurance
In addition, for a discussion of the Company's methods of
distribution and the extent to which the Company's business is or
may be seasonal, see Item 2. Properties - "Electric Service" and
"Gas Service". For a discussion of the Company's treatment of
working capital items, see Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - "Financial Position, Liquidity and Capital Resources".
REGULATION AND RATES
POWERCHOICE PROPOSAL. The PSC's 1995 rate order directed the
Company and other interested parties to address several key issues
regarding long-range rate proposals. These issues were to include:
improving the Company's competitive position by addressing
uneconomic utility generation and the high price of many IPP
contracts; eliminating, if possible, the FAC and other billing
mechanisms; addressing property tax issues with local authorities;
improving operating efficiency; and identifying governmental
mandates that are no longer warranted in a competitive environment.
A proposal under this directive was not to create anti-competitive
effects or lead to a deterioration in safe and adequate service.
The PSC also said any multi-year plan should ensure that the
Company has an investment-grade bond rating (although the Company
is currently below investment grade), and include protection for
low-income customers. Finally, the PSC directed that the plan
should propose changes in the regulatory approach for the Company
that support fair competition in the electric generation market
consistent with the PSC's determination in its generic competitive
opportunities proceeding.
On October 6, 1995, the Company filed its PowerChoice proposal
with the PSC. The PowerChoice proposal, which now entails the
implementation of the March 10, 1997 IPP agreement-in-principle to
terminate or restructure selected IPP contracts, would:
* Create a competitive wholesale electricity market and allow
direct access by retail customers.
* Provide relief from overpriced IPP contracts that were
mandated by public policy.
* Separate the Company's non-nuclear power generation business
from the remainder of the business.
* Reduce average prices for Company electric customers, with
reductions to industrial customers to facilitate economic and
job growth in the service territory.
For a detailed discussion of the PowerChoice proposal and the
agreement-in-principle, see Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - "Announced Agreement-in-Principle to Terminate or
Restructure 44 IPP Contracts" and "PowerChoice Proposal".
1997 RATE FILING. For a detailed discussion of the status of
the 1997 rate filing, see Part II, Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -
"Traditional Rate Request."
MULTI-YEAR GAS RATE SETTLEMENT AGREEMENT. For a detailed
discussion of the three-year gas rate settlement agreement that was
conditionally approved by the PSC, see Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Other Federal and State Regulatory
Initiatives - "Multi-Year Gas Rate Settlement Agreement."
PRICE DISCOUNTS. For a detailed discussion of price discounts
offered to customers and the terms of discount agreements, see Part
II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Other Company Efforts to
Address Competitive Challenges - Customer Discounts."
IPPS
In recent years, a leading factor in the increases in customer
bills and the deterioration of the Company's competitive position
has been the requirement to purchase electricity from IPPs at
prices in excess of the energy prices available in the wholesale
market and in some cases, the Company's internal cost of production
and in volumes greater than the Company's customers' needs. PURPA,
New York State law and PSC policies and procedures have
collectively required that the Company purchase this power from
"qualified" IPPs. The prices used in negotiating purchased power
contracts with IPPs are the long run avoided costs that are
established periodically by the PSC. Until its modification in
1992, the Six-Cent Law, which governed many of these contracts, had
established the floor on avoided costs at $0.06/Kwh. The Six-Cent
Law, in combination with other factors, attracted large numbers of
IPP projects to New York State and, in particular, to the Company's
service territory due to the availability of numerous thermal hosts
and hydroelectric sites.
For a detailed discussion of Company efforts to reduce its IPP
costs, see Item 3. Legal Proceedings, Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Announced Agreement-in-Principle to
Terminate or Restructure 44 IPP Contracts" and "PSC Proposal of New
IPP Operating and PPA Management Procedures" and Part II, Item 8.
Financial Statements and Supplementary Data - "Note 9. Commitments
and Contingencies - Long-Term Contracts for the Purchase of
Electric Power."
NEW YORK POWER AUTHORITY
The Company presently has contractual rights to purchase
various types and amounts of electric power and energy from a
number of generating facilities owned by the NYPA. In 1996, these
purchases amounted to 7,638 Mwh, or about 18% of the Company's
total power supply requirements. Under the agreement for
hydroelectric power service, the Company credits to its residential
customers, subject to review by the PSC, any savings derived from
the purchase of an aggregate of 405 MW of firm and peaking hydro
power from NYPA. Refer to Part II, Item 8. Financial Statements
and Supplementary Data - "Note 9. Commitments and Contingencies -
Long-Term Contracts for the Purchase of Electric Power" for a
summary table that includes the types and amounts of NYPA power
which the Company was entitled to purchase as of January 1, 1997
and the termination dates of its contracts with respect to each
NYPA generating facility.
In February 1997, the PSC announced that it will allow the New
York State electric utilities to compete with NYPA economic
development power, which is contrary to a prior long-standing
policy that NYPA had with the PSC. Allowing utilities to compete
with NYPA power ensures that they will now have an opportunity to
offer flexible rates to qualified businesses and industries in an
effort to retain their business. However, the PSC stated that
three of the four utilities offering flexible rates must eliminate
the previously established economic power delivery caps designed to
limit utility exposure to loss of customer electric load. The
Company has a cap of 46 MWs.
On March 11, 1997, the Company announced that it would
terminate an uneconomic contract with the NYPA on May 24, 1997. In
addition, the Company filed a tariff with the PSC that would allow
the Company to provide electricity at a discounted price to those
customers affected by the cancellation of the NYPA contract. The
two-part NYPA contract requires the Company to purchase electricity
from NYPA's Fitzpatrick plant at an above-market price and to wheel
additional power from the plant to certain industrial customers.
The NYPA contract was originally signed in 1975 and has been
subsequently amended. The PSC concluded the contract was
uneconomic in a 1995 order. After several attempts to negotiate a
new contract failed, the Company exercised its termination right.
The Company notified NYPA on May 24, 1996, that the contract would
be cancelled a year later. On March 11, 1997, the Company notified
the FERC that transmission services would no longer be provided to
these customers once the NYPA contract is terminated.
Because cancelling the contract would leave 37 industrial
customers without access to some or all of their NYPA electricity,
the Company has requested approval of a "bridge tariff," a PSC-
authorized rate that will allow the Company to serve these
customers at a price below what the customers are now paying NYPA.
The bridge tariff would remain in place until the Company's
PowerChoice proposal becomes effective. PowerChoice, filed with
the PSC in October 1995, would allow customers to choose their
electricity suppliers. The Company's bridge tariff request
stipulates that any increased revenues earned by the Company as a
result of the NYPA contract termination and the approval of the
bridge tariff would be used to reduce electricity prices for other
industrial customers once PowerChoice is implemented.
On March 13, 1997, NYPA filed a petition with FERC requesting
that the Company be ordered to deliver NYPA electricity to Cascades
Niagara Falls, Inc., which was scheduled to receive service
beginning March 1, 1997 and to continue to provide transmission
service to other NYPA customers.
The Company has begun negotiations with the PSC and NYPA to
resolve these issues, but is unable to predict the outcome.
PURCHASED POWER
Total purchased power in 1996 amounted to 23,366,000 Mwh,
including IPP and NYPA purchases discussed above, representing
approximately 54% of the Company's total power supply requirements.
The Company also purchases electricity from the NYPP and other
neighboring utilities as needed for economic operation. The price
paid for that power is determined by specific contractual terms.
See Part II, Item 8. Financial Statements and Supplementary Data
- - "Note 9. Long-term Contracts for the Purchase of Electric
Power." Physical limitations of existing transmission facilities,
as well as competition with other utilities and availability of
energy, impact the amount of power the Company is able to purchase
or sell. Wholesale power marketing efforts will continue to be an
important activity in a highly competitive environment, in order to
maximize the value of the Company's surplus capacity.
FUEL FOR ELECTRIC GENERATION
COAL. The C. R. Huntley and Dunkirk Steam Stations, the
Company's only coal fired generating stations, are expected to burn
about 1.5 million and 1.4 million tons of coal, respectively, in
1997. The Company currently anticipates obtaining its total 1997
coal requirements under short-term contracts.
The annual average cost of coal burned from 1994 through 1996
was $1.52,
$1.42 and $1.39, respectively, per million BTU, or $39.15, $36.81,
and $36.00 respectively, per ton. Changes in the cost of coal
burned, part of which are transportation expenses, are included in
the Company's FAC.
See "Environmental Matters - Air."
NATURAL GAS. The Albany Steam Station has the capability to
use natural gas, as well as residual oil, as a fuel for electric
generation. This dual-fuel capability permits the use of lower
cost fuel. During 1994, 1995 and 1996, natural gas was the
predominant fuel used. However, generation at this station was
curtailed significantly during this period for economic reasons
because of the requirement to purchase IPP power and excess
capacity in the region. In early 1995, modifications were
completed at the Oswego Steam Station that provided a limited
capability for using natural gas for electric generation. Oswego's
primary fuel is residual oil. In January 1995, the Company used
the natural gas capability at the Oswego Steam Station for the
first time.
The Company currently purchases all natural gas for the Albany
and Oswego Steam Stations on a spot basis. This gas is purchased
as an interruptible supply; and therefore, colder than normal
weather and increased demand for capacity on interstate pipelines
by other firm (non-interruptible) gas customers could restrict the
amount of gas supplied to the stations. During the period 1994
through 1996, the Company, including the Roseton Steam Station
(described below), burned 7.8 million, 12.3 million and 4.9 million
Dth of natural gas, respectively, at an average cost per Dth of
$2.07, $1.65 and $1.96, respectively.
The Company has a 25% ownership interest in Roseton Steam
Station Units No. 1 and 2. Both Roseton Units were modified to
dual fuel capability with natural gas as the alternate fuel in the
early 1990's. Central Hudson Gas and Electric Corporation, co-
owner and operator of the Roseton Steam Station, has three
contracts for the supply of up to approximately 102,000 Dth of
natural gas for use at the Roseton plant as a fuel alternative to
residual oil. The natural gas supply is used primarily during off
peak months, April through October of each year. In 1996,
approximately 1.4 million Dth (the Company's share) of gas were
used at the Roseton plant.
RESIDUAL OIL. The Company's total requirements for residual
oil in 1997 for its Albany and Oswego Steam Stations are estimated
at approximately 0.5 million barrels. Fuel sulfur content
standards instituted by New York State require 1.5% sulfur content
fuel oil to be burned at Albany. Oswego Unit No. 6 requires low
sulfur fuel oil (0.7%). Oswego Unit No. 5, which burns 1.5% sulfur
fuel oil was placed on long term cold standby effective March 1994.
All oil requirements are met on the spot market. At December 31,
1996, there were approximately 186,000 barrels, or more than a 15-
day supply of oil, at the Oswego Steam Station and approximately
210,000 barrels of oil, or a 20-day supply, at the Albany Steam
Station, based on recent burn projections.
The average price of Oswego Unit No. 6 oil at January 1, 1997
was approximately $27.50 per barrel for 0.7% sulfur oil. For 1.5%
sulfur oil, the average price was approximately $23.00 per barrel
at the Albany Steam Station. The fuel oil prices quoted include
the $3.02 per barrel petroleum business tax imposed by New York
State. Changes in the cost of oil burned, part of which are
shipping expenses, are included in the FAC.
The supply of residual oil for the Roseton Steam Station has
been arranged by Central Hudson Gas and Electric Corporation. A
requirements contract is currently in place with options to extend
the contract period.
The annual average cost of residual oil burned at the Albany,
Oswego and Roseton Steam Stations from 1994 through 1996 was $3.16,
$3.41 and $3.81, respectively, per million BTU, or $19.45, $21.66
and $24.15, respectively, per barrel.
NUCLEAR. The supply of fuel for the Company's Nine Mile Point
nuclear generating plants involves: (1) the procurement of uranium
concentrates, (2) the conversion of uranium concentrates to uranium
hexafluoride, (3) the enrichment of the uranium hexafluoride, (4)
the fabrication of fuel assemblies and (5) the disposal of spent
fuel and radioactive wastes. Agreements for nuclear fuel materials
and services for Unit 1 and Unit 2 (in which the Company has a 41%
interest) have been made through the following years:
Unit No. 1 Unit No. 2
Uranium Concentrates 2002 2002
Conversion 2002 2002
Enrichment 2003 2003
Fabrication 2007 2006
Arrangements have been made for procuring a portion of the
uranium, conversion and enrichment requirements through the years
listed above, leaving the remaining portion of the requirements
uncommitted. Enrichment services are under contract with the U.S.
Enrichment Corporation for up to 100% of the requirements through
the year 2003. Fuel fabrication services are under contract
through the year 2007 and 2006, for Unit 1 and Unit 2,
respectively. Up to approximately 95% and 90% of the uranium and
conversion requirements are under contract through the year 2002
for Unit 1 and Unit 2, respectively. The uncommitted requirements
for nuclear fuel materials and services are expected to be obtained
through long-term contracts or secondary market purchases.
The cost of fuel utilized at Unit 1 for 1996, 1995 and 1994
was $0.60, $0.61 and $0.62 per million BTU, respectively. The cost
of fuel utilized at Unit 2 for 1996, 1995 and 1994 was $0.50, $0.51
and $0.48 per million BTU, respectively.
For a detailed discussion of nuclear fuel disposal costs and
the disposal of nuclear wastes, the recovery of nuclear fuel costs
through rates and for further information concerning costs relating
to decommissioning of the Company's nuclear generating plants, see
Item 8 - Financial Statements and Supplementary Data - "Note 1.
Summary of Significant Accounting Policies - Depreciation,
Amortization and Nuclear Generating Plant Decommissioning Costs"
and "Note 3. Nuclear Operations."
GAS SUPPLY
The Company distributes and transports natural gas to a
geographic territory that generally extends from Syracuse to
Albany. The northern reaches of the system extend to Watertown and
Glens Falls. Not all of the Company's distribution areas are
physically interconnected with one another by Company-owned
facilities. Presently, nine separate distribution areas are
connected directly with CNG, an interstate natural gas pipeline
regulated by the FERC, via seventeen delivery stations. The
Company also has one direct connection with Iroquois Gas
Transmission and one with Empire State Pipeline. The majority of
the Company's gas sales are for residential and commercial space
and water heating. Consequently, the demand for natural gas by the
Company's customers is seasonal and influenced by weather factors.
The Company meets its peak load requirements on its system
through a portfolio of firm contracts and peak shaving contracts
capable of delivering approximately 963,600 Dth per day to its
service area. This portfolio includes firm transportation totaling
approximately 306,000 Dth per day on the CNG system, 50,000 Dth per
day on the Iroquois system, as well as four pipelines upstream of
CNG, with firm supplies purchased under 23 different contracts. An
additional 434,000 Dth of peak day requirement capacity is provided
by firm storage withdrawal rights coupled with firm winter season
transportation service on CNG. Finally, within the peak capability
of 963,600 Dth is approximately 173,600 Dth currently available to
the Company under peak shaving contracts with cogenerators on the
Company's system. A substantial portion of the contracted peak
shaving capacity (over 80%) may be lost as a result of the
Company's termination or restructuring of IPP contracts. Some
portion of this lost peak shaving capacity must be replaced with
alternative sources at potentially higher costs.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 8.
Financial Statements and Supplementary Data - "Note 11.
Information Regarding the Electric and Gas Businesses."
ENVIRONMENTAL MATTERS
GENERAL. The Company's operations and facilities are subject
to numerous federal, state and local laws and regulations relating
to the environment including, among other things, requirements
concerning air emissions, water discharges, site remediation,
hazardous materials handling, waste disposal and employee health
and safety. While the Company devotes considerable resources to
environmental compliance and promoting employee health and safety,
the impact of future environmental health and safety laws and
regulations on the Company cannot be predicted with certainty.
In compliance with environmental statutes and consistent with
its strategic philosophy, the Company performs environmental
investigations and analyses and installs, as required, pollution
control equipment, including, among other things, effluent
monitoring instrumentation and materials storage/handling
facilities designed to prevent or minimize releases of potentially
harmful substances. Expenditures for environmental matters for
1996 totaled approximately $65.0 million, of which approximately
$19.1 million was capitalized as pollution control equipment or new
plant environmental surveillance and approximately $45.9 million
was charged to operating expense for remediation, operation of
environmental monitoring and waste disposal programs. Expenditures
for 1997 are estimated to total $41.5 million, of which $2.8
million is expected to be capitalized and $38.7 million charged to
operating expense. Anticipated expenditures for 1998 are estimated
to total $44.5 million, of which $9.0 million is expected to be
capitalized and $35.5 million charged to operating expense. The
expenditures for 1997 and 1998 include the estimated costs for the
Company's expected proportionate share of the costs for site
investigation and cleanup of waste sites discussed under
"Solid/Hazardous Waste" below.
The Company believes that it is probable that costs associated
with environmental compliance will continue to be recovered through
the ratemaking process. For a discussion of the circumstances
regarding the Company's continued ability to recover these types of
expenditures in rates, see Part II, Item 8. Financial Statements
and Supplementary Data - "Note 2. Rates and Regulatory Issues and
Contingencies."
AIR. The Company is required to comply with applicable
Federal and State air quality requirements pertaining to emissions
into the atmosphere from its fossil-fuel generating stations and
other air emission sources. The Company's four fossil-fired
generating stations (Albany, Huntley, Oswego and Dunkirk) are
operated in accordance with the provisions of Certificates to
Operate issued by the DEC.
The provisions of the Clean Air Act address attainment and
maintenance of ambient air quality standards, mobile sources of air
pollution, hazardous air pollutants, acid rain, permits,
enforcement, clean air research and other items. The Clean Air Act
is likely to have a substantial and increasing impact upon the
operation of electric utility fossil-fired power plants in future
years.
The acid rain provisions of the Clean Air Act (Title IV)
require that SO2 emissions from utilities and certain other sources
be reduced nationwide by 10 million tons from their 1980 levels and
that NOx emissions be reduced by two million tons from 1980 levels.
Emission reductions were to be achieved in two phases - Phase I was
to be completed by January 1, 1995 and Phase II will be completed
by January 1, 2000.
The Company has two units (Dunkirk 3 and 4) affected in Phase
I. Beginning in 1995, the Company was required to reduce SO2
emissions by approximately 10,000 - 15,000 tons per year and the
Company is complying with these requirements by substituting non-
Phase I units and relying on reduced utilization of these units to
satisfy its emission reduction requirements at Dunkirk 3 and 4.
With respect to NOx, Title IV of the Clean Air Act requires
emission reductions at Dunkirk 3 and 4. Low NOx burner technology
has been installed to meet the new emission limitations. In
addition, Title I of the Clean Air Act (Provisions for the
Attainment and Maintenance of National Ambient Air Quality
Standards) required the installation of RACT on all of the
Company's coal, oil and gas-fired units by May 31, 1995.
Compliance with Title I RACT requirements at the Company's units
was achieved by installing low NOx burners or other combustion
control technology.
Phase II requirements associated with Title I and Title IV of
the Clean Air Act (targeted for the year 2000 and beyond) will
require the Company to further reduce its SO2 and NOx emissions at
all of its fossil generating units. Possible options for Phase II
SO2 compliance beyond those considered for Phase I compliance
include fuel switching, installation of flue gas desulfurization or
clean coal technologies, repowering and the use of emission
allowances created under the Clean Air Act.
In September, 1994, the states comprising the Northeast Ozone
Transport Commission (New York State included) signed a Memorandum
of Understanding that calls for each member state to develop
regulations for two additional phases of NOx reduction beyond RACT
(referred to as Phase II and Phase III NOx reductions). In Phase
II, sources located in upstate New York (which includes all of the
Company's sources) will have to reduce NOx emissions by May, 1999
by 55 percent relative to 1990 levels. In Phase III, these sources
will have to reduce NOx emissions in May 2003 by 75 percent
relative to 1990 levels. The Memorandum of Understanding provides
that the specified reductions in Phase III may be modified if
evidence shows that alternative NOx reductions, together with other
emission reductions, will satisfy the air quality standard across
the region. The DEC will be developing its Phase II NOx
regulations in 1997 and 1998. The need for and extent of any
further reductions needed in Phase III will not be determined until
1999 or later. Until details are available on how the Phase II and
Phase III NOx reductions will be implemented, definitive compliance
plans for the Company's fossil generating stations and reliable
compliance cost estimates cannot be developed.
The Company spent approximately $0.1 million, $5 million and
$32 million in capital expenditures in 1996, 1995 and 1994,
respectively, on projects at the fossil generation plants
associated with Phase I compliance. The Company has included $6
million in its 1997 through 1999 construction forecast for Phase II
compliance which will become effective January 1, 2000.
See Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Other Company
Efforts to Address Competitive Challenges - Generating Asset
Management Studies."
WATER. The Company is required to comply with applicable
Federal and State water quality requirements, including the Federal
Clean Water Act, in connection with the discharge of condenser
cooling water and other wastewaters from its steam-electric
generating stations and other facilities. Wastewater discharge
permits have been issued by DEC for each of its steam-electric
generating stations. These permits must be renewed every five
years. Conditions of the permits typically require that studies be
performed to determine the effects of station operation on the
aquatic environment in the station vicinity and to evaluate various
technologies for mitigating losses of aquatic life.
LOW LEVEL RADIOACTIVE WASTE. See Part II, Item 8. Financial
Statements and Supplementary Data - "Note 3. Nuclear Operations -
Low Level Radioactive Waste."
SOLID/HAZARDOUS WASTE. The public utility industry typically
utilizes and/or generates in its operations a broad range of
potentially hazardous wastes and by-products. The Company believes
it is handling identified wastes and by-products in a manner
consistent with federal, state and local requirements and has
implemented an environmental audit program to identify any
potential areas of concern and assure compliance with such
requirements. The Company is also currently conducting a program
to investigate and restore, as necessary to meet current
environmental standards, certain properties associated with its
former gas manufacturing process and other properties which the
Company has learned may be contaminated with industrial waste, as
well as investigating identified industrial waste sites as to which
it may be determined that the Company contributed. The Company has
also been advised that various federal, state or local agencies
believe certain properties require investigation and has
prioritized the sites based on available information in order to
enhance the management of investigation and remediation, if
necessary.
The Company is currently aware of 85 such sites with which it
has been or may be associated, including 42 which are Company-
owned. The Company-owned sites include 22 former MGP sites, 10
industrial waste sites and 10 operating property sites where
corrective actions may be deemed necessary to prevent, contain
and/or remediate contamination of soil and/or water in the
vicinity. Of these Company-owned sites, Saratoga Springs is on the
NPL published by the EPA. The 43 non-owned sites with which the
Company has been or may be associated are generally industrial
disposal waste sites where some of the disposed waste materials are
alleged to have originated from the Company's operations. Pending
the results of investigations at the non-owned sites, the Company
may be required to contribute some proportionate share of remedial
costs.
Investigations at each of the Company-owned sites are designed
to (1) determine if environmental contamination problems exist, (2)
if necessary, determine the appropriate remedial actions required
for site restoration and (3) where appropriate, identify other
parties who should bear some or all of the cost of remediation.
Legal action against such other parties will be initiated where
appropriate. After site investigations are completed, the Company
expects to determine site-specific remedial actions and to estimate
the attendant costs for restoration. However, since technologies
are still developing, the ultimate cost of remedial actions may
change substantially.
Estimates of the cost of remediation and post-remedial
monitoring are based upon a variety of factors, including
identified or potential contaminants, location, size and use of the
site, proximity to sensitive resources, status of regulatory
investigation and knowledge of activities at similarly situated
sites, and the EPA figure for average cost to remediate a site.
Actual Company expenditures are dependent upon the total cost of
investigation and remediation and the ultimate determination of the
Company's share of responsibility for such costs, as well as the
financial viability of other identified responsible parties since
clean-up obligations are joint and several. The Company has denied
any responsibility in certain of these PRP sites and is contesting
liability accordingly.
As a consequence of site characterizations and assessments
completed to date, the Company has accrued a liability of $195
million for these owned sites, representing the low end of the
range of the estimated cost for investigation and remediation. The
high end of the range is presently estimated at approximately $510
million.
The majority of cost estimates for currently or formerly owned
or operated properties relate to the MGP sites. The Saratoga
Springs and Harbor Point (Utica, New York) MGP sites are being
investigated and remediated pursuant to separate regulatory Consent
Orders with the EPA and the DEC, respectively. The remaining MGP
sites are the subject of a multi-site Order on Consent, executed in
1992 with the DEC, providing for an investigation and remediation
program over approximately ten years.
With respect to these sites with which the Company has been or
may be associated as a PRP, the Company has recorded a liability of
$30 million, representing the estimate of its share of the total
cost to investigate and remediate these sites. Total costs to
investigate and remediate these sites are estimated to be
approximately $340 million in the unlikely event the Company is
required to assume 100% responsibility. Six of the PRP sites are
included on the NPL. The Company estimates its share of the
liability for these six sites is not material and has included the
amount in the determination of the amounts accrued.
Estimates of the Company's potential liability for sites not
owned by the Company, but for which the Company has been identified
as a PRP, have been derived by estimating the total cost of site
clean-up and then applying a Company contribution factor to that
estimate. Estimates of the total clean-up costs are determined by
using all available information from investigations conducted by
the Company and other parties, negotiations with other PRPs and,
where no other basis is available at the time of estimate, the EPA
figure for average cost to remediate a site listed on the NPL as
disclosed in the Federal Register of June 23, 1993 (58 Federal
Regulation 119). A contribution factor is then calculated using
either a per capita share based upon the total number of PRPs named
or otherwise identified, which assumes all PRPs will contribute
equally, or the percentage agreed upon with other PRPs through
steering committee negotiations or by other means. Actual Company
expenditures for these sites are dependent upon the total cost of
investigation and remediation and the ultimate determination of the
Company's share of responsibility for such costs as well as the
financial viability of other PRPs since clean-up obligations are
joint and several. The Company has denied any responsibility for
certain of these PRP sites and is contesting liability accordingly.
The Company is also aware of approximately 36 formerly-owned
MGP and corrective action sites used, but not owned by the
Company, with which it has been or may be associated and which may
require future investigation and possible remediation. Presently,
the Company has not determined its potential involvement with such
sites and accordingly has made no provision for potential
liabilities associated therewith. In the event the Company is
notified of its potential involvement at such sites by regulatory
agencies and/or PRPs, the Company will determine its potential
liability in the same manner described previously for PRP sites in
general.
Based upon management's assessment that remediation costs will
be fully recovered from ratepayers, a regulatory asset has been
recorded representing the future recovery of remediation
obligations accrued to date. Therefore, the Company does not
believe the costs to comply with environmental laws and regulations
will have a material adverse effect on its results of operations or
financial condition. For a discussion of the uncertainty regarding
the Company's continued ability to recover these types of
expenditures in rates, see Part II, Item 8. Financial Statements
and Supplementary Data - "Note 2. Rate and Regulatory Issues and
Contingencies."
Where appropriate, the Company has provided notices of
insurance claims to carriers with respect to the investigation and
remediation costs for manufactured gas plant, industrial waste
sites and sites for which the Company has been identified as a PRP.
The Company has settled some of these claims and continues to
pursue others, but is unable to predict what the ratemaking
disposition will be.
For a discussion of additional environmental legal
proceedings, see Item 3. Legal Proceedings.
NUCLEAR OPERATIONS
See Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "NRC Seeks to
Confirm Adequacy of Nuclear Design Basis Documentation" and Part
II, Item 8. Financial Statements and Supplementary Data - "Note 3.
Nuclear Operations."
Owners of older General Electric Company boiling water
reactors, including the Company, have experienced cracking near
welds in the plants' core shrouds. In response to industry
findings, the Company installed modifications in the Unit 1 core
shroud during a 1995 refueling and maintenance outage.
Inspections conducted as part of the March 1997 refueling and
maintenance outage detected cracking in areas not directly
reinforced by the 1995 repairs, which may require additional core
shroud modifications. Preliminary analysis indicates the Company
may be able to restart the reactor from the current refueling and
maintenance outage without a significant extension of the outage
duration. Additional modifications, if required, would be
installed during a mid-cycle outage or as part of Unit 1's next
refueling and maintenance outage (February 1999). If modifications
are required before the restart of Unit 1 from the current
refueling and maintenance outage, a 2-3 month extension of the
outage would be anticipated. The Company's action plan on this
issue requires consent from the NRC.
CONSTRUCTION PROGRAM
See Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Financial
Position, Liquidity and Capital Resources - Construction and Other
Capital Requirements" and Part II, Item 8. Financial Statements
and Supplementary Data - "Note 9. Commitments and Contingencies -
Construction Program."
ELECTRIC SUPPLY PLANNING
The Company filed an IERP with the PSC and the State Energy
Planning Board in 1995. While recognizing that uncertainty exists
in forecasting future load, the IERP projects that the Company will
not require generating capacity to fulfill its installed reserve
requirements until the winter of 1999/2000. Such projections may
change depending on the outcome of the agreement-in-principle (see
Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Announced Agreement-in-
Principle to Terminate or Restructure 44 IPP Contracts"). Included
in the IERP is the planned retirement of 340 MWs of coal capacity.
It is expected that with the return to operation of Oswego Unit 5
(850 MWs) from long term cold standby status in 1999, the need for
additional capacity would not occur until the winter of 2009/2010
or beyond. For this and other reasons, the Company need not commit
to the construction or acquisition of large new generation projects
for many years.
The Company's intentions under the IERP would be to use a
resource bidding process to confirm that the return to operation of
Oswego Unit 5 represents the most economic alternative. A Request
for Proposal (RFP) would be issued and bids evaluated prior to
making a decision to restart that unit in 1999. The RFP process
would also be used periodically to confirm that operating plants
provide the least costly means of serving customer needs.
Under the Company's PowerChoice proposal, the obligation to
meet NYPP installed reserve requirements would shift to an ISO.
The PowerChoice proposal would replace the current planning/RFP
process with a competitive market. The ISO would periodically go
out for bid for capacity with an RFP process that is similar to
what is described above. Although competition will replace the
planning process described above, the units providing energy and
capacity in the competitive market could be quite similar to those
described in the supply plan above. (For a discussion of the NYPP
filing with the FERC to establish an ISO, see Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - "FERC Rulemaking on Open Access and
Stranded Cost Recovery.")
ELECTRIC DELIVERY PLANNING
As of January 1, 1997, the Company had approximately 130,000
miles of electric delivery facilities. Evaluation of these
facilities relative to NYPP and Northeast Power Coordinating
Council planning criteria and anticipated Company internal and
external demands is an ongoing process intended to minimize the
capital requirements for expansion of these facilities.
The Company has reviewed the adequacy of its electric delivery
facilities and has determined that capital requirements to support
new load growth will be below previous years' expenditures. There
are no additional IPP projects which would impose significant
technical, economic and construction burdens on the Company.
RESEARCH AND DEVELOPMENT
The Company's R&D program is focused on directly benefiting
the Company's shareholders and customers by obtaining a return on
R&D investments. The Company maintains an R&D program aimed at
improving the delivery and use of energy products and finding
practical applications for new and existing technologies in the
energy business. These efforts include (1) improving efficiency;
(2) minimizing environmental impacts; (3) improving facility
availability; (4) minimizing maintenance costs; (5) promoting
economic development and (6) improving the quality of life for our
customers with new electric technologies.
R&D expenditures in 1996, 1995 and 1994 were approximately
$13.7 million, $14 million and $37.3 million, respectively. A
reduction in expenses has occurred as a result of cost containment
by the Company. R&D expenditures for 1997 are budgeted to be
approximately the same level as in 1996.
EMPLOYEE RELATIONS
The Company's work force at December 31, 1996 numbered
approximately 8,600 of whom approximately 71% were union members.
It is estimated that approximately 78% of the Company's total labor
costs are applicable to operation and maintenance and approximately
22% are applicable to construction (and accordingly are
capitalized) and other accounts.
All of the Company's non-supervisory production and clerical
workers subject to collective bargaining are represented by the
International Brotherhood of Electrical Workers (IBEW). In April
1996, the Company and the IBEW agreed on a five-year, three month
labor agreement, which provides for wage increases of approximately
2% to 3% in each of the next four years.
LIABILITY INSURANCE
As of January 31, 1997, the Company's Directors & Officers
liability insurance was renewed. This coverage includes nuclear
operations and insures the Directors and Officers against
obligations incurred as a result of their indemnification by the
Company. The coverage also insures the Directors and Officers
against liabilities for which they may not be indemnified by the
Company, except for a dishonest act or breach of trust.
ITEM 2. PROPERTIES.
ELECTRIC SERVICE
As of January 1, 1997, the Company owned and operated four
fossil fuel steam plants (as well as having a 25% interest in the
Roseton Steam Station and its output), two nuclear fuel steam
plants, various diesel generating units and 70 hydroelectric
plants, and had a majority interest in Beebee Island and Feeder Dam
hydro plants and their output. The Company also purchases
substantially all of the output of 94 other hydroelectric
facilities. The Company's Canadian subsidiary, Opinac Energy
Corporation, has a 50 percent interest in CNP (owner and operator
of the 76.8 MW Rankine hydroelectric plant) which distributes
electric power within the Province of Ontario and owns a windmill
generator in the Province of Alberta. In addition, the Company has
contracts to purchase electric energy from NYPA and other sources.
See "Electric and Gas Statistics" and Item 1. Business - "IPPs," -
"New York Power Authority" and - "Purchased Power" and Part II,
Item 8. Financial Statements and Supplementary Data - "Note 9.
Commitments and Contingencies - Long-term Contracts for the
Purchase of Electric Power."
The following is a list of the Company's major operating
generating stations at February 1, 1997:
Company's Share of
Station, Location Net Capability
and Percent Ownership Energy Source In Megawatts
- ----------------------------------------------------------------
Huntley, Niagara River (100%) Coal 740
Dunkirk, Lake Erie (100%) Coal 593
Albany, Hudson River (100%) Oil/Natural Gas 400
Oswego, Lake Ontario (76%)
(Unit 6) Oil/Natural Gas 636
Roseton, Hudson River (25%) Oil/Natural Gas 300
Nine Mile Point, Lake Ontario (100%)
(Unit 1) Nuclear 613
Nine Mile Point, Lake Ontario (41%)
(Unit 2) Nuclear 469
As of December 31, 1996, the Company's electric transmission
and distribution systems were composed of 952 substations with a
rated transformer capacity of approximately 28,500,000
kilovoltamperes, approximately 8,000 circuit miles of overhead
transmission lines, approximately 1,100 cable miles of underground
transmission lines, approximately 113,100 conductor miles of
overhead distribution lines and about 5,800 cable miles of
underground distribution cables, only a part of such transmission
and distribution lines being located on property owned by the
Company. The electric system of the Company and CNP is directly
interconnected with other electric utility systems in Ontario,
Quebec, New York, Massachusetts, Vermont and Pennsylvania, and
indirectly interconnected with most of the electric utility systems
in the United States.
Seasonal variation in electric customer load has been
consistent. Over the last five years, the Company's maximum hourly
demand has occurred in the winter months; however, on occasion
summer peaks have approached the level of the winter peaks. The
maximum simultaneous hourly demand (excluding economy and emergency
sales to other utilities) on the electric system of the Company for
the twelve months ended December 31, 1996 occurred on February 5,
1996 and was 6,021,000 Kwh, of which 355,000 Kwh was generated in
hydroelectric plants, 2,242,000 Kwh was generated in thermal
electric plants and 4,350,000 Kwh was purchased. Economy and
emergency sales to other utilities on such date were 926,000 Kwh.
For a detailed breakdown of the Company's electric capability at
December 31, 1996, see Part II, Item 8. Financial Statements and
Supplementary Data - "Electric and Gas Statistics."
NEW YORK POWER POOL
The Company, six other New York utilities and NYPA constitute
the NYPP, through which they coordinate the planning and operation
of their interconnected electric production and transmission
facilities in order to improve reliability of service and
efficiency for the benefit of customers of their respective
electric systems. For a discussion on potential changes to NYPP,
see Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "PowerChoice
Proposal" and - "FERC Rulemaking on Open Access and Stranded Cost
Recovery."
NUCLEAR PROPERTY AND LIABILITY INSURANCE
See Part II, Item 8. Financial Statements and Supplementary
Data - "Note 3. Nuclear Operations - Nuclear Liability Insurance"
and - "Nuclear Property Insurance."
GAS SERVICE
The Company distributes gas purchased from suppliers and
transports gas owned by others. As of December 31, 1996, the
Company's natural gas system was comprised of approximately 7,700
miles of pipelines and mains, only a part of which is located on
property owned by the Company. The maximum 24-hour coincidental
send-out of natural gas by the Company for the twelve-months ended
December 31, 1996 was 1,152,996 Dth set on January 5, 1996.
SUBSIDIARIES
One of the Company's wholly-owned subsidiaries, Opinac Energy
Corporation, has a 50 percent interest in an electric company, CNP,
which has operations in the Province of Ontario, Canada. CNP
generates electricity at its Niagara Falls, Ontario hydro plant for
the wholesale market and for its distribution system in Fort Erie,
Ontario. CNP owns a 99.99% interest in Canadian Niagara Wind Power
Company, Inc. and Cowley Ridge Partnership, respectively, which
together operate a wind power joint venture in the Province of
Alberta, Canada. In addition, Opinac Energy Corporation has a 100
percent interest in a New York State unregulated company, Plum
Street Enterprises, which offers energy-related services. A
wholly-owned Texas subsidiary of the Company, NM Uranium, Inc. has
an interest in a uranium mining operation in Live Oak County, Texas
which is now in the process of reclamation and restoration.
Another wholly-owned New York State subsidiary of the Company, NM
Holdings, Inc., engages in real estate development. In addition,
the Company has established a single-purpose wholly-owned
subsidiary, NM Receivables Corporation, to facilitate its sale of
an undivided interest in a designated pool of customer receivables,
including accrued unbilled revenues. The Company also owns a 100
percent interest in a New York State subsidiary, NM Suburban Gas,
Inc., which is a gas utility and a 66.67 percent and 82.84 percent
interest in Moreau Manufacturing Corporation and Beebee Island
Corporation respectively, which are New York State subsidiaries
that own and operate hydro-electric generating stations.
MORTGAGE LIENS
Substantially all of the Company's operating properties are
subject to a mortgage lien securing its mortgage debt.
ITEM 3. LEGAL PROCEEDINGS.
For a detailed discussion of additional legal proceedings, see
Part II, Item 8. Financial Statements and Supplementary Data -
"Note 9. Commitments and Contingencies - Tax Assessments, -
Litigation and - Environmental Contingencies." See also Item 1.
Business - "Environmental Matters - Solid/Hazardous Waste," and
Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Announced Agreement-in-
Principle to Terminate or Restructure 44 IPP Contracts." The
Company is unable to predict the ultimate disposition of the
matters referred to below in (1), (2) and (3). However, the
Company has previously been allowed to recover these types of
expenditures in rates. Therefore, the Company believes that it is
probable that the Company will continue to recover these types of
expenditures in rates. For a discussion of the uncertainty
regarding the Company's continued ability to recover these types of
expenditures in rates, see Part II, Item 8. Financial Statements
and Supplementary Data - "Note 2. Rate and Regulatory Issues and
Contingencies."
1. On July 21, 1988, the Company became a defendant in an
ongoing Superfund lawsuit in Federal District Court,
Northern District of New York (Federal District Court)
brought by the Federal Government. This suit involves PCB
oil contamination at the York Oil Site in Moira, New York.
Waste oil was transported to the site during the 1960's and
1970's by contractors of Peirce Oil Company (owners/
operators of the site) who picked up waste oil at locations
throughout Central New York, allegedly including one or
more Company facilities.
The government issued a final settlement demand upon the
Company in February 1994, including a settlement figure
which was rejected by the Company. The government
subsequently filed a complaint against a group of PRPs,
including the Company, who subsequently filed third and
fourth-party actions against additional parties.
Settlement of the litigation occurred in July 1996; the
government lodged a Consent Decree with the Federal
District Court in November 1996 embodying the settlement
terms. The Company's allocated share of liability as a
result of this settlement was immaterial to the results of
operations and financial condition of the Company.
2. On June 22, 1993, the Company and twenty other industrial
entities and the owner/operator of the Pfohl Brothers
Landfill near Buffalo, New York, were sued in New York
Supreme Court, Erie County, by a group of residents living
in the vicinity of the landfill seeking compensation and
damages for economic loss and property damage claimed to
have resulted from contamination associated with the
landfill. In addition, since January 18, 1995, the Company
has been named as a defendant in a series of toxic tort
actions filed in federal and state courts in the Buffalo
area. The suits allege exposure on the part of the
plaintiffs to toxic chemicals emanating from the Pfohl
Brothers Landfill, resulting in the alleged causation of
cancer in each of the plaintiffs. The plaintiffs seek
compensatory and punitive damages in the amount of
approximately $60 million. The Company has filed answers
responding to the claims put forth in the existing suits,
denying liability for any of the claimed damages. The
Company is participating in joint defense efforts among the
defendants during the initial stage of these suits, and
intends to vigorously defend against these claims. The
Company is unable to predict the ultimate outcome of these
proceedings. Regarding the Company's alleged association
with conditions at the landfill, notification was received
from the DEC in 1986 of its status as a PRP. The Company
at that time elected not to take an active role in the
remediation process because only minimal evidence existed
that hazardous substances generated by the Company were
disposed at the Pfohl Brothers Landfill. It has since been
alleged, however, that another defendant (Downing Container
Division of Waste Mgt. of N.Y.) transported waste materials
to the landfill from the Company's Dewey Avenue Service
Center during the 1960's. Therefore, in July 1995, the
Company elected to become a member of a Steering Committee
made up of a group of identified PRPs, thereby
participating in the development of an appropriate remedial
action for the site while working to achieve an equitable
allocation of liability among responsible parties. To
date, no governmental action has been taken against the
Company as a PRP. The Company continues to investigate the
extent of its alleged connection to the landfill to allow
for a reasonable allocation of cost liability.
3. On October 23, 1992, the Company petitioned the PSC to
order IPPs to post letters of credit or other firm security
to protect ratepayers' interests in advance payments made
in prior years to these generators. The PSC dismissed the
original petition without prejudice. In December 1995, the
Company filed a petition with the PSC similar to the one
that the Company filed in October 1992. The Company cannot
predict the outcome of this action. However, in August
1996, the PSC proposed to examine the circumstances under
which a utility, including the Company, should be allowed
to demand security from IPPs to ensure the repayment of
advance payments made under their purchased power
contracts. See Part II, Item 7. Management's Discussion
and Analysis of Financial Condition and Results of
Operations - "Other Federal and State Regulatory
Initiatives - PSC Proposal of New IPP Operating and PPA
Management Procedures."
On February 4, 1994, the Company notified the owners of
nine projects with contracts that provide for front-end
loaded payments of the Company's demand for adequate
assurance that the owners will perform all of their future
repayment obligations, including the obligation to deliver
electricity in the future at prices below the Company's
avoided cost as required by agreements and the repayment of
any advance payment which remains outstanding at the end of
the contract. The projects at issue total 426 MWs. The
Company's demand is based on its assessment of the amount
of advance payment to be accumulated under the terms of the
contracts, future avoided costs and future operating costs
for the projects. The Company has received the following
responses to these notifications:
On March 4, 1994, Encogen Four Partners, L.P. (Encogen)
filed a complaint in the United States District Court for
the Southern District of New York (U.S. District Court)
alleging breach of contract and prima facie tort by the
Company. Encogen seeks compensatory damages of
approximately $1 million and unspecified punitive damages.
In addition, Encogen seeks a declaratory judgment that the
Company is not entitled to assurance of future performance
from Encogen. On April 4, 1994, the Company filed its
answer and counterclaim for declaratory judgment relating
to the Company's exercise of its right to demand adequate
assurance. Encogen has amended its complaint, rescinded
its prima facie tort claim, and filed a motion of judgment
on the pleadings. On February 6, 1996, the U.S. District
Court granted Encogen's motion for judgment on the
pleadings and ruled that under New York law, the Company
did not have the right to demand adequate assurances of
future performance. In addition, the U.S. District Court
did not award any damages. The Company has appealed this
decision.
On March 4, 1994, Sterling Power Partners, L.P. (Sterling),
Seneca Power Partners, L.P., Power City Partners, L.P. and
AG-Energy, L.P. filed a complaint in the Supreme Court of
the State of New York, County of New York seeking a
declaratory judgment that: (a) the Company does not have
any legal right to demand assurance of plaintiffs' future
performance; (b) even if such a right existed, the Company
lacks reasonable insecurity as to plaintiffs' future
performance; (c) the specific forms of assurances sought by
the Company are unreasonable and (d) if the Company is
entitled to any form of assurances, plaintiffs have
provided adequate assurances. On April 4, 1994, the
Company filed its answer and counterclaim for declaratory
judgment relating to the Company's exercise of its right to
demand adequate assurance. On October 5, 1994, Sterling
moved for summary judgment and the Company opposed and
cross moved for summary judgment. On February 16, 1996,
Sterling supplemented its motion, claiming that the
February 6, 1996 ruling in the Encogen case is dispositive.
On February 29, 1996, the New York State Supreme Court
granted Sterling's motion for summary judgment and ruled
that under New York law, the Company did not have the right
to demand adequate assurances of future performance. The
Company has appealed this decision.
On March 7, 1994, NorCon Power Partners, L.P. (NorCon)
filed a complaint in the U.S. District Court seeking to
enjoin the Company from terminating a power purchase
agreement between the parties and seeking a declaratory
judgment that the Company has no right to demand additional
security or other assurances of NorCon's future performance
under the power purchase agreement. NorCon sought a
temporary restraining order against the Company to prevent
the Company from taking any action on its February 4
letter. On March 14, 1994, the Court entered the interim
relief sought by NorCon. On April 4, 1994, the Company
filed its answer and counterclaim for declaratory judgment
relating to the Company's exercise of its right to demand
adequate assurance. On November 2, 1994, NorCon filed for
summary judgment. On February 6, 1996, the U.S. District
Court granted NorCon's motion for summary judgment and
ruled that under New York law, the Company did not have the
right to demand adequate assurances of future performance.
The Company has appealed this decision.
While the Company will continue to press for adequate
assurance that the owners of these projects will honor
their repayment obligations, the Company can neither
provide any judgement regarding the likely outcome nor any
estimate or range of possible loss or reduction of exposure
in these cases. Accordingly, no provision for liability,
if any, that may result from any of these suits has been
made in the Company's financial statements. It is possible
that some of these litigations will be settled as a result
of the agreement-in-principle that the Company recently
entered into with the IPPs (see "Announced Agreement-In-
Principle to Terminate or Restructure 44 IPP Contracts").
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Company has nothing to report for this item.
EXECUTIVE OFFICERS OF REGISTRANT
- --------------------------------
All executive officers of the Company are elected on an annual basis at the May meeting
of the Board of Directors or upon the filling of a vacancy. There are no family relationships
between any of the executive officers. There are no arrangements or understandings between any
of the officers listed below and any other person pursuant to which he or she was selected as an
officer.
Age at
Executive 12/31/96 Current and Prior Positions Date Commenced
--------- -------- --------------------------- --------------
William E. Davis 54 Chairman of the Board and Chief Executive Officer May 1993
Vice Chairman of the Board of Directors November 1992
Senior Vice President - Corporate Planning April 1992
Vice President - Corporate Planning February 1990
Albert J. Budney, 49 President and Chief Operating Officer April 1995
Jr. Managing Vice President - UtiliCorp Power Prior to Join-
Services Group (a unit of UtiliCorp United, Inc.) ing the Company
President-Missouri Public Service (Operating
Division of UtiliCorp United, Inc.) January 1993
Vice President - Stone & Webster Engineering Corp. January 1990
B. Ralph Sylvia 56 Executive Vice President - Electric Generation and
Chief Nuclear Officer December 1995
Executive Vice President - Nuclear November 1990
David J. Arrington 45 Senior Vice President - Human Resources December 1990
Darlene D. Kerr 45 Senior Vice President - Energy Distribution December 1995
Senior Vice President - Electric Customer Service January 1994
Vice President - Electric Customer Service July 1993
Vice President - Gas Marketing and Rates February 1991
Gary J. Lavine 46 Senior Vice President - Legal & Corporate Relations May 1993
Senior Vice President - Legal & Corporate Relations
and General Counsel October 1992
Senior Vice President - Legal & Corporate Relations,
General Counsel and Secretary May 1991
John W. Powers 58 Senior Vice President and Chief Financial Officer January 1996
Senior Vice President - Finance & Corporate Services October 1990
Theresa A. Flaim 47 Vice President - Corporate Strategic Planning May 1994
Vice President - Corporate Planning April 1993
Manager - Gas Rates & Integrated Resource Planning June 1991
Kapua A. Rice 45 Corporate Secretary September 1994
Assistant Secretary October 1992
Manager - Legal & Corporate Relations July 1991
Steven W. Tasker 39 Vice President - Controller December 1993
Controller May 1991
/TABLE
PART II
ITEM 5. MARKET FOR THE REGISTRANT's COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock and certain of its preferred series
are listed on the New York Stock Exchange (NYSE). The common stock
is also traded on the Boston, Cincinnati, Midwest, Pacific and
Philadelphia stock exchanges. Common stock options are traded on
the American Stock Exchange. The ticker symbol is "NMK".
Preferred dividends were paid on March 31, June 30, September
30 and December 31. The Company estimates that none of the 1996
preferred stock dividends will constitute a return of capital and
therefore all of such dividends are subject to Federal tax as
ordinary income.
The table below shows quoted market prices (NYSE) for the
Company's common stock:
1996 1995
---------------- ----------------
HIGH LOW HIGH LOW
- --------------------------------------------------------------
1st Quarter $10 1/8 $6 1/2 $15 5/8 $13 3/8
2nd Quarter 8 5/8 6 1/2 15 1/8 13 5/8
3rd Quarter 8 7/8 6 3/4 14 3/4 11 1/4
4th Quarter 10 7 5/8 13 3/8 9 1/2
The Company paid dividends of 28 cents per common share in
each of the four quarters of 1995. The board of directors omitted
the common stock dividend for all of 1996 and the first quarter of
1997. This action was taken to help stabilize the Company's
financial condition and contractural obligations and provide
flexibility as the Company addresses growing pressure from mandated
power purchases and weaker sales and is the primary reason for the
increase in the cash balance. See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -
"Financial Position, Liquidity and Capital Resources - Common Stock
Dividend" below. In making future dividend decisions, the board
will evaluate, along with standard business considerations, the
financial condition and contractural obligations of the Company,
the progress on concluding negotiations and implementing the
termination or restructuring of IPP contracts and PowerChoice, or
the failure to implement such actions, the degree of competitive
pressure on its prices, the level of available cash flow and
retained earnings and other strategic considerations.
OTHER STOCKHOLDER MATTERS. The holders of common stock are
entitled to one vote per share and may not cumulate their votes for
the election of Directors. Whenever dividends on preferred stock
are in default in an amount equivalent to four full quarterly
dividends and thereafter until all dividends thereon are paid or
declared and set aside for payment, the holders of such preferred
stock can elect a majority of the board of directors. Whenever
dividends on any preference stock are in default in an amount
equivalent to six full quarterly dividends and thereafter until all
dividends thereon are paid or declared and set aside for payment,
the holders of such stock can elect two members to the board of
directors. No dividends on preferred stock are now in arrears and
no preference stock is now outstanding. Upon any dissolution,
liquidation or winding up of the Company's business, the holders of
common stock are entitled to receive a pro rata share of all of the
Company's assets remaining and available for distribution after the
full amounts to which holders of preferred and preference stock are
entitled have been satisfied.
The indenture securing the Company's mortgage debt provides
that retained earnings shall be reserved and held unavailable for
the payment of dividends on common stock to the extent that
expenditures for maintenance and repairs plus provisions for
depreciation do not exceed 2.25% of depreciable property as defined
therein. Such provisions have never resulted in a restriction of
the Company's retained earnings.
As of March 18, 1997, there were approximately 75,100 holders
of record of common stock of the Company and about 5,400 holders of
record of preferred stock. The chart below summarizes common
stockholder ownership by size of holding:
SIZE OF HOLDING TOTAL STOCKHOLDERS TOTAL SHARES HELD
(SHARES)
- -----------------------------------------------------------------
1 to 99 33,201 889,029
100 to 999 37,787 9,313,655
1,000 or more 4,144 134,187,935
------ -----------
75,132 144,390,619
====== ===========
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information of the Company for each of the
five years during the period ended December 31, 1996, which has been derived from the audited
financial statements of the Company, and should be read in connection therewith. As
discussed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Item 8. Financial Statements and Supplementary Data - "Notes to
Consolidated Financial Statements," the following selected financial data may not be
indicative of the Company's future financial condition or results of operations.
1996* 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------
Operations: (000's)
Operating revenues $ 3,990,653 $ 3,917,338 $ 4,152,178 $ 3,933,431 $ 3,701,527
Net income 110,390 248,036 176,984 271,831 256,432
- ------------------------------------------------------------------------------------------
Common stock data:
Book value per share
at year end $17.91 $17.42 $17.06 $17.25 $16.33
Market price at
year end 9 7/8 9 1/2 14 1/4 20 1/4 19 1/8
Ratio of market price to
book value at year end 55.1% 54.5% 83.5% 117.4% 117.1%
Dividend yield at year end - 11.8% 7.9% 4.9% 4.2%
Earnings per average
common share $ .50 $1.44 $1.00 $1.71 $1.61
Rate of return on common
equity 2.8% 8.4% 5.8% 10.2% 10.1%
Dividends paid per
common share $ - $1.12 $1.09 $ .95 $ .76
Dividend payout ratio - 77.8% 109.0% 55.6% 47.2%
- ------------------------------------------------------------------------------------------
Capitalization: (000's)
Common equity $ 2,585,572 $ 2,513,952 $ 2,462,398 $ 2,456,465 $ 2,240,441
Non-redeemable
preferred stock 440,000 440,000 440,000 290,000 290,000
Mandatorily redeemable
preferred stock 86,730 96,850 106,000 123,200 170,400
Long-term debt 3,477,879 3,582,414 3,297,874 3,258,612 3,491,059
- ------------------------------------------------------------------------------------------
TOTAL 6,590,181 6,633,216 6,306,272 6,128,277 6,191,900
Long-term debt maturing
within one year 48,084 65,064 77,971 216,185 57,722
- ------------------------------------------------------------------------------------------
TOTAL $ 6,638,265 $ 6,698,280 $ 6,384,243 $ 6,344,462 $ 6,249,622
- ------------------------------------------------------------------------------------------
Capitalization ratios: (including long-term debt maturing within one year)
Common stock equity 39.0% 37.5% 38.6% 38.7% 35.8%
Preferred stock 7.9 8.0 8.5 6.5 7.4
Long-term debt 53.1 54.5 52.9 54.8 56.8
- ------------------------------------------------------------------------------------------
Financial ratios:
Ratio of earnings to
fixed charges 1.57 2.29 1.91 2.31 2.24
Ratio of earnings to
fixed charges
without AFC 1.55 2.26 1.89 2.26 2.17
Ratio of AFC to balance
available for
common stock 10.2% 4.3% 6.3% 6.8% 9.7%
Ratio of earnings to
fixed charges and
preferred stock
dividends 1.31 1.90 1.63 2.00 1.90
Other ratios - % of
operating revenues:
Fuel, purchased
power and purchased
gas 43.5% 40.3% 39.6% 36.1% 34.1%
Other operation
expenses and maintenance 23.3 20.9 23.1 26.9 26.3
Depreciation and
amortization 8.3 8.1 7.4 7.0 7.4
Total taxes, including
real property, income
and revenue taxes 13.6 17.3 14.7 16.2 17.3
Operating income 10.4 13.5 10.4 13.3 14.2
Balance available for
common stock 1.8 5.3 3.5 6.1 5.9
- ------------------------------------------------------------------------------------------
Miscellaneous: (000's)
Gross additions to
utility plant $ 352,049 $ 345,804 $ 490,124 $ 519,612 $ 502,244
Total utility plant 10,839,341 10,649,301 10,485,339 10,108,529 9,642,262
Accumulated depreciation
and amortization 3,881,726 3,641,448 3,449,696 3,231,237 2,975,977
Total assets 9,402,030 9,477,869 9,649,816 9,471,327 8,590,535
==========================================================================================
* Amounts include extraordinary item, see Note 2. Rate and Regulatory Issues and
Contingencies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EVENTS AFFECTING 1996 AND THE FUTURE
* On March 10, 1997, announced a jointly developed agreement-in-
principle to terminate or restructure IPP power purchase
contracts in exchange for approximately $3.6 billion in cash
and marketable debt securities, and 46 million shares of
common stock of the Company, and enter into new agreements
that would further compensate the IPPs and hedge prices for
specific amounts of power.
* Discontinued application of SFAS No. 71 to fossil/hydro
operations, and wrote off fossil/hydro generation regulatory
assets of $103.6 million (extraordinary loss of 47 cents per
share).
* 1996 earnings after the extraordinary item declined 65% to 50
cents per share.
* Increase in bad debt expense of $96.4 million as compared to
1995 (43 cents per share).
* Common dividends omitted.
* Securities ratings downgraded.
* $804 million senior debt facility established.
* Request for 1996 rate increase rejected. 1997 rate request
temporarily stayed pending further proceedings.
* FERC issued open access transmission order, which, with
certain exceptions, provides for full recovery of stranded
wholesale costs, leaving it up to the states to decide
recovery of retail stranded costs.
* PSC issued order to restructure New York State electric
industry, calling for a competitive wholesale power market in
1997 and introduction of retail access for all electric
customers in 1998. Stranded cost recovery to be determined on
a utility-by-utility basis.
* Reached a conditional multi-year gas rate settlement with the
PSC in December 1996.
ANNOUNCED AGREEMENT-IN-PRINCIPLE TO TERMINATE OR RESTRUCTURE
44 IPP CONTRACTS
The drive to introduce competition by both federal and state
regulators, as well as the threat of self-generation and relocation
by industrial customers, has intensified the Company's focus on
costs that significantly influence the price of its products. The
Company proposed PowerChoice in October 1995 to achieve stable
retail prices, customer choice and an open, competitive electric
generation market. However, the implementation of PowerChoice
depends upon reducing the cost of power the Company is required to
purchase from IPPs.
On March 10, 1997, the Company and 19 developers of IPP
projects jointly announced an agreement-in-principle to terminate
or restructure 44 power purchase contracts. These contracts
represent more than 90% of the Company's above-market power costs
under all existing IPP contracts. Subject to regulatory approval,
the agreement-in-principle contemplates that electricity prices for
all customer classes would be reduced, with larger reductions
allocated to large commercial and industrial customers to retain
and attract jobs in upstate New York.
The agreement-in-principle contemplates that the Company would
terminate or restructure the 44 power contracts in exchange for
approximately $3.6 billion in cash and/or marketable debt
securities, and 46 million shares of the Company's common stock,
representing approximately 25% of the anticipated fully diluted
outstanding common shares. The new debt will be subordinate to
existing first mortgage bonds. The value of the common equity
component will vary depending on the market value of the shares at
closing. In addition, the Company and several IPPs would enter
into new agreements that would further compensate the IPPs and
hedge prices for specific amounts of power.
The amount of subordinated debt expected to be issued is
approximately $3.2 billion, with terms from two to seven years. It
is the Company's objective to achieve at least a BB-/Ba3 rating on
the subordinated debt, although achieving such a rating is not a
condition of the agreement. Achievement of such a rating is not
assured and if not achieved could result in higher interest costs
than presently estimated.
Although subject to final negotiation and execution, the
agreement-in-principle contemplates that the Company will enter
into price-hedging agreements or contracts with certain IPPs that
may be in the form of financial contracts-for-differences and
physical bilateral agreements, options contracts, indexed financial
instruments, or a combination thereof. Contracts for coal and
waste-fired projects will have a 17 year term, with total annual
energy of approximately 350 GwHrs. Hydro contracts will range in
length from 20-35 years with total annual energy of approximately
900 GwHrs less than 3% of total load. Over the term of the new
contract, prices for hydro generated electricity would range
between $85 to $130 per Mwh, subject to final negotiation, while
prices for coal and waste would range between $28 and $45 per Mwh.
For gas-fired projects, the amount of energy under contract would
begin at 4,630 GwHrs and increase to 8,000 GwHrs in twelve years.
The price for a portion of the energy would be fixed, and the
remainder would be to reflect competitive market gas prices. Of
the load under existing contracts, approximately 5,000 GwHrs would
no longer be subject to a contract, with the Company meeting its
requirements through market purchases. These arrangements will
enable the Company to substantially reduce the cost of purchased
power in the future, while managing the price risks of purchased
power. Initially a substantial portion of the cost reduction will
be offset by interest on subordinated debt issued to carry out the
termination and restructuring of the IPP contracts, and the
amortization of the resulting regulatory asset.
The transaction is subject to several contingencies, including
negotiations with each IPP of specific terms of the new agreements
that may be executed; execution of binding agreements including the
master restructuring agreement; approval of the Company's
shareholders; PSC approval of the agreement, including an
acceptable long-term price structure and a non-bypassable charge
providing for recovery of strandable costs, including the
termination or restructuring costs of the IPP contracts; other
state and federal approvals; successful completion of all financing
transactions on reasonable terms; the resolution of all tax issues
and obtaining required amendments or waivers under existing credit
agreements and third party contracts.
The Company will work to achieve a financial closing of the
agreement-in-principle by year-end 1997.
CHANGING COMPETITIVE ENVIRONMENT
The accelerating pace of competition is driving dramatic
changes throughout the utility industry. Regulators on both the
state and federal levels have issued orders to restructure the
electric industry. (See - "PSC Competitive Opportunities
Proceeding - Electric" and "FERC Rulemaking on Open Access and
Stranded Cost Recovery.") The Company believes that the price of
electricity may be the most important element of future success in
the restructured industry and has intensified its efforts to reduce
various costs that significantly influence the price of
electricity.
The Company is challenged by state-imposed burdens, especially
state-mandated contracts that have required the Company to buy
electricity from IPPs in amounts that exceed customer needs and at
an average price which is more than twice as high as the cost of
power that could be purchased in the wholesale market. In
addition, the Company and other New York utilities bear an
excessive tax burden that is more than twice the average for
utilities nationwide.
The Company has pursued a number of actions to mitigate the
impact of these factors on prices. These actions have included
renegotiating and buying out some IPP contracts (including those
discussed above) and canceling others when contract terms were not
being adhered to. The Company has also sought regulatory relief
from the PSC, seeking curtailment rights, the ability to monitor
IPP compliance with federal legislation, and firm security rights
for contracts with advance payment provisions. The Company has
been successful in obtaining the ability to monitor compliance, but
has not received approval to implement curtailment or obtain firm
security. (See - Other Federal and State Regulatory Initiatives -
"PSC Proposal of New IPP and PPA Management Procedures").
The Company has also been actively seeking reductions in its
state and local tax obligations by working with utility, customer
and state representatives to explain the negative impact that all
utility taxes, including the GRT, are having on prices and the
economy. At the same time, the Company is contesting the high real
estate taxes it is assessed by the many taxing authorities in its
service territory, particularly those imposed upon its generating
facilities.
Nevertheless, mandated IPP purchases and high taxes have, in
the past, combined to create upward pressure on prices. Further
price increases would make it more difficult for the Company to
retain its customers in the longer term and an increasing number of
customers are pursuing other supply options including self-
generation, alternate supply sources, and municipalization. As a
result, electric margins have narrowed and sales have been flat,
damaging the Company's financial condition and putting further
pressure on the Company to seek even more rate increases under
traditional cost-of-service ratemaking.
Other actions taken by the Company during the past four years
to address the increasing competitive environment include sharply
reducing internal costs. The Company has reduced the size of its
work force by about 3,300 employees, or 28%, and has eliminated,
consolidated or modernized many of its operations. The Company has
also sharply reduced capital spending. Electric construction
spending in future years is budgeted to be at or below the level of
depreciation expense, thereby resulting in little or no growth in
rate base with a corresponding impact on earnings.
These cost control efforts have produced significant savings.
However, the savings have been outpaced by continuing escalation in
the externally imposed costs discussed above. Recognizing that
major changes in the electricity marketplace in New York State were
needed, the Company undertook an exhaustive analytical process with
the goal of creating a rational energy market that would link
supply, demand and price, provide customers with better and broader
services, and provide greater opportunities for building
shareholder value. That process resulted in the filing of the
Company's PowerChoice proposal on October 6, 1995, which the
Company subsequently amended to include the implementation of the
agreement-in-principle (see "PowerChoice Proposal").
The Company believes the pursuit of PowerChoice is the best
course of action to deal with emerging competition and address the
factors that have been pushing up prices. The Company believes
that the state must play a role in reducing costs as a way of
enhancing benefits to be derived from implementation of
PowerChoice. The State's participation could include reducing or
eliminating the state GRT, which taxes revenue rather than income,
timely passage of a securitization bill that would permit lower
cost financing of regulatory assets, including costs associated
with the IPP agreement-in-principle, and/or reducing mandated
social programs. Addressing these issues will be difficult and
will almost certainly require regulatory and/or legislative action,
the outcome of which is uncertain. The PowerChoice proposal is not
dependent on such State participation.
POWERCHOICE PROPOSAL
On October 6, 1995, the Company filed its PowerChoice proposal
with the PSC. The PowerChoice proposal, which includes the
implementation of the agreement-in-principle, would:
* Create a competitive wholesale electricity market and allow
direct access by retail customers. To give customers their
choice of power suppliers and pricing terms, the Company will
open its system to competing electricity generators as early
as 1998. The timing of full implementation depends on
resolution of technical, administrative and regulatory issues.
Envisioned is the formation of a competitive wholesale spot
market in the Company's service area under the supervision of
the FERC that is consistent with the PSC COPS decision (see -
"PSC Competitive Opportunities Proceeding - Electric" and
"FERC Rulemaking on Open Access and Stranded Cost Recovery").
Beginning with its largest customers, the Company would allow
full direct access to alternative suppliers of electricity.
The Company would deliver that power over its transmission and
distribution system. Access for the remaining customers would
be phased in over several years.
* Provide relief from overpriced IPP contracts that were
mandated by public policy. As a result of state and federal
policy, the Company has 157 contracts to buy power from IPPs
at above-market prices, even when the power is not needed.
The Company's payments to IPPs increased from less than $200
million in 1990 to $1.1 billion in 1996, and if no action were
taken would continue to grow by an average of approximately
$50 million per year over the next five years as contract
prices increase. To create an open and competitive market and
achieve a reduction in average prices, the Company recently
announced an agreement-in-principle to terminate or
restructure 44 IPP contracts, which represent more than 90% of
the above-market cost of mandated purchases by the Company.
The Company proposes, and believes it is probable that the
PSC will approve, deferral and recovery of the IPP contract
termination or restructuring cost and recovery of this asset
as well as other stranded costs through a non-bypassable
charge tied to distribution and transmission services. The
Company believes that a non-bypassable charge is necessary
during the transition to competition to ensure its financial
stability. The PSC has been kept informed throughout the
course of the negotiations of the agreement-in-principle. If
the PSC does not approve the deferral and recovery of the IPP
contract termination or restructuring cost through a non-
bypassable charge, the Company may be unable to complete the
associated financing and closing. In that event (or if the
IPP agreement-in-principle is not effectuated for any other
reason), the Company would face continued financial decline.
* Separate the Company's non-nuclear power generation business
from the remainder of the business. The Company has proposed
that one company would own and operate its present non-nuclear
power plants. All the Company's assets and businesses other
than non-nuclear generation would be held by a holding company
that would provide cost-based rate-regulated transmission,
distribution, nuclear and gas services through a regulated
subsidiary. The holding company would also provide
competitive unregulated services, such as energy marketing and
other services through a second subsidiary. The companies
would be financially restructured so that stockholders and
other constituencies would be treated in a fair and equitable
fashion. Any release of assets under the Company's mortgage
indenture would be effected in accordance with the terms of
the indenture. The Company will continue to evaluate
alternative structural options considering actual development
of competitive markets and regulatory policy. The Company
believes New York State can be helpful in this restructuring
process, through the purchasing or refinancing of the
Company's nuclear plants or through the use of other risk-
mitigation strategies associated with those facilities. (See
"Governor Pataki's Proposed Legislation.")
* Reduce average prices for Company electric customers, with
reductions to industrial customers to facilitate economic and
job growth in the service territory. If the proposal is
agreed to by all necessary parties, the average prices paid by
residential and commercial class customers could be reduced
slightly, with more substantial reductions for industrial
customers. The Company has proposed that strandable costs be
recoverable by the Company through non-bypassable charges on
rates for remaining distribution and transmission services.
Stranded costs are utility costs that may become unrecoverable
due to a change in the regulatory environment. To ensure
maximum recovery of these costs, the Company has proposed that
the strandable costs be recovered in rates in a manner which
minimizes the Company's exposure due to sales volume
variations. Recovery of strandable costs by the owner of the
Company's fossil/hydro generation facilities is intended to be
accomplished through an option pricing contract for a period
of approximately 5 years so as not to impede each unit from
being an efficient participant in the competitive generation
market. Nuclear generation costs would be recoverable through
a financial instrument tied to the market price of electricity
or similar incentive mechanism not to exceed the term of the
operating license of the plant.
ACCOUNTING IMPLICATIONS OF POWERCHOICE AND AGREEMENT-IN-PRINCIPLE
TO TERMINATE OR RESTRUCTURE IPP CONTRACTS
The Company has concluded that the agreement-in-principle to
terminate or restructure IPP contracts and the implementation of
PowerChoice, or a similar proposal, is the probable outcome of
negotiations that have taken place over the past 18 months. Under
PowerChoice, the separated non-nuclear generation business would no
longer be rate-regulated and, accordingly, existing regulatory
assets at December 31, 1996 related to the non-nuclear power
generation business, amounting to approximately $103.6 million
($67.4 million after tax or 47 cents per share) have been charged
against 1996 income as an extraordinary non-cash charge.
Of the remaining electric business, under PowerChoice, the
Company expects that its nuclear generation and electric
transmission and distribution business will continue to be rate-
regulated on a cost-of-service basis and, accordingly, it will
continue to apply SFAS No. 71 to these lines of business. The
Company currently expects to retain ownership of its nuclear
assets, and will continue to investigate various options that may
be available to mitigate the risk of ownership of these assets. As
described under "Announced Agreement-In-Principle to Terminate or
Restructure 44 IPP Contracts," the conclusion of the agreement-in-
principle, as well as implementation of PowerChoice, is subject to
a number of contingencies.
In the event the Company is unable to successfully bring these
events to conclusion, it would pursue a traditional rate request.
However, notwithstanding such a rate request, it is likely that
application of SFAS No. 71 would be discontinued for the remaining
electric business. The resulting after-tax charges against income,
based on regulatory assets associated with the nuclear generation,
and transmission and distribution businesses as of December 31,
1996, would be approximately $503.2 million or $3.48 per share.
Various requirements under applicable law and regulations and under
corporate instruments, including those with respect to issuance of
debt and equity securities, payment of common and preferred
dividends, the continued availability of the Company's senior debt
facility and certain types of transfers of assets could be
adversely impacted by any such write-downs.
The Company expects the PSC will continue to apply the concept
of cost-of-service based ratemaking (including the financial
consequences of the termination or restructuring of IPP contracts)
to the transmission, distribution and nuclear generation business
and approve the reduced prices contemplated under PowerChoice. The
Company proposes, and believes it is probable that the PSC will
approve, deferral and recovery of the termination or restructuring
costs of IPP contracts over a period not to exceed ten years. To
the extent that recovery of the termination or restructuring cost
is not approved by the PSC, the amount would be charged to expense,
which could have a material adverse effect on the financial
condition and results of operations of the Company. Furthermore,
the Company does not expect the PSC to provide a return on the
regulatory asset associated with IPP termination or restructuring
costs. SFAS No. 71 does not require the Company to earn a return
on regulatory assets in assessing its applicability. The Company
believes that it is probable that the prices it will charge for
electric service, including a non-bypassable transition charge,
over the ten-year period will be sufficient to recover the
regulatory asset for the termination or restructuring costs of IPP
contracts and provide recovery of and a return on the remainder of
its regulatory assets as appropriate. The Company expects that the
reported amounts of future net income will be adversely affected by
a lack of return on the regulatory asset and expected lower returns
of the unregulated non-nuclear generating business.
The Company has been made aware of a recent request by the SEC
Chief Accountant to the Public Utilities Committee of the American
Institute of Certified Public Accountants to develop guidance on
applying SFAS No. 101. It is the Company's understanding that the
guidance requested may include when to discontinue SFAS No. 71, as
well as the accounting applicable to recovering strandable costs on
rates charged by the transmission and distribution business that
originate from generation assets. The Company cannot predict
whether and when such guidance will be issued, or the attendant
consequences on the Company's financial condition or results of
operations.
The Company adopted SFAS No. 121 in 1996. This Statement
requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing
the review for recoverability, the Company is required to estimate
future undiscounted cash flows expected to result from the use of
the asset and its eventual disposition.
With the probable implementation of PowerChoice, specifically
the separation of non-nuclear generation as an entity that will
face market prices, the Company is required to assess the carrying
amounts of its long-lived assets in accordance with SFAS No. 121.
The Company has determined that there is no impairment of its non-
nuclear generating plant assets. In certain instances, the Company
has considered opportunities to invest in changes in fuel sources
that are technologically available, to improve future cash flow.
In one instance, the Company has considered the value of relocating
a unit to a region where demand is greater. To the extent an
impairment loss could not otherwise be avoided, the Company
believes it will be able to recover the loss through a non-
bypassable transition charge proposed in PowerChoice. In reaching
this conclusion, the Company must make significant estimates and
judgments as to the future price of electricity, capacity factors
and cost of operation of each of its generating units and, where
necessary, the fair market value of each unit. As PowerChoice is
implemented and generation markets become open to competition,
these estimates and judgments may change.
TRADITIONAL RATE REQUEST
In the event PowerChoice could not be implemented in a timely
manner or at all, in February 1996, the Company filed a request to
increase electric rates. This rate increase request of 4.1% for
1996 and 4.2% for 1997 was based on the Company's cost of providing
service. These rate increases are predicated on a requested ROE of
approximately 11% on an annual basis and recover the Company's cost
of providing electric service. At a public session on May 2, 1996,
the PSC rejected the Company's request for a 1996 temporary rate
increase primarily on the basis that the request did not meet the
PSC's legal standard for approving emergency rate increases. The
PSC Chairman stated that an increase in electric rates would have
a negative impact on economic conditions in the regions served by
the Company, which he stated that the Company itself recognized in
its PowerChoice proposal. The PSC Chairman also stated that the
PowerChoice proposal better addresses the long-term viability of
the Company, whereas a temporary rate increase does not.
Accordingly, results for 1996 reflected regulatory lag and
resulting reduced ROE. (See - "Results of Operations.")
With announcement of the agreement-in-principle to terminate
or restructure 44 IPP contracts and assessment of the probable
implementation of PowerChoice, the Company temporarily stayed its
1997 rate filing pending further proceedings. 1997 earnings will
be significantly below the Company's allowed ROE, since tariff
prices will remain unchanged and sales forecasts are below those
levels used in determining such prices. In the event the IPP
agreement-in-principle and/or PowerChoice fails, the Company will
pursue traditional rate relief, as necessary.
PSC COMPETITIVE OPPORTUNITIES PROCEEDING - ELECTRIC
On May 16, 1996 the PSC issued its decision in its COPS case
to restructure New York State's electric industry. The decision
calls for a competitive wholesale power market in 1997 and the
introduction of retail access for all electric customers in early
1998.
The goals cited in its decision included lowering consumer
rates, increasing choice, continuing reliability of service,
continuing environmental and public policy programs, mitigating
concerns about market power and continuing customer protections and
the obligation to serve.
To implement its policies, the PSC directed major utilities,
excluding the Company and Long Island Lighting Company, to file
restructuring proposals and rate plans by October 1, 1996,
consistent with these goals. Although exempt from this filing as
a result of the PowerChoice restructuring proposal, the Company
made a filing to address several retail issues. The Company's
filing also urged the PSC to be as permissive as possible in
allowing the natural development of the competitive marketplace.
In addition, it argued that regulated and unregulated companies
should be permitted to coexist under the same holding company. The
PSC has set a schedule for negotiation or litigation for the other
utilities that extends into the second quarter of 1997.
The PSC decision in the COPS proceeding states that recovery
of utility stranded costs may be accomplished by a non-bypassable
"wires charge" to be imposed by distribution companies. The PSC
decision states that a careful balancing of customer and utility
interests and expectations is necessary, and that the level of
stranded cost recovery will ultimately depend upon the particular
circumstances of each utility.
In September 1996, the Energy Association of New York State
(Energy Association) and its member companies filed a lawsuit in
the NYS Supreme Court that asked the court to order a review of the
PSC's COPS decision. The Energy Association includes the Company
and seven other investor-owned utilities as members. Even though
the Company believes that the PSC's objectives in its COPS decision
are consistent with the Company's PowerChoice proposal, the Company
wanted to protect its legal rights until all issues relating to
competition in the New York State electric industry are settled
fairly. On November 26, 1996, the NYS Supreme Court ruled against
the Energy Association and its member companies. On December 24,
1996 the Energy Association and its member companies filed a notice
of appeal with the Appellate Division, Third Department, of the New
York State Supreme Court. The Company is unable to predict the
outcome of this matter.
On February 12, 1997, the PSC took additional steps toward
furthering electric competition by (1) approving a petition to
initiate a potential multi-utility, electric retail access pilot
program for commercial farmers and food processors and (2) allowing
utilities to use their flexible rate programs to compete against
the economic development power offered by NYPA. The PSC approved
the petition from Dairylea Cooperative, Inc. (Dairylea) that
proposed a retail access pilot program, since it cuts across
multiple service territories and involves several rate
classifications, among other things.
The potential Dairylea pilot will include the service
territories of Rochester Gas and Electric, New York State Electric
& Gas, Central Hudson Gas and Electric Company and the Company.
The potential pilot program will be open to commercial farms and
food processors except those that already have flexible rate
contracts. On February 25, 1997, the PSC issued its Order on this
potential pilot program and stated that the utilities will have 45
days to work together and submit refined terms and conditions of
the program. The PSC expects the program to be implemented within
90 days after such submission. Alternatively, utilities may file
a settlement agreement or testimony in the individual rates and
restructuring cases that includes a retail access proposal similar
to the Dairylea proposal. The Company is unable to predict what
effect, if any, the potential pilot program will have on its
results of operations and financial condition, since the terms and
the conditions of such program have not been finalized.
FERC RULEMAKING ON OPEN ACCESS AND STRANDED COST RECOVERY
In April 1996, the FERC issued FERC Order 888. Order 888
promotes competition by requiring that public utilities owning,
operating, or controlling interstate transmission facilities file
tariffs which offer others the same transmission services they
provide for themselves, under comparable terms and conditions. The
Company has complied with this requirement by filing its open
access transmission tariff with FERC on July 7, 1996; the tariff
was accepted by FERC subject to refund, and hearings are scheduled
for August 1997.
Under FERC Order 888, the NYPP was required to file reformed
power pooling agreements that establish open, non-discriminatory
membership provisions and modify any provisions that are unduly
discriminatory or preferential. The NYPP Member Systems submitted
a comprehensive proposal to establish an ISO, a New York State
Reliability Council (NYSRC) and a New York Power Exchange (NYPE).
The ISO would provide for the reliable operation of the
transmission system in New York State and provide nondiscriminatory
open access to transmission services under a single ISO tariff.
Through the ISO, the transmission owners, including the Company,
would be compensated for the use of their transmission systems on
a cost-of-service basis. The NYSRC would establish the reliability
rules and standards by which the ISO operates the bulk power
system. The ISO would also administer the daily electric energy
market and the NYPE would facilitate electric energy market on a
day-ahead basis. While the Company believes the filing meets the
objectives of Order 888, the Company is unable to predict when FERC
will act on the NYPP compliance filing or the ISO filing, or
whether it will approve either filing with or without
modifications.
In Order 888, the FERC also stated that it would provide for
the recovery of prudent and verifiable wholesale stranded costs
where the wholesale customer was able to obtain alternative power
supplies as a result of Order 888's open access mandate. Order 888
left to the states the issue of retail stranded cost recovery.
Where newly created municipal electric utilities required
transmission service from the displaced utility, the FERC stated
that it would entertain requests for stranded cost recovery since
such municipalization is made possible by open access. The FERC
also reserved the right to consider stranded costs on a case-by-
case basis if it appeared that open access was being used to
circumvent stranded cost review by any regulatory agency.
Numerous parties, including the Company, filed requests for
rehearing of Order 888. In March 1997, the FERC issued Order 888-
A, which generally affirmed Order 888 and granted rehearing on only
a handful of issues. One of those issues was whether the FERC
would review stranded costs in annexation cases as it committed to
do in municipalization cases. In Order 888-A the FERC stated that
it would review stranded costs resulting from territorial
annexation by an existing municipal electric system, provided that
system relied on transmission from the displaced utility. The FERC
denied the Company's request for rehearing on how stranded costs
would be calculated and other issues. The Company is considering
whether to seek review of Order 888-A in federal court.
In late January 1997, the Company provided 26 communities in
St. Lawrence and Franklin counties with estimates they requested of
the stranded costs they might be expected to pay if they withdraw
from the Company's system to create government-controlled
utilities. The preliminary estimate of the combined potential
stranded cost liability for the communities ranges from a low of
$225 million to a high of $452 million, depending upon the forecast
of electricity market prices that is used. These amounts do not
include the costs of creating and operating a municipal utility.
The stranded cost calculations were based on a methodology
prescribed by the FERC. Because no municipality has moved forward
with condemnation, the value of the Company's facilities has not
been deducted from the stranded cost estimates. The stranded costs
included in these estimates are the communities' share of
obligations that were incurred on behalf of all customers to
fulfill the Company's legal obligations to ensure adequate,
reliable electricity service. Such legitimate and prudent costs
are currently included in electricity rates. Government-mandated
payments to IPPs represent the largest single component of these
costs. The Company is unable to predict the outcome of this
matter.
GOVERNOR PATAKI'S PROPOSED LEGISLATION
In June 1996, Governor Pataki introduced two proposals
designed to lower electric rates and to build a short-term "bridge"
to a fully competitive electric power market. The proposed
"Electric Ratepayer Relief Act" would provide utilities a tool to
address possible stranded costs and reduce rates through credit-
enhanced structured refinancing of any qualifying "intangible
asset." Passage of this bill would facilitate the Company's
ability to finance the IPP agreement-in-principle and minimize its
financing costs. The proposed "Power for Prosperity Bill" would
allocate low-cost power from investor-owned electric utilities and
the NYPA to eligible businesses for job retention and development
purposes. Any resulting revenue loss to utilities would be offset
by a tax credit against the utility's regressive State GRT.
The New York State Senate passed both measures during the
final days of the 1996 regular legislative session and passed
slightly revised versions of both bills during the December 1996
"special" legislative session. The New York State Assembly has yet
to introduce either measure, arguing in favor of more comprehensive
electric industry restructuring legislation, such as their
"Competition Plus/Energy 2000 Fund" proposal.
The Company supported the Governor's proposals and lobbied
intensively for both during the regular and "special" 1996
legislative sessions. The Electric Ratepayer Relief Act would
enhance the customer benefits of the IPP termination and
restructuring agreement-in-principle, a fundamental premise of the
Company's PowerChoice proposal, as it proposes "significant rate
savings" for all of the Company's customers. Further, it gives the
Legislature the opportunity to address a problem (rising energy
costs) it helped create, at no cost to New York State taxpayers.
The Power for Prosperity Bill would free up immediately an
additional 400 MWs of low-cost economic development power for
businesses to remain competitive or expand their operations. Also,
it would not harm the Company's other customers, employees or
shareholders because of the GRT credit provision and would
represent the first real step by New York State to begin the
process of reducing or repealing the State GRT.
Both measures will be considered during the 1997 regular
legislative session in the context of the overall electric industry
restructuring debate; however, the Company is unable to predict
whether these two bills will be enacted into law. Neither bill is
a prerequisite for implementation of PowerChoice.
OTHER FEDERAL AND STATE REGULATORY INITIATIVES
PSC PROPOSAL OF NEW IPP OPERATING AND PPA MANAGEMENT
PROCEDURES. In August 1996, the PSC proposed to examine the
circumstances under which a utility, including the Company, may
legally curtail purchases from IPPs; whether utilities should be
permitted to collect data that will assist in monitoring IPPs'
compliance with federal QF requirements, which are standards that
IPPs must satisfy under PURPA; and if utilities should be allowed
to demand security from IPPs to ensure the repayment of advance
payments made under their purchased power contracts.
The PSC noted that some of the current IPP contracts are far
above market prices and are causing utilities to seek rate
increases. In addition, the PSC stated that its proposal was
initiated to protect ratepayers, since it would ensure just and
reasonable rates in the event ongoing negotiations between
utilities and IPPs fail.
In December 1996, the PSC gave the New York State utilities,
including the Company, the authority to collect data to assist them
in monitoring IPPs' compliance with both federal QF standards and
state requirements. The PSC stated that if QFs are not meeting
requirements, the obligation to pay the full contract rate, which
is funded by utility ratepayers, is generally excused or mitigated.
Furthermore, if the data collected through a QF monitoring program
indicates a facility is not meeting federal standards, the utility
could petition the FERC to decertify the QF, which could result in
penalties that could include cancellation of the contract. A
similar penalty could be imposed if it is determined a QF has
failed to maintain compliance with state law. Under the monitoring
program, QFs will be required to submit data as of March 1 each
year for the previous calendar year.
The Company cannot predict the outcome of the remaining IPP
issues currently being examined by the PSC, but is encouraged by
the PSC's recent decision on the procedures for monitoring QF
status and its proposal to implement additional IPP procedures. A
number of these contracts will be addressed by the agreement-in-
principle reached between the Company and certain IPPs. See
"Announced Agreement-In-Principle to Terminate or Restructure 44
IPP Contracts".
MULTI-YEAR GAS RATE SETTLEMENT AGREEMENT. In December 1996,
the Company and PSC staff reached a three year settlement that was
conditionally approved by the PSC on December 19, 1996. The PSC
ordered conditional approval on the three year settlement agreement
until a final, redrafted agreement, which includes changes ordered
by the PSC, is submitted for final approval. The settlement
results in a $10 million annual reduction or a $30 million
reduction over the term of the settlement. This reflects a $19
million reduction in the amount of fixed non-commodity costs to be
recoverable in base rates, offset by a $9 million increase in
annual base rates. The Company estimates that the combination of
in-hand supplier refunds and further reductions in upstream
pipeline costs will be sufficient to fund the $19 million annual
reduction in non-commodity cost recovery.
If the non-commodity cost reductions exceed $57 million ($19
million annually) during the settlement period, the excess, up to
$40 million will be credited to a Contingency Reserve Account (CRA)
to be utilized for ratepayer benefit in the rate year ending
October 31, 2000 or beyond. To the extent the actual non-commodity
cost reductions exceed $57 million by more than $40 million, the
Company may retain any excess subject to a return on equity sharing
provision. In the event the non-commodity reductions fall short of
the $57 million estimate, the Company will bear the risk of any
shortfall. In the event that the termination or restructuring of
IPP contracts results in margin or peak shaving losses, the margin
losses would be collected currently subject to 80%/20%
(ratepayer/shareholder sharing) and the peak shaving losses will be
deferred to the CRA, subject to limits specified in the settlement.
In return for taking on this risk, the Company has achieved a
portion of the revised rate structure that had been proposed to
reduce its throughput risk. The Company obtained a return on
equity cap of 13.5% with 50/50 sharing between ratepayers and
shareholders in excess of the cap. The Company also has an
opportunity to earn up to $2.25 million annually if its gas
commodity costs are lower than a market based target without being
subject to the ROE cap. The Company has an equal $2.25 million
risk if gas commodity costs exceed the target. An additional major
benefit of the revised rate design is that the margin made on each
additional new customer will significantly increase to the extent
additional throughput does not require additional upstream pipeline
capacity for service. This, along with the approval of the
Company's Progress Fund, which allows the Company to use utility
revenues in an amount not to exceed $11 million in total for the
purpose of providing financing for large customers to convert or
increase their gas use, will provide new opportunities for growth.
With respect to the Company's site investigation and
restoration costs (see Item 8. Financial Statements and
Supplementary Data - Note 9. Commitments and Contingencies -
"Environmental Contingencies"), the settlement provides for 100%
recovery of these costs.
In March 1996, in a generic rate proceeding, the PSC ordered
all New York utilities to refile their tariffs to implement a
service unbundling by May 1996 (March 1996 Order). The Company
refiled its tariff on April 29, 1996, which became effective on a
temporary basis on June 1, 1996. Under the approved tariff, all of
the Company's gas customers, including residential and commercial
customers, have the opportunity to buy natural gas from other
sources with the Company providing delivery service for a separate
fee. These changes have not had a material impact on the Company's
margins since the margin is derived from the delivery service and
not from the commodity sale. The margin for delivery for
residential and commercial aggregation services equals the margin
on the traditional sales service classes.
In addition to the tariff filing to implement service
unbundling, the Company and other utilities filed a petition for
rehearing of certain of the determinations made in the PSC's March
1996 Order. These determinations included the PSC's requirement
that customers converting to a transportation customer are
responsible for pipeline capacity held by the utility on their
behalf for only a three-year period. In addition, the March 1996
Order states that the utility is obligated to provide back-up
service to a converting customer or provide service to a new
customer even if the utility does not currently have sufficient
pipeline capacity needed to service that customer. On September
13, 1996 the PSC issued its order on rehearing. The September 1996
Order did little to clarify how the costs of such capacity would be
recovered by the utility after the three-year period or the "test"
the PSC would use to determine whether the utility has adequately
demonstrated its efforts to relieve itself of "excess" or stranded
capacity.
NRC SEEKS TO CONFIRM ADEQUACY OF NUCLEAR DESIGN BASIS
DOCUMENTATION. In October 1996, the NRC required companies with
nuclear plants to provide the NRC with added confidence and
assurance that their plants are operated and maintained within the
design basis, and any deviations are reconciled in a timely manner.
Such information, which was filed within the required 120 days,
will be used by the NRC to verify that companies are in compliance
with the terms and conditions of their license(s) and NRC
regulations. In addition, it will allow the NRC to determine if
other inspection activities or enforcement actions should be taken
on a particular company.
In the letter transmitting the requested information to the
NRC, the Company concluded that it has reasonable assurance that
(i) design basis requirements are being translated into operating,
maintenance, and testing procedures; and (ii) system, structure and
component configuration and performance are consistent with the
design basis. Also, the Company has an effective administrative
tool for the identification, documentation, notification,
evaluation, correction, and reporting of conditions, events,
activities, and concerns that have the potential for adversely
affecting the safe and reliable operation of Unit 1 and Unit 2.
In February 1997, the Company met with the NRC staff to
discuss alleged violations of regulations at Unit 1 and Unit 2. No
decisions on the alleged violations have been made to date.
The Company believes that NRC safety enforcement is becoming
more stringent as indicated by the NRC's request for information
and its recent meeting with the Company and that there may be a
direct cost impact on companies with nuclear plants as a result.
The Company is unable to predict how such a changed operating
environment may affect its results of operations or financial
condition.
Owners of older General Electric Company boiling water
reactors, including the Company, have experienced cracking near
welds in the plants' core shrouds. In response to industry
findings, the Company installed modifications in the Unit 1 core
shroud during a 1995 refueling and maintenance outage.
Inspections conducted as part of the March 1997 refueling and
maintenance outage detected cracking in areas not directly
reinforced by the 1995 repairs, which may require additional core
shroud modifications. Preliminary analysis indicates the Company
may be able to restart the reactor from the current refueling and
maintenance outage without a significant extension of the outage
duration. Additional modifications, if required, would be
installed during a mid-cycle outage or as part of Unit 1's next
refueling and maintenance outage (February 1999). If modifications
are required before the restart of Unit 1 from the current
refueling and maintenance outage, a 2-3 month extension of the
outage would be anticipated. The Company's action plan on this
issue requires consent from the NRC.
OTHER COMPANY EFFORTS TO ADDRESS COMPETITIVE CHALLENGES
TAX INITIATIVES. The Company is working with utility,
customer and state representatives to explain the negative impact
that all utility taxes, including the GRT, are having on rates and
the state of the economy. Governor Pataki and other state
officials have identified reductions in the GRT as an element in
improving the business climate in New York. At the same time, the
Company is contesting the high real estate taxes it is assessed by
many taxing authorities, particularly those imposed upon generating
facilities.
As noted above, the Company has reduced its work force over
the past four years, resulting in a decrease in the amount of
payroll taxes incurred over that period. Meanwhile, the reduction
in revenues experienced by the Company resulting from reduced sales
and a phase out of the GRT surcharge, has caused the
amount of GRT paid by the Company to be reduced.
The following table sets forth a summary of the components of
other taxes (exclusive of income taxes) incurred by the Company in
the years 1994 through 1996:
In millions of dollars
1996 1995 1994
- ------------------------------------------------------------
Property tax expense $249.4 $264.8 $262.6
Sales tax 14.1 13.9 14.2
Payroll tax 36.4 37.3 42.5
Gross Receipts Tax 184.1 190.2 198.1
Other taxes 0.5 5.2 4.3
- ------------------------------------------------------------
Total Tax Expense 484.5 511.4 521.7
Charged to construction,
subsidiaries and regulatory
recognition (8.7) 6.1 (24.8)
- ------------------------------------------------------------
Total Other Taxes $475.8 $517.5 $496.9
============================================================
CUSTOMER DISCOUNTS. In recent years, industrial customers
have found alternative suppliers or are generating their own power.
In other cases a weakened economy or attractive energy prices
elsewhere have contributed to customer decisions to relocate or
close.
In addressing the threat of further loss of industrial load,
the PSC established guidelines to govern flexible electric rates
offered by utilities to retain qualified industrial customers.
Under these guidelines, the Company filed for a new service tariff
in August 1994 (SC-11), under which all new contract rates are
administered based on demonstrated industrial and commercial
competitive pricing alternatives including, but not limited to, on-
site generation, fuel switching, facility relocation and partial
plant production shifting. Contracts are for terms not to exceed
seven years without PSC approval. In addition, the Company has
economic development programs which provide tariff based incentives
to retain and grow load.
As of January 1997, the Company has 114 executed contracts
under its flexible tariff offerings. These contracts have been
signed to mitigate the lost margin impacts associated with
customers executing the competitive alternatives mentioned above.
In addition, many of these contracts include an increase in
production levels and/or attract new customers to the Company's
service territory.
In 1996, the total amount of customer discounts (economic
development programs and flexible pricing) was $75.5 million. Of
this amount, the Company recovered approximately $56.7 million in
rates, which included an additional amount of $10.1 million that
the PSC allowed the Company to recover in 1996 as a result of a
petition that it had filed. Pending implementation of PowerChoice,
the Company budgeted its discounts to increase to approximately
$100 million in 1997 as some discounts granted in 1996 are in
effect for an entire year and further discounts are granted. The
Company is aggressively using SC-11 to increase sales to existing
customers and to attract new customers to its service territory.
With the reduction in industrial prices proposed in PowerChoice,
the level of discounts may decline thereafter.
GENERATING ASSET MANAGEMENT STUDIES. The Company continues to
study the economics of continued operation of its fossil-fueled
generating plants, given current forecasts of excess capacity.
Substantial IPP supply sources, compliance requirements of the
Clean Air Act and low wholesale market prices are key
considerations in evaluating the Company's internal generation
needs. Due to projected excess capacity and Clean Air Act
requirements, a total of 340 MWs of aging coal fired capacity is
expected to be retired by the end of 1999 and 850 MWs of oil fired
capacity was placed in long-term cold standby in 1994. In one
instance, the Company has considered the value of relocating a unit
to a region where demand is greater. These decisions are
reevaluated as facts and circumstances change. These actions
permit the reduction of operating costs and capital expenditures
for retired and standby plants.
These asset management studies have enabled the Company to
make significant reductions in capital spending, and with increased
output and lower operating costs, to improve the cost-efficiency of
the units which is important as the Company continues to examine
its competitive situation and future strategic direction. As
discussed in Item 8. Financial Statements and Supplementary Data -
Note 2. Rate and Regulatory Issues and Contingencies - the Company
has determined that there is no impairment of its non-nuclear
generating assets.
REGULATORY AGREEMENTS/PROPOSALS
1995 RATE ORDER. (See Item 8. Financial Statements and
Supplementary Data - Note 2. Rate and Regulatory Issues and
Contingencies.)
On April 21, 1995, the Company received a rate decision (1995
rate order) from the PSC which approved an approximately $47
million increase in electric revenues and a $4.9 million increase
in gas revenues.
PRIOR REGULATORY AGREEMENTS. The Company's results during the
past several years have been strongly influenced by several
agreements with the PSC. A brief discussion of the key terms of
certain of these agreements is provided below.
The 1991 Financial Recovery Agreement implemented NERAM and
MERIT. (See Item 8. Financial Statements and Supplementary Data -
Note 1. Summary of Significant Accounting Policies).
NERAM required the Company to reconcile actual results to the
forecasted electric public sales gross margin used in establishing
rates. NERAM was discontinued in 1995.
The MERIT program is an incentive mechanism. Overall goal
targets and criteria for the 1993-1995 MERIT periods were results-
oriented and intended to measure improvement in key performance
areas. The total possible awards are $34 million and $41 million
for 1994 and 1995, respectively. The Company has recognized
approximately $20.8 million and $16.9 million of MERIT revenues in
1994 and 1995, respectively. The Company believes that it has
earned approximately $18 million with respect to the 1995 MERIT
award. However, it has only recorded $10.8 million of this amount
in 1995, since that amount represented the objectively determinable
portion of the anticipated award. Due to the uncertainty
surrounding PowerChoice, the Company decided not to record
additional revenues related to the remaining 1995 MERIT award in
the amount of $7 million.
RESULTS OF OPERATIONS
Earnings for 1996 were $72.1 million, or 50 cents per share,
as compared to $208.4 million, or $1.44 per share, in 1995, and
$143.3 million, or $1.00 per share, in 1994. Earnings for 1996
include the discontinued application of regulatory accounting
principles to the Company's fossil and hydro generation business.
The Company reached this conclusion because the recently announced
agreement-in-principle to terminate or restructure power contracts
with certain IPPs makes probable the implementation of PowerChoice
in which the Company has proposed to have its non-nuclear
generation sell power at competitive prices in the wholesale
market. The discontinuance results in the write-off of $103.6
million of regulatory assets associated with the fossil and hydro
business which is included in the income statement as an
extraordinary loss after tax of $67.4 million, or 47 cents per
share. Earnings before the extraordinary loss were $139.5 million
or 97 cents per share. Excluding the extraordinary loss, earnings
for 1996 were lower because of an increase in bad debt expense of
$96.4 million or 43 cents per share (see - "Financial Position,
Liquidity and Capital Resources - Liquidity and Capital
Resources"). This was partially offset by a $15.0 million gain on
the sale of a 50% interest in CNP that contributed 10 cents per
share to 1996 earnings. In addition, 1995 earnings included the
recording of a one-time, non-cash adjustment of prior years' DSM
incentive revenues, revenues earned under the Unit 1 operating
incentive sharing mechanism and a gain on the sale of HYDRA-CO that
collectively increased 1995 earnings by 17 cents per share. The
Company's request for a temporary rate increase in 1996 was denied
by the PSC.
Earnings for 1995 were hurt by lower sales quantities of
electricity and natural gas, as compared with amounts used to
establish 1995 prices. Sales were primarily affected by the
continuing weak economic conditions in upstate New York, loss of
industrial customers' load to NYPA and discounts granted. These
factors similarly impacted 1996 results. In January 1995 NERAM was
discontinued.
Earnings for 1994 included $101.2 million, or 46 cents per
share, of electric margin recorded under NERAM, but were adversely
affected by the charge to earnings of approximately $197 million
(89 cents per share) for nearly all of the cost of the VERP. The
VERP was initiated in 1994 to bring the Company's staff levels and
work practices into line with peer utilities and to create a more
competitive cost structure. From January 1, 1993 to December 31,
1994, the Company reduced its employment by approximately 3,100, or
27%.
The Company's 1996 earned ROE was 2.8% (5.4% before
extraordinary loss), compared to 8.4% in 1995 and 5.8% (10.7%
without the VERP charge) in 1994. The Company's return on common
equity authorized in the rate setting process is 11.0% for the
electric business and 11.4% for the gas business. Besides the
extraordinary loss, factors contributing to earnings below
authorized levels in 1996 included, among other things,
significantly higher bad debt expense and sales below those
forecasted in determining rates.
The following discussion and analysis highlights items that
significantly affected operations during the three-year period
ended December 31, 1996. This discussion and analysis may not be
indicative of future operations or earnings, particularly in view
of the probable termination or restructuring of IPP contracts and
implementation of PowerChoice. It also should be read in
conjunction with the Notes to Item 8. Financial Statements and
Supplementary Data and other financial and statistical information
appearing elsewhere in this report.
ELECTRIC REVENUES decreased by $26.6 million, or 0.8% in 1996,
and decreased by $193.4 million, or 5.5%, in 1995.
As shown in the following table, electric revenues decreased
in 1996, primarily due to a decrease in miscellaneous electric
revenues. Miscellaneous electric revenues were lower in 1996
primarily because 1995 electric revenues included the recording of
$71.5 million of unbilled, non-cash revenues in accordance with the
1995 rate order, $13.0 million of revenues earned under MERIT and
a one-time, non-cash adjustment of prior year's DSM incentive
revenues and a reduction in the DSM rebate cost program. However,
higher electric sales due to colder weather, an increase in sales
to other electric systems, an increase in FAC revenues and higher
electric rates (effective April 26, 1995) partly offset those
factors that contributed to lower electric revenues. FAC revenues
increased $28.3 million, which primarily reflects the Company's
increased payments to the IPPs recovered through the FAC.
Electric operating revenues decreased $193.4 million, or 5.5%,
in 1995 primarily due to the elimination of NERAM after 1994, and
the decrease in sales to other electric systems and in sales to
ultimate consumers. In addition, FAC revenues decreased $86.4
million, in part due to a decrease in fuel and purchased power
costs that are recoverable through the FAC as compared to 1994.
Despite a decrease in fuel costs, the Company absorbed a loss of
approximately $11.8 million in 1995 through the FAC sharing
mechanism, since its actual costs in 1995 were higher than the
amounts forecasted in rates. The amount forecasted in rates in
1995 reflected a lower fuel cost than 1994. In 1994, the Company
retained a maximum benefit of $15 million, since its actual costs
were lower than the amounts forecasted in rates. The decrease in
FAC revenues also reflects a higher amount of transmission revenues
($21.6 million) realized in 1995 that were passed on to customers.
These decreases were partially offset by higher electric rates that
took effect April 26, 1995, and by the recording of $71.5 million
unbilled, non-cash revenues in 1995 in accordance with the 1995
rate order. The increase in DSM revenues relates to a one-time,
non-cash adjustment of prior years' DSM incentives, partially
offset by a reduction in the cost of DSM rebates.
INCREASE (DECREASE) FROM PRIOR YEAR
(In millions of dollars)
ELECTRIC REVENUES 1996 1995 TOTAL
- -------------------------------------------------------
Amortization of unbilled
revenues $(77.1) $ 71.5 $ (5.6)
Increase in base rates 65.3 68.2 133.5
Fuel adjustment clause
revenues 28.3 (86.4) (58.1)
Changes in volume and mix
of sales to ultimate
consumers (28.1) (70.0) (98.1)
Sales to other electric
systems 24.5 (71.3) (46.8)
MERIT revenue (13.0) (5.6) (18.6)
DSM revenue (26.5) 1.4 (25.1)
NERAM revenues - (101.2) (101.2)
-------- -------- --------
$ (26.6) $(193.4) $(220.0)
======== ======== ========
Changes in FAC revenues are generally margin-neutral (subject
to an incentive mechanism discussed in Item 8. Financial Statements
and Supplementary Data - Note 1. Summary of Significant Accounting
Policies), while sales to other utilities, because of regulatory
sharing mechanisms and relatively low prices, generally result in
low margin contributions to the Company. Thus, fluctuations in
these revenue components do not generally have a significant impact
on net operating income. Electric revenues reflect the billing of
a separate factor for DSM programs, which provide for the recovery
of program related rebate costs.
ELECTRIC KILOWATT-HOUR SALES were 39.1 billion in 1996, 37.7
billion in 1995 and 41.6 billion in 1994. (See Item 8. Financial
Statements and Supplementary Data - "Electric and Gas Statistics -
Electric Statistics"). The 1996 increase of 1.4 billion Kwh, or
3.8% as compared to 1995, reflects a 26.2% increase in sales to
other electric systems and a 1.2% increase in sales to ultimate
customers due to the colder weather. Sales to other electric
systems was higher due to increased demand for electricity in the
northeast. The 1995 decrease of 3.9 billion Kwh, or 9.4% as
compared to 1994, reflects a 42.1% decrease in sales to other
electric systems and a 2.3% decrease in sales to ultimate
consumers. The decline reflects reduced demand due to the
continued stagnant economy, loss of several large industrial
customers due primarily to relocations and closings, as well as a
1994 PSC Order that allowed Sithe Independent Power Partners, Inc.
to sell a portion of its electricity to Alcan Rolled Products, loss
of sales to NYPA, and more competitive pricing caused by excess
supply. Excluding the effects of the weather, the Company
anticipates 1997 sales to ultimate customers to decline slightly,
before picking up in 1998.
Details of the changes in electric revenues and Kwh sales by
customer group are highlighted in the table below:
% INCREASE (DECREASE) FROM PRIOR YEARS
1996 % OF --------------------------------------
ELECTRIC 1996 1995
CLASS OF SERVICE REVENUES REVENUES SALES REVENUES SALES
- --------------------------------------------------------------------
Residential 37.8% 3.1% 0.5% (0.9)% (2.5)%
Commercial 37.4 - (0.4) (2.4) (1.1)
Industrial 15.9 0.2 1.2 (8.8) (4.3)
Industrial-Special 1.8 3.9 6.7 14.3 (1.6)
Municipal service 1.6 5.8 7.4 (1.1) 0.9
- --------------------------------------------------------------------
Total to ultimate
consumers 94.5 1.4 1.2 (2.7) (2.3)
Other electric
systems 3.4 27.5 26.2 (43.6) (42.1)
Miscellaneous 2.1 (57.8) (17.7) (23.6) (2.1)
- --------------------------------------------------------------------
TOTAL 100.0% (0.8)% 3.8% (5.5)% (9.4)%
As indicated in the table below, internal generation increased
in 1996, principally in nuclear and hydro. In 1996, Unit 2 was out
of service for a 35 day planned refueling and maintenance outage
while in 1995, both units were taken out of service for
approximately two months each for planned refueling and maintenance
outages. The amount of electricity delivered to the Company by the
IPPs decreased by approximately 226 GwHrs or 1.6%, but total IPP
costs increased by approximately $108.6 million or 11.1%, as
discussed below. (For a discussion of an event that is expected to
change the cost and amount of energy delivered by IPPs, see
"Announced Agreement-in-Principle to Terminate or Restructure 44
IPP Contracts").
1996 1995 1994
------------------ ------------------- ------------------
(In millions of dollars)
Fuel for electric
generation: GwHrs. Cost GwHrs. Cost GwHrs. Cost
-------- ------- ------ ------- ------ --------
Coal 7,095 $100.6 6,841 $ 97.9 6,783 $ 107.3
Oil 462 21.1 537 21.3 1,245 40.9
Natural gas 319 9.2 996 20.2 700 16.1
Nuclear 8,243 47.7 7,272 43.3 8,327 49.5
Hydro 3,679 - 2,971 - 3,485 -
------- ------- ------ ------- ------ --------
19,798 178.6 18,617 182.7 20,540 213.8
------- ------- ------ ------- ------ --------
Electricity
purchased:
IPP's:
Capacity - 212.8 - 181.2 - 84.6
Energy and taxes 13,797 875.7 14,023 798.7 14,794 875.5
------ ------- ------ ------- ------ -------
Total IPP purchases 13,797 1,088.5 14,023 979.9 14,794 960.1
Other 9,569 130.6 9,463 126.5 10,382 140.3
------ ------- ------ ------- ------ -------
23,366 1,219.1 23,486 1,106.4 25,176 1,100.4
------ ------- ------ ------- ------ -------
Total generated
and purchased 43,164 1,397.7 42,103 1,289.1 45,716 1,314.2
Fuel adjustment
clause - (33.3) - 14.8 - 12.7
Losses/Company use 4,037 - 4,419 - 4,117 -
------ ------- ------ -------- ------ --------
39,127 $1,364.4 37,684 $1,303.9 41,599 $1,326.9
====== ======= ====== ======== ====== ========
% Change from Prior Year
-------------------------------------
1996 to 1995 1995 to 1994
------------- -------------
(In millions of dollars)
Fuel for electric
generation: GwHrs. Cost GwHrs. Cost
------ ---- ------ ----
Coal 3.7% 2.8% 0.9% (8.8)%
Oil (14.0) (0.9) (56.9) (47.9)
Natural gas (68.0) (54.5) 42.3 25.5
Nuclear 13.4 10.2 (12.7) (12.5)
Hydro 23.8 - (14.7) -
------ ----- ----- -----
6.3 (2.2) (9.4) (14.5)
------ ----- ----- -----
Electricity
purchased:
IPP's:
Capacity - 17.4 - 114.2
Energy and taxes (1.6) 9.6 (5.2) (8.8)
----- ----- ----- -----
Total IPP purchases (1.6) 11.1 (5.2) 2.1
Other 1.1 3.2 (8.9) (9.8)
----- ------ ----- -----
(0.5) 10.2 (6.7) 0.5
------ ------ ----- -----
Total generated
and purchased 2.5 8.4 (7.9) (1.9)
Fuel adjustment
clause - (325.0) - 16.5
Losses/Company use (8.6) - 7.3 -
---- ------ ----- -----
3.8% 4.6% (9.4)% (1.7)%
===== ======= ===== =====
The above table presents the total costs for purchased
electricity, while reflecting only fuel costs for Company
generation. Other costs of generation, such as taxes, other
operating expenses and depreciation are included within other
income statement line items.
The Company's management of its IPP power supply generally
divides the projects into three groups; hydroelectric, "must run"
cogeneration and schedulable cogeneration projects. Due to high
precipitation and spring run-off levels in 1996, hydroelectric IPP
projects produced and delivered an increase of 635 GwHrs or 56.1%
under PPAs resulting in increased payments to those IPPs of $57.5
million. In addition, a major new hydroelectric IPP came on line
in November 1995, contributing to the increase in hydroelectric
deliveries.
A substantial portion of the Company's portfolio of IPP
projects operate on a "must run" basis. This means that they tend
to run to the maximum production levels regardless of the need or
economic value of the electricity produced. Despite delivering 585
GwHrs less or 5.9%, due to higher weighted average price, payments
to "must run" IPPs increased by $15.2 million. With respect to
"must run" IPP cogeneration projects, a number of elements combined
to reduce the aggregate deliveries from "must run" IPPs. These
elements included limited term agreements negotiated by the Company
and a catastrophic failure of one of the IPP plants.
The Company has renegotiated PPAs with a number of IPP
cogeneration projects in order to obtain the right to schedule the
electricity deliveries of the project. The terms of these PPAs
allow the Company to schedule energy deliveries from the facilities
and then pay for the energy delivered. The Company is also
required to make fixed payments so long as the IPP plants are
available for service. (See Item 8. Financial Statements and
Supplementary Data - Note 9. Commitments and Contingencies - "Long-
term Contracts for the Purchase of Electric Power").
Quantities from schedulable cogeneration IPPs decreased 276
GwHrs or 9.3%. Payments to schedulable IPPs increased $35.9
million, primarily due to increased fixed payments of approximately
$31.6 million. The increase in fixed payments is caused by a new
schedulable IPP whose plant came on line in May 1995 and due to
escalation factors included in the PPAs. In addition, payments to
schedulable IPPs reflect the increase in the cost of natural gas.
GAS REVENUES increased by $99.9 million, or 17.2%, in 1996,
and decreased by $41.4 million, or 6.6%, in 1995. As shown by the
table below, gas revenues increased in 1996 primarily due to
increased sales to ultimate customers due to colder weather,
increased spot market sales, higher gas adjustment clause
recoveries, an increase in revenues from the transportation of
customer-owned gas and an increase in base rates of $3.1 million in
accordance with the 1995 rate order.
In 1995, the revenue decrease was primarily attributable to
decreased sales to ultimate customers, which reflects reduced
demand due to the weak economy and warmer weather, and lower gas
adjustment clause recoveries. This decrease was partially offset
by an increase in revenues from the transportation of customer-
owned gas of approximately $9.9 million which was primarily caused
by the Sithe gas-fired generating project coming on-line in the
Company's service territory and an increase in base rates of $4.7
million in accordance with the 1995 rate order.
Rates for transported gas (excluding aggregation services)
yield lower margins than gas sold directly by the Company.
Therefore, increases in the volume of gas transportation services
have not had a proportionate impact on earnings, particularly in
instances where customers that took direct service from the Company
move to a transportation-only class. In addition, changes in
purchased gas adjustment clause revenues are generally margin-
neutral.
INCREASE (DECREASE) FROM PRIOR YEAR
(In millions of dollars)
GAS REVENUES 1996 1995 TOTAL
- -------------------------------------------------------------
Increase in base rates $ 3.1 $ 4.7 $ 7.8
Transportation of
customer-owned gas 2.1 9.9 12.0
Purchased gas adjustment
clause revenues 30.8 (10.7) 20.1
Spot market sales 34.0 (1.3) 32.7
Changes in volume and
mix of sales to ultimate
consumers 29.9 (44.0) (14.1)
------ ------ ------
$ 99.9 $(41.4) $ 58.5
====== ====== ======
GAS SALES, excluding transportation of customer-owned gas and
spot market sales, were 84.9 million Dth in 1996, an 8.2% increase
from 1995, and a (0.9)% decrease from 1994. (See Item 8. Financial
Statements and Supplementary Data - "Electric and Gas Statistics -
Gas Statistics"). The increase in 1996 was in all ultimate
consumer classes due to the colder weather. In addition, spot
market sales (sales for resale), which are generally from the
higher priced gas available to the Company and therefore yield
margins that are substantially lower than traditional sales to
ultimate customers, increased 8.7 million Dth. This was partially
offset by a decrease of transportation volumes of 9.9 million Dth
or 6.9% to customers purchasing gas directly from producers. The
Company has experienced an increase in customers of approximately
20,000 since 1994, primarily in the residential class, an increase
of 3.9%.
Changes in gas revenues and Dth sales by customer group are detailed in the table below:
1996 % INCREASE (DECREASE) FROM PRIOR YEAR
% of --------------------------------------
GAS 1996 1995
CLASS OF SERVICE REVENUES REVENUES SALES REVENUES SALES
- --------------------------------------------------------------------
Residential 61.2% 13.3% 9.4% (7.5)% (8.2)%
Commercial 23.8 13.0 6.4 (9.7) (7.6)
Industrial 2.0 15.6 4.1 (21.0) (14.1)
- --------------------------------------------------------------------
Total to ultimate
consumers 87.0 13.3 8.3 (8.5) (8.3)
Other gas
systems - (81.9) (81.4) (34.3) (34.0)
Transportation of
customer-owned
gas 7.4 4.3 (6.9) 25.9 68.3
Spot market sales 5.4 1,099.1 507.0 (29.2) 9.6
Miscellaneous 0.2 (82.2) - (16.7) -
- --------------------------------------------------------------------
TOTAL 100.0% 17.2% 2.3% (6.6)% 29.9%
====================================================================
The total cost of gas purchased increased 34.0% in 1996 and
decreased 12.5% in 1995 and 3.2% in 1994. The cost fluctuations
generally correspond to sales volume changes, as spot market sales
activity increased, as well as changes in gas prices. The Company
sold 10.5, 1.7 and 1.6 million Dth on the spot market in 1996, 1995
and 1994, respectively. The total cost of gas increased $93.8
million in 1996. This was the result of a 9.3 million increase in
Dth purchased and withdrawn from storage for ultimate consumer
sales ($29.6 million), a $25.6 million increase in Dth purchased
for spot market sales and a 12.9% increase in the average cost per
Dth purchased ($38.7 million). The purchased gas cost decrease
associated with purchases for ultimate consumers in 1995 resulted
from a 4.3 million decrease in Dth purchased and withdrawn from
storage for ultimate consumer sales ($15.1 million) and a 10.8%
decrease in the average cost per Dth purchased ($32.8 million).
This was partially offset by an increase of $10.1 million in
purchased gas costs and certain other items recognized and
recovered through the GAC. Gas purchased for spot market sales
increased $25.6 million in 1996 and decreased $1.4 million and
$24.4 million in 1995 and 1994, respectively. The Company's net
cost per Dth sold, as charged to expense and excluding spot market
purchases, increased to $3.62 in 1996 from $3.17 in 1995 and was
$3.44 in 1994.
Through the electric and purchased gas adjustment clauses,
costs of fuel, purchased power and gas purchased, above or below
the levels allowed in approved rate schedules, are billed or
credited to customers. The Company's electric FAC provides for a
partial pass-through of fuel and purchased power cost fluctuations
from those forecast in rate proceedings, with the Company absorbing
a portion of increases or retaining a portion of decreases to a
maximum of $15 million per rate year. The Company retained the
maximum benefit of $15 million in 1994, but absorbed losses of
approximately $11.8 million and $1.4 million in 1995 and 1996,
respectively.
OTHER OPERATION AND MAINTENANCE EXPENSE increased in 1996 by
$110.3 million, or 13.5%, as compared to a decrease of $139.5
million or 14.6% in 1995. The 1996 increase was primarily as a
result of an increase in bad debt expense of $96.4 million,
including a $32.1 million net increase in the Company's allowance
for doubtful accounts to recognize the increased risk of collection
inherent in significantly higher levels of past-due customer bills
(See - "Financial Position, Liquidity and Capital Resources -
Liquidity and Capital Resources") and year-to-year differences in
the accounting for regulatory deferrals. This was partially offset
by a decrease in Unit 1 operation and maintenance costs which were
higher in 1995 as a result of planned refueling and maintenance
outages.
Despite the costs related to the 1995 scheduled nuclear
refueling outages of Units 1 and 2 of approximately $36 million,
other operation expense decreased in 1995 primarily as a result of
the Company's cost reduction program. In addition to lower labor
costs, the Company also reduced 1995 non-labor costs, such as
research and development expenditures ($21 million), general office
expenses ($8 million), and DSM rebate costs ($19 million).
OTHER ITEMS, NET increased by $30.3 million in 1996 and
decreased by $13.0 million in 1995. The 1996 increase was
primarily due to higher interest income ($10.9 million) as a result
of an increase in temporary cash investments and the gain on the
sale of a 50% interest in CNP ($15.0 million). In addition, other
items, net was higher since there were customer service penalties
and certain other items written off because they were disallowed in
rates in 1995. The 1995 decrease was primarily due to the
recognition of customer service penalties, certain other items
disallowed in rates and lower subsidiary earnings, offset in part
by the pre-tax gain ($21.6 million) recognized on the sale of
HYDRA-CO.
NET FEDERAL AND FOREIGN INCOME TAXES decreased by $56.9
million in 1996 primarily due to a decrease in pre-tax income and
increased by $47.9 million in 1995. The 1995 increase was due to an
increase in pre-tax income, which included the increase related to
the sale of HYDRA-CO. Other taxes decreased by $41.6 million in
1996 and increased by $20.6 million in 1995. The 1996 decrease was
primarily as a result of lower real estate taxes ($15.4 million),
lower GRTs ($6.1 million) primarily due to a reduction in the GRT
surcharge during 1996, lower New York State excess dividend tax
accrual due to a suspension of the common stock dividend ($4.6
million) and year-to-year differences in the accounting for
regulatory deferrals ($15.2 million) associated primarily with a
settlement of tax issues with respect to the Company's Dunkirk
facility. The 1995 increase was primarily as a result of an
increase in the amortization of amounts deferred in prior years
($19.7 million) related to real estate taxes. This increase was
partially offset by a reduction of approximately $7.9 million in
GRTs as a result of lower revenues in 1995 as compared to 1994, and
a reduction in the GRT surcharge during 1995, as well as a
reduction in payroll taxes ($5.2 million) due to a decrease in the
number of employees.
NET INTEREST CHARGES remained fairly constant for the years
1994 through 1996. However, dividends on preferred stock decreased
by $1.3 million in 1996 and increased by $5.9 million in 1995.
Dividends on preferred stock decreased in 1996 primarily due to a
decrease in the cost of variable rate issues and increased $5.9
million in 1995 primarily as a result of an increase in the cost of
variable rate issues. The weighted average long-term debt interest
rate and preferred dividend rate paid, reflecting the actual cost
of variable rate issues, changed to 7.71% and 7.09%, respectively,
in 1996 from 7.77% and 7.19%, respectively, in 1995, and from 7.79%
and 6.84%, respectively, in 1994.
EFFECTS OF CHANGING PRICES
The Company is especially sensitive to inflation because of
the amount of capital it typically needs and because its prices are
regulated using a rate base methodology that reflects the
historical cost of utility plant.
The Company's consolidated financial statements are based on
historical events and transactions when the purchasing power of the
dollar was substantially different than now. The effects of
inflation on most utilities, including the Company, are most
significant in the areas of depreciation and utility plant. The
Company could not replace its non-nuclear utility plant and
equipment for the historical cost value at which they are recorded
on the Company's books. In addition, the Company would not replace
these with identical assets due to technological advances and
competitive and regulatory changes that have occurred. In light of
these considerations, the depreciation charges in operating
expenses do not reflect the cost of providing service if new
generating facilities were installed. The Company will seek
additional revenue or reallocate resources, if possible, to cover
the costs of maintaining service as assets are replaced or retired.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL POSITION. The Company's capital structure at
December 31, 1996 was 53.1% long-term debt, 7.9% preferred stock
and 39.0% common equity, as compared to 54.5%, 8.0% and 37.5%
respectively, at December 31, 1995. The culmination of the
termination or restructuring of IPP contracts will significantly
increase the leverage of the Company to nearly 65% at the time of
closing. The planned rapid repayment of new debt will deleverage
the Company over time. Book value of the common stock was $17.91
per share at December 31, 1996, as compared to $17.42 per share at
December 31, 1995. With the issuance of equity at below book value
to the IPPs as part of the agreement-in-principle, book value per
share will be diluted by an amount which will depend upon the
market value of the Company's common stock at the time of issuance
to the IPP developers. Also, earnings per share will be diluted by
the effect of the issuance to the IPP developers of 46 million
shares of the Company's common stock. Market analysts have
observed that the Company's low market to book ratio, 55.1% at
December 31, 1996, results from a weak New York State economy and
regulatory attitudes, and from uncertainty about the pace of
regulatory change, which could increase competition and reduce
prices, rendering the Company particularly vulnerable. In
addition, market analysts have expressed concern about the
uncertainty and potential negative impact of the PowerChoice
proposal on the Company, as well as the possibility of bankruptcy.
The Company believes the implementation of PowerChoice is in the
best interests of shareholders, bondholders and customers because
a substantial portion of the IPP over-market problem will have been
eliminated and replaced by fixed debt obligations and it will
enable the Company to deliver power through 2000 at slightly lower
prices to its customers with larger decreases in prices to large
commercial and industrial customers to retain and attract business
to its service territory.
The 1996 ratio of earnings to fixed charges was 1.57 times.
The ratios of earnings to fixed charges for 1995 and 1994 were 2.29
times and 1.91 times, respectively. Security rating firms have
imputed certain items into the Company's interest coverage
calculations and capital structure, the most significant of which
is the inclusion of a "leverage" factor for IPP contracts. The
rating firms believe the financial structure of the IPPs (which
typically have very high debt-to-equity ratios) and the character
of their PPA increase the financial risk to utilities. The
Company's reported interest coverage and debt-to-equity ratios have
been discounted by varying amounts for purposes of establishing
credit ratings. Because of existing commitments for IPP purchases,
the imputation has had a materially negative impact on the
Company's financial ratings. Assuming the IPP agreement-in-
principle is implemented, the imputed leveraged debt would be
replaced by issued debt.
COMMON STOCK DIVIDEND. The board of directors omitted the
common stock dividend for all of 1996 and the first quarter of
1997. This action was taken to help stabilize the Company's
financial condition and provide flexibility as the Company
addresses growing pressure from mandated power purchases and weaker
sales and is the primary reason for the increase in the cash
balance. In making future dividend decisions, the board will
evaluate, along with standard business considerations, the
financial condition and contractual obligations of the Company, the
progress on concluding negotiations and implementing the
termination or restructuring of IPP contracts and PowerChoice, or
the failure to implement such actions, the degree of competitive
pressure on its prices, the level of available cash flow and
retained earnings and other strategic considerations. The Company
expects to dedicate a substantial portion of its positive cash flow
to pay down senior subordinated debt to be issued in connection
with the implementation of the agreement-in-principle.
Furthermore, the Company believes that its reported return on
equity will be substantially reduced, particularly during the next
few years, as non-cash amortization of the regulatory asset
occasioned by the IPP agreement-in-principle is occurring and the
interest costs on the IPP debt is the greatest. See "Accounting
Implications of PowerChoice and Agreement-in-Principle to Terminate
or Restructure IPP Contracts."
CONSTRUCTION AND OTHER CAPITAL REQUIREMENTS. The Company's
total capital requirements consist of amounts for the Company's
construction program (see Item 8. Financial Statements and
Supplementary Data - Note 9. Commitments and Contingencies -
"Construction Program"), compliance with the Clean Air Act and
other environmental requirements (as discussed below and in Item 8.
Financial Statements and Supplementary Data - Note 9.
"Environmental Contingencies"), nuclear decommissioning funding
requirements (See Item 8. Financial Statements and Supplementary
Data - Note 3. Nuclear Operations - "Nuclear Plant
Decommissioning" and "NRC Draft Policy Statement"), working capital
needs, maturing debt issues and sinking fund provisions on
preferred stock, as well as requirements to complete the
termination or restructuring of IPP contracts and accomplish the
restructuring contemplated by the PowerChoice proposal. Annual
expenditures for the years 1994 to 1996 for construction and
nuclear fuel, including related AFC and overheads capitalized, were
$485.4 million, $345.8 million and $352.1 million, respectively,
and are expected to be approximately $306 million for 1997 and to
range from $275 - $343 million for each of the subsequent four
years. These estimates include construction expenditures for non-
nuclear generation costs $22 to $31 million per year.
In addition to the assumed cost of the IPP agreement-in-
principle requirements, mandatory debt and preferred stock
retirements and other requirements are expected to add
approximately another $57 million to the 1997 estimate of capital
requirements. The estimate of construction additions included in
capital requirements for the period 1997 to 2001 will continue to
be reviewed by management with the objective of further reducing
these amounts where possible. See discussion in - "Liquidity and
Capital Resources" section below, which describes how management
intends to meet its financing needs for this five-year period.
The above requirements do not include amounts required to
complete the termination or restructuring of IPP contracts and
accomplish the restructuring contemplated by PowerChoice. Under
the agreement-in-principle, the Company will pay in cash or debt
securities of the Company $3.6 billion. The Company expects to
sell in the public market subordinated debentures to fund all or a
portion of this requirement. The Company will also be required to
replace or amend its existing $804 million senior debt facility,
discussed below.
The provisions of the Clean Air Act are expected to have an
impact on the Company's fossil generation plants during the period
through 2001 and beyond. The Company has complied with Phase I of
the Clean Air Act, which includes reductions of NOx and SO2. Phase
I became effective on January 1, 1995 and will continue through
1999. The Company spent approximately $0.1 million and $5 million
in 1996 and 1995, respectively, on projects at the fossil
generation plants associated with Phase I compliance. The Company
has included $6 million in its 1997 through 1999 construction
forecast for Phase II compliance which will become effective
January 1, 2000. The Company anticipates that additional
expenditures of approximately $74 million may be incurred for Phase
III beyond 2000. These estimates are dependent upon finalization
of rulemakings that implement the Clean Air Act, the results of
which could increase or lower expenditures. The asset management
studies, described above, consider spending estimates for Clean Air
Act compliance.
LIQUIDITY AND CAPITAL RESOURCES. On May 22, 1996, S&P lowered
its ratings on the Company's senior secured debt to BB- from BB;
senior unsecured debt to B from B+; its preferred stock to B- from
B; and commercial paper to not rated from B. The present ratings
remain below investment grade and remain on "CreditWatch" with
negative implications. S&P stated that the downgrade resulted from
the inability of the financially weak Company and the IPPs to make
substantive progress in their renegotiation of IPP contracts. In
addition, S&P stated that the lack of progress after several months
of negotiations between the Company and the IPPs increases the
uncertainty that a settlement can be achieved.
On March 10, 1997, S&P stated that its present ratings of the
Company remain on CreditWatch, however, the implications have been
revised to positive. S&P stated that the CreditWatch revision was
made following the Company's announcement that it has reached an
agreement-in-principle to terminate or restructure 44 of the
Company's most significant IPP contracts. (See "Announced
Agreement-in-Principle to Terminate or Restructure 44 IPP
Contracts"). S&P stated that it did not expect the Company's
senior secured debt ratings to achieve an investment-grade rating
for several years. However, S&P noted that there is a stronger
possibility that the Company will achieve investment-grade ratings
if New York State passes the securitization legislation. S&P
further noted that the revised implications reflects the
significantly reduced chance of bankruptcy that might have resulted
from unsuccessful negotiations with IPPs, and the prospect of
improved cash flow coverages.
On April 25, 1996, Moody's lowered its ratings on the
Company's senior secured debt, to Ba3 from Ba1; senior unsecured
debt to B2 from Ba2; and its preferred stock to b3 from ba3.
Moody's "Not Prime" rating for the Company's commercial paper
remains unchanged. The present ratings remain below investment
grade. Moody's stated that it downgraded the long-term credit
ratings of the Company, based on the limited progress made in
achieving the goals identified in the Company's PowerChoice
proposal, among other financial concerns, which may ultimately lead
to a voluntary bankruptcy filing. In addition, Moody's stated that
due to the level of uncertainty and potential volatility of the
situation, its rating outlook on the Company remained negative.
On March 10, 1997, Moody's revised its outlook of the Company
to reflect the stabilizing effect of the announced agreement-in-
principle to terminate or restructure 44 of the Company's most
significant IPP contracts. Moody's stated that there is still a
substantial amount of negotiating to be done, but the specter of a
voluntary bankruptcy filing has been lessened. In addition,
Moody's stated that it views the announcement as a positive step to
stabilize the Company's cash flow with favorable implications to
the Company's first mortgage bonds and secured pollution control
bonds.
On August 2, 1996, Fitch placed the Company's first mortgage
bonds and secured pollution control bonds (rated BB) and preferred
stock (rated B+) on FitchAlert status with evolving implications,
following the Company's announced proposal to terminate or
restructure 44 IPP contracts in exchange for a combination of cash
and securities from a newly restructured Company. (See "Announced
Agreement-in-Principle to Terminate or Restructure 44 IPP
Contracts"). Previously, the credit trend was declining. However,
FitchAlert status means that a change in ratings is likely and the
evolving status may be either raised or lowered depending on the
outcome of the IPP agreement-in-principle. The present ratings are
below investment grade.
On March 10, 1997, Fitch revised its ratings to FitchAlert
positive. This action reflects the Company's announced agreement-
in-principle to terminate or restructure 44 above-market power
contracts with 19 IPPs. Fitch stated that a change in ratings is
likely and the improving status indicates that ratings may be
raised or affirmed depending on the outcome of events within the
next 6 to 12 months. Fitch stated that the successful negotiation
of these contracts paves the way for the approval of a rate plan by
the PSC, which could stabilize the Company's financial condition
and allow it to implement a competitive retail access plan while
eliminating a major risk of insolvency.
A summary of the Company's securities ratings at December 31,
1996, was:
- ----------------------------------------------------------------
SECURED PREFERRED COMMERCIAL UNSECURED
DEBT STOCK PAPER DEBT
- ----------------------------------------------------------------
Standard & Poor's
Corporation BB- B- Not Rated B
Moody's Investors
Service Ba3 b3 Not Prime B2
Fitch Investors
Service BB B+ Not Not
applicable applicable
- ----------------------------------------------------------------
Although no assurance can be provided, the Company believes
that the termination or restructuring of the IPP contracts and
implementation of PowerChoice will result in credit statistics that
will support improved credit ratings for senior secured debt (First
Mortgage Bonds), although not likely investment grade at the
outset. There is risk throughout the electric industry that credit
ratings could decline if the issue of stranded cost recovery is not
satisfactorily solved. In the event PowerChoice is not adopted,
and comparable solutions are not available, the Company will
undertake any other actions necessary to act in the best interests
of stockholders and other constituencies.
Ordinarily, construction related short-term borrowings are
refunded with long-term securities on a periodic basis. This
approach generally results in the Company showing a working capital
deficit. Working capital deficits may also be a result of the
seasonal nature of the Company's operations as well as timing
differences between the collection of customer receivables and the
payment of fuel and purchased power costs. The Company is
experiencing a significant deterioration in its collections as
compared to prior years' experience and is taking steps to improve
collection, as discussed below. The Company believes it has
sufficient borrowing capacity to fund such deficits as necessary in
the near term. However, the Company's borrowing capacity to fund
such deficits may be affected by the factors discussed below
relating to the Company's external financial plans.
As previously disclosed by the Company, there was a
significant increase in past-due accounts receivable since 1995.
A number of factors have contributed to the increase, including
rising prices (particularly to residential customers). Rising
prices have been driven by increased payments to IPPs and high
taxes and have been passed on in customers' bills. The stagnant
economy in the Company's service territory since the early 1990's
has adversely affected collection of past-due accounts. Also,
laws, regulations and regulatory policies impose more stringent
collection limitations on the Company than those imposed on
business in general; for example, the Company cannot terminate
service during the winter heating season. The Company's collection
efforts were also affected by employee turnover with the relocation
to the new Collection Center in Buffalo, New York and the VERP in
1994. The Company is developing and implementing a variety of
strategies to improve its collection experience and reduce its bad
debt expense. While a number of strategies can and will be
implemented by the Company unilaterally, other strategies will
require the support of the PSC regarding interpretation or
alteration of the PSC's rules and regulations, and still others may
require legislative action. The Company has initiated discussions
with the staff of the PSC to explore changes in practices that
require the PSC's support, and is formulating strategies to address
legislative impediments.
The information gathered in developing these strategies
enabled management to update its risk assessment of the accounts
receivable portfolio. Based on this assessment, management
determined that the level of risk associated primarily with the
older accounts had increased and the historical loss experience no
longer applied. Accordingly, the Company determined that a
significant portion of the past-due accounts receivable
(principally of residential customers) might be uncollectible, and
has written-off a substantial number of these accounts as well as
increased its allowance for doubtful accounts by $32.1 million (14
cents per share) to $52.1 million as of December 31, 1996. In 1996
and 1995, the Company had charged $127.6 million and $31.3 million,
respectively to bad debt expense. The allowance for doubtful
accounts is based on assumptions and judgments as to the
effectiveness of collection efforts. However, future results with
respect to collecting the past-due receivables may prove to be
different from those anticipated. The Company expects that future
bad debt expense will be lower than that experienced in 1996, but
remain higher than in prior years. Such a result is necessarily
dependent upon the following factors, including, among other
things, the effectiveness of the strategies discussed above, the
support of regulators and legislators to allow utilities to move
towards commercial collection practices and improvement in the
condition of the economy in the Company's service territory. The
Company has been pursuing PowerChoice to address high prices that
are the result of traditional price regulation, but the
introduction of competition requires that policies and practices
that were central to traditional regulation, including those
involving collections, be changed so as not to jeopardize the
benefits of competition.
External financing plans are subject to periodic revision as
underlying assumptions are changed to reflect developments, market
conditions and, most importantly, conclusion of the termination or
restructuring of IPP contracts and implementation of the Company's
PowerChoice proposal. The ultimate level of financing during the
period 1997 through 2000 will be affected by, among other things:
the timing and outcome of the IPP termination and restructure
agreement-in-principle and the implementation of PowerChoice
proposal (or a similar proposal), levels of common dividend
payments, if any, and preferred dividend payments; the Company's
competitive position and the extent to which competition penetrates
the Company's markets; uncertain energy demand due to the weather
and economic conditions; and the extent to which the Company
reduces non-essential programs and manages its cash flow during
this period. The Company could also be affected by the outcome of
the NRC's consideration of new rules for adequate financial
assurance of nuclear decommissioning obligations. (See Item 8.
Financial Statements and Supplementary Data - Note 3. Nuclear
Operations - "NRC Draft Policy Statement"). In the longer term, in
the absence of PowerChoice or some reasonably equivalent solution,
financing will depend on the amount, if any, of rate relief that
may be granted. Without adequate relief, or any substantial relief
from its existing cost structure as described herein, the Company's
financial condition will continue to deteriorate.
During March 1996, the Company completed an $804 million
senior debt facility with a bank group for the purposes of
consolidating and refinancing certain of the Company's existing
working capital lines of credit and letter of credit facilities and
providing additional reserves of bank credit. This senior debt
facility will enhance the Company's financial flexibility during
the period 1997 through June 1999. The senior debt facility
consists of a $255 million term loan facility, a $125 million
revolving credit facility and $424 million for letters of credit.
The letter of credit facility provides credit support for the
adjustable rate pollution control revenue bonds issued through the
NYSERDA. The interest rate applicable to the senior debt facility
is variable based on certain rate options available under the
agreement and currently approximates 7.4% (but capped at 15%). As
of December 31, 1996, the amount outstanding under the senior debt
facility was $542 million, consisting of $105 million under the
term loan facility, a $424 million letter of credit and a $13
million letter of credit under the revolving credit facility,
leaving the Company with $262 million of borrowing capability under
the facility. The facility expires on June 30, 1999 (subject to
earlier termination upon the implementation of the Company's
PowerChoice proposal or any other significant restructuring plan).
This facility is collateralized by first mortgage bonds which
were issued on the basis of additional property under the earnings
test required under the mortgage trust indenture. As of December
31, 1996, the Company could issue an additional $1,356 million
aggregate principal amount of first mortgage bonds under the
Company's mortgage trust indenture. This amount is based upon
retired bonds without regard to an interest coverage test. As a
result of the recording of the extraordinary item in December 1996,
the Company is presently precluded from issuing first mortgage
bonds based on additional property and the earnings test.
The Company also has $200 million of Preference Stock
authorized for sale. Current market conditions preclude the
Company from issuing preferred or preference stock due to the
downgrading of the Company's security ratings. The Company's
charter also limits the amount of unsecured indebtedness that may
be incurred by the Company to 10% of consolidated capitalization
plus $50 million. At December 31, 1996, this charter restriction
is approximately $702 million and the Company's unsecured debt
outstanding is $20 million.
NET CASH PROVIDED BY OPERATING ACTIVITIES increased slightly
in 1996 due to an increase in working capital items, despite a
decrease in net income in the amount of $137.6 million.
NET CASH USED IN INVESTING ACTIVITIES increased $54.6 million
in 1996 since 1995 included the net cash generated from the sale of
HYDRA-CO ($161.1 million). This increase was partially offset by
the net cash generated from the sale of CNP (approximately $15
million) and a decrease in other cash investments in the amount of
$115.3 million.
NET CASH USED IN FINANCING ACTIVITIES decreased $167.0
million, since the Company paid-off and converted its short-term
debt to long-term debt in 1995, and did not rely on any short-term
debt in 1996. In addition, the Company eliminated its common stock
dividend in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A. FINANCIAL STATEMENTS
Report of Management
Report of Independent Accountants
Consolidated Statements of Income and Retained Earnings for
each of the three years in the period ended December 31,
1996.
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996.
Notes to Consolidated Financial Statements.
Financial Statement Schedules -
The following Financial Statement Schedule is submitted as
part of Item 14, Exhibits, Financial Statement Schedules, and
Reports on Form 8-K, of this Report. (All other Financial
Statement Schedules are omitted because they are not
applicable, or the required information appears in the
Financial Statements or the Notes thereto).
Schedule II - Valuation and Qualifying Accounts and Reserves
REPORT OF MANAGEMENT
The consolidated financial statements of the Company and its
subsidiaries were prepared by and are the responsibility of
management. Financial information contained elsewhere in this
Annual Report is consistent with that in the financial statements.
To meet its responsibilities with respect to financial
information, management maintains and enforces a system of internal
accounting controls, which is designed to provide reasonable
assurance, on a cost effective basis, as to the integrity,
objectivity and reliability of the financial records and protection
of assets. This system includes communication through written
policies and procedures, an organizational structure that provides
for appropriate division of responsibility and the training of
personnel. This system is also tested by a comprehensive internal
audit program. In addition, the Company has a Corporate Policy
Register and a Code of Business Conduct (Code) that supply
employees with a framework describing and defining the Company's
overall approach to business and requires all employees to maintain
the highest level of ethical standards as well as requiring all
management employees to formally affirm their compliance with the
Code.
The financial statements have been audited by Price Waterhouse
LLP, the Company's independent accountants, in accordance with
generally accepted auditing standards. In planning and performing
its audit, Price Waterhouse considered the Company's internal
control structure in order to determine auditing procedures for the
purpose of expressing an opinion on the financial statements, and
not to provide assurance on the internal control structure. The
independent accountants' audit does not limit in any way
management's responsibility for the fair presentation of the
financial statements and all other information, whether audited or
unaudited, in this Annual Report. The Audit Committee of the Board
of Directors, consisting of six outside directors who are not
employees, meets regularly with management, internal auditors and
Price Waterhouse to review and discuss internal accounting
controls, audit examinations and financial reporting matters.
Price Waterhouse and the Company's internal auditors have free
access to meet individually with the Audit Committee at any time,
without management being present.
/s/ William E. Davis
William E. Davis
Chairman of the Board and
Chief Executive Officer
Niagara Mohawk Power Corporation
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
Niagara Mohawk Power Corporation
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income and retained earnings
and of cash flows present fairly, in all material respects, the
financial position of Niagara Mohawk Power Corporation and its
subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Note 2, the Company believes that it continues to
meet the requirements for application of Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation (SFAS No. 71) for its nuclear generation,
electric transmission and distribution and gas businesses. In the
event that the Company is unable to complete the termination or
restructuring of unregulated generator contracts and implement
PowerChoice, this conclusion could change in 1997 and beyond,
resulting in material adverse effects on the Company's financial
condition and results of operations.
As discussed in Note 2, the Company discontinued application of
SFAS No. 71 for its non-nuclear generation business in 1996.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Syracuse, New York March 13, 1997
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
In thousands of dollars
For the year ended
December 31, 1996 1995 1994
- ----------------------------------------------------------------
Operating revenues:
Electric $3,308,979 $3,335,548 $3,528,987
Gas 681,674 581,790 623,191
- ----------------------------------------------------------------
3,990,653 3,917,338 4,152,178
- ----------------------------------------------------------------
Operating expenses:
Fuel for electric
generation 181,486 165,929 219,849
Electricity purchased 1,182,892 1,137,937 1,107,133
Gas purchased 370,040 276,232 315,714
Other operation and
maintenance expenses 928,224 817,897 957,377
Employee reduction program - - 196,625
Depreciation and
amortization (Note 1) 329,827 317,831 308,351
Federal and foreign income
taxes (Note 7) 105,583 156,008 117,834
Other taxes 475,846 517,478 496,922
- ----------------------------------------------------------------
3,573,898 3,389,312 3,719,805
- ----------------------------------------------------------------
Operating income 416,755 528,026 432,373
- ----------------------------------------------------------------
Other income and deductions:
Allowance for other funds
used during construction
(Note 1) 3,665 1,063 2,159
Federal and foreign income
taxes (Note 7) 3,089 (3,385) 6,365
Other items (net) 32,278 2,006 15,045
- ----------------------------------------------------------------
39,032 (316) 23,569
- ----------------------------------------------------------------
Income before interest
charges 455,787 527,710 455,942
- ----------------------------------------------------------------
Interest charges:
Interest on long-term debt 272,706 267,019 264,891
Other interest 9,017 20,642 20,987
Allowance for borrowed funds
used during construction (3,690) (7,987) (6,920)
- ----------------------------------------------------------------
278,033 279,674 278,958
- ----------------------------------------------------------------
Income before
extraordinary item 177,754 248,036 176,984
Extraordinary item for the
discontinuance of regulatory
accounting principles, net
of income taxes of $36,273
(Note 2) (67,364) - -
- ----------------------------------------------------------------
Net Income 110,390 248,036 176,984
Dividends on preferred stock 38,281 39,596 33,673
- ----------------------------------------------------------------
Balance available for
common stock 72,109 208,440 143,311
Dividends on common stock - 161,650 156,060
- ----------------------------------------------------------------
72,109 46,790 (12,749)
Retained earnings at
beginning of year 585,373 538,583 551,332
- ----------------------------------------------------------------
Retained earnings at
end of year $ 657,482 $ 585,373 $ 538,583
================================================================
Average number of shares
of common stock outstanding
(in thousands) 144,350 144,329 143,261
Balance available per
average share of common stock
before extraordinary item $0.97 $1.44 $1.00
Extraordinary item ($0.47) $ - $ -
- ----------------------------------------------------------------
Balance available per
average share of common
stock $0.50 $1.44 $1.00
Dividends paid per share - $1.12 $1.09
- ----------------------------------------------------------------
() Denotes deduction
The accompanying notes are an integral part of these financial
statements.
/TABLE
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
At December 31, 1996 1995
- ---------------------------------------------------------
ASSETS
Utility plant (Note 1):
Electric plant $ 8,611,419 $ 8,543,429
Nuclear fuel 573,041 517,681
Gas plant 1,082,298 1,017,062
Common plant 292,591 281,525
Construction work in progress 279,992 289,604
- ---------------------------------------------------------
Total utility plant 10,839,341 10,649,301
Less: Accumulated
depreciation and
amortization 3,881,726 3,641,448
- ---------------------------------------------------------
Net utility plant 6,957,615 7,007,853
- ---------------------------------------------------------
Other property and
investments 257,145 218,417
- ---------------------------------------------------------
Current assets:
Cash, including temporary
cash investments of $223,829
and $114,415, respectively 325,398 153,475
Accounts receivable (less
allowance for doubtful accounts
of $52,100 and $20,000,
respectively) (Notes 1 and 9) 373,305 494,503
Materials and supplies, at
average cost:
Coal and oil for production
of electricity 20,788 27,509
Gas storage 43,431 26,431
Other 120,914 141,820
Prepaid taxes 11,976 17,239
Other 25,329 22,773
- ---------------------------------------------------------
921,141 883,750
- ---------------------------------------------------------
Regulatory assets (Note 2):
Regulatory tax asset 390,994 470,198
Deferred finance charges 239,880 239,880
Deferred environmental
restoration costs (Note 9) 225,000 225,000
Unamortized debt expense 65,993 92,548
Postretirement benefits other
than pensions 60,482 68,933
Other 206,352 204,253
- ---------------------------------------------------------
1,188,701 1,300,812
- ---------------------------------------------------------
Other assets 77,428 67,037
- ---------------------------------------------------------
$9,402,030 $9,477,869
=========================================================
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
At December 31, 1996 1995
- ---------------------------------------------------------
CAPITALIZATION AND LIABILITIES
Capitalization (Note 5):
Common stockholders' equity:
Common stock, issued
144,365,214 and 144,332,123
shares, respectively $ 144,365 $ 144,332
Capital stock premium
and expense 1,783,725 1,784,247
Retained earnings 657,482 585,373
- ---------------------------------------------------------
2,585,572 2,513,952
Non-redeemable preferred stock 440,000 440,000
Mandatorily redeemable
preferred stock 86,730 96,850
Long-term debt 3,477,879 3,582,414
- ---------------------------------------------------------
Total capitalization 6,590,181 6,633,216
- ---------------------------------------------------------
Current liabilities:
Long-term debt due within
one year (Note 5) 48,084 65,064
Sinking fund requirements on
redeemable preferred stock
(Note 5) 8,870 9,150
Accounts payable 271,830 268,603
Payable on outstanding bank
checks 32,008 36,371
Customers' deposits 15,505 14,376
Accrued taxes 4,216 14,770
Accrued interest 63,252 64,448
Accrued vacation pay 36,436 35,214
Other 52,455 57,748
- ---------------------------------------------------------
532,656 565,744
- ---------------------------------------------------------
Regulatory liabilities (Note 2):
Deferred finance charges 239,880 239,880
Other - 732
- ---------------------------------------------------------
239,880 240,612
- ---------------------------------------------------------
Other liabilities:
Accumulated deferred income
taxes (Notes 1 and 7) 1,331,913 1,388,799
Employee pension and other
benefits (Note 8) 238,688 245,047
Deferred pension settlement
gain 19,269 32,756
Unbilled revenues (Note 1) 49,881 28,410
Other 174,562 118,285
- ---------------------------------------------------------
1,814,313 1,813,297
- ---------------------------------------------------------
Commitments and contingencies (Notes 2 and 9):
Liability for environmental
restoration 225,000 225,000
- ---------------------------------------------------------
$9,402,030 $9,477,869
=========================================================
The accompanying notes are an integral part of these financial
statements.
/TABLE
(CAPTION>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
In thousands of dollars
For the year ended December 31, 1996 1995 1994
- -----------------------------------------------------------------
Cash flows from operating activities:
Net income $ 110,390 $ 248,036 $ 176,984
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Extraordinary item for the
discontinuance of regulatory
accounting principles, net
of income taxes 67,364 - -
Depreciation and amortization 329,827 317,831 308,351
Amortization of nuclear fuel 38,077 34,295 37,887
Provision for deferred income
taxes (6,870) 114,917 7,866
Electric margin recoverable - 58,588 (45,428)
Employee reduction program - - 196,625
Gain on sale of subsidiary (15,025) (11,257) -
Unbilled revenues 21,471 (71,258) -
Sale of accounts receivable - 50,000 -
(Increase) decrease in net
accounts receivable 121,198 6,748 (59,145)
Decrease in materials
and supplies 2,265 13,663 6,290
Increase (decrease) in accounts
payable and accrued expenses 8,224 (47,048) (5,991)
Decrease in accrued interest
and taxes (11,750) (35,440) (19,914)
Changes in other assets and
liabilities 35,231 20,930 (6,304)
- -----------------------------------------------------------------
Net cash provided by
operating activities 700,402 700,005 597,221
- -----------------------------------------------------------------
Cash flows from investing activities:
Construction additions (296,689) (332,443) (439,289)
Nuclear fuel (55,360) (13,361) (46,134)
Less: Allowance for other
funds used during construction 3,665 1,063 2,159
- -----------------------------------------------------------------
Acquisition of utility plant (348,384) (344,741) (483,264)
Decrease in materials and
supplies related to con-
struction 8,362 3,346 5,143
Increase (decrease) in accounts
payable and accrued expenses
related to construction 2,056 (7,112) (1,498)
(Increase) decrease in other
investments 541 (115,818) (23,375)
Proceeds from sale of sub-
sidiary (net of cash sold) 14,600 161,087 -
Other (8,786) 26,234 (17,979)
- -----------------------------------------------------------------
Net cash used in investing
activities (331,611) (277,004) (520,973)
- -----------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of common
stock - 283 29,514
Proceeds from long-term debt 105,000 346,000 424,705
Issuance of preferred stock - - 150,000
Redemption of preferred stock (10,400) (10,950) (33,450)
Reductions of long-term debt (244,341) (73,415) (526,584)
Net change in short-term debt - (416,750) 48,734
Dividends paid (38,281) (201,246) (189,733)
Other (8,846) (7,778) (9,455)
- -----------------------------------------------------------------
Net cash used in financing
activities (196,868) (363,856) (106,269)
- -----------------------------------------------------------------
Net increase (decrease) in cash 171,923 59,145 (30,021)
Cash at beginning of year 153,475 94,330 124,351
- -----------------------------------------------------------------
Cash at end of year $ 325,398 $ 153,475 $ 94,330
=================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 286,497 $ 290,352 $ 300,242
Income taxes $ 95,632 $ 47,378 $ 136,876
The accompanying notes are an integral part of these financial
statements.
/TABLE
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is subject to regulation by the PSC and FERC with
respect to its rates for service under a methodology which
establishes prices based on the Company's cost. The Company's
accounting policies conform to GAAP, as applied to regulated public
utilities, and are in accordance with the accounting requirements
and ratemaking practices of the regulatory authorities (see Note
2). In order to be in conformity with GAAP, management is required
to use estimates in the preparation of the Company's financial
statements.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the Company and its wholly-owned subsidiaries.
Intercompany balances and transactions have been eliminated.
UTILITY PLANT: The cost of additions to utility plant and
replacements of retirement units of property are capitalized. Cost
includes direct material, labor, overhead and AFC. Replacement of
minor items of utility plant and the cost of current repairs and
maintenance is charged to expense. Whenever utility plant is
retired, its original cost, together with the cost of removal, less
salvage, is charged to accumulated depreciation.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: The Company
capitalizes AFC in amounts equivalent to the cost of funds devoted
to plant under construction. AFC rates are determined in
accordance with FERC and PSC regulations. The AFC rate in effect
at December 31, 1996 was 9.28%. AFC is segregated into its two
components, borrowed funds and other funds, and is reflected in the
"Interest charges" and the "Other income and deductions" sections,
respectively, of the Consolidated Statements of Income.
DEPRECIATION, AMORTIZATION AND NUCLEAR GENERATING PLANT
DECOMMISSIONING COSTS: For accounting and regulatory purposes,
depreciation is computed on the straight-line basis using the
license lives for nuclear and hydro classes of depreciable property
and the average service lives for all other classes. The
percentage relationship between the total provision for
depreciation and average depreciable property was approximately 3%
for the years 1994 through 1996. The Company performs depreciation
studies to determine service lives of classes of property and
adjusts the depreciation rates when necessary.
Estimated decommissioning costs (costs to remove a nuclear
plant from service in the future) for the Company's Unit 1 and its
share of Unit 2 are being accrued over the service lives of the
units, recovered in rates through an annual allowance and currently
charged to operations through depreciation. The Company expects to
commence decommissioning of both units shortly after cessation of
operations at Unit 2 (currently planned for 2026), using a method
which removes or decontaminates Unit components promptly at that
time. See Note 3 - "Nuclear Plant Decommissioning."
The FASB issued an exposure draft in February 1996 entitled
"Accounting for Certain Liabilities Related to Closure or Removal
of Long-Lived Assets." The scope of the original project was
broadened and would include the Company's fossil and hydro plants,
as well as nuclear plants. If approved as drafted, a liability
will have to be recognized for these assets whenever a legal or
constructive obligation exists to perform dismantlement or removal
activities. The recognition of the liability would result in an
increase to the cost of the related asset and would be reported
based upon discounted future cash flows. Additionally, the
exposure draft would allow the Company to establish a regulatory
asset for the difference between costs of closure and removal
obligations recognized and the costs allowable for rate-making
purposes, subject to the provisions of SFAS No. 71. As noted
above, the Company currently recognizes the liability for nuclear
decommissioning over the service life of the plant as an increase
to accumulated depreciation based on amounts allowed in rates. The
Company does not reflect the closure and removal obligation
associated with its fossil and hydro plants in the financial
statements. As such, the annual provisions for depreciation could
increase. Under traditional cost based regulation such accounting
changes would not have an adverse effect on the results of
operations of the Company. However, based on the discontinuation
of SFAS No. 71 for the fossil and hydro generating assets
associated with this obligation and the issuance of SFAS No. 121
(discussed in Note 2), the Company cannot currently predict the
impact this exposure draft may have on the Company's future results
of operations, particularly the effect it may have on the fossil
and hydro plants. However, adoption of the proposed standard is
not expected to impact the cash flow from these assets. The FASB
had originally indicated it expected to issue a final standard to
be effective for the first quarter of 1998. However, since the
expanded scope has been subject to great debate, by the FASB and
others, it has been indicated by the FASB the next step for this
project may be to issue either a final statement or a revised
exposure draft. Therefore, the Company cannot predict when it will
be required to implement the requirements of this exposure draft.
Amortization of the cost of nuclear fuel is determined on the
basis of the quantity of heat produced for the generation of
electric energy. The cost of disposal of nuclear fuel, which
presently is $.001 per Kwh of net generation available for sale, is
based upon a contract with the DOE. These costs are charged to
operating expense and recovered from customers through base rates
or through the fuel adjustment clause.
REVENUES: Revenues are based on cycle billings rendered to
certain customers monthly and others bi-monthly for energy consumed
and not billed at the end of the fiscal year. At December 31, 1996
and 1995, approximately $11.1 million and $5.2 million,
respectively, of unbilled electric revenues remained unrecognized
in results of operations, are included in "Other liabilities" and
may be used to reduce future revenue requirements. In 1995, the
Company used $71.5 million of electric unbilled revenues to reduce
the 1995 revenue requirement. At December 31, 1996 and 1995, $38.8
million and $23.2 million, respectively, of unbilled gas revenues
remain unrecognized in results of operations and may similarly be
used to reduce future gas revenue requirements. The unbilled
revenues included in accounts receivable at December 31, 1996 and
1995, were $218.5 million and $202.7 million, respectively.
The Company's tariffs include electric and gas adjustment
clauses under which energy and purchased gas costs, respectively,
above or below the levels allowed in approved rate schedules, are
billed or credited to customers. The Company, as authorized by the
PSC, charges operations for energy and purchased gas cost increases
in the period of recovery. The PSC has periodically authorized the
Company to make changes in the level of allowed energy and
purchased gas costs included in approved rate schedules. As a
result of such periodic changes, a portion of energy costs deferred
at the time of change would not be recovered or may be
overrecovered under the normal operation of the electric and gas
adjustment clauses. However, the Company has to date been
permitted to defer and bill or credit such portions to customers,
through the electric and gas adjustment clauses, over a specified
period of time from the effective date of each change.
The Company's electric FAC provides for partial pass-through
of fuel and purchased power cost fluctuations from amounts
forecast, with the Company absorbing a portion of increases or
retaining a portion of decreases up to a maximum of $15 million per
rate year. Thereafter, 100% of the fluctuation is passed on to
ratepayers. The Company also shares with ratepayers fluctuations
from amounts forecast for net resale margin and transmission
benefits, with the Company retaining/absorbing 40% and passing 60%
through to ratepayers. The amounts retained or absorbed in 1994
through 1996 were not material.
However, in December 1996, the Company and the PSC staff
reached a three year settlement agreement that was conditionally
approved by the PSC. Such an agreement eliminated the gas
adjustment clause and established a gas commodity cost adjustment
clause (CCAC). The Company's gas CCAC provides for the collection
of certain increases or decreases from the base commodity cost of
gas. To determine the amount to be recovered from or passed on to
customers, a performance target was established against which to
measure gas purchases, known as the commodity cost index. The
performance target was set at 97% of the typical market price. If
actual gas purchases fall between 96% - 98% of the typical market
price, then ratepayers will receive all benefits or bear the
burdens of costs within this range. If actual gas purchases fall
below 96% or are above 98% of the typical market price, then
ratepayers and shareholders will share on an equal basis any
differences between actual and targeted performance, subject to the
limitation that the maximum annual risk or benefit to the Company
is $2.25 million. All savings and excess costs beyond that amount
will flow to ratepayers. For a discussion of the ratemaking
associated with non-commodity gas costs, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Other Federal and State Regulatory Initiatives -
"Multi-Year Gas Rate Settlement Agreement."
The Company's PowerChoice proposal, which the Company filed in
October 1995 as part of its multi-year electric rate proceeding,
proposed to eliminate all surcharges, including the FAC and
remaining NERAM and MERIT surcharges.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: The allowance for doubtful
accounts receivable on the consolidated balance sheets amounted to
$52.1 million and $20.0 million at December 31, 1996 and 1995,
respectively. The net increase in the allowance for doubtful
accounts reflects the implementation of the risk assessment
methodology that puts more emphasis on past due balances.
Previously, the Company's allowance for doubtful accounts followed
regulatory practice and consequently focused on final billed
accounts only (typically accounts that are no longer active).
FEDERAL INCOME TAXES: As directed by the PSC, the Company
defers any amounts payable pursuant to the alternative minimum tax
rules. Deferred investment tax credits are amortized to "Other
income and deductions" over the useful life of the underlying
property.
STATEMENT OF CASH FLOWS: The Company considers all highly
liquid investments, purchased with a remaining maturity of three
months or less, to be cash equivalents.
RECLASSIFICATIONS: Certain amounts from prior years have been
reclassified on the accompanying Consolidated Financial Statements
to conform with the 1996 presentation.
NOTE 2. RATE AND REGULATORY ISSUES AND CONTINGENCIES
The Company's financial statements conform to GAAP, as applied
to regulated public utilities and reflect the application of SFAS
No. 71, with the exception of the Company's non-nuclear generation
business. Substantively, SFAS No. 71 permits a public utility
regulated on a cost-of-service basis to defer certain costs when
authorized to do so by the regulator which would otherwise be
charged to expense. These deferred costs are known as regulatory
assets, which in the case of the Company are approximately $949
million, net of approximately $240 million of regulatory
liabilities at December 31, 1996. These regulatory assets are
probable of recovery. The portion of the $949 million which has
been allocated to the nuclear generation and electric transmission
and distribution business is approximately $774 million, which are
net of approximately $240 million of regulatory liabilities.
Regulatory assets allocated to the rate-regulated gas distribution
business are $175 million. Generally, regulatory assets and
liabilities were allocated to the portion of the business that
incurred the underlying transaction that resulted in the
recognition of the regulatory asset or liability. The allocation
methods used between electric and gas are consistent with those
used in prior regulatory proceedings.
The Company has concluded that the termination or
restructuring of IPP contracts and implementation of PowerChoice,
or a similar proposal, is the probable outcome of negotiations that
have taken place over the past 18 months. Under PowerChoice, the
separated non-nuclear generation business will no longer be rate-
regulated on a cost-of-service basis and, accordingly, existing
regulatory assets related to the non-nuclear power generation
business, amounting to approximately $103.6 million ($67.4 million
after tax or 47 cents per share) at December 31, 1996, have been
charged against income as an extraordinary non-cash charge.
Of the remaining electric business, under PowerChoice, the
Company expects that its nuclear generation and electric
transmission and distribution business continue to be rate-
regulated on a cost-of-service basis and, accordingly, the Company
will continue to apply SFAS No. 71 to these businesses.
PowerChoice and the termination or restructuring costs of IPP
contracts will result in rates that reflect reduced or stable costs
that the Company believes meet the Governor's stated economic
objectives as to energy prices in New York State as well as the
PSC's objectives (see Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - "PSC Competitive
Opportunities Proceeding - Electric"). Therefore, the Company
expects the PSC will continue to apply the concept of cost-of-
service based rates to the nuclear generation and transmission and
distribution business. The Company expects that these cost-of-
service based rates can be charged to and collected from customers
without unanticipated reduction in demand. The Company proposes,
and believes it is probable that the PSC will approve, deferral and
recovery of the termination or restructuring costs of IPP contracts
over a period not to exceed ten years. To the extent that recovery
of the termination or restructuring cost is not approved by the
PSC, that amount would be charged to expense, which could have a
material adverse effect on the financial condition and results of
operations of the Company. Furthermore, the Company does not
expect the PSC to provide a return on the regulatory asset
associated with IPP termination or restructuring costs. SFAS No.
71 does not require the Company to earn a return on regulatory
assets in assessing its applicability. The Company believes that
the prices it will charge for electric service, including a non-
bypassable transition charge, over the ten-year period will be
sufficient to recover the regulatory asset for the termination or
restructuring costs of IPP contracts and provide recovery of and a
return on the remainder of its regulated assets, as appropriate.
The Company expects that the reported amounts of future net income
will be adversely affected by a lack of a return on the regulatory
asset and expected lower returns of the unregulated non-nuclear
generating business.
The Company has been made aware of a recent request by the SEC
Chief Accountant to the Public Utilities Committee of the American
Institute of Certified Public Accountants to develop guidance on
applying SFAS No. 101. It is the Company's understanding that the
guidance may include when to discontinue SFAS No. 71, as well as
the accounting applicable to recovering strandable costs on the
transmission and distribution business that originate from
generation assets. The Company cannot predict whether and when
such guidance will be issued or the attendant consequences on the
Company's financial condition or results of operations.
The Company adopted SFAS No. 121 in 1996. This Statement
requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing
the review for recoverability, the Company is required to estimate
future undiscounted cash flows expected to result from the use of
the asset and its eventual disposition.
With the probable implementation of PowerChoice, specifically
the separation of non-nuclear generation as an entity that will
face market prices, the Company is required to assess the carrying
amounts of its long-lived assets in accordance with SFAS No. 121.
The Company has determined that there is no impairment of its non-
nuclear generating assets. In certain instances, the Company has
considered opportunities to invest in changes in fuel sources that
are technologically available, to improve cash flow. In one
instance, the Company has considered the value of relocating a unit
to a region where demand is greater. To the extent an impairment
loss cannot be otherwise avoided, the Company believes it will be
able to recover the loss through a non-bypassable transition fee
proposed in PowerChoice. In reaching conclusions as to impairment
of non-nuclear generating assets, the Company must make significant
estimates and judgments as to the future price of electricity,
capacity factors and cost of operation of each of its generating
units and, where necessary, the fair market value of each unit. As
PowerChoice is implemented and generation markets become open to
competition, these estimates and judgments may change. An update
of the SFAS No. 121 assessment must be prepared when conditions
occur which in the opinion of management may have impaired the
value of these assets.
As described in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - "Announced
Agreement-in-Principle to Terminate or Restructure 44 IPP
Contracts," the conclusion of the termination or restructuring of
IPP contracts, as well as implementation of PowerChoice, is subject
to a number of contingencies. In the event the Company is unable
to successfully bring these events to conclusion, it would pursue
a traditional rate request. However, notwithstanding such a rate
request, it is likely that application of SFAS No. 71 would be
discontinued. The resulting after-tax charges against income,
based on regulatory assets associated with the nuclear generation
and transmission and distribution businesses as of December 31,
1996, would be approximately $503.2 million or $3.48 per share.
Various requirements under applicable law and regulations and under
corporate instruments, including those with respect to issuance of
debt and equity securities, payment of common and preferred
dividends, the continued availability of the Company's senior debt
facility and certain types of transfers of assets could be
adversely impacted by any such write-downs.
The Company has recorded the following regulatory assets on
its Consolidated Balance Sheets reflecting the rate actions of its
regulators:
REGULATORY TAX ASSET represents the expected future recovery
from ratepayers of the tax consequences of temporary differences
between the recorded book bases and the tax bases of assets and
liabilities. This amount is primarily timing differences related
to depreciation. These amounts are amortized and recovered as the
related temporary differences reverse. In January 1993, the PSC
issued a Statement of Interim Policy on Accounting and Ratemaking
Procedures that required adoption of SFAS No. 109 on a revenue-
neutral basis.
DEFERRED FINANCE CHARGES represent the deferral of the
discontinued portion of AFC related to CWIP at Unit 2 which was
included in rate base. In 1985, pursuant to PSC authorization, the
Company discontinued accruing AFC on CWIP for which a cash return
was being allowed. This amount, which was accumulated in deferred
debit and credit accounts up to the commercial operation date of
Unit 2, awaits future disposition by the PSC. A portion of the
deferred credit could be utilized to reduce future revenue
requirements over a period shorter than the life of Unit 2, with a
like amount of deferred debit amortized and recovered in rates over
the remaining life of Unit 2.
DEFERRED ENVIRONMENTAL RESTORATION COSTS represent the
Company's share of the estimated minimum costs to investigate and
perform certain remediation activities at both Company-owned sites
and non-owned sites with which it may be associated. The Company
has recorded a regulatory asset representing the remediation
obligations to be recovered from ratepayers. See Note 9 -
"Environmental Contingencies."
UNAMORTIZED DEBT EXPENSE represents the costs to issue and
redeem certain long-term debt securities which were retired prior
to maturity. These amounts are amortized as interest expense
ratably over the lives of the related issues in accordance with PSC
directives.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS represent the
excess of such costs recognized in accordance with SFAS No. 106
over the amount received in rates. In accordance with the PSC
policy statement, postretirement benefit costs other than pensions
are being phased-in to rates over a five-year period and amounts
deferred will be amortized and recovered over a period not to
exceed 20 years.
Substantially all of the Company's regulatory assets described
above are being amortized to expense and recovered in rates over
periods approved in the Company's 1995 or 1996 electric and gas
rate cases, respectively.
NOTE 3. NUCLEAR OPERATIONS
The Company is the owner and operator of the 613 MW Unit 1 and
the operator and a 41% co-owner of the 1,143 MW Unit 2. The
remaining ownership interests are Long Island Lighting Company
(LILCO) - 18%, New York State Electric and Gas Corporation (NYSEG)
- - 18%, Rochester Gas and Electric Corporation (RG&E) - 14%, and
Central Hudson Gas and Electric Corporation (Central Hudson) - 9%.
Unit 1 was placed in commercial operation in 1969 and Unit 2 in
1988.
UNIT 1 STATUS: In 1995, Unit 1 was taken out of service for
a 56 day planned refueling and maintenance outage. Using the net
design electric rating as a basis, Unit 1's capacity factor for
1996 was approximately 86.8%. Using NRC guidelines, which reflect
net maximum dependable capacity during the most restrictive
seasonal conditions, Unit 1's capacity factor was approximately
94.2%.
On March 3, 1997, Unit 1 was taken out of service for a 35 day
planned refueling and maintenance outage. Owners of older General
Electric Company boiling water reactors, including the Company,
have experienced cracking near welds in the plants' core shrouds.
In response to industry findings, the Company installed
modifications in the Unit 1 core shroud during a 1995 refueling and
maintenance outage.
Inspections conducted as part of the March 1997 refueling and
maintenance outage detected cracking in areas not directly
reinforced by the 1995 repairs, which may require additional core
shroud modifications. Preliminary analysis indicates the Company
may be able to restart the reactor from the current refueling and
maintenance outage without a significant extension of the outage
duration. Additional modifications, if required, would be
installed during a mid-cycle outage or as part of Unit 1's next
refueling and maintenance outage (February, 1999). If
modifications are required before the restart of Unit 1 from the
current refueling and maintenance outage, a 2-3 month extension of
the outage would be anticipated. The Company's action plan on this
issue requires consent from the NRC.
UNIT 2 STATUS: In 1995, Unit 2 was taken out of service for
a 56 day planned refueling and maintenance outage. On September
28, 1996, Unit 2 was taken out of service for a planned refueling
and maintenance outage and returned to service on November 2, 1996.
Its next refueling and maintenance outage is scheduled for Spring
1998. Using the net design electric rating as a basis, Unit 2's
capacity factor for 1996 was approximately 86.6%. Using NRC
guidelines as described above, Unit 2's capacity factor was
approximately 89.6%.
NUCLEAR PLANT DECOMMISSIONING: The Company's site specific
cost estimates for decommissioning Unit 1 and its ownership
interest in Unit 2 at December 31, 1996 are as follows:
Unit 1 Unit 2
------ ------
Site Study (year) 1995 1995
End of Plant Life (year) 2009 2026
Radioactive Dismantlement
to Begin (year) 2026 2028
Method of Decommissioning Delayed Immediate
Dismantlement Dismantlement
Cost of Decommissioning (in
January 1997 dollars) In millions of dollars
Radioactive Components $474 $194
Non-radioactive Components 117 46
Fuel Dry Storage/Continuing Care 101 41
---- ----
$692 $281
==== ====
The Company estimates that by the time decommissioning is
completed, the above costs will ultimately amount to $1.8 billion
and $.9 billion for Unit 1 and Unit 2, respectively, using
approximately 3.5% as an annual inflation factor.
In addition to the costs mentioned above, the Company expects
to incur post-shutdown costs for plant rampdown, insurance and
property taxes. In 1997 dollars, these costs are expected to
amount to $110 million and $61 million for Unit 1 and the Company's
share of Unit 2, respectively. The amounts will escalate to $192
million and $190 million for Unit 1 and the Company's share of Unit
2, respectively.
NRC regulations require owners of nuclear power plants to
place funds into an external trust to provide for the cost of
decommissioning radioactive portions of nuclear facilities and
establish minimum amounts that must be available in such a trust at
the time of decommissioning. The annual allowance for Unit 1 and
the Company's share of Unit 2 for the years ended December 31,
1996, 1995 and 1994 was approximately $23.7 million, $23.7 million
and $18.7 million, respectively. The amounts for 1996 and 1995
were based upon the 1993 NRC minimum decommissioning cost
requirements of $422 million and $191 million (in 1997 dollars) for
Unit 1 and the Company's share of Unit 2, respectively. The amounts
for 1994 were based upon site studies performed in 1989. In the
1995 rate order, the Company was authorized, until the PSC orders
otherwise, to continue to fund to the NRC minimum requirements. In
the 1997 rate filing, the Company has requested, for both units,
rate recovery for all radioactive and non-radioactive components
(including post-shutdown costs) based upon the amounts estimated in
the 1995 site specific studies described above. There is no
assurance that the decommissioning allowance recovered in rates
will ultimately aggregate a sufficient amount to decommission the
units. The Company believes that if decommissioning costs are
higher than currently estimated, the costs would ultimately be
included in the rate process under traditional ratemaking or
PowerChoice.
Decommissioning costs recovered in rates are reflected in
"Accumulated depreciation and amortization" on the balance sheet
and amount to $217.7 million and $183.4 million at December 31,
1996 and 1995, respectively for both Units. Additionally at
December 31, 1996, the fair value of funds accumulated in the
Company's external trusts were $136.5 million for Unit 1 and $38.7
million for its share of Unit 2. The trusts are included in "Other
property and investments." Earnings on the external trust
aggregated $28.8 million through December 31, 1996 and, because the
earnings are available to fund decommissioning, have also been
included in "Accumulated depreciation and amortization." Amounts
recovered for non-radioactive dismantlement are accumulated in an
internal reserve fund which has an accumulated balance of $42.5
million at December 31, 1996.
The FASB issued an exposure draft in February 1996 on
accounting for closure and removal of long-lived assets. See Note
1 - "Depreciation, Amortization and Nuclear Generating Plant
Decommissioning Costs."
NRC DRAFT POLICY STATEMENT: In September 1996, the NRC issued
a draft policy statement on the Restructuring and Economic
Deregulation of the Electric Utility Industry (Draft Policy
Statement). The Draft Policy Statement addresses NRC's concerns
about the adequacy of decommissioning funds and about the potential
impact on operational safety. Current NRC regulations allow a
utility to set aside decommissioning funds annually over the
estimated life of a plant.
The policy statement declares the NRC will:
* Continue to conduct reviews of financial qualifications,
decommissioning funding and antitrust requirements of
nuclear power plants;
* Establish and maintain working relationships with state and
federal rate-regulators;
* Evaluate the relative responsibilities of power plant co-
owners and co-licensees; and
* Re-evaluate the adequacy of current regulations in light
of economic and other changes resulting from rate
deregulation.
In addition, the Draft Policy Statement stresses that no
license may be transferred without prior written approvals from the
NRC. Prior written approvals are also required for mergers,
formation of holding companies or the sale of facilities, including
a partial sale.
The Company participated in comments filed by the Utility
Decommissioning Group in December 1996 in response to the Draft
Policy Statement. As noted therein, the Company agrees with the
NRC's views that the existing regulatory framework provides
reasonable assurance of the financial qualifications of both
electric utility and non-electric utility applicants and licensees.
However, the Company does not agree with the suggestion in the
Draft Policy Statement that a licensee who fails to meet the
current definition of "electric utility," which might occur as a
result of rate deregulation, must satisfy the more stringent
decommissioning funding assurance requirements applicable to non-
electric utilities. These requirements prohibit a non-electric
utility licensee from funding decommissioning on a "pay-as-you-go"
basis using an external trust. In this regard, the Company
encouraged the NRC to consider whether the definition of "electric
utility" continues to be the appropriate test of whether a licensee
should be exempt from up-front decommissioning or instead, a test
that takes into consideration all relevant factors of the licensee.
In addition, the Company stated its concern that the Draft
Policy Statement suggested that power reactor licensees are "joint
owners," which implies that the NRC may seek to impose joint and
several liability on co-owners for decommissioning funding
obligations. The Company stressed that co-owners of nuclear power
plants are not joint owners, and as such are not jointly and
severally liable. The Company is unable to predict the outcome of
this matter.
NUCLEAR LIABILITY INSURANCE: The Atomic Energy Act of 1954,
as amended, requires the purchase of nuclear liability insurance
from the Nuclear Insurance Pools in amounts as determined by the
NRC. At the present time, the Company maintains the required $200
million of nuclear liability insurance.
In 1993, the statutory limit for the protection of the public
under the Price-Anderson Amendments Act of 1988 were further
increased. With respect to a nuclear incident at a licensed
reactor, the statutory limit, which is in excess of the $200
million of nuclear liability insurance, is currently $8.3 billion
without the 5% surcharge discussed below. This limit would be
funded by assessments of up to $75.5 million for each of the 110
presently licensed nuclear reactors in the United States, payable
at a rate not to exceed $10 million per reactor per year. Such
assessments are subject to periodic inflation indexing and to a 5%
surcharge if funds prove insufficient to pay claims. With the 5%
surcharge included, the statutory limit is $8.7 billion.
The Company's interest in Units 1 and 2 could expose it to a
maximum potential loss, for each accident, of $111.8 million (with
5% assessment) through assessments of $14.1 million per year in the
event of a serious nuclear accident at its own or another licensed
U.S. commercial nuclear reactor. The amendments also provide,
among other things, that insurance and indemnity will cover
precautionary evacuations, whether or not a nuclear incident
actually occurs.
NUCLEAR PROPERTY INSURANCE: The Nine Mile Point Nuclear Site
has $500 million primary nuclear property insurance with the
Nuclear Insurance Pools (ANI/MRP). In addition, there is $2,250
million in excess of the $500 million primary nuclear insurance
with Nuclear Electric Insurance Limited (NEIL). The total nuclear
property insurance is $2.75 billion. NEIL also provides insurance
coverage against the extra expense incurred in purchasing
replacement power during prolonged accidental outages. The
insurance provides coverage for outages for 156 weeks, after a 21-
week waiting period. NEIL insurance is subject to retrospective
premium adjustment under which the Company could be assessed up to
approximately $12.7 million per loss.
LOW LEVEL RADIOACTIVE WASTE: The Company currently uses the
Barnwell, South Carolina waste disposal facility for low level
radioactive waste, however, access to Barnwell was denied by the
State of South Carolina to out of region low level waste
generators, including New York State from July 1, 1994 to July 1,
1995. The Company also has implemented a low level radioactive
waste management program so that Unit 1 and Unit 2 are prepared to
properly handle interim on-site storage of low level radioactive
waste for at least a 10 year period.
Under the Federal Low Level Waste Policy Amendment Act of
1985, New York State was required, by January 1, 1993 to have
arranged for the disposal of all low level radioactive waste within
the state or in the alternative, contracted for the disposal at a
facility outside the state. New York State has made no funding
available currently, to support siting for a disposal facility.
NUCLEAR FUEL DISPOSAL COST: In January 1983, the Nuclear
Waste Policy Act of 1982 (the Nuclear Waste Act) established a cost
of $.001 per Kwh of net generation for current disposal of nuclear
fuel and provides for a determination of the Company's liability to
the DOE for the disposal of nuclear fuel irradiated prior to 1983.
The Nuclear Waste Act also provides three payment options for
liquidating such liability and the Company has elected to delay
payment, with interest, until the year in which the Company
initially plans to ship irradiated fuel to an approved DOE disposal
facility. Progress in developing the DOE facility has been slow
and it is anticipated that the DOE facility will not be ready to
accept deliveries until at least 2010. However, in July 1996, the
United States Circuit Court of Appeals for the District of Columbia
ruled that the DOE must begin accepting used fuel from the nuclear
industry by 1998 even though a permanent storage site will not be
ready by then. The DOE did not appeal this decision. The DOE's
anticipatory breach of this contract will likely involve further
legal proceedings. The Company is unable to determine the outcome
of this matter.
The Company does not anticipate that the DOE will accept all
of its spent fuel immediately upon opening of the facility, but
rather expects a transfer period that will extend to the year 2044.
The Company has several alternatives under consideration to provide
additional storage facilities, as necessary. Each alternative will
likely require NRC approval, may require other regulatory approvals
and would likely require incurring additional costs, which the
Company has included in its decommissioning estimates for both Unit
1 and its share of Unit 2. The Company does not believe that the
possible unavailability of the DOE disposal facility until 2010
will inhibit operation of either Unit.
NOTE 4. JOINTLY-OWNED GENERATING FACILITIES
The following table reflects the Company's share of jointly-
owned generating facilities at December 31, 1996. The Company is
required to provide its respective share of financing for any
additions to the facilities. Power output and related expenses are
shared based on proportionate ownership. The Company's share of
expenses associated with these facilities is included in the
appropriate operating expenses in the Consolidated Statements of
Income.
In thousands of dollars
-----------------------------------------------
Percent Utility Accumulated Construction
Ownership Plant Depreciation Work in Progress
- ------------------------------------------------------------------------------------------
Roseton Steam Station
Units No. 1 and 2 (a) 25 $ 96,458 $ 51,449 $ 540
Oswego Steam Station
Unit No. 6 (b) 76 $ 270,136 $ 116,648 $ 299
Nine Mile Point Nuclear
Station Unit No. 2 (c) 41 $1,508,898 $ 297,922 $ 8,825
- ------------------------------------------------------------------------------------------
(a) The remaining ownership interests are Central Hudson, the operator of the plant (35%),
and Consolidated Edison Company of New York, Inc. (40%). Output of Roseton Units No.
1 and 2, which have a capability of 1,200,000 Kw., is shared in the same proportions as
the cotenants' respective ownership interests.
(b) The Company is the operator. The remaining ownership interest is RG&E (24%). Output
of Oswego Unit No. 6, which has a capability of 850,000 Kw., is shared in the same
proportions as the cotenants' respective ownership interests.
(c) The Company is the operator. The remaining ownership interests are LILCO (18%), NYSEG
(18%), RG&E (14%), and Central Hudson (9%). Output of Unit 2, which has a capability
of 1,143,000 Kw., is shared in the same proportions as the cotenants' respective
ownership interests. On December 30, 1996, LILCO and Brooklyn Union Gas agreed to a
merger that would create a new utility. It would take effect in 12 to 18 months if
endorsed by the stockholders of both companies and by state and federal regulatory
agencies. The new company would retain its 18% ownership interest in Unit 2.
NOTE 5. CAPITALIZATION
- ----------------------
CAPITAL STOCK
The Company is authorized to issue 185,000,000 shares of common stock, $1 par value;
3,400,000 shares of preferred stock, $100 par value; 19,600,000 shares of preferred stock,
$25 par value; and 8,000,000 shares of preference stock, $25 par value. The table below
summarizes changes in the capital stock issued and outstanding and the related capital
accounts for 1994, 1995 and 1996:
COMMON STOCK
$1 PAR VALUE
--------------------------
SHARES AMOUNT*
- --------------------------------------------------------
December 31, 1993: 142,427,057 $142,427
Issued 1,884,409 1,884
Redemptions
Foreign currency
translation adjustment
- --------------------------------------------------------
December 31, 1994: 144,311,466 $144,311
Issued 20,657 21
Redemptions
Foreign currency
translation adjustment
- --------------------------------------------------------
December 31, 1995: 144,332,123 $144,332
Issued 33,091 33
Redemptions
Foreign currency
translation adjustment
- --------------------------------------------------------
December 31, 1996: 144,365,214 $144,365
========================================================
* In thousands of dollars
/TABLE
PREFERRED STOCK
$100 PAR VALUE
---------------------------------------
SHARES NON-REDEEMABLE* REDEEMABLE*
- --------------------------------------------------------------
December 31, 1993: 2,394,000 $210,000 $29,400 (a)
Issued - - -
Redemptions (18,000) - (1,800)
Foreign currency
translation adjustment
- --------------------------------------------------------------
December 31, 1994: 2,376,000 $210,000 $27,600 (a)
Issued - - -
Redemptions (18,000) - (1,800)
Foreign currency
translation adjustment
- --------------------------------------------------------------
December 31, 1995: 2,358,000 $210,000 $25,800 (a)
Issued - - -
Redemptions (18,000) - (1,800)
Foreign currency
translation adjustment
- --------------------------------------------------------------
December 31, 1996: 2,340,000 $210,000 $24,000 (a)
==============================================================
* In thousands of dollars
(a) Includes sinking fund requirements due within one year.
PREFERRED STOCK
$25 PAR VALUE
---------------------------------------
CAPITAL STOCK
PREMIUM AND
EXPENSE
SHARES NON-REDEEMABLE* REDEEMABLE* (NET)*
- ----------------------------------------------------------------------------
December 31, 1993: 8,040,005 $80,000 $121,000 (a) $1,762,706
Issued 6,000,000 150,000 - 27,630
Redemptions (1,266,000) - (31,650) (4,619)
Foreign currency
translation adjustment (6,213)
- ----------------------------------------------------------------------------
December 31, 1994: 12,774,005 $230,000 $89,350 (a) $1,779,504
Issued - - - 283
Redemptions (366,000) - (9,150) 1,319
Foreign currency
translation adjustment 3,141
- ----------------------------------------------------------------------------
December 31, 1995: 12,408,005 $230,000 $80,200 (a) $1,784,247
Issued - - - 214
Redemptions (344,000) - (8,600) (28)
Foreign currency
translation adjustment (708)
- ----------------------------------------------------------------------------
December 31, 1996: 12,064,005 $230,000 $ 71,600 (a) $1,783,725
============================================================================
* In thousands of dollars
(a) Includes sinking fund requirements due within one year.
The cumulative amount of foreign currency translation adjustment at December 31, 1996 was
$(10,880).
NON-REDEEMABLE PREFERRED STOCK (Optionally Redeemable)
The Company has certain issues of preferred stock which provide for optional redemption at
December 31, as follows:
- --------------------------------------------------------------
In thousands Redemption price per
of dollars share (Before adding
Series Shares 1996 1995 accumulated dividends)
- --------------------------------------------------------------
Preferred $100 par value:
3.40% 200,000 $20,000 $20,000 $103.50
3.60% 350,000 35,000 35,000 104.85
3.90% 240,000 24,000 24,000 106.00
4.10% 210,000 21,000 21,000 102.00
4.85% 250,000 25,000 25,000 102.00
5.25% 200,000 20,000 20,000 102.00
6.10% 250,000 25,000 25,000 101.00
7.72% 400,000 40,000 40,000 102.36
Preferred $25 par value:
9.50% 6,000,000 150,000 150,000 25.00 (a)
Adjustable
Rate -
Series A 1,200,000 30,000 30,000 25.00
Series C 2,000,000 50,000 50,000 25.00
- --------------------------------------------------------------
$440,000 $440,000
==============================================================
(a) Not redeemable until 1999.
/TABLE
- ---------------------------------------------------------------------------------
Redemption price per
share (before adding
Shares In thousands of dollars accumulated dividends)
Eventual
Series 1996 1995 1996 1995 1996 minimum
- ---------------------------------------------------------------------------------
Preferred $100 par value:
7.45% 240,000 258,000 $24,000 $25,800 $101.93 $100.00
Preferred $25 par value:
7.85% 914,005 914,005 22,850 22,850 (a) 25.00
8.375% 200,000 300,000 5,000 7,500 25.11 25.00
9.75% - 144,000 - 3,600 25.00 25.00
Adjustable
Rate -
Series B 1,750,000 1,850,000 43,750 46,250 25.00 25.00
- ---------------------------------------------------------------------------------
95,600 106,000
Less sinking fund requirements 8,870 9,150
- ---------------------------------------------------------------------------------
$86,730 $96,850
=================================================================================
(a) Not redeemable until 1997.
LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
- -------------------------------------------------------------
In thousands of dollars
-----------------------
SERIES DUE 1996 1995
- -------------------------------------------------------------
First mortgage bonds:
5 7/8% 1996 $ - $ 45,000
6 1/4% 1997 40,000 40,000
6 1/2% 1998 60,000 60,000
9 1/2% 2000 150,000 150,000
6 7/8% 2001 210,000 210,000
9 1/4% 2001 100,000 100,000
5 7/8% 2002 230,000 230,000
6 7/8% 2003 85,000 85,000
7 3/8% 2003 220,000 220,000
8% 2004 300,000 300,000
6 5/8% 2005 110,000 110,000
9 3/4% 2005 150,000 150,000
7 3/4% 2006 275,000 275,000
*6 5/8% 2013 45,600 45,600
9 1/2% 2021 150,000 150,000
8 3/4% 2022 150,000 150,000
8 1/2% 2023 165,000 165,000
7 7/8% 2024 210,000 210,000
*8 7/8% 2025 75,000 75,000
* 7.2% 2029 115,705 115,705
- -------------------------------------------------------------
Total First Mortgage Bonds 2,841,305 2,886,305
Promissory notes:
*Adjustable Rate Series due
July 1, 2015 100,000 100,000
December 1, 2023 69,800 69,800
December 1, 2025 75,000 75,000
December 1, 2026 50,000 50,000
March 1, 2027 25,760 25,760
July 1, 2027 93,200 93,200
Term Loan Agreement 105,000 -
Unsecured notes payable:
Medium Term Notes, Various rates,
due 1996-2004 20,000 30,000
Revolving Credit Agreement - 170,000
Other 156,606 159,198
Unamortized premium (discount) (10,708) (11,785)
- --------------------------------------------------------------
TOTAL LONG-TERM DEBT 3,525,963 3,647,478
Less long-term debt due
within one year 48,084 65,064
- --------------------------------------------------------------
$3,477,879 $3,582,414
==============================================================
*Tax-exempt pollution control related issues
/TABLE
Several series of First Mortgage Bonds and Notes were issued
to secure a like amount of tax-exempt revenue bonds issued by
NYSERDA. Approximately $414 million of such securities bear
interest at a daily adjustable interest rate (with a Company option
to convert to other rates, including a fixed interest rate which
would require the Company to issue First Mortgage Bonds to secure
the debt) which averaged 3.46% for 1996 and 3.82% for 1995 and are
supported by bank direct pay letters of credit. Pursuant to
agreements between NYSERDA and the Company, proceeds from such
issues were used for the purpose of financing the construction of
certain pollution control facilities at the Company's generating
facilities or to refund outstanding tax-exempt bonds and notes (see
Note 6).
Other long-term debt in 1996 consists of obligations under
capital leases of approximately $33.1 million, a liability to the
DOE for nuclear fuel disposal of approximately $108.6 million and
a liability for IPP contract terminations of approximately $14.9
million. The aggregate maturities of long-term debt for the five
years subsequent to December 31, 1996, excluding capital leases, in
millions, are approximately $45, $64, $108, $158 and $310,
respectively.
NOTE 6. BANK CREDIT ARRANGEMENTS
During March 1996, the Company completed an $804 million
senior debt facility with a bank group for the purposes of
consolidating and refinancing certain of the Company's existing
working capital lines of credit and letter of credit facilities and
providing additional reserves of bank credit. This senior debt
facility will enhance the Company's financial flexibility during
the period 1996 through June 1999. The senior debt facility
consists of a $255 million term loan facility, a $125 million
revolving credit facility and $424 million for letters of credit.
The letter of credit facility provides credit support for the
adjustable rate pollution control revenue bonds issued through the
NYSERDA discussed in Note 5. As of December 31, 1996, the amount
outstanding under the senior debt facility was $542 million,
consisting of $105 million under the term loan facility, a $424
million letter of credit and a $13 million letter of credit under
the revolving credit facility, leaving the Company with $262
million of borrowing capability under the facility. The facility
expires on June 30, 1999 (subject to earlier termination upon the
implementation of the Company's PowerChoice proposal or any other
significant restructuring plan). The interest rate applicable to
the facility is variable based on certain rate options available
under the agreement and currently approximates 7.38% (but capped at
15%).
The Company did not have any short-term debt outstanding at
December 31, 1996 and December 31, 1995. For the year ended
December 31, 1995, the daily average outstanding short-term debt
was $179.5 million, the monthly weighted average interest rate was
6.43% and the maximum amount of short-term debt outstanding was
$459.7 million. Comparable amounts for 1996 were not material.
NOTE 7. FEDERAL AND FOREIGN INCOME TAXES
- -----------------------------------------
See Note 9 - "Tax Assessments."
Components of United States and foreign income before income
taxes:
In thousands of dollars
1996 1995 1994
- --------------------------------------------------------------
United States $269,128 $400,087 $291,501
Foreign 28,522 17,609 15,475
Consolidating eliminations (17,402) (10,267) (18,523)
- --------------------------------------------------------------
Income before extraordinary
item and income taxes $280,248 $407,429 $288,453
==============================================================
Following is a summary of the components of Federal and
foreign income tax and a reconciliation between the amount of
Federal income tax expense reported in the Consolidated Statements
of Income and the computed amount at the statutory tax rate:
SUMMARY ANALYSIS:
In thousands of dollars
1996* 1995 1994
- -------------------------------------------------------------
Components of Federal and foreign income taxes:
Current tax expense:
Federal $103,254 $ 67,563 $117,314
Foreign 3,708 3,900 4,423
- --------------------------------------------------------------
106,962 71,463 121,737
- --------------------------------------------------------------
Deferred tax expense:
Federal (2,071) 82,323 (6,931)
Foreign 692 2,222 3,028
- --------------------------------------------------------------
(1,379) 84,545 (3,903)
- --------------------------------------------------------------
Income taxes included in
Operating Expenses 105,583 156,008 117,834
Current Federal and
foreign income tax
credits included in
Other Income and
Deductions (7,243) (197) (11,507)
Deferred Federal and
foreign income tax
expense included in
Other Income and
Deductions 4,154 3,582 5,142
- --------------------------------------------------------------
Total $102,494 $159,393 $111,469
==============================================================
Reconciliation between Federal and foreign income taxes and the tax
computed at prevailing U.S. statutory rate on income before income
taxes:
Computed tax $ 98,087 $142,601 $100,959
- --------------------------------------------------------------
Increase (reduction) attributable to flow-through of certain tax
adjustments:
Depreciation 28,103 31,033 33,328
Cost of removal (8,849) (9,247) (8,908)
Deferred investment tax
credit amortization (8,018) (8,589) (8,018)
Other (6,829) 3,595 (5,892)
- --------------------------------------------------------------
4,407 16,792 10,510
- --------------------------------------------------------------
Federal and foreign
income taxes $102,494 $159,393 $111,469
==============================================================
* Does not include the deferred tax benefit of $36,273 associated
with the extraordinary item for the discontinuance of regulatory
accounting principles.
At December 31, the deferred tax liabilities (assets) were
comprised of the following:
In thousands of dollars
1996 1995
---- ----
Alternative minimum tax $ (64,313) $ (82,869)
Unbilled revenue (83,577) (77,675)
Other (237,850) (248,275)
---------- ---------
Total deferred tax assets (385,740) (408,819)
---------- ---------
Depreciation related 1,433,907 1,456,949
Investment tax credit related 84,294 91,458
Other 199,452 249,211
---------- ---------
Total deferred tax
liabilities 1,717,653 1,797,618
---------- ---------
Accumulated deferred income
taxes $1,331,913 $1,388,799
========== ==========
NOTE 8. Pension and Other Retirement Plans
The Company and certain of its subsidiaries have non-
contributory, defined-benefit pension plans covering substantially
all their employees. Benefits are based on the employee's years of
service and compensation level. The Company's general policy is to
fund the pension costs accrued with consideration given to the
maximum amount that can be deducted for Federal income tax
purposes.
During 1994, the Company offered an early retirement program
and a voluntary separation program (together the VERP) to reduce
the Company's staffing levels and streamline operations. The VERP,
which included both represented and non-represented employees, was
accepted by approximately 1,400 employees. The program cost the
Company approximately $208 million of which $11.4 million, related
to the gas business, was deferred with recovery anticipated to
occur over a five year period, beginning in 1995.
Net pension cost for 1996, 1995 and 1994 included the
following components:
- ----------------------------------------------------------------
In thousands of dollars
-----------------------
1996 1995 1994
- ----------------------------------------------------------------
Service cost - benefits
earned during the period $ 25,000 $ 22,500 $ 30,400
Interest cost on projected
benefit obligation 71,700 73,000 62,700
Actual return on plan assets (134,100) (215,600) 7,700
Net amortization and deferral 55,700 140,300 (63,600)
- ----------------------------------------------------------------
Net pension cost 18,300 20,200 37,200
VERP costs - - 114,000
Regulatory asset - - (6,200)
- ----------------------------------------------------------------
Total pension cost (1) $ 18,300 $ 20,200 $145,000
================================================================
(1) $3.8 million for 1996, $4.1 million for 1995 and $5.9 million
for 1994 was related to construction labor and, accordingly,
was charged to construction projects.
/TABLE
The following table sets forth the plan's funded status and
amounts recognized in the Company's Consolidated Balance Sheets:
- --------------------------------------------------------------
In thousands of dollars
-----------------------
At December 31, 1996 1995
- --------------------------------------------------------------
Actuarial present value of
accumulated benefit obligations:
Vested benefits $ 803,202 $777,584
Non-vested benefits 83,107 64,383
- --------------------------------------------------------------
Accumulated benefit obligations 886,309 841,967
Additional amounts related to
projected pay increases 141,472 135,115
- --------------------------------------------------------------
Projected benefits obligation for
service rendered to date 1,027,781 977,082
Plan assets at fair value, consisting
primarily of listed stocks, bonds,
other fixed income obligations
and insurance contracts (1,159,822) (1,074,333)
- --------------------------------------------------------------
Plan assets in excess of
projected benefit obligations (132,041) (97,251)
Unrecognized net obligation at
January 1, 1987 being recognized
over approximately 19 years (22,005) (21,500)
Unrecognized net gain from actual
return on plan assets different
from that assumed 219,680 198,035
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions amortized over 10
years 66,129 46,982
Prior service cost not yet recognized
in net periodic pension cost (49,651) (41,291)
- --------------------------------------------------------------
Pension liability included
in the consolidated balance sheets $ 82,112 $ 84,975
==============================================================
Principle Actuarial Assumptions (%):
Discount Rate 7.50 7.50
Rate of increase in future
compensation levels (plus
merit increases) 2.50 2.50
Long-term rate of return on
plan assets 9.25 9.25
===============================================================
In addition to providing pension benefits, the Company and its
subsidiaries provide certain health care and life insurance
benefits for active and retired employees and dependents. Under
current policies, substantially all of the Company's employees may
be eligible for continuation of some of these benefits upon normal
or early retirement.
The Company accounts for the cost of these benefits in
accordance with PSC policy requirements which generally comply with
SFAS No. 106. The Company has established various trusts to fund
its future postretirement benefit obligation. In 1996, 1995 and
1994, the Company made contributions to such trusts of
approximately $28.5 million, $53.1 million and $24 million,
respectively. Contributions made in 1996 and 1994 represented the
amount received in rates, while the amount contributed in 1995
represented the amount received in rates, certain capital portions
of the postretirement benefit obligation and amounts received from
cotenants.
Net postretirement benefit cost for 1996, 1995 and 1994
included the following components:
- -----------------------------------------------------------------
In thousands of dollars
----------------------------
1996 1995 1994
- -----------------------------------------------------------------
Service cost - benefits attributed
to service during the period $12,900 $12,600 $15,000
Interest cost on accumulated
benefit obligation 37,500 45,400 40,200
Actual return on plan assets (12,900) (11,200) (900)
Amortization of the transition
obligation over 20 years 13,500 18,800 20,200
Net amortization 6,000 14,600 8,900
- ----------------------------------------------------------------
Net postretirement benefit cost 57,000 80,200 83,400
VERP costs - - 80,200
Regulatory asset - - (4,300)
- -----------------------------------------------------------------
Total postretirement benefit
cost $57,000 $80,200 $159,300
=================================================================
The following table sets forth the plan's funded status and
amounts recognized in the Company's Consolidated Balance Sheets:
- -----------------------------------------------------------
In thousands of dollars
------------------------
At December 31, 1996 1995
- -----------------------------------------------------------
Actuarial present value of accumulated benefit obligations:
Retired and surviving spouses $370,259 $397,547
Active eligible 31,030 24,374
Active ineligible 69,441 214,367
- -----------------------------------------------------------
Accumulated benefit obligation 470,730 636,288
Plan assets at fair value,
consisting primarily of
listed stocks, bonds and
other fixed obligations (143,071) (101,721)
- -----------------------------------------------------------
Accumulated postretirement
benefit obligation in excess
of plan assets 327,659 534,567
Unrecognized net loss from
past experience different from
that assumed and effects of
changes in assumptions (36,048) (55,899)
Prior service cost not yet
recognized in postretirement
benefit cost 39,205 -
Unrecognized transition obligation
to be amortized over 20 years (174,240) (318,596)
- ----------------------------------------------------------
Accrued postretirement benefit
liability included in the
consolidated balance sheet $156,576 $160,072
==========================================================
==========================================================
Principal actuarial assumptions (%):
Discount rate 7.50 7.50
Long-term rate of return
on plan assets 8.00 9.25
Health care cost trend rate:
Pre-65 8.00 8.25
Post-65 6.50 5.25
==========================================================
During 1996, the Company changed the eligibility requirements
for plan benefits for employees who will retire after May 1, 1996.
Generally, plan benefits are now accrued for eligible participants
beginning after age 45. Previous to this change, the Company
accrued these benefits over the employees service life. The effect
of this change resulted in a decrease in the accumulated benefit
obligation for active ineligible employees, as shown in the table
above.
At December 31, 1996, the assumed health cost trend rates
gradually decline to 5.0% in 2000. If the health care cost trend
rate was increased by one percent, the accumulated postretirement
benefit obligation as of December 31, 1996 would increase by
approximately 8.6% and the aggregate of the service and interest
cost component of net periodic postretirement benefit cost for the
year would increase by approximately 10.3%.
The Company recognizes the obligation to provide
postemployment benefits if the obligation is attributable to
employees' past services, rights to those benefits are vested,
payment is probable and the amount of the benefits can be
reasonably estimated. At December 31, 1996 and 1995, the Company's
postemployment benefit obligation is approximately $13 million and
$12.5 million, respectively, including the portion of the
obligation related to the VERP.
NOTE 9. COMMITMENTS AND CONTINGENCIES
See Note 2 and Note 6.
LONG-TERM CONTRACTS FOR THE PURCHASE OF ELECTRIC POWER: At
January 1, 1997, the Company had long-term contracts to purchase
electric power from the following generating facilities owned by
NYPA:
- -----------------------------------------------------------------
Expiration Purchased Estimated
Date of Capacity Annual
Facility Contract in Kw. Capacity Cost
- -----------------------------------------------------------------
Niagara - hydroelectric
project 2007 936,000 $26,176,000
St. Lawrence - hydroelectric
project 2007 104,000 1,300,000
Blenheim-Gilboa - pumped
storage generating station 2002 270,000 7,500,000
Fitzpatrick - nuclear plant 2014 110,000(a) 4,785,000
- -----------------------------------------------------------------
1,420,000 $39,761,000
=================================================================
(a) 110,000 Kw through May 1997; 26,000 Kw thereafter
The purchase capacities shown above are based on the contracts
currently in effect. The estimated annual capacity costs are
subject to price escalation and are exclusive of applicable energy
charges. The total cost of purchases under these contracts was
approximately, in millions, $93.3, $92.5 and $85.1 for the years
1996, 1995 and 1994, respectively.
Under the requirements of the Federal Public Utility
Regulatory Policies Act of 1978, the Company is required to
purchase power generated by IPPs, as defined therein. The Company
has 157 IPP contracts, of which 148 are on line, amounting to
approximately 2,710 MW of capacity at December 31, 1996. Of this
amount 2,406 MW is considered firm. The following table shows the
payments for fixed and other capacity costs, and energy and related
taxes the Company estimates it will be obligated to make under
these contracts without giving effect to the IPP agreement-in-
principle. The payments are subject to the tested capacity and
availability of the facilities, scheduling and price escalation.
- ---------------------------------------------------------
(In thousands of dollars)
SCHEDULABLE
FIXED COSTS
------------------
YEAR CAPACITY OTHER ENERGY AND TAXES TOTAL
- ---------------------------------------------------------
1997 $223,880 $40,510 $ 873,030 $1,137,420
1998 247,740 41,420 906,590 1,195,750
1999 252,130 42,450 943,720 1,238,300
2000 242,030 44,080 974,080 1,260,190
2001 244,620 45,650 1,042,380 1,332,650
- ---------------------------------------------------------
The capacity and other fixed costs relate to contracts with 11
facilities where the Company is required to make capacity and other
fixed payments, including payments when a facility is not operating
but available for service. These 11 facilities account for
approximately 774 MW of capacity, with contract lengths ranging
from 20 to 35 years. The terms of these existing contracts allow
the Company to schedule energy deliveries from the facilities and
then pay for the energy delivered. The Company estimates the fixed
payments under these contracts will aggregate to approximately $8
billion dollars over their terms, using escalated contract rates.
Contracts relating to the remaining facilities in service at
December 31, 1996, require the Company to pay only when energy is
delivered, except when the Company decides that it would be better
to pay a particular project a reduced energy payment to have the
project reduce its high priced energy deliveries as described
below. The Company currently recovers schedulable capacity through
base rates and energy payments, taxes and other schedulable fixed
costs through the FAC. The Company paid approximately $1,088
million, $980 million and $960 million in 1996, 1995 and 1994 for
13,800,000 MWh, 14,000,000 MWh and 14,800,000 MWh, respectively, of
electric power under all IPP contracts.
On March 10, 1997, the Company and 19 developers of IPP
projects jointly announced an agreement-in-principle to terminate
or restructure 44 power purchase contracts. These contracts
represent more than 90% of the Company's above-market power costs
under all existing IPP contracts. The agreement contemplates that
the Company would terminate or restructure the 44 power contracts
in exchange for approximately $3.6 billion in cash and/or
marketable debt securities, and 46 million shares of the Company's
common stock, representing approximately 25% of the anticipated
fully diluted outstanding common shares. The new debt will be
subordinate to existing first mortgage bonds. The value of the
common equity will vary depending on the market value of the shares
at closing. In addition, the Company and several IPPs would enter
into new agreements that would further compensate the IPPs and
hedge prices for specific amounts of power. As noted in Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Announced Agreement-in-Principle to
Terminate or Restructure 44 IPP Contracts," implementation of these
arrangements are subject to a number of contingencies.
Separate from the agreement-in-principle, the Company has
negotiated three long term and sixteen limited term contract
amendments whereby the Company can reduce the energy deliveries
from the facilities. These reduced energy agreements resulted in
a reduction of IPP deliveries of approximately 984,000 Mwh during
1996. The Company expects to continue efforts of these types into
the future, to control its power supply and related costs, but at
this time cannot predict the outcome of such efforts.
SALE OF CUSTOMER RECEIVABLES: The parent Company has
established a single-purpose, wholly-owned financing subsidiary, NM
Receivables Corp., whose business consists of the purchase and
resale of an undivided interest in a designated pool of customer
receivables, including accrued unbilled revenues. For receivables
sold, the Company has retained collection and administrative
responsibilities as agent for the purchaser. As collections reduce
previously sold undivided interests, new receivables are
customarily sold. NM Receivables Corp. has its own separate
creditors which, upon liquidation of NM Receivables Corp., will be
entitled to be satisfied out of its assets prior to any value
becoming available to its equity holders. The sale of receivables
are in fee simple for a reasonably equivalent value and are not
secured loans. Some receivables have been contributed in the form
of a capital contribution to NM Receivables Corp. in fee simple for
reasonably equivalent value, and all receivables transferred to NM
Receivables Corp. are assets owned by NM Receivables Corp. in fee
simple and are not available to pay the parent Company's creditors.
At December 31, 1996 and 1995, $250 million of receivables had
been sold by NM Receivables, Corp. to a third party. The undivided
interest in the designated pool of receivables was sold with
limited recourse. The agreement provides for a formula based loss
reserve pursuant to which additional customer receivables are
assigned to the purchaser to protect against bad debts. At
December 31, 1996, the amount of additional receivables assigned to
the purchaser, as a loss reserve, was approximately $85.8 million.
Although this represents the formula-based amount of credit
exposure at December 31, 1996 under the agreement, historical
losses have been substantially less.
To the extent actual loss experience of the pool receivables
exceeds the loss reserve, the purchaser absorbs the excess.
Concentrations of credit risk to the purchaser with respect to
accounts receivable are limited due to the Company's large, diverse
customer base within its service territory. The Company generally
does not require collateral, i.e., customer deposits.
TAX ASSESSMENTS: The Internal Revenue Service (IRS) has
conducted an examination of the Company's Federal income tax
returns for the years 1987 and 1988 and has submitted a Revenue
Agents' Report to the Company. The IRS has proposed various
adjustments to the Company's Federal income tax liability for these
years which could increase the Company's Federal income tax
liability by approximately $80 million, before assessment of
penalties and interest. Included in these proposed adjustments are
several significant issues involving Unit 2. The Company is
vigorously defending its position on each of the issues, and
submitted a protest to the IRS in 1993. Pursuant to the Unit 2
settlement entered into with the PSC in 1990, to the extent the IRS
is able to sustain adjustments, the Company will be required to
absorb a portion of any assessment. The Company believes any such
disallowance will not have a material impact on its financial
position or results of operations under traditional cost-of-service
based ratemaking. The Company is currently attempting to finalize
a settlement of these issues with the Appeals Division of the IRS.
In addition, the IRS has conducted an examination of the
Company's federal income tax returns for the years 1989 and 1990
and issued a Revenue Agents' Report. The IRS has raised the issue
concerning the deductibility of payments made to IPPs in accordance
with certain contracts that include a provision for a tracking
account. A tracking account represents amounts that these mandated
contracts required the Company to pay IPPs in excess of the
Company's avoided costs, including a carrying charge. The IRS
proposes to disallow a current deduction for amounts paid in excess
of the avoided costs of the Company. Although the Company believes
that any such disallowances for the years 1989 and 1990 will not
have a material impact on its financial position or results of
operations, it believes that a disallowance for these above-market
payments for the years subsequent to 1990 could have a material
adverse affect on its cash flows. To the extent that contracts
involving tracking accounts are terminated or restructured under
the agreement-in-principle with IPPs as described in Note 2, then
it is possible that the effects of any proposed disallowance would
be mitigated. The Company is vigorously defending its position on
this issue. The IRS has commenced its examination of the Company's
Federal income tax returns for the years 1991 through 1993.
LITIGATION: In March 1993, Inter-Power of New York, Inc.
(Inter-Power), filed a complaint against the Company and certain of
its officers and employees in the NYS Supreme Court. Inter-Power
alleged, among other matters, fraud, negligent misrepresentation
and breach of contract in connection with the Company's alleged
termination of a PPA in January 1993. The plaintiff sought
enforcement of the original contract or compensatory and punitive
damages in an aggregate amount that would not exceed $1 billion,
excluding pre-judgment interest.
In early 1994, the NYS Supreme Court dismissed two of the
plaintiff's claims; this dismissal was upheld by the Appellate
Division, Third Department of the NYS Supreme Court. Subsequently,
the NYS Supreme Court granted the Company's motion for summary
judgment on the remaining causes of action in Inter-Power's
complaint. In August 1994, Inter-Power appealed this decision and
on July 27, 1995, the Appellate Division, Third Department affirmed
the granting of summary judgment as to all counts, except for one
dealing with an alleged breach of the PPA relating to the Company's
having declared the agreement null and void on the grounds that
Inter-Power had failed to provide it with information regarding its
fuel supply in a timely fashion. This one breach of contract claim
was remanded to the NYS Supreme Court for further consideration.
Discovery on this one breach of contract claim is currently in
progress.
The Company is unable to predict the ultimate disposition of
this lawsuit. However, the Company believes it has meritorious
defenses and intends to defend this lawsuit vigorously, but can
neither provide any judgment regarding the likely outcome nor
provide any estimate or range of possible loss. Accordingly, no
provision for liability, if any, that may result from this lawsuit
has been made in the Company's financial statements.
ENVIRONMENTAL CONTINGENCIES: The public utility industry
typically utilizes and/or generates in its operations a broad range
of potentially hazardous wastes and by-products. The Company
believes it is handling identified wastes and by-products in a
manner consistent with Federal, state and local requirements and
has implemented an environmental audit program to identify any
potential areas of concern and assure compliance with such
requirements. The Company is also currently conducting a program
to investigate and restore, as necessary to meet current
environmental standards, certain properties associated with its
former gas manufacturing process and other properties which the
Company has learned may be contaminated with industrial waste, as
well as investigating identified industrial waste sites as to which
it may be determined that the Company contributed. The Company has
also been advised that various Federal, state or local agencies
believe certain properties require investigation and has
prioritized the sites based on available information in order to
enhance the management of investigation and remediation, if
necessary.
The Company is currently aware of 85 sites with which it has
been or may be associated, including 42 which are Company-owned.
With respect to non-owned sites, the Company may be required to
contribute some proportionate share of remedial costs.
Investigations at each of the Company-owned sites are designed
to (1) determine if environmental contamination problems exist, (2)
if necessary, determine the appropriate remedial actions required
for site restoration and (3) where appropriate, identify other
parties who should bear some or all of the cost of remediation.
Legal action against such other parties will be initiated where
appropriate. After site investigations are completed, the Company
expects to determine site-specific remedial actions and to estimate
the attendant costs for restoration. However, since technologies
are still developing the ultimate cost of remedial actions may
change substantially.
Estimates of the cost of remediation and post-remedial
monitoring are based upon a variety of factors, including
identified or potential contaminants, location, size and use of the
site, proximity to sensitive resources, status of regulatory
investigation and knowledge of activities at similarly situated
sites, and the EPA figure for average cost to remediate a site.
Actual Company expenditures are dependent upon the total cost of
investigation and remediation and the ultimate determination of the
Company's share of responsibility for such costs, as well as the
financial viability of other identified responsible parties since
clean-up obligations are joint and several. The Company has denied
any responsibility in certain of these PRP sites and is contesting
liability accordingly.
As a consequence of site characterizations and assessments
completed to date and negotiations with PRP's, the Company has
accrued a liability in the amount of $225 million, which is
reflected in the Company's Consolidated Balance Sheets at both
December 31, 1996 and 1995. This represents the low end of the
range of its share of the estimated cost for investigation and
remediation. The potential high end of the range is presently
estimated at approximately $850 million, including approximately
$340 million in the unlikely event the Company is required to
assume 100% responsibility at non-owned sites. In addition, the
Company has recorded a regulatory asset representing the
remediation obligations to be recovered from ratepayers. The
Company expects under PowerChoice that the regulatory asset will be
recovered in rates charged to customers.
Where appropriate, the Company has provided notices of
insurance claims to carriers with respect to the investigation and
remediation costs for manufactured gas plant, industrial waste
sites and sites for which the Company has been identified as a PRP.
The Company has settled some of these claims and continues to
pursue others, but is unable to predict what the ratemaking
disposition of the proceeds will be.
CONSTRUCTION PROGRAM: The Company is committed to an ongoing
construction program to assure delivery of its electric and gas
services. The Company presently estimates that the construction
program for the years 1997 through 2001 will require approximately
$1.4 billion, excluding AFC and nuclear fuel. For the years 1997
through 2001, the estimates, in millions, are $293, $298, $269,
$264 and $265, respectively, which includes $24, $30, $25, $23 and
$21, respectively, related to non-nuclear generation. These
amounts are reviewed by management as circumstances dictate.
Under the Company's PowerChoice proposal, the Company proposes
to separate the Company's non-nuclear power generation business
from the remainder of the business.
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amount
approximates fair value because of the short maturity of the
financial instruments.
LONG-TERM DEBT AND MANDATORILY REDEEMABLE PREFERRED STOCK:
The fair value of fixed rate long-term debt and redeemable
preferred stock is estimated using quoted market prices where
available or discounting remaining cash flows at the Company's
incremental borrowing rate. The carrying value of NYSERDA bonds
and other long-term debt are considered to approximate fair value.
The financial instruments held or issued by the Company are for purposes other than
trading. The estimated fair values of the Company's financial instruments are as follows:
- ------------------------------------------------------------------------------------------
(In thousands of dollars)
-------------------------------------------------
At December 31, 1996 1995
- ------------------------------------ --------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------ --------------------- ----------------------
Cash and short-term
investments $ 325,398 $ 325,398 $153,475 $153,475
Mandatorily redeemable
preferred stock 95,600 86,516 106,000 92,676
Long-term debt: First Mortgage bonds 2,841,305 2,690,707 2,866,305 2,815,206
Medium-term notes 20,000 21,994 30,000 31,826
Promissory notes 413,760 413,760 413,760 413,760
Other 228,461 228,461 292,436 292,436
The Company's investments in debt and equity securities
consist of trust funds for the purpose of funding the nuclear
decommissioning of Unit 1 and its share of Unit 2 (See Note 3 -
"Nuclear Plant Decommissioning"), short-term investments held by
Opinac Energy Corporation (a subsidiary) and a trust fund for
certain pension benefits. The Company has classified all
investments in debt and equity securities as available for sale and
has recorded all such investments at their fair market value at
December 31, 1996. The proceeds from the sale of investments were
$99.4 million, $70.3 million and $104.6 million in 1996, 1995 and
1994, respectively. Net realized and unrealized gains and losses
related to the nuclear decommissioning trust are reflected in
"Accumulated depreciation and amortization" on the Consolidated
Balance Sheets, which is consistent with the method used by the
Company to account for the decommissioning costs recovered in
rates. The unrealized gains and losses related to the investments
held by Opinac Energy Corporation and the pension trust are
included, net of tax, in "Common stockholders' equity" on the
Consolidated Balance Sheets, while the realized gains and losses
are included in "Other items (net)" on the Consolidated Income
Statements. The recorded fair values and cost basis of the
Company's investments in debt and equity securities is as follows:
- ------------------------------------------------------------------------------------------
(In thousands of dollars)
-----------------------------------------------------------------------
At December 31, 1996 1995
- --------------- ---------------------------------- ---------------------------------
Gross Gross
Unrealized Fair Unrealized Fair
Security Type Cost Gain (Loss) Value Cost Gain (Loss) Value
- --------------- ---------------------------------- ---------------------------------
U.S. Government
Obligations $ 24,782 $ 1,530 $ (33) $ 26,279 $ 16,271 $3,009 $ - $ 19,280
Commercial Paper 90,495 739 - 91,234 47,105 1,019 - 48,124
Tax Exempt
Obligations 75,590 3,209 (147) 78,652 66,155 3,830 (72) 69,913
Corporate
Obligations 62,723 8,524 (422) 70,825 45,279 5,399 (344) 50,334
Other 2,586 - - 2,586 10,022 945 - 10,967
-------- ------- ------ -------- -------- ------- ----- --------
$256,176 $14,002 $(602) $269,576 $184,832 $14,202 $(416) $198,618
======== ======= ====== ======== ======== ======= ===== ========
Using the specific identification method to determine cost,
the gross realized gains and gross realized losses were:
In thousands of dollars
-----------------------
Year Ended December 31, 1996 1995 1994
- ----------------------- ---- ---- ----
Realized gains $2,121 $2,523 $1,123
Realized losses 806 328 1,637
The contractual maturities of the Company's investments in
debt securities is as follows:
- ---------------------------------------------------------
In thousands of dollars
-----------------------------
At December 31, 1996: Fair Value Cost
- ---------------------------------------------------------
Less than 1 year $93,485 $92,523
1 year to 5 years 10,494 10,201
5 years to 10 years 38,543 36,969
Due after 10 years 97,378 92,787
NOTE 11. INFORMATION REGARDING THE ELECTRIC AND GAS BUSINESSES
The Company is engaged principally in the business of
production, purchase, transmission, distribution and sale of
electricity and the purchase, distribution, sale and transportation
of gas in New York State. The Company provides electric service to
the public in an area of New York State having a total population
of about 3,500,000, including among others, the cities of Buffalo,
Syracuse, Albany, Utica, Schenectady, Niagara Falls, Watertown and
Troy. The Company distributes or transports natural gas in areas
of central, northern and eastern New York having a total population
of about 1,700,000 nearly all within the Company's electric service
area. Certain information regarding the Company's electric and
natural gas segments is set forth in the following table. General
corporate expenses, property common to both segments and
depreciation of such common property have been allocated to the
segments in accordance with the practice established for regulatory
purposes. Identifiable assets include net utility plant, materials
and supplies, deferred finance charges, deferred recoverable energy
costs and certain other regulatory and other assets. Corporate
assets consist of other property and investments, cash, accounts
receivable, prepayments, unamortized debt expense and certain other
regulatory and other assets. At December 31, 1996, total plant
assets consisted of approximately 24% Nuclear, 20% Fossil/Hydro,
42% Transmission and Distribution, 11% Gas and 3% Common.
In thousands of dollars
-----------------------
1996 1995 1994
---- ---- ----
Operating revenues:
Electric $3,308,979 $3,335,548 $3,528,987
Gas 681,674 581,790 623,191
- ----------------------------------------------------------------
Total $3,990,653 $3,917,338 $4,152,178
================================================================
Operating income before taxes:
Electric $ 438,590 $ 587,282 $ 469,371*
Gas 83,748 96,752 80,836
- ----------------------------------------------------------------
Total $ 522,338 $ 684,034 $ 550,207
================================================================
Pretax operating income, including AFC:
Electric $ 445,651 $ 595,970 $ 478,087
Gas 84,042 97,114 81,199
- ----------------------------------------------------------------
Total 529,693 693,084 559,286
- ----------------------------------------------------------------
Income taxes, included in operating expenses:
Electric 82,663 129,556 92,469
Gas 22,920 26,452 25,365
- ----------------------------------------------------------------
Total 105,583 156,008 117,834
- ----------------------------------------------------------------
Other (income) and
deductions (35,367) 1,379 (21,410)
Interest charges 281,723 287,661 285,878
- ----------------------------------------------------------------
Income before
extraordinary item $ 177,754 $ 248,036 $ 176,984
================================================================
Depreciation and amortization:
Electric $ 302,825 $ 292,995 $ 281,301
Gas 27,002 24,836 27,050
- ----------------------------------------------------------------
Total $ 329,827 $ 317,831 $ 308,351
================================================================
Construction expenditures (including nuclear fuel):
Electric $ 277,505 $ 285,722 $ 376,159
Gas 74,544 60,082 113,965
- ----------------------------------------------------------------
Total $ 352,049 $ 345,804 $ 490,124
================================================================
Identifiable assets:
Electric $7,346,765 $7,592,287 $7,759,549
Gas 1,203,184 1,123,045 1,093,812
- ----------------------------------------------------------------
Total 8,549,949 8,715,332 8,853,361
Corporate assets 852,081 762,537 796,455
- ----------------------------------------------------------------
Total assets $9,402,030 $9,477,869 $9,649,816
================================================================
* Includes $196,625 of VERP expenses.
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating revenues, operating income, net income and earnings
per common share by quarters from 1996, 1995 and 1994,
respectively, are shown in the following table. The Company, in
its opinion, has included all adjustments necessary for a fair
presentation of the results of operations for the quarters. Due to
the seasonal nature of the utility business, the annual amounts are
not generated evenly by quarter during the year. The Company's
quarterly results of operations reflect the seasonal nature of its
business, with peak electric loads in summer and winter periods.
Gas sales peak in the winter.
In thousands of dollars
-----------------------
EARNINGS
OPERATING NET (LOSS)
OPERATING INCOME INCOME PER COMMON
QUARTER ENDED REVENUES (LOSS) (LOSS) SHARE
- ----------------------------------------------------------------
December 31, 1996 $ 971,106 $ 91,977 $(25,808) $(.24)
1995 966,478 113,510 27,874 .13
1994 1,018,110 (10,536) (77,422) (.61)
- ----------------------------------------------------------------
September 30, 1996 $ 895,713 $ 53,406 $(12,916) $(.16)
1995 887,231 114,126 46,941 .26
1994 918,810 108,937 48,383 .27
- ----------------------------------------------------------------
June 30, 1996 $ 960,771 $113,363 $ 52,992 $ .30
1995 938,816 121,985 54,485 .31
1994 979,700 130,624 67,559 .42
- ----------------------------------------------------------------
March 31, 1996 $1,163,063 $158,009 $ 96,122 $ .60
1995 1,124,813 178,405 118,736 .75
1994 1,235,558 203,348 138,464 .92
- ----------------------------------------------------------------
In the fourth quarter of 1996 the Company recorded an
extraordinary item for the discontinuance of regulatory accounting
principles of $103.6 million (47 cents per common share).
In the third quarter of 1996 the Company increased the
allowance for doubtful accounts by $68.5 million (31 cents per
common share).
In the fourth quarter of 1994 the Company recorded $196.6
million (89 cents per common share) for the electric expense
allocation of the VERP. In the fourth quarters of 1994 and 1995,
the Company recorded, $12.3 million (6 cents per common share) and
$16.9 million (8 cents per common share), respectively, for MERIT
earned in accordance with the 1991 Agreement.
ELECTRIC AND GAS STATISTICS
ELECTRIC CAPABILITY
Thousands of kilowatts
----------------------
December 31, 1996 % 1995 1994
- ------------------------------------------------------------
Owned:
Coal 1,333 16.3 1,316 1,285
Oil 636 7.8 636 646
Dual Fuel - Oil/Gas 700 8.5 700 700
Nuclear 1,082 13.2 1,082 1,048
Hydro 617 7.5 665 700
----- ---- ----- -----
4,368 53.3 4,399 4,379
----- ---- ----- -----
Purchased:
New York Power Authority
- Hydro 1,310 16.0 1,325 1,300
- Nuclear 110 1.3 110 74
IPPs 2,406 29.4 2,390 2,273
----- ---- ----- -----
3,826 46.7 3,825 3,647
----- ---- ----- -----
Total capability* 8,194 100.0 8,224 8,026
===== ===== ===== =====
Electric peak load 6,021 6,211 6,458
===== ===== =====
* Available capability can be increased during heavy load
periods by purchases from neighboring interconnected systems.
Hydro station capability is based on average December stream-
flow conditions.
ELECTRIC STATISTICS
1996 1995 1994
- ----------------------------------------------------------------
Electric sales (Millions of Kwh):
Residential 10,109 10,055 10,316
Commercial 11,564 11,613 11,739
Industrial 7,148 7,061 7,382
Industrial-Special 4,326 4,053 4,118
Municipal service 246 229 227
Other electric systems 5,431 4,305 7,441
Subsidiary 303 368 376
- -----------------------------------------------------------------
39,127 37,684 41,599
Electric revenues (Thousands of dollars):
Residential $1,252,165 $1,214,848 $1,226,490
Commercial 1,237,385 1,237,502 1,268,083
Industrial 524,858 523,996 574,251
Industrial-Special 58,444 56,250 49,217
Municipal service 53,795 50,860 51,401
Other electric systems 113,391 88,936 157,826
Miscellaneous 53,698 143,625 179,529
Subsidiary 15,243 19,531 22,190
- -----------------------------------------------------------------
$3,308,979 $3,335,548 $3,528,987
Electric customers (Average):
Residential 1,405,083 1,399,725 1,393,273
Commercial 145,149 144,731 143,017
Industrial 2,045 2,122 2,069
Industrial-Special 99 83 82
Other 1,302 1,488 2,312
Subsidiary 13,557 13,508 13,344
- -----------------------------------------------------------------
1,567,235 1,561,657 1,554,097
Residential (Average):
Annual Kwh use per customer 7,195 7,184 7,404
Cost to customer per Kwh
(in cents) 12.39 12.08 11.89
Annual revenue per customer $891.17 $867.92 $880.29
GAS STATISTICS
1996 1995 1994
- -----------------------------------------------------------------
Gas Sales (Thousands of Dth):
Residential 56,728 51,842 56,491
Commercial 25,353 23,818 25,783
Industrial 2,770 2,660 3,097
Other gas systems 30 161 244
- -----------------------------------------------------------------
Total sales 84,881 78,481 85,615
Spot market 10,459 1,723 1,572
Transportation of customer-
owned gas 134,671 144,613 85,910
- -----------------------------------------------------------------
Total gas delivered 230,011 224,817 173,097
Gas Revenues (Thousands of dollars):
Residential $ 417,348 $ 368,391 $ 398,257
Commercial 162,275 143,643 159,157
Industrial 13,325 11,530 14,602
Other gas systems 138 762 1,159
Spot market 37,124 3,096 4,370
Transportation of customer-
owned gas 50,381 48,290 38,346
Miscellaneous 1,083 6,078 7,300
- -----------------------------------------------------------------
$ 681,674 $ 581,790 $ 623,191
Gas Customers (Average):
Residential 477,786 471,948 463,933
Commercial 41,266 40,945 40,256
Industrial 206 225 256
Other 6 1 1
Transportation 713 652 661
- -----------------------------------------------------------------
519,977 513,771 505,107
Residential (Average):
Annual dekatherm use
per customer 118.7 109.8 121.8
Cost to customer per Dth $ 7.36 $ 7.11 $ 7.05
Annual revenue per customer $873.50 $780.58 $858.44
Maximum day gas sendout
(Dth) 1,152,996 1,211,252 995,801
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has nothing to report for this item.
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference to the information under the
captions "Business Background of Nominees and Directors" and
"Section 16(a) Compliance" in the Company's Proxy Statement to be
filed on April 7, 1997. The information regarding executive
officers appears at the end of Part I of this Form 10-K Annual
Report.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference to the information under the
captions "Compensation and Succession Committee Interlocks and
Insider Participation; Certain Relationships and Related
Transactions," "Board of Directors' Compensation and Succession
Committee Report on Executive Compensation," "Executive
Compensation" and "Compensation of Directors" in the Company's
Proxy Statement to be filed on April 7, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated herein by reference to the information under the
caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement to be filed on April
7, 1997. The Company knows of no arrangements, including any
pledges by any person of its securities, the operation of which may
at a subsequent date result in a change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to the information under the
caption "Compensation and Succession Committee Interlocks and
Insider Participation" in the Company's Proxy Statement to be filed
on April 7, 1997.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Certain documents filed as part of the Form 10-K.
(1) INDEX OF FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Statements of Income and Retained Earnings for
each of the three years in the period ended December 31,
1996
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996
Notes to Consolidated Financial Statements
Separate financial statements of the Company have been omitted
since it is primarily an operating company and all
consolidated subsidiaries are wholly-owned directly or by
subsidiaries.
(2) The following financial statement schedules of the Company for
the years ended December 31, 1996, 1995 and 1994 are included:
Report of Independent Accountants on Financial Statement
Schedule
Consolidated Financial Statement Schedule:
II--Valuation and Qualifying Accounts and Reserves
The Financial Statement Schedule above should be read in
conjunction with the Consolidated Financial Statements in Part
II, Item 8 (Financial Statements and Supplementary Data).
Schedules other than those mentioned above are omitted because
the conditions requiring their filing do not exist or because
the required information is given in the financial statements,
including the notes thereto.
(3) List of Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the period for which
this report is filed.
(c) Exhibits.
See Exhibit Index.
(d) Financial Statement Schedule.
See (a)(2) above.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Niagara Mohawk Power Corporation
Our audits of the consolidated financial statements of Niagara
Mohawk Power Corporation referred to in our report dated March 13,
1997 appearing in this Form 10-K also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-
K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial
statements.
/s/ PRICE WATERHOUSE LLP
Syracuse, New York
March 13, 1997
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ------------------------------------------------------------
(In Thousands of Dollars)
Column A Column B Column C Column D Column E
- ------------------------ ---------- ---------------------- ---------- ---------
Additions
----------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions (a) of Period
- ------------------------ ---------- ---------- ---------- -------------- ---------
Allowance for Doubtful
Accounts - deducted from
Accounts Receivable in
the Consolidated Balance
Sheets
1996 $20,000 $127,648 800 (b) $96,352 $52,096
1995 3,600 31,284 16,400 (b) 31,284 20,000
1994 3,600 39,599 - 39,599 3,600
(a) Uncollectible accounts written off net of recoveries of $12,842, $10,830 and $7,969 in
1996, 1995 and 1994, respectively.
(b) The Company increased its allowance for doubtful accounts in 1995 and recorded a
regulatory asset of $16,400, which reflects the amount that the Company expects to
recover in rates. In 1996, regulatory asset increased by $800 to $17,200.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ------------------------------------------------------------
(In Thousands of Dollars)
Column A Column B Column C Column D Column E
- ------------------------ ---------- ---------------------- ---------- ---------
Additions
----------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ------------------------ ---------- ---------- ---------- ---------- ---------
Reserve for Loss on
Investment -
NM Uranium, Inc. -
deducted from Utility
Plant, Nuclear Fuel
in the Consolidated Balance
Sheets
1996 $ 9,363 $ - $ - $ - $ 9,363
1995 58,200 3,805 - 52,642 (c) 9,363
1994 56,300 1,900 - - 58,200
(c) Represents the portion of the carrying value of the investment charged to the reserve.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ------------------------------------------------------------
(In Thousands of Dollars)
Column A Column B Column C Column D Column E
- ------------------------ ---------- ---------------------- ---------- ---------
Additions
----------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period (e)
- ------------------------ ---------- ---------- ---------- ---------- ---------
Miscellaneous
Valuation Reserves
1996 $39,426 $10,261 $ - $11,947 $37,740
1995 29,197 18,719 - 8,490 39,426
1994 9,167 20,030 - - 29,197
(e) The reserves relate primarily to certain inventory and non-rate base properties.
NIAGARA MOHAWK POWER CORPORATION
EXHIBIT INDEX
- -------------
In the following exhibit list, NMPC refers to the Company and
CNYP refers to Central New York Power Corporation, a predecessor
company. Each document referred to below is incorporated by
reference to the files of the Commission, unless the reference to
the document in the list is preceded by an asterisk. Previous
filings with the Commission are indicated as follows:
A--NMPC Registration Statement No. 2-8214;
C--NMPC Registration Statement No. 2-8634;
F--CNYP Registration Statement No. 2-3414;
G--CNYP Registration Statement No. 2-5490;
V--NMPC Registration Statement No. 2-10501;
X--NMPC Registration Statement No. 2-12443;
Z--NMPC Registration Statement No. 2-13285;
CC--NMPC Registration Statement No. 2-16193;
DD--NMPC Registration Statement No. 2-18995;
GG--NMPC Registration Statement No. 2-25526;
HH--NMPC Registration Statement No. 2-26918;
II--NMPC Registration Statement No. 2-29575;
JJ--NMPC Registration Statement No. 2-35112;
KK--NMPC Registration Statement No. 2-38083;
OO--NMPC Registration Statement No. 2-49570;
QQ--NMPC Registration Statement No. 2-51934;
SS--NMPC Registration Statement No. 2-52852;
TT--NMPC Registration Statement No. 2-54017;
VV--NMPC Registration Statement No. 2-59500;
CCC--NMPC Registration Statement No. 2-70860;
III--NMPC Registration Statement No. 2-90568;
OOO--NMPC Registration Statement No. 33-32475;
PPP--NMPC Registration Statement No. 33-38093;
QQQ--NMPC Registration Statement No. 33-47241;
RRR--NMPC Registration Statement No. 33-59594;
b--NMPC Annual Report on Form 10-K for year ended December 31,
1990; and
c--NMPC Annual Report on Form 10-K for year ended December 31,
1992; and
d--NMPC Annual Report on Form 10-K for year ended December 31,
1993; and
e--NMPC Annual Report on Form 10-K for year ended December 31,
1994; and
f--NMPC Annual Report on Form 10-K for year ended December 31,
1995.
g--NMPC Quarterly Report on Form 10-Q for quarter ended March 31,
1993; and
h--NMPC Quarterly Report on Form 10-Q for quarter ended September
30, 1993;
i--NMPC Quarterly Report on Form 10-Q for quarter ended June 30,
1995; and
j--NMPC Quarterly Report on Form 10-Q for quarter ended September
30, 1996.
INCORPORATION BY REFERENCE
----------------------------------
PREVIOUS PREVIOUS EXHIBIT
EXHIBIT NO. DESCRIPTION OF INSTRUMENT FILING DESIGNATION
- ---------- ------------------------- -------- ----------------
3(a)(1) --Certificate of Consolidation of New
York Power and Light Corporation,
Buffalo Niagara Electric Corporation
and Central New York Power Corporation,
filed in the office of the New York
Secretary of State, January 5, 1950. e 3(a)(1)
3(a)(2) --Certificate of Amendment of Certificate
of Incorporation of NMPC, filed in the
office of the New York Secretary of
State, January 5, 1950. e 3(a)(2)
3(a)(3) --Certificate of Amendment of Certificate
of Incorporation of NMPC, pursuant to
Section 36 of the Stock Corporation Law of
New York, filed August 22, 1952, in the
office of the New York Secretary of State. e 3(a)(3)
3(a)(4) --Certificate of NMPC pursuant to Section
11 of the Stock Corporation Law of New
York filed May 5, 1954 in the office of
the New York Secretary of State. e 3(a)(4)
3(a)(5) --Certificate of Amendment of Certificate of
Incorporation of NMPC, pursuant to Section
36 of the Stock Corporation Law of New
York, filed January 9, 1957 in the office
of the New York Secretary of State. e 3(a)(5)
3(a)(6) --Certificate of NMPC pursuant to Section
11 of the Stock Corporation Law of New
York, filed May 22, 1957 in the office of
the New York Secretary of State. e 3(a)(6)
3(a)(7) --Certificate of NMPC pursuant to Section
11 of the Stock Corporation Law of New
York, filed February 18, 1958 in the office
of the New York Secretary of State. e 3(a)(7)
3(a)(8) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed May 5, 1965 in the office
of the New York Secretary of State. e 3(a)(8)
3(a)(9) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of New
York, filed August 24, 1967 in the office
of the New York Secretary of State. e 3(a)(9)
3(a)(10) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of New
York, filed August 19, 1968 in the office
of the New York Secretary of State. e 3(a)(10)
3(a)(11) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of New
York, filed September 22, 1969 in the office
of the New York Secretary of State. e 3(a)(11)
3(a)(12) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of New
York, filed May 12, 1971 in the office of
the New York Secretary of State. e 3(a)(12)
3(a)(13) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed August 18, 1972 in the
office of the New York Secretary of State. e 3(a)(13)
3(a)(14) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed June 26, 1973 in the
office of the New York Secretary of State. e 3(a)(14)
3(a)(15) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed May 9, 1974 in the
office of the New York Secretary of State. e 3(a)(15)
3(a)(16) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed March 12, 1975 in the
office of the New York Secretary of State. e 3(a)(16)
3(a)(17) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed May 7, 1975 in the
office of the New York Secretary of State. e 3(a)(17)
3(a)(18) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed August 27, 1975 in the
office of the New York Secretary of State. e 3(a)(18)
3(a)(19) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York, filed May 7, 1976 in the
office of the New York Secretary of State. e 3(a)(19)
3(a)(20) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed September 28, 1976 in the
office of the New York Secretary of State. e 3(a)(20)
3(a)(21) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed January 27, 1978 in the
office of the New York Secretary of State. e 3(a)(21)
3(a)(22) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed May 8, 1978 in the
office of the New York Secretary of State. e 3(a)(22)
3(a)(23) --Certificate of Correction of the
Certificate of Amendment filed May 7,
1976 of the Certificate of Incorporation
under Section 105 of the Business
Corporation Law of New York filed
July 13, 1978 in the office of the
New York Secretary of State. e 3(a)(23)
3(a)(24) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed July 17, 1978 in the
office of the New York Secretary of State. e 3(a)(24)
3(a)(25) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed March 3, 1980 in the
office of the New York Secretary of State. e 3(a)(25)
3(a)(26) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed March 31, 1981 in the
office of the New York Secretary of State. e 3(a)(26)
3(a)(27) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed March 31, 1981 in the
office of the New York Secretary of State. e 3(a)(27)
3(a)(28) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed April 22, 1981 in the
office of the New York Secretary of State. e 3(a)(28)
3(a)(29) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed May 8, 1981 in the office
of the New York Secretary of State. e 3(a)(29)
3(a)(30) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed April 26, 1982 in the
office of the New York Secretary of State. e 3(a)(30)
3(a)(31) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed January 24, 1983 in the
office of the New York Secretary of State. e 3(a)(31)
3(a)(32) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed August 3, 1983 in the
office of the New York Secretary of State. e 3(a)(32)
3(a)(33) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed December 27, 1983 in the
office of the New York Secretary of State. e 3(a)(33)
3(a)(34) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed December 27, 1983 in the
office of the New York Secretary of State. e 3(a)(34)
3(a)(35) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed June 4, 1984 in the
office of the New York Secretary of State. e 3(a)(35)
3(a)(36) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed August 29, 1984 in the
office of the New York Secretary of State. e 3(a)(36)
3(a)(37) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed April 17, 1985, in the
office of the New York Secretary of State. e 3(a)(37)
3(a)(38) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed May 3, 1985, in the
office of the New York Secretary of State. e 3(a)(38)
3(a)(39) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed December 24, 1986 in the
office of the New York Secretary of State. e 3(a)(39)
3(a)(40) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed June 1, 1987 in the
office of the New York Secretary of State. e 3(a)(40)
3(a)(41) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed July 16, 1987 in the
office of the New York Secretary of State. e 3(a)(41)
3(a)(42) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed May 27, 1988 in the
office of the New York Secretary of State. e 3(a)(42)
3(a)(43) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed September 27, 1990 in the
office of the New York Secretary of State. e 3(a)(43)
3(a)(44) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed October 18, 1991 in the
office of the New York Secretary of State. e 3(a)(44)
3(a)(45) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed May 5, 1994 in the
office of the New York Secretary of State. e 3(a)(45)
3(a)(46) --Certificate of Amendment of Certificate
of Incorporation of NMPC under Section
805 of the Business Corporation Law of
New York filed August 5, 1994 in the
office of the New York Secretary of State. e 3(a)(46)
3(b) --By-Laws of NMPC, as amended September 26,
1996. j 3(b)
4(a) --Agreement to furnish certain debt
instruments. e 4(b)
4(b)(1) --Mortgage Trust Indenture dated as of
October 1, 1937 between NMPC (formerly
CNYP) and Marine Midland Bank, N.A.
(formerly named The Marine Midland Trust
Company of New York), as Trustee. F **
_________________________
** Filed October 15, 1937 after effective date of Registration Statement No. 2-3414.
4(b)(2) --Supplemental Indenture dated as of
December 1, 1938, supplemental to
Exhibit 4(1). VV 2-3
4(b)(3) --Supplemental Indenture dated as of
April 15, 1939, supplemental to
Exhibit 4(1). VV 2-4
4(b)(4) --Supplemental Indenture dated as of
July 1, 1940, supplemental to
Exhibit 4(1). VV 2-5
4(b)(5) --Supplemental Indenture dated as of
October 1, 1944, supplemental to
Exhibit 4(1). G 7-6
4(b)(6) --Supplemental Indenture dated as of
June 1, 1945, supplemental to
Exhibit 4(1). VV 2-8
4(b)(7) --Supplemental Indenture dated as of
August 17, 1948, supplemental to
Exhibit 4(1). VV 2-9
4(b)(8) --Supplemental Indenture dated as of
December 31, 1949, supplemental to
Exhibit 4(1). A 7-9
4(b)(9) --Supplemental Indenture dated as of
January 1, 1950, supplemental to
Exhibit 4(1). A 7-10
4(b)(10) --Supplemental Indenture dated as of
October 1, 1950, supplemental to
Exhibit 4(1). C 7-11
4(b)(11) --Supplemental Indenture dated as of
October 19, 1950, supplemental to
Exhibit 4(1). C 7-12
4(b)(12) --Supplemental Indenture dated as of
February 20, 1953, supplemental to
Exhibit 4(1). V 4-16
4(b)(13) --Supplemental Indenture dated as of
April 25, 1956, supplemental to
Exhibit 4(1). X 4-19
4(b)(14) --Supplemental Indenture dated as of
March 15, 1960, supplemental to
Exhibit 4(1). CC 2-23
4(b)(15) --Supplemental Indenture dated as of
October 1, 1966, supplemental to
Exhibit 4(1). GG 2-27
4(b)(16) --Supplemental Indenture dated as of
July 15, 1967, supplemental to
Exhibit 4(1). HH 4-29
4(b)(17) --Supplemental Indenture dated as of
August 1, 1967, supplemental to
Exhibit 4(1). HH 4-30
4(b)(18) --Supplemental Indenture dated as of
August 1, 1968, supplemental to
Exhibit 4(1). II 2-30
4(b)(19) --Supplemental Indenture dated as of
March 15, 1977, supplemental to
Exhibit 4(1). VV 2-39
4(b)(20) --Supplemental Indenture dated as of
August 1, 1977, supplemental to
Exhibit 4(1). CCC 4(b)(40)
4(b)(21) --Supplemental Indenture dated as of
March 1, 1978, supplemental to
Exhibit 4(1). CCC 4(b)(42)
4(b)(22) --Supplemental Indenture dated as of
June 15, 1980, supplemental to
Exhibit 4(1). CCC 4(b)(46)
4(b)(23) --Supplemental Indenture dated as of
November 1, 1985, supplemental to
Exhibit 4(1). III 4(b)(64)
4(b)(24) --Supplemental Indenture dated as of
October 1, 1989, supplemental to
Exhibit 4(1). OOO 4(b)(73)
4(b)(25) --Supplemental Indenture dated as of
June 1, 1990, supplemental to
Exhibit 4(1). PPP 4(b)(74)
4(b)(26) --Supplemental Indenture dated as of
November 1, 1990, supplemental to
Exhibit 4(1). PPP 4(b)(75)
4(b)(27) --Supplemental Indenture dated as of
March 1, 1991, supplemental to
Exhibit 4(1). QQQ 4(b)(76)
4(b)(28) --Supplemental Indenture dated as of
October 1, 1991, supplemental to
Exhibit 4(1). QQQ 4(b)(77)
4(b)(29) --Supplemental Indenture dated as of
April 1, 1992, supplemental to
Exhibit 4(1). QQQ 4(b)(78)
4(b)(30) --Supplemental Indenture dated as of
June 1, 1992, supplemental to
Exhibit 4(1). RRR 4(b)(79)
4(b)(31) --Supplemental Indenture dated as of
July 1, 1992, supplemental to
Exhibit 4(1). RRR 4(b)(80)
4(b)(32) --Supplemental Indenture dated as of
August 1, 1992, supplemental to
Exhibit 4(1). RRR 4(b)(81)
4(b)(33) --Supplemental Indenture dated as of
April 1, 1993, supplemental to
Exhibit 4(1). g 4(b)(82)
4(b)(34) --Supplemental Indenture dated as of
July 1, 1993, supplemental to
Exhibit 4(1). h 4(b)(83)
4(b)(35) --Supplemental Indenture dated as of
September 1, 1993, supplemental to
Exhibit 4(1). h 4(b)(84)
4(b)(36) --Supplemental Indenture dated as of
March 1, 1994, supplemental to
Exhibit 4(1). d 4(b)(85)
4(b)(37) --Supplemental Indenture dated as of
July 1, 1994, supplemental to
Exhibit 4(1). e 4(86)
4(b)(38) --Supplemental Indenture dated as of
May 1, 1995, supplemental to
Exhibit 4(1). i 4(87)
4(b)(39) --Agreement dated as of August 16, 1940,
between CNYP, The Chase National Bank
of the City of New York, as Successor
Trustee, and The Marine Midland Trust
Company of New York, as Trustee. G 7-23
10-1 --Agreement dated March 1, 1957 between
the Power Authority of the State of
New York and NMPC as to sale,
transmission and disposition of St.
Lawrence power. Z 13-11
10-2 --Agreement dated February 10, 1961
between the Power Authority of the
State of New York and NMPC as to sale,
transmission and disposition of
Niagara redevelopment power. DD 13-6
10-3 --Agreement dated July 26, 1961
between the Power Authority of the
State of New York and NMPC
supplemental to Exhibit 10-2. DD 13-7
10-4 --Agreement dated as of March 23, 1973
between the Power Authority of the
State of New York and NMPC as to
the sale, transmission and disposition
of Blenheim-Gilboa power. OO 5-8
10-5 --Agreement dated January 23, 1970
between Consolidated Gas Supply
Corporation (formerly named New York
State Natural Gas Corporation) and NMPC. KK 5-8
10-6a --New York Power Pool Agreement
dated as of February 1, 1974
between NMPC and six other New York
utilities and the Power Authority
of the State of New York. QQ 5-10
10-6b --New York Power Pool Agreement
dated as of April 27, 1975 between
NMPC and six other New York electric
utilities and the Power Authority of
the State of New York (the parties
to the Agreement have petitioned
the Federal Power Commission for an
order permitting such Agreement,
which increases the reserve factor
of all parties from .14 to .18,
to supersede the New York Power
Pool Agreement dated as of
February 1, 1974). TT 5-10b
10-7 --Agreement dated as of October 31, 1968
between NMPC, Central Hudson Gas &
Electric Corporation and Consolidated
Edison Company of New York, Inc. as
to Joint Electric Generating Plant
(the Roseton Station). JJ 5-10
10-8a --Memorandum of Understanding dated as
of May 30, 1975 between NMPC and
Rochester Gas & Electric Corporation
with respect to Oswego Unit No. 6. SS 5-13
10-8b --Memorandum of Understanding dated as
of May 30, 1975 between NMPC and
Rochester Gas and Electric Corporation
with respect to Oswego Unit No. 6. SS 5-13
10-8c --Basic Agreement dated as of September 22,
1975 between NMPC and Rochester Gas and
Electric Corporation with respect to
Oswego Unit No. 6. VV 5-13b
10-9a --Memorandum of Understanding dated
as of May 30, 1975 between NMPC and
four other New York electric utilities
with respect to Nine Mile Point Nuclear
Station Unit No. 2. SS 5-14
10-9b --Basic Agreement dated as of
September 22, 1975 between NMPC and
four other New York electric utilities
with respect to Nine Mile Point
Nuclear Station Unit No. 2. VV 5-14b
10-9c --Nine Mile Point Nuclear Station Unit
No. 2 Operating Agreement. c 10-19
10-10a --Memorandum of Understanding dated as
of May 16, 1974, as amended May 30,
1975, between NMPC and three other
New York electric utilities with respect
to the Sterling Nuclear Station. SS 5-15
10-10b --Basic Agreement dated as of
September 22, 1975 between NMPC and
three other New York electric utilities
with respect to the Sterling Nuclear
Stations. VV 5-15b
(A)10-11a --NMPC Officers' Incentive Compensation Plan -
Plan Document. b 10-16
(A)10-11b --NMPC Officers' Long Term Incentive
Compensation Plan - Plan Document. j 10-11
(A)10-12 --NMPC Management Incentive Compensation Plan -
Plan Document. b 10-17
(A)10-13 --NMPC Deferred Compensation Plan. d 10-16
(A)10-14 --NMPC Performance Share Unit Plan. d 10-17
(A)10-15 --NMPC 1992 Stock Option Plan. d 10-18
(A)10-16 --NMPC 1995 Stock Incentive Plan. f 10-31
*(A)10-17 --Employment Agreement between NMPC and
David J. Arrington, Sr. Vice President,
Human Resources, dated December 20, 1996.
*(A)10-18 --Employment Agreement between NMPC and
Albert J. Budney, Jr., President and
Chief Operating Officer, dated December
20, 1996.
*(A)10-19 --Employment Agreement between NMPC and
William E. Davis, Chairman of the Board
and Chief Executive Officer, dated
December 20, 1996.
*(A)10-20 --Employment Agreement between NMPC and
Darlene D. Kerr, Sr. Vice President,
Energy Distribution, dated
December 20, 1996.
*(A)10-21 --Employment Agreement between NMPC and
Gary J. Lavine, Sr. Vice President,
Legal and Corporate Relations, dated
December 20, 1996.
*(A)10-22 --Employment Agreement between NMPC and
John W. Powers, Sr. Vice President and
Chief Executive Officer, dated
December 20, 1996.
*(A)10-23 --Employment Agreement between NMPC and
B. Ralph Sylvia, Executive Vice President,
Electric Generation and Chief Nuclear
Officer, dated December 20, 1996.
*(A)10-24 --Employment Agreement between NMPC and
Theresa A. Flaim, Vice President -
Corporate Strategic Planning, dated
December 20, 1996.
*(A)10-25 --Employment Agreement between NMPC and
Steven W. Tasker, Vice President -
Controller, dated December 20, 1996.
*(A)10-26 --Employment Agreement between NMPC and
Kapua A. Rice, Corporate Secretary,
dated December 20, 1996.
*(A)10-27 --Deferred Stock Unit Plan for Outside Directors.
*11 --Statement setting forth the computation of
average number of shares of common stock
outstanding.
*12 --Statements Showing Computations of Certain
Financial Ratios.
*21 --Subsidiaries of the Registrant.
*23 --Consent of Price Waterhouse LLP,
independent accountants.
*27 --Financial Data Schedule
- -----------------------
(A) Management contract or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 601 of Regulation S-K.
/TABLE
EXHIBIT 10-17
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of December, 1996, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and David J. Arrington (the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to accept/continue employment with the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning December 20, 1996
and expiring on December 31, 1999, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 1998 and on January 1st of each year thereafter,
unless either party notifies the other to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the Company, this
Agreement shall remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B hereto, unless
such notice was given at least 18 months prior to the date of the Change in
Control).
2. Duties. The Executive shall serve the Company as its Senior Vice President
- - Human Resources. During the term of this Agreement, the Executive shall,
except during vacation or sick leave, devote the whole of the Executive's time,
attention and skill to the business of the Company during usual business hours
(and outside those hours when reasonably necessary to the Executive's duties
hereunder); faithfully and diligently perform such duties and exercise such
powers as may be from time to time assigned to or vested in the Executive by the
Company's Board of Directors (the "Board") or by any officer of the Company
superior to the Executive; obey the directions of the Board and of any officer
of the Company superior to the Executive; and use the Executive's best efforts
to promote the interests of the Company. The Executive may be required in
pursuance of the Executive's duties hereunder to perform services for any
company controlling, controlled by or under common control with the Company
(such companies hereinafter collectively called "Affiliates") and to accept such
offices in any Affiliates as the Board may require. The Executive shall obey
all policies of the Company and applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$190,000, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan, Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to which
the Executive became entitled under the terms of this Agreement prior to death
(other than payment of base salary in respect of the period following the
Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date of the
Executive's death shall be paid to the Executive's estate in accordance with
paragraph g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (I) a physician selected by the Company advises the Company that
the Executive's physical or mental condition has rendered the Executive unable
to perform the essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a physical
or mental condition, the Executive has not performed the essential functions of
the Executive's position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (I) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary under
paragraph 3a hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the Company's
short-term disability plan and long-term disability plan.
Thereafter, or in the event of termination of this Agreement pursuant to clause
(ii) of the preceding sentence, the Executive shall receive benefits under the
Company's long-term disability plan in lieu of any further base salary under
paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice within
ninety (90) days after the Board both (I) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (I) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued failure
by the Executive to perform substantially his duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to the
Executive by the Company which specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties; (iii)
the Executive engages in conduct that constitutes gross neglect or willful
misconduct in carrying out his duties under this Agreement involving material
economic harm to the Company or any of its subsidiaries; or (iv) the Executive
has engaged in a material breach of Sections 6 or 7 of this Agreement. In the
event the termination notice is based on clause (ii) of the preceding sentence,
the Executive shall have ten (10) business days following receipt of the notice
of termination to cure his conduct, to the extent such cure is possible, and if
the Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by the Board
upon the recommendation of the Compensation and Succession Committee of the
Board. Following a Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the membership of the Board, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that Executive has
engaged in conduct which constitutes Cause (and at which Executive had a
reasonable opportunity, together with his counsel, to be heard before the Board
prior to such vote). The Executive shall not be entitled to the payment of any
additional compensation from the Company, except to the extent provided in
paragraph 4h hereof, in the event of the termination of his employment for
Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both (I)
has or should have had knowledge of conduct or an event allegedly constituting
Good Reason, and (ii) has reason to believe that such conduct or event could be
grounds for Good Reason. In such event, the Executive shall be entitled to the
severance benefits set forth in paragraph g below.
(I) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or responsibilities;
or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health plan, disability
plan or similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to participate in
immediately prior to the Change in Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof.
The Executive shall have the sole right to determine, in good faith, whether any
of the above events has occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the Executive
a lump sum severance benefit, equal to two years' base salary at the rate in
effect as of the date of termination, plus the greater of (I) two times the most
recent annual bonus paid to the Executive under the Corporation's Annual
Officers Incentive Compensation Plan (the "OICP") or any similar annual bonus
plan (excluding the pro rata bonus referred to in the next sentence) or (ii) two
times the average annual bonus paid to the Executive for the three prior years
under the OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days or more
have elapsed in the Company's fiscal year in which such termination occurs, the
Company shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the numerator of
which is the number of days in the fiscal year in which the termination occurs
through the termination date and the denominator of which is three hundred
sixty-five (365). For purposes of the first sentence of this paragraph 4f,
there shall be taken into account as bonus paid to the Executive for each of the
years 1996 and 1997 under the OICP one-half of the sum of (x) cash payments with
respect to Restricted Stock Units (and related Dividend Equivalents) granted to
the Executive under the Corporation's 1995 Stock Incentive Plan and (y) the
result of multiplying the number of Stock Appreciation Rights granted to the
Executive under the Corporation's 1995 Stock Incentive Plan by the difference
between (1) the value of one share of the Corporation's common stock on December
31, 1997 and (2) the Base Value ($10.75). If the termination of the Executive's
employment occurs prior to December 31, 1997 and prior to a Change in Control,
the amount of any adjustments to the severance benefit required as a result of
the preceding sentence of this paragraph 4f shall be paid to the Executive in a
lump sum no later than March 15, 1998.
In addition, in the event that the Executive's employment is terminated by the
Company without cause prior to a Change in Control, the Executive (and his
eligible dependents) shall be entitled to continue participation in the
Company's employee benefit plans for a two-year period from the date of
termination, provided, however, that if Executive cannot continue to participate
in any of the benefit plans, the Company shall otherwise provide equivalent
benefits to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the foregoing, in
the event Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits described
herein shall be secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses Executive for
any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (I) be covered by a life insurance policy providing a death benefit,
equal to 2.5 times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is terminated by the
Company without Cause or by the Executive for Good Reason following a Change in
Control, the (I) Executive (and his eligible dependents) shall be entitled to
continue participation (the premiums for which will be paid by the Company) in
the Company's employee benefit plans providing medical, prescription drug,
dental, and hospitalization benefits for the remainder of the Executive's life
(ii) the Executive shall be entitled to continue participation (the premiums for
which will be paid by the Company) in the Company's other employee benefit plans
for a four year period from the date of termination; provided, however, that if
Executive cannot continue to participate in any of the benefit plans, the
Company shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation had been
permitted. Notwithstanding the foregoing, in the event Executive becomes
employed by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be secondary
to such benefits during the period of Executive's eligibility, but only to the
extent that the Company reimburses Executive for any increased cost and provides
any additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (I) be covered by
a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the Executive for
the purposes of seeking new employment following his termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary earned
and unpaid to the date of termination.
I. Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company or
any entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4i)(the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to the Executive (or to the Internal Revenue
Service on behalf of the Executive) an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has
had paid to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, the Executive shall be deemed (I) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such paragraph 4i, including
whether and when a Gross-up Payment is required, the amount of such Gross-up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by the Company as
of the date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company (collectively, the "Determination"). In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company and the Company shall enter into any agreement
requested by the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i with respect to
any Payments shall be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such effect,
and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the Determination, it is possible that Gross-up Payment which will not
have been made by the Company should have been made ("Underpayment") or Gross-up
Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section 1274(b)
(2)(B) of the Code) shall be promptly paid by the Company to or for the
benefit of the Executive. In the event the amount of Gross-up Payment exceeds
the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been made
and any such Overpayment (together with interest at the rate provided in
Section 1274(b) (2) of the Code) shall be promptly paid by Executive (to the
extent he has received a refund if the applicable Excise Tax has been paid to
the Internal Revenue Service) to or for the benefit of the Company. The
Executive shall cooperate, to the extent his expenses are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with the
Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company, or
by the Executive of the validity of, or liability under, this Agreement or the
SERP (including any contest by the Executive about the amount of any payment
pursuant to this Agreement or pursuant to the SERP), plus in each case interest
on any delayed payment at the rate of 150% of the Prime Rate posted by the Chase
Manhattan Bank, N.A. or its successor, provided, however, that the Company shall
not be liable for the Executive's legal fees and expenses if the Executive's
position in such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other business
affairs of the Company, its subsidiaries and affiliates learned by him from the
Company or any such subsidiary or affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company or any of its subsidiaries or affiliates, whether
during or after his period of service with the Company, except (I) as such
disclosure may be required or appropriate in connection with his work as an
employee of the Company or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. The Executive agrees to give the Company advance
written notice of any disclosure pursuant to clause (ii) of the preceding
sentence and to cooperate with any efforts by the Company to limit the extent of
such disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which he may
then possess or have under his direct control, other than personal notes,
diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by the
Company and for a period of one year following the termination thereof for any
reason (other than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. The
Executive hereby covenants and agrees that, at all times during the period of
his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment.
It is the intention of the parties hereto that the restrictions contained in
this Section be enforceable to the fullest extent permitted by applicable law.
Therefore, to the extent any court of competent jurisdiction shall determine
that any portion of the foregoing restrictions is excessive, such provision
shall not be entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court of
competent jurisdiction should hold that any portion of the foregoing description
is overly broad as to one or more states of the United States, then that state
or states shall be eliminated from the territory to which the restrictions of
paragraph (a) of this Section applies and the restrictions shall remain
applicable in all other states of the United States.
8. No Mitigation. The Executive shall not be required to mitigate the amount
of any payments or benefits provided for in paragraph 4f or g hereof by seeking
other employment or otherwise and no amounts earned by the Executive shall be
used to reduce or offset the amounts payable hereunder, except as otherwise
provided in paragraph 4f or g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company or any Affiliate which the Executive
may conceive or make or have conceived or made during the Executive's employment
with the Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the Company, at
its expense, shall execute and sign any and all applications, assignments or
other instruments and do all other things which the Company may deem necessary
or appropriate (I) to apply for, obtain, maintain, enforce, or defend letters
patent of the United States or any foreign country for any Work Product, or (ii)
to assign, transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of the New York
Civil Practice Law and Rules. Judgment upon the award may be entered in any
court of competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under Sections 6 or 7
hereof, or if the Company makes any claim under Sections 6 or 7, the Company
shall not be required to arbitrate such dispute or claim but shall have the
right to institute judicial proceedings in any court of competent jurisdiction
with respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. David J. Arrington
4302 Hepatica Hill Road
Manlius, NY 13104
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto, and supersedes, and is in full substitution for any and all
prior understandings or agreements, oral or written, with respect to the
Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain financing
vehicles, including a trust, to provide a source of funding for the Company's
obligations under this Agreement. Any such financing vehicles will be subject
to the claims of the general creditors of the Company. No such financing
vehicles shall relieve the Company, or its successors, of its obligation to
provide benefits under this Agreement, except to the extent the Executive
receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an Affiliate) or
by the Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company, whether by merger,
consolidation, reorganization, purchase of all or substantially all of the stock
or assets of the Company, or by operation of law.
16. Severability. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
____________________________ NIAGARA MOHAWK POWER CORPORATION
David J. Arrington
By:______________________________
WILLIAM E. DAVIS
Chairman of the Board
and Chief Executive Officer
SCHEDULE A
Modifications in Respect of David J. Arrington ("Executive")
to the
Supplemental Executive Retirement Plan ("SERP")
of the
Niagara Mohawk Power Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide that
the term "Earnings" shall mean the sum of the (I) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by the Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the Executive's
employment with the Company and (ii) the average of the annual bonus earned by
the Executive under the Corporation's Annual Officers Incentive Compensation
Plan ("OICP"), whether or not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If (A) the Executive is an employee of
the Company on December 31, 1997 or (B) prior to December 31, 1997 the
Executive's employment is terminated and the Executive is entitled to payment
under Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP") for all
or a portion of the Stock Units and Stock Appreciation Rights granted to the
Executive under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of (x) cash
payments made with respect to Stock Units (and related Dividend Equivalents)
granted to the Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the SIP,
prorated if applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Corporation's common stock on December 31, 1997
and (2) the Base Value ($10.75). Notwithstanding the preceding sentence, if a
Change in Control occurs prior to December 31, 1997 (and, if applicable, prior
to the Executive's termination of employment), there shall be taken into account
for purposes of the first sentence hereof as an annual bonus under the OICP the
cash payments with respect to Stock Units (and related Dividend Equivalents) and
Stock Appreciation Rights which are payable to the Executive pursuant to Article
13 of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide that
full SERP benefits are vested following eight (8) years of continuous service
with the Company (i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less than age 55 at
the date of such termination of employment, the Executive shall be entitled to
receive benefits commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide
that in the event of (x) the Executive's involuntary termination of employment
by the Company, at any time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of this
Agreement), the Executive shall be 100% vested in his full SERP benefit (i.e.,
60% of Earnings (as modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service with the
Company. If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and control
participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (I)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (I) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (I), (ii) and (iii) of subparagraph (3) of this
Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (I) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (I) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition
insubstantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
EXHIBIT 10-18
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of December, 1996, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and Albert J. Budney, Jr.(the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to accept/continue employment with the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning December 20, 1996
and expiring on December 31, 1999, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 1998 and on January 1st of each year thereafter,
unless either party notifies the other to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the Company, this
Agreement shall remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B hereto, unless
such notice was given at least 18 months prior to the date of the Change in
Control).
2. Duties. The Executive shall serve the Company as its President and Chief
Operating Officer. During the term of this Agreement, the Executive shall,
except during vacation or sick leave, devote the whole of the Executive's time,
attention and skill to the business of the Company during usual business hours
(and outside those hours when reasonably necessary to the Executive's duties
hereunder); faithfully and diligently perform such duties and exercise such
powers as may be from time to time assigned to or vested in the Executive by the
Company's Board of Directors (the "Board") or by any officer of the Company
superior to the Executive; obey the directions of the Board and of any officer
of the Company superior to the Executive; and use the Executive's best efforts
to promote the interests of the Company. The Executive may be required in
pursuance of the Executive's duties hereunder to perform services for any
company controlling, controlled by or under common control with the Company
(such companies hereinafter collectively called "Affiliates") and to accept such
offices in any Affiliates as the Board may require. The Executive shall obey
all policies of the Company and applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$315,000, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan, Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to which
the Executive became entitled under the terms of this Agreement prior to death
(other than payment of base salary in respect of the period following the
Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date of the
Executive's death shall be paid to the Executive's estate in accordance with
paragraph 4g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (I) a physician selected by the Company advises the Company that
the Executive's physical or mental condition has rendered the Executive unable
to perform the essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a physical
or mental condition, the Executive has not performed the essential functions of
the Executive's position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (I) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary under
paragraph 3a hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the Company's
short-term disability plan and long-term disability plan. Thereafter, or in the
event of termination of this Agreement pursuant to clause (ii) of the preceding
sentence, the Executive shall receive benefits under the Company's long-term
disability plan in lieu of any further base salary under paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice within
ninety (90) days after the Board both (I) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (I) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued failure
by the Executive to perform substantially his duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to the
Executive by the Company which specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties; (iii)
the Executive engages in conduct that constitutes gross neglect or willful
misconduct in carrying out his duties under this Agreement involving material
economic harm to the Company or any of its subsidiaries; or (iv) the Executive
has engaged in a material breach of Sections 6 or 7 of this Agreement. In the
event the termination notice is based on clause (ii) of the preceding sentence,
the Executive shall have ten (10) business days following receipt of the notice
of termination to cure his conduct, to the extent such cure is possible, and if
the Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by the Board
upon the recommendation of the Compensation and Succession Committee of the
Board. Following a Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the membership of the Board, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that Executive has
engaged in conduct which constitutes Cause (and at which Executive had a
reasonable opportunity, together with his counsel, to be heard before the Board
prior to such vote). The Executive shall not be entitled to the payment of any
additional compensation from the Company, except to the extent provided in
paragraph 4h hereof, in the event of the termination of his employment for
Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both (I)
has or should have had knowledge of conduct or an event allegedly constituting
Good Reason, and (ii) has reason to believe that such conduct or event could be
grounds for Good Reason. In such event, the Executive shall be entitled to the
severance benefits set forth in paragraph 4g below.
(I) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or responsibilities;
or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health plan, disability
plan or similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to participate in
immediately prior to the Change in Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof. The Executive shall have
the sole right to determine, in good faith, whether any of the above events has
occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the Executive
a lump sum severance benefit, equal to two years' base salary at the rate in
effect as of the date of termination, plus the greater of (I) two times the most
recent annual bonus paid to the Executive under the Corporation's Annual
Officers Incentive Compensation Plan (the "OICP") or any similar annual bonus
plan (excluding the pro rata bonus referred to in the next sentence) or (ii) two
times the average annual bonus paid to the Executive for the three prior years
under the OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days or more
have elapsed in the Company's fiscal year in which such termination occurs, the
Company shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the numerator of
which is the number of days in the fiscal year in which the termination occurs
through the termination date and the denominator of which is three hundred
sixty-five (365). For purposes of the first sentence of this paragraph 4f,
there shall be taken into account as bonus paid to the Executive for each of the
years 1996 and 1997 under the OICP one-half of the sum of (x) cash payments with
respect to Restricted Stock Units (and related Dividend Equivalents) granted to
the Executive under the Corporation's 1995 Stock Incentive Plan and (y) the
result of multiplying the number of Stock Appreciation Rights granted to the
executive under the Corporation's 1995 Stock Incentive Plan by the difference
between (1) the value of one share of the Corporation's common stock on December
31, 1997 and (2) the Base Value ($10.75). If the termination of the Executive's
employment occurs prior to December 31, 1997 and prior to a Change in Control,
the amount of any adjustments to the severance benefit required as a result of
the preceding sentence of this paragraph 4f shall be paid to the Executive in a
lump sum no later than March 15, 1998. In addition, in the event that the
Executive's employment is terminated by the Company without cause prior to a
Change in Control, the Executive (and his eligible dependents) shall be entitled
to continue participation in the Company's employee benefit plans for a two-year
period from the date of termination, provided, however, that if Executive cannot
continue to participate in any of the benefit plans, the Company shall otherwise
provide equivalent benefits to the Executive and his dependents on the same
after-tax basis as if continued participated had been permitted.
Notwithstanding the foregoing, in the event Executive becomes employed by
another employer and becomes eligible to participate in an employee benefit plan
of such employer, the benefits described herein shall be secondary to such
benefits during the period of Executive's eligibility, but only to the extent
that the Company reimburses Executive for any increased cost and provides any
additional benefits necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (I) be covered by a life insurance policy providing a death benefit,
equal to 2.5 times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is terminated by the
Company without Cause or by the Executive for Good Reason following a Change in
Control, the (I) Executive (and his eligible dependents) shall be entitled to
continue participation (the premiums for which will be paid by the Company) in
the Company's employee benefit plans providing medical, prescription drug,
dental, and hospitalization benefits for the remainder of the Executive's life
(ii) the Executive shall be entitled to continue participation (the premiums for
which will be paid by the Company) in the Company's other employee benefit plans
for a four year period from the date of termination; provided, however, that if
Executive cannot continue to participate in any of the benefit plans, the
Company shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation had been
permitted. Notwithstanding the foregoing, in the event Executive becomes
employed by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be secondary
to such benefits during the period of Executive's eligibility, but only to the
extent that the Company reimburses Executive for any increased cost and provides
any additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (I) be covered by
a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of any
Executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary earned
and unpaid to the date of termination.
I. Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company or
any entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4i)(the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to the Executive (or to the Internal Revenue
Service on behalf of the Executive) an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has
had paid to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, the Executive shall e deemed (I) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-up Payment is to be made,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes and (iii) have otherwise
allowable deductions for federal income tax purposes at least equal to the
Gross-up Payment.
j. All determinations required to be made under such paragraph 4i, including
whether and when a Gross-up Payment is required, the amount of such Gross-up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by the Company as
of the date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company (collectively, the "Determination"). In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company and the Company shall enter into any agreement
requested by the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i with respect to
any Payments shall be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such effect,
and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the Determination, it is possible that Gross-up Payment which will not
have been made by the Company should have been made ("Underpayment") or Gross-up
Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section 1274(b) (2)
(B) of the Code) shall be promptly paid by the Company to or for the benefit of
the Executive. In the event the amount of Gross-up Payment exceeds the amount
necessary to reimburse the Executive for his Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b) (2)
of the Code) shall be promptly paid by Executive (to the extent he has received
a refund if the applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of the Company. The Executive shall cooperate,
to the extent his expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company, or
by the Executive of the validity of, or liability under, this Agreement or the
SERP (including any contest by the Executive about the amount of any payment
pursuant to this Agreement or pursuant to the SERP), plus in each case interest
on any delayed payment at the rate of 150% of the Prime Rate posted by the Chase
Manhattan Bank, N.A. or its successor, provided, however, that the Company shall
not be liable for the Executive's legal fees and expenses if the Executive's
position in such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other business
affairs of the Company, its subsidiaries and affiliates learned by him from the
Company or any such subsidiary or affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company or any of its subsidiaries or affiliates, whether
during or after his period of service with the Company, except (I) as such
disclosure may be required or appropriate in connection with his work as an
employee of the Company or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. The Executive agrees to give the Company advance
written notice of any disclosure pursuant to clause (ii) of the preceding
sentence and to cooperate with any efforts by the Company to limit the extent of
such disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which he may
then possess or have under his direct control, other than personal notes,
diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by the
Company and for a period of one year following the termination thereof for any
reason (other than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. The
Executive hereby covenants and agrees that, at all times during the period of
his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment. It is the intention of the
parties hereto that the restrictions contained in this Section be enforceable to
the fullest extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of the
foregoing restrictions is excessive, such provision shall not be entirely void,
but rather shall be limited or revised only to the extent necessary to make it
enforceable. Specifically, if any court of competent jurisdiction should hold
that any portion of the foregoing description is overly broad as to one or more
states of the United States, then that state or states shall be eliminated from
the territory to which the restrictions of paragraph (a) of this Section applies
and the restrictions shall remain applicable in all other states of the United
States.
8. No Mitigation. The Executive shall not be required to mitigate the amount
of any payments or benefits provided for in paragraph 4f or 4g hereof by seeking
other employment or otherwise and no amounts earned by the Executive shall be
used to reduce or offset the amounts payable hereunder, except as otherwise
provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company or any Affiliate which the Executive
may conceive or make or have conceived or made during the Executive's employment
with the Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the Company, at
its expense, shall execute and sign any and all applications, assignments or
other instruments and do all other things which the Company may deem necessary
or appropriate (I) to apply for, obtain, maintain, enforce, or defend letters
patent of the United States or any foreign country for any Work Product, or (ii)
to assign, transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of the New York
Civil Practice Law and Rules. Judgment upon the award may be entered in any
court of competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under Sections 6 or 7
hereof, or if the Company makes any claim under Sections 6 or 7, the Company
shall not be required to arbitrate such dispute or claim but shall have the
right to institute judicial proceedings in any court of competent jurisdiction
with respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. Albert J. Budney, Jr.
8414 Hobnail Road
Manlius, NY 13104
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto, and supersedes, and is in full substitution for any and all
prior understandings or agreements, oral or written, with respect to the
Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain financing
vehicles, including a trust, to provide a source of funding for the Company's
obligations under this Agreement. Any such financing vehicles will be subject
to the claims of the general creditors of the Company. No such financing
vehicles shall relieve the Company, or its successors, of its obligation to
provide benefits under this Agreement, except to the extent the Executive
receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an Affiliate) or
by the Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company, whether by merger,
consolidation, reorganization, purchase of all or substantially all of the stock
or assets of the Company, or by operation of law.
16. Severability. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
Albert J. Budney, Jr.
By:______________________________
DAVID J. ARRINGTON
Senior Vice President
Human Resources
SCHEDULE A
Modifications in Respect of Albert J. Budney, Jr.("Executive")
to the
Supplemental Executive Retirement Plan ("SERP")
of the
Niagara Mohawk Power Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide that
the term "Earnings" shall mean the sum of the (I) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by the Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the Executive's
employment with the Company and (ii) the average of the annual bonus earned by
the Executive under the Corporation's Annual Officers Incentive Compensation
Plan ("OICP"), whether or not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If (A) the Executive is an employee of
the Company on December 31, 1997 or (B) prior to December 31, 1997 the
Executive's employment is terminated and the Executive is entitled to payment
under Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP") for all
or a portion of the Stock Units and Stock Appreciation Rights granted to the
Executive under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of (x) cash
payments made with respect to Stock Units (and related Dividend Equivalents)
granted to the Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the SIP,
prorated if applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Corporation's common stock on December 31, 1997
and (2) the Base Value ($10.75). Notwithstanding the preceding sentence, if a
Change in Control occurs prior to December 31, 1997 (and, if applicable, prior
to the Executive's termination of employment), there shall be taken into account
for purposes of the first sentence hereof as an annual bonus under the OICP the
cash payments with respect to Stock Units (and related Dividend Equivalents) and
Stock Appreciation Rights which are payable to the Executive pursuant to Article
13 of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide that
full SERP benefits are vested following eight (8) years of continuous service
with the Company (i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less than age 55 at
the date of such termination of employment, the Executive shall be entitled to
receive benefits commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide
that in the event of (x) the Executive's involuntary termination of employment
by the Company, at any time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of this
Agreement), the Executive shall be 100% vested in his full SERP benefit (i.e.,
60% of Earnings (as modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service with the
Company. If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and control
participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (I)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (I) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (I), (ii) and (iii) of subparagraph (3) of this
Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (I) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (I) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
EXHIBIT 10-19
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of December, 1996, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and William E. Davis (the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to accept/continue employment with the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning December 20, 1996
and expiring on December 31, 1999, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 1998 and on January 1st of each year thereafter,
unless either party notifies the other to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the Company, this
Agreement shall remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B hereto, unless
such notice was given at least 18 months prior to the date of the Change in
Control).
2. Duties. The Executive shall serve the Company as its Chairman of the Board
and Chief Executive Officer. During the term of this Agreement, the Executive
shall, except during vacation or sick leave, devote the whole of the Executive's
time, attention and skill to the business of the Company during usual business
hours (and outside those hours when reasonably necessary to the Executive's
duties hereunder); faithfully and diligently perform such duties and exercise
such powers as may be from time to time assigned to or vested in the Executive
by the Company's Board of Directors (the "Board") or by any officer of the
Company superior to the Executive; obey the directions of the Board and of any
officer of the Company superior to the Executive; and use the Executive's best
efforts to promote the interests of the Company. The Executive may be required
in pursuance of the Executive's duties hereunder to perform services for any
company controlling, controlled by or under common control with the Company
(such companies hereinafter collectively called "Affiliates") and to accept such
offices in any Affiliates as the Board may require. The Executive shall obey
all policies of the Company and applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$450,500, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan, Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to which
the Executive became entitled under the terms of this Agreement prior to death
(other than payment of base salary in respect of the period following the
Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date of the
Executive's death shall be paid to the Executive's estate in accordance with
paragraph 4g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (I) a physician selected by the Company advises the Company that
the Executive's physical or mental condition has rendered the Executive unable
to perform the essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a physical
or mental condition, the Executive has not performed the essential functions of
the Executive's position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (I) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary under
paragraph 3a hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the Company's
short-term disability plan and long-term disability plan. Thereafter, or in the
event of termination of this Agreement pursuant to clause (ii) of the preceding
sentence, the Executive shall receive benefits under the Company's long-term
disability plan in lieu of any further base salary under paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice within
ninety (90) days after the Board both (I) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (I) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued failure
by the Executive to perform substantially his duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to the
Executive by the Company which specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties; (iii)
the Executive engages in conduct that constitutes gross neglect or willful
misconduct in carrying out his duties under this Agreement involving material
economic harm to the Company or any of its subsidiaries; or (iv) the Executive
has engaged in a material breach of Sections 6 or 7 of this Agreement. In the
event the termination notice is based on clause (ii) of the preceding sentence,
the Executive shall have ten (10) business days following receipt of the notice
of termination to cure his conduct, to the extent such cure is possible, and if
the Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by the Board
upon the recommendation of the Compensation and Succession Committee of the
Board. Following a Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the membership of the Board, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that Executive has
engaged in conduct which constitutes Cause (and at which Executive had a
reasonable opportunity, together with his counsel, to be heard before the Board
prior to such vote). The Executive shall not be entitled to the payment of any
additional compensation from the Company, except to the extent provided in
paragraph 4h hereof, in the event of the termination of his employment for
Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both (I)
has or should have had knowledge of conduct or an event allegedly constituting
Good Reason, and (ii) has reason to believe that such conduct or event could be
grounds for Good Reason. In such event, the Executive shall be entitled to the
severance benefits set forth in paragraph 4g below.
(I) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or responsibilities;
or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health plan, disability
plan or similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to participate in
immediately prior to the Change in Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof. The Executive shall have
the sole right to determine, in good faith, whether any of the above events has
occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the Executive
a lump sum severance benefit, equal to two years' base salary at the rate in
effect as of the date of termination, plus the greater of (I) two times the most
recent annual bonus paid to the Executive under the Corporation's Annual
Officers Incentive Compensation Plan (the "OICP") or any similar annual bonus
plan (excluding the pro rata bonus referred to in the next sentence) or (ii) two
times the average annual bonus paid to the Executive for the three prior years
under the OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days or more
have elapsed in the Company's fiscal year in which such termination occurs, the
Company shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the numerator of
which is the number of days in the fiscal year in which the termination occurs
through the termination date and the denominator of which is three hundred
sixty-five (365). For purposes of the first sentence of this paragraph 4f,
there shall be taken into account as bonus paid to the Executive for each of the
years 1996 and 1997 under the OICP one-half of the sum of (x) cash payments with
respect to Restricted Stock Units (and related Dividend Equivalents) granted to
the Executive under the Corporation's 1995 Stock Incentive Plan and (y) the
result of multiplying the number of Stock Appreciation Rights granted to the
Executive under the Corporation's 1995 Stock Incentive Plan by the difference
between (1) the value of one share of the Corporation's common stock on December
31, 1997 and (2) the Base Value ($10.75). If the termination of the Executive's
employment occurs prior to December 31, 1997 and prior to a Change in Control,
the amount of any adjustments to the severance benefit required as a result of
the preceding sentence of this paragraph 4f shall be paid to the Executive in a
lump sum no later than March 15, 1998.
In addition, in the event that the Executive's employment is terminated by the
Company without cause prior to a Change in Control, the Executive (and his
eligible dependents) shall be entitled to continue participation in the
Company's employee benefit plans for a two-year period from the date of
termination, provided, however, that if Executive cannot continue to participate
in any of the benefit plans, the Company shall otherwise provide equivalent
benefits to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the foregoing, in
the event Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits described
herein shall be secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses Executive for
any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (I) be covered by a life insurance policy providing a death benefit,
equal to 2.5 times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination. In addition, in the event that the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason
following a Change in Control, the (I) Executive (and his eligible dependents)
shall be entitled to continue participation (the premiums for which will be paid
by the Company) in the Company's employee benefit plans providing medical,
prescription drug, dental, and hospitalization benefits for the remainder of the
Executive's life (ii) the Executive shall be entitled to continue participation
(the premiums for which will be paid by the Company) in the Company's other
employee benefit plans for a four year period from the date of termination;
provided, however, that if Executive cannot continue to participate in any of
the benefit plans, the Company shall otherwise provide equivalent benefits to
the Executive and his dependents on the same after-tax basis as if continued
participation had been permitted. Notwithstanding the foregoing, in the event
Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits
described herein shall be secondary to such benefits during the period of
Executive's eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits necessary
to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (I) be covered by
a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the Executive for
the purposes of seeking new employment following his termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary earned
and unpaid to the date of termination.
I. Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company or
any entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4i)(the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to the Executive (or to the Internal Revenue
Service on behalf of the Executive) an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has
had paid to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, the Executive shall be deemed (I) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such paragraph 4i, including
whether and when a Gross-up Payment is required, the amount of such Gross-up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by the Company as
of the date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company (collectively, the "Determination"). In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company and the Company shall enter into any agreement
requested by the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i with respect to
any Payments shall be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such effect,
and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the Determination, it is possible that Gross-up Payment which will not
have been made by the Company should have been made ("Underpayment") or Gross-up
Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section 1274(b) (2)
(B) of the Code) shall be promptly paid by the Company to or for the benefit of
the Executive. In the event the amount of Gross-up Payment exceeds the amount
necessary to reimburse the Executive for his Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b) (2)
of the Code) shall be promptly paid by Executive (to the extent he has received
a refund if the applicable Excise Tax has been paid to the Internal Revenue
Service) to or for the benefit of the Company. The Executive shall cooperate,
to the extent his expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company, or
by the Executive of the validity of, or liability under, this Agreement or the
SERP (including any contest by the Executive about the amount of any payment
pursuant to this Agreement or pursuant to the SERP), plus in each case interest
on any delayed payment at the rate of 150% of the Prime Rate posted by the Chase
Manhattan Bank, N.A. or its successor, provided, however, that the Company shall
not be liable for the Executive's legal fees and expenses if the Executive's
position in such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other business
affairs of the Company, its subsidiaries and affiliates learned by him from the
Company or any such subsidiary or affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company or any of its subsidiaries or affiliates, whether
during or after his period of service with the Company, except (I) as such
disclosure may be required or appropriate in connection with his work as an
employee of the Company or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. The Executive agrees to give the Company advance
written notice of any disclosure pursuant to clause (ii) of the preceding
sentence and to cooperate with any efforts by the Company to limit the extent of
such disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which he may
then possess or have under his direct control, other than personal notes,
diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by the
Company and for a period of one year following the termination thereof for any
reason (other than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. The
Executive hereby covenants and agrees that, at all times during the period of
his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment. It is the intention of the
parties hereto that the restrictions contained in this Section be enforceable to
the fullest extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of the
foregoing restrictions is excessive, such provision shall not be entirely void,
but rather shall be limited or revised only to the extent necessary to make it
enforceable. Specifically, if any court of competent jurisdiction should hold
that any portion of the foregoing description is overly broad as to one or more
states of the United States, then that state or states shall be eliminated from
the territory to which the restrictions of paragraph (a) of this Section applies
and the restrictions shall remain applicable in all other states of the United
States.
8. No Mitigation. The Executive shall not be required to mitigate the amount
of any payments or benefits provided for in paragraph 4f or 4g hereof by seeking
other employment or otherwise and no amounts earned by the Executive shall be
used to reduce or offset the amounts payable hereunder, except as otherwise
provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company or any Affiliate which the Executive
may conceive or make or have conceived or made during the Executive's employment
with the Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the Company, at
its expense, shall execute and sign any and all applications, assignments or
other instruments and do all other things which the Company may deem necessary
or appropriate (I) to apply for, obtain, maintain, enforce, or defend letters
patent of the United States or any foreign country for any Work Product, or (ii)
to assign, transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of the New York
Civil Practice Law and Rules. Judgment upon the award may be entered in any
court of competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under Sections 6 or 7
hereof, or if the Company makes any claim under Sections 6 or 7, the Company
shall not be required to arbitrate such dispute or claim but shall have the
right to institute judicial proceedings in any court of competent jurisdiction
with respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. William E. Davis
88 West Lake Street
Skaneateles, NY 13152
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto, and supersedes, and is in full substitution for any and all
prior understandings or agreements, oral or written, with respect to the
Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain financing
vehicles, including a trust, to provide a source of funding for the Company's
obligations under this Agreement. Any such financing vehicles will be subject
to the claims of the general creditors of the Company. No such financing
vehicles shall relieve the Company, or its successors, of its obligation to
provide benefits under this Agreement, except to the extent the Executive
receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an Affiliate) or
by the Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company, whether by merger,
consolidation, reorganization, purchase of all or substantially all of the stock
or assets of the Company, or by operation of law.
16. Severability. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
__________________________ NIAGARA MOHAWK POWER CORPORATION
William E. Davis
By:______________________________
DAVID J. ARRINGTON
Senior Vice President
Human Resources
SCHEDULE A
Modifications in Respect of William E. Davis ("Executive")
to the
Supplemental Executive Retirement Plan ("SERP")
of the
Niagara Mohawk Power Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide that
the term "Earnings" shall mean the sum of the (I) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by the Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the Executive's
employment with the Company and (ii) the average of the annual bonus earned by
the Executive under the Corporation's Annual Officers Incentive Compensation
Plan ("OICP"), whether or not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If (A) the Executive is an employee of
the Company on December 31, 1997 or (B) prior to December 31, 1997 the
Executive's employment is terminated and the Executive is entitled to payment
under Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP") for all
or a portion of the Stock Units and Stock Appreciation Rights granted to the
Executive under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of (x) cash
payments made with respect to Stock Units (and related Dividend Equivalents)
granted to the Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the SIP,
prorated if applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Corporation's common stock on December 31, 1997
and (2) the Base Value ($10.75). Notwithstanding the preceding sentence, if a
Change in Control occurs prior to December 31, 1997 (and, if applicable, prior
to the Executive's termination of employment), there shall be taken into account
for purposes of the first sentence hereof as an annual bonus under the OICP the
cash payments with respect to Stock Units (and related Dividend Equivalents) and
Stock Appreciation Rights which are payable to the Executive pursuant to Article
13 of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide that
full SERP benefits are vested following eight (8) years of continuous service
with the Company (i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less than age 55 at
the date of such termination of employment, the Executive shall be entitled to
receive benefits commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide
that in the event of (x) the Executive's involuntary termination of employment
by the Company, at any time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of this
Agreement), the Executive shall be 100% vested in his full SERP benefit (i.e.,
60% of Earnings (as modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service with the
Company. If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and control
participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (I)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (I) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (I), (ii) and (iii) of subparagraph (3) of this
Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (I) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (I) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
EXHIBIT 10-20
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of December, 1996, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and Darlene D. Kerr(the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to accept/continue employment with the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning December 20, 1996
and expiring on December 31, 1999, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 1998 and on January 1st of each year thereafter,
unless either party notifies the other to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the Company, this
Agreement shall remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B hereto, unless
such notice was given at least 18 months prior to the date of the Change in
Control).
2. Duties. The Executive shall serve the Company as its Senior Vice President
- - Energy Distribution. During the term of this Agreement, the Executive shall,
except during vacation or sick leave, devote the whole of the Executive's time,
attention and skill to the business of the Company during usual business hours
(and outside those hours when reasonably necessary to the Executive's duties
hereunder); faithfully and diligently perform such duties and exercise such
powers as may be from time to time assigned to or vested in the Executive by the
Company's Board of Directors (the "Board") or by any officer of the Company
superior to the Executive; obey the directions of the Board and of any officer
of the Company superior to the Executive; and use the Executive's best efforts
to promote the interests of the Company. The Executive may be required in
pursuance of the Executive's duties hereunder to perform services for any
company controlling, controlled by or under common control with the Company
(such companies hereinafter collectively called "Affiliates") and to accept such
offices in any Affiliates as the Board may require. The Executive shall obey
all policies of the Company and applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$210,000, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan, Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to which
the Executive became entitled under the terms of this Agreement prior to death
(other than payment of base salary in respect of the period following the
Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date of the
Executive's death shall be paid to the Executive's estate in accordance with
paragraph 4g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (i) a physician selected by the Company advises the Company that
the Executive's physical or mental condition has rendered the Executive unable
to perform the essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a physical
or mental condition, the Executive has not performed the essential functions of
the Executive's position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (i) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary under
paragraph 3a hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the Company's
short-term disability plan and long-term disability plan. Thereafter, or in the
event of termination of this Agreement pursuant to clause (ii) of the preceding
sentence, the Executive shall receive benefits under the Company's long-term
disability plan in lieu of any further base salary under paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice within
ninety (90) days after the Board both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued failure
by the Executive to perform substantially his duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to the
Executive by the Company which specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties; (iii)
the Executive engages in conduct that constitutes gross neglect or willful
misconduct in carrying out his duties under this Agreement involving material
economic harm to the Company or any of its subsidiaries; or (iv) the Executive
has engaged in a material breach of Sections 6 or 7 of this Agreement. In the
event the termination notice is based on clause (ii) of the preceding sentence,
the Executive shall have ten (10) business days following receipt of the notice
of termination to cure his conduct, to the extent such cure is possible, and if
the Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by the Board
upon the recommendation of the Compensation and Succession Committee of the
Board. Following a Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the membership of the Board, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that Executive has
engaged in conduct which constitutes Cause (and at which Executive had a
reasonable opportunity, together with his counsel, to be heard before the Board
prior to such vote). The Executive shall not be entitled to the payment of any
additional compensation from the Company, except to the extent provided in
paragraph 4h hereof, in the event of the termination of his employment for
Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both (I)
has or should have had knowledge of conduct or an event allegedly constituting
Good Reason, and (ii) has reason to believe that such conduct or event could be
grounds for Good Reason. In such event, the Executive shall be entitled to the
severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or responsibilities;
or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health plan, disability
plan or similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to participate in
immediately prior to the Change in Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof.
The Executive shall have the sole right to determine, in good faith, whether any
of the above events has occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the Executive
a lump sum severance benefit, equal to two years' base salary at the rate in
effect as of the date of termination, plus the greater of (i) two times the most
recent annual bonus paid to the Executive under the Corporation's Annual
Officers Incentive Compensation Plan (the "OICP") or any similar annual bonus
plan (excluding the pro rata bonus referred to in the next sentence) or (ii) two
times the average annual bonus paid to the Executive for the three prior years
under the OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days or more
have elapsed in the Company's fiscal year in which such termination occurs, the
Company shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the numerator of
which is the number of days in the fiscal year in which the termination occurs
through the termination date and the denominator of which is three hundred
sixty-five (365). For purposes of the first sentence of this paragraph 4f,
there shall be taken into account as bonus paid to the Executive for each of the
years 1996 and 1997 under the OICP one-half of the sum of (x) cash payments with
respect to Restricted Stock Units (and related Dividend Equivalents) granted to
the Executive under the Corporation's 1995 Stock Incentive Plan and (y) the
result of multiplying the number of Stock Appreciation Rights granted to the
Executive under the Corporation's 1995 Stock Incentive Plan by the difference
between (1) the value of one share of the Corporation's common stock on December
31, 1997 and (2) the Base Value ($10.75). If the termination of the Executive's
employment occurs prior to December 31, 1997 and prior to a Change in Control,
the amount of any adjustments to the severance benefit required as a result of
the preceding sentence of this paragraph 4f shall be paid to the Executive in a
lump sum no later than March 15, 1998.
In addition, in the event that the Executive's employment is terminated by the
Company without cause prior to a Change in Control, the Executive (and his
eligible dependents) shall be entitled to continue participation in the
Company's employee benefit plans for a two-year period from the date of
termination, provided, however, that if Executive cannot continue to participate
in any of the benefit plans, the Company shall otherwise provide equivalent
benefits to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the foregoing, in
the event Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits described
herein shall be secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses Executive for
any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (i) be covered by a life insurance policy providing a death benefit,
equal to 2.5 times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is terminated by the
Company without Cause or by the Executive for Good Reason following a Change in
Control, the (i) Executive (and his eligible dependents) shall be entitled to
continue participation (the premiums for which will be paid by the Company) in
the Company's employee benefit plans providing medical, prescription drug,
dental, and hospitalization benefits for the remainder of the Executive's life
(ii) the Executive shall be entitled to continue participation (the premiums for
which will be paid by the Company) in the Company's other employee benefit plans
for a four year period from the date of termination; provided, however, that if
Executive cannot continue to participate in any of the benefit plans, the
Company shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation had been
permitted. Notwithstanding the foregoing, in the event Executive becomes
employed by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be secondary
to such benefits during the period of Executive's eligibility, but only to the
extent that the Company reimburses Executive for any increased cost and provides
any additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (i) be covered by
a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the Executive for
the purposes of seeking new employment following his termination of
employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary earned
and unpaid to the date of termination.
i. Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company or
any entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4i)(the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to the Executive (or to the Internal Revenue
Service on behalf of the Executive) an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has
had paid to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such paragraph 4i, including
whether and when a Gross-up Payment is required, the amount of such Gross-up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by the Company as
of the date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company (collectively, the "Determination"). In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company and the Company shall enter into any agreement
requested by the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i with respect to
any Payments shall be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such effect,
and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the Determination, it is possible that Gross-up Payment which will
not have been made by the Company should have been made ("Underpayment") or
Gross-up Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section 1274(b) (2)
(B) of the Code) shall be promptly paid by the Company to or for the benefit of
the Executive. In the event the amount of Gross-up Payment exceeds the amount
necessary to reimburse the Executive for his Excise Tax, the Accounting Firm
shall determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b)
(2) of the Code) shall be promptly paid by Executive (to the extent he has
received a refund if the applicable Excise Tax has been paid to the Internal
Revenue Service) to or for the benefit of the Company. The Executive shall
cooperate, to the extent his expenses are reimbursed by the Company, with any
reasonable requests by the Company in connection with any contests or disputes
with the Internal Revenue Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company, or
by the Executive of the validity of, or liability under, this Agreement or the
SERP (including any contest by the Executive about the amount of any payment
pursuant to this Agreement or pursuant to the SERP), plus in each case interest
on any delayed payment at the rate of 150% of the Prime Rate posted by the Chase
Manhattan Bank, N.A. or its successor, provided, however, that the Company shall
not be liable for the Executive's legal fees and expenses if the Executive's
position in such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other business
affairs of the Company, its subsidiaries and affiliates learned by him from the
Company or any such subsidiary or affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company or any of its subsidiaries or affiliates, whether
during or after his period of service with the Company, except (i) as such
disclosure may be required or appropriate in connection with his work as an
employee of the Company or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. The Executive agrees to give the Company advance
written notice of any disclosure pursuant to clause (ii) of the preceding
sentence and to cooperate with any efforts by the Company to limit the extent of
such disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which he may
then possess or have under his direct control, other than personal notes,
diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by the
Company and for a period of one year following the termination thereof for any
reason (other than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. The
Executive hereby covenants and agrees that, at all times during the period of
his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment.
It is the intention of the parties hereto that the restrictions contained in
this Section be enforceable to the fullest extent permitted by applicable law.
Therefore, to the extent any court of competent jurisdiction shall determine
that any portion of the foregoing restrictions is excessive, such provision
shall not be entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court of
competent jurisdiction should hold that any portion of the foregoing description
is overly broad as to one or more states of the United States, then that state
or states shall be eliminated from the territory to which the restrictions of
paragraph (a) of this Section applies and the restrictions shall remain
applicable in all other states of the United States.
8. No Mitigation. The Executive shall not be required to mitigate the amount
of any payments or benefits provided for in paragraph 4f or 4g hereof by seeking
other employment or otherwise and no amounts earned by the Executive shall be
used to reduce or offset the amounts payable hereunder, except as otherwise
provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company or any Affiliate which the Executive
may conceive or make or have conceived or made during the Executive's employment
with the Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the Company, at
its expense, shall execute and sign any and all applications, assignments or
other instruments and do all other things which the Company may deem necessary
or appropriate (i) to apply for, obtain, maintain, enforce, or defend letters
patent of the United States or any foreign country for any Work Product, or (ii)
to assign, transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of the New York
Civil Practice Law and Rules. Judgment upon the award may be entered in any
court of competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under Sections 6 or 7
hereof, or if the Company makes any claim under Sections 6 or 7, the Company
shall not be required to arbitrate such dispute or claim but shall have the
right to institute judicial proceedings in any court of competent jurisdiction
with respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Ms. Darlene D. Kerr
245 Whitestone Circle
Syracuse, NY 13215
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto, and supersedes, and is in full substitution for any and all
prior understandings or agreements, oral or written, with respect to the
Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain financing
vehicles, including a trust, to provide a source of funding for the Company's
obligations under this Agreement. Any such financing vehicles will be subject
to the claims of the general creditors of the Company. No such financing
vehicles shall relieve the Company, or its successors, of its obligation to
provide benefits under this Agreement, except to the extent the Executive
receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an Affiliate) or
by the Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company, whether by merger,
consolidation, reorganization, purchase of all or substantially all of the stock
or assets of the Company, or by operation of law.
16. Severability. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
Darlene D. Kerr
By:______________________________
DAVID J. ARRINGTON
Senior Vice President
Human Resources
SCHEDULE A
Modifications in Respect of Darlene D. Kerr ("Executive")
to the
Supplemental Executive Retirement Plan ("SERP")
of the
Niagara Mohawk Power Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide that
the term "Earnings" shall mean the sum of the (i) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by the Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the Executive's
employment with the Company and (ii) the average of the annual bonus earned by
the Executive under the Corporation's Annual Officers Incentive Compensation
Plan ("OICP"), whether or not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If (A) the Executive is an employee of
the Company on December 31, 1997 or (B) prior to December 31, 1997 the
Executive's employment is terminated and the Executive is entitled to payment
under Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP") for all
or a portion of the Stock Units and Stock Appreciation Rights granted to the
Executive under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of (x) cash
payments made with respect to Stock Units (and related Dividend Equivalents)
granted to the Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the SIP,
prorated if applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Corporation's common stock on December 31, 1997
and (2) the Base Value ($10.75). Notwithstanding the preceding sentence, if a
Change in Control occurs prior to December 31, 1997 (and, if applicable, prior
to the Executive's termination of employment), there shall be taken into account
for purposes of the first sentence hereof as an annual bonus under the OICP the
cash payments with respect to Stock Units (and related Dividend Equivalents) and
Stock Appreciation Rights which are payable to the Executive pursuant to Article
13 of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide that
full SERP benefits are vested following eight (8) years of continuous service
with the Company (i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less than age 55 at
the date of such termination of employment, the Executive shall be entitled to
receive benefits commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide
that in the event of (x) the Executive's involuntary termination of employment
by the Company, at any time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of this
Agreement), the Executive shall be 100% vested in his full SERP benefit (i.e.,
60% of Earnings (as modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service with the
Company. If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and control
participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (I)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subparagraph (3) of this
Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
EXHIBIT 10-21
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of December, 1996, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and Gary J. Lavine (the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to accept/continue employment with the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning December 20, 1996
and expiring on December 31, 1999, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 1998 and on January 1st of each year thereafter,
unless either party notifies the other to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the Company, this
Agreement shall remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B hereto, unless
such notice was given at least 18 months prior to the date of the Change in
Control).
2. Duties. The Executive shall serve the Company as its Senior Vice President
- - Legal and Corporate Relations. During the term of this Agreement, the
Executive shall, except during vacation or sick leave, devote the whole of the
Executive's time, attention and skill to the business of the Company during
usual business hours (and outside those hours when reasonably necessary to the
Executive's duties hereunder); faithfully and diligently perform such duties and
exercise such powers as may be from time to time assigned to or vested in the
Executive by the Company's Board of Directors (the "Board") or by any officer of
the Company superior to the Executive; obey the directions of the Board and of
any officer of the Company superior to the Executive; and use the Executive's
best efforts to promote the interests of the Company. The Executive may be
required in pursuance of the Executive's duties hereunder to perform services
for any company controlling, controlled by or under common control with the
Company (such companies hereinafter collectively called "Affiliates") and to
accept such offices in any Affiliates as the Board may require. The Executive
shall obey all policies of the Company and applicable policies of its
Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$191,500, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan, Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to which
the Executive became entitled under the terms of this Agreement prior to death
(other than payment of base salary in respect of the period following the
Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date of the
Executive's death shall be paid to the Executive's estate in accordance with
paragraph 4g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (i) a physician selected by the Company advises the Company that
the Executive's physical or mental condition has rendered the Executive unable
to perform the essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a physical
or mental condition, the Executive has not performed the essential functions of
the Executive's position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (i) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary under
paragraph 3a hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the Company's
short-term disability plan and long-term disability plan. Thereafter, or in the
event of termination of this Agreement pursuant to clause (ii) of the preceding
sentence, the Executive shall receive benefits under the Company's long-term
disability plan in lieu of any further base salary under paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice within
ninety (90) days after the Board both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued failure
by the Executive to perform substantially his duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to the
Executive by the Company which specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties; (iii)
the Executive engages in conduct that constitutes gross neglect or willful
misconduct in carrying out his duties under this Agreement involving material
economic harm to the Company or any of its subsidiaries; or (iv) the Executive
has engaged in a material breach of Sections 6 or 7 of this Agreement. In the
event the termination notice is based on clause (ii) of the preceding sentence,
the Executive shall have ten (10) business days following receipt of the notice
of termination to cure his conduct, to the extent such cure is possible, and if
the Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by the Board
upon the recommendation of the Compensation and Succession Committee of the
Board. Following a Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the membership of the Board, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that Executive has
engaged in conduct which constitutes Cause (and at which Executive had a
reasonable opportunity, together with his counsel, to be heard before the Board
prior to such vote). The Executive shall not be entitled to the payment of any
additional compensation from the Company, except to the extent provided in
paragraph 4h hereof, in the event of the termination of his employment for
Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both (I)
has or should have had knowledge of conduct or an event allegedly constituting
Good Reason, and (ii) has reason to believe that such conduct or event could be
grounds for Good Reason. In such event, the Executive shall be entitled to the
severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or responsibilities;
or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health plan, disability
plan or similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to participate in
immediately prior to the Change in Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof.
The Executive shall have the sole right to determine, in good faith, whether any
of the above events has occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the Executive
a lump sum severance benefit, equal to two years' base salary at the rate in
effect as of the date of termination, plus the greater of (i) two times the most
recent annual bonus paid to the Executive under the Corporation's Annual
Officers Incentive Compensation Plan (the "OICP") or any similar annual bonus
plan (excluding the pro rata bonus referred to in the next sentence) or (ii) two
times the average annual bonus paid to the Executive for the three prior years
under the OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days or more
have elapsed in the Company's fiscal year in which such termination occurs, the
Company shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the numerator of
which is the number of days in the fiscal year in which the termination occurs
through the termination date and the denominator of which is three hundred
sixty-five (365). For purposes of the first sentence of this paragraph 4f,
there shall be taken into account as bonus paid to the Executive for each of the
years 1996 and 1997 under the OICP one-half of the sum of (x) cash payments with
respect to Restricted Stock Units (and related Dividend Equivalents) granted to
the Executive under the Corporation's 1995 Stock Incentive Plan and (y) the
result of multiplying the number of Stock Appreciation Rights granted to the
Executive under the Corporation's 1995 Stock Incentive Plan by the difference
between (1) the value of one share of the Corporation's common stock on December
31, 1997 and (2) the Base Value ($10.75). If the termination of the Executive's
employment occurs prior to December 31, 1997 and prior to a Change in Control,
the amount of any adjustments to the severance benefit required as a result of
the preceding sentence of this paragraph 4f shall be paid to the Executive in a
lump sum no later than March 15, 1998.
In addition, in the event that the Executive's employment is terminated by the
Company without cause prior to a Change in Control, the Executive (and his
eligible dependents) shall be entitled to continue participation in the
Company's employee benefit plans for a two-year period from the date of
termination, provided, however, that if Executive cannot continue to participate
in any of the benefit plans, the Company shall otherwise provide equivalent
benefits to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the foregoing, in
the event Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits described
herein shall be secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses Executive for
any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (i) be covered by a life insurance policy providing a death benefit,
equal to 2.5 times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is terminated by the
Company without Cause or by the Executive for Good Reason following a Change in
Control, the (i) Executive (and his eligible dependents) shall be entitled to
continue participation (the premiums for which will be paid by the Company) in
the Company's employee benefit plans providing medical, prescription drug,
dental, and hospitalization benefits for the remainder of the Executive's life
(ii) the Executive shall be entitled to continue participation (the premiums for
which will be paid by the Company) in the Company's other employee benefit plans
for a four year period from the date of termination; provided, however, that if
Executive cannot continue to participate in any of the benefit plans, the
Company shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation had been
permitted. Notwithstanding the foregoing, in the event Executive becomes
employed by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be secondary
to such benefits during the period of Executive's eligibility, but only to the
extent that the Company reimburses Executive for any increased cost and provides
any additional benefits necessary to give Executive the benefits provided
hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (i) be covered by
a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the Executive for
the purposes of seeking new employment following his termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary earned
and unpaid to the date of termination.
i. Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company
orany entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4i)(the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to the Executive (or to the Internal Revenue
Service on behalf of the Executive) an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has
had paid to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such paragraph 4i, including
whether and when a Gross-up Payment is required, the amount of such Gross-up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by the Company as
of the date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company (collectively, the "Determination"). In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company and the Company shall enter into any agreement
requested by the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i with respect to
any Payments shall be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such effect,
and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the Determination, it is possible that Gross-up Payment which will
not have been made by the Company should have been made ("Underpayment") or
Gross-up Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section 1274(b)
(2) (B) of the Code) shallbe promptly paid by the Company to or for the benefit
of the Executive. In the event the amount of Gross-up Payment exceeds the
amount necessary to reimburse the Executive for his Excise Tax, the Accounting
Firm shall determine the amount of the Overpayment that has been made and any
such Overpayment (together with interest at the rate provided in Section
1274(b) (2) of the Code) shall be promptly paid by Executive (to the extent he
has received a refund if the applicable Excise Tax has been paid to the Internal
Revenue Service) to or for the benefit of the Company. The Executive shall
cooperate, to the extent his expenses are reimbursed by the Company, with any
reasonable requests by the Company in connection with any contests or disputes
with the Internal Revenue Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company, or
by the Executive of the validity of, or liability under, this Agreement or the
SERP (including any contest by the Executive about the amount of any payment
pursuant to this Agreement or pursuant to the SERP), plus in each case interest
on any delayed payment at the rate of 150% of the Prime Rate posted by the Chase
Manhattan Bank, N.A. or its successor, provided, however, that the Company shall
not be liable for the Executive's legal fees and expenses if the Executive's
position in such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other business
affairs of the Company, its subsidiaries and affiliates learned by him from the
Company or any such subsidiary or affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company or any of its subsidiaries or affiliates, whether
during or after his period of service with the Company, except (i) as such
disclosure may be required or appropriate in connection with his work as an
employee of the Company or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. The Executive agrees to give the Company advance
written notice of any disclosure pursuant to clause (ii) of the preceding
sentence and to cooperate with any efforts by the Company to limit the extent of
such disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which he may
then possess or have under his direct control, other than personal notes,
diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by the
Company and for a period of one year following the termination thereof for any
reason (other than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. The
Executive hereby covenants and agrees that, at all times during the period of
his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment. It is the intention of the
parties hereto that the restrictions contained in this Section be enforceable to
the fullest extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of the
foregoing restrictions is excessive, such provision shall not be entirely void,
but rather shall be limited or revised only to the extent necessary to make it
enforceable. Specifically, if any court of competent jurisdiction should hold
that any portion of the foregoing description is overly broad as to one or more
states of the United States, then that state or states shall be eliminated from
the territory to which the restrictions of paragraph (a) of this Section applies
and the restrictions shall remain applicable in all other states of the United
States.
8. No Mitigation. The Executive shall not be required to mitigate the
amountof any payments or benefits provided for in paragraph 4f or 4g hereof by
seeking other employment or otherwise and no amounts earned by the Executive
shall be used to reduce or offset the amounts payable hereunder, except as
otherwise provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company or any Affiliate which the Executive
may conceive or make or have conceived or made during the Executive's employment
with the Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the Company, at
its expense, shall execute and sign any and all applications, assignments or
other instruments and do all other things which the Company may deem necessary
or appropriate (i) to apply for, obtain, maintain, enforce, or defend letters
patent of the United States or any foreign country for any Work Product, or (ii)
to assign, transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of the New York
Civil Practice Law and Rules. Judgment upon the award may be entered in any
court of competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under Sections 6 or 7
hereof, or if the Company makes any claim under Sections 6 or 7, the Company
shall not be required to arbitrate such dispute or claim but shall have the
right to institute judicial proceedings in any court of competent jurisdiction
with respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. Gary J. Lavine
111 Holliston Circle
Fayetteville, NY 13066
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto, and supersedes, and is in full substitution for any and all
prior understandings or agreements, oral or written, with respect to the
Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain financing
vehicles, including a trust, to provide a source of funding for the Company's
obligations under this Agreement. Any such financing vehicles will be subject
to the claims of the general creditors of the Company. No such financing
vehicles shall relieve the Company, or its successors, of its obligation to
provide benefits under this Agreement, except to the extent the Executive
receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an Affiliate) or
by the Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company, whether by merger,
consolidation, reorganization, purchase of all or substantially all of the stock
or assets of the Company, or by operation of law.
16. Severability. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
Gary J. Lavine
By:______________________________
DAVID J. ARRINGTON
Senior Vice President
Human Resources
SCHEDULE A
Modifications in Respect of Gary J. Lavine ("Executive")
to the
Supplemental Executive Retirement Plan ("SERP")
of the
Niagara Mohawk Power Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide that
the term "Earnings" shall mean the sum of the (i) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by the Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the Executive's
employment with the Company and (ii) the average of the annual bonus earned by
the Executive under the Corporation's Annual Officers Incentive Compensation
Plan ("OICP"), whether or not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If (A) the Executive is an employee of
the Company on December 31, 1997 or (B) prior to December 31, 1997 the
Executive's employment is terminated and the Executive is entitled to payment
under Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP") for all
or a portion of the Stock Units and Stock Appreciation Rights granted to the
Executive under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of (x) cash
payments made with respect to Stock Units (and related Dividend Equivalents)
granted to the Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the SIP,
prorated if applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Corporation's common stock on December 31, 1997
and (2) the Base Value ($10.75). Notwithstanding the preceding sentence, if a
Change in Control occurs prior to December 31, 1997 (and, if applicable, prior
to the Executive's termination of employment), there shall be taken into account
for purposes of the first sentence hereof as an annual bonus under the OICP the
cash payments with respect to Stock Units (and related Dividend Equivalents) and
Stock Appreciation Rights which are payable to the Executive pursuant to Article
13 of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide that
full SERP benefits are vested following eight (8) years of continuous service
with the Company (i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less than age 55 at
the date of such termination of employment, the Executive shall be entitled to
receive benefits commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide
that in the event of (x) the Executive's involuntary termination of employment
by the Company, at any time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of this
Agreement), the Executive shall be 100% vested in his full SERP benefit (i.e.,
60% of Earnings (as modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service with the
Company. If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and control
participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (I)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subparagraph (3) of this
Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
EXHIBIT 10-22
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of December, 1996, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and John W. Powers (the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to accept/continue employment with the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning December 20, 1996
and expiring on December 31, 1999, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 1998 and on January 1st of each year thereafter,
unless either party notifies the other to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the Company, this
Agreement shall remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B hereto, unless
such notice was given at least 18 months prior to the date of the Change in
Control).
2. Duties. The Executive shall serve the Company as its Senior Vice President
and Chief Financial Officer. During the term of this Agreement, the Executive
shall, except during vacation or sick leave, devote the whole of the Executive's
time, attention and skill to the business of the Company during usual business
hours (and outside those hours when reasonably necessary to the Executive's
duties hereunder); faithfully and diligently perform such duties and exercise
such powers as may be from time to time assigned to or vested in the Executive
by the Company's Board of Directors (the "Board") or by any officer of the
Company superior to the Executive; obey the directions of the Board and of any
officer of the Company superior to the Executive; and use the Executive's best
efforts to promote the interests of the Company. The Executive may be required
in pursuance of the Executive's duties hereunder to perform services for any
company controlling, controlled by or under common control with the Company
(such companies hereinafter collectively called "Affiliates") and to accept such
offices in any Affiliates as the Board may require. The Executive shall obey
all policies of the Company and applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$211,000, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan, Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to which
the Executive became entitled under the terms of this Agreement prior to death
(other than payment of base salary in respect of the period following the
Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date of the
Executive's death shall be paid to the Executive's estate in accordance with
paragraph 4g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (I) a physician selected by the Company advises the Company that
the Executive's physical or mental condition has rendered the Executive unable
to perform the essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a physical
or mental condition, the Executive has not performed the essential functions of
the Executive's position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (I) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary under
paragraph 3a hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the Company's
short-term disability plan and long-term disability plan. Thereafter, or in the
event of termination of this Agreement pursuant to clause (ii) of the preceding
sentence, the Executive shall receive benefits under the Company's long-term
disability plan in lieu of any further base salary under paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice within
ninety (90) days after the Board both (I) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (I) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued failure
by the Executive to perform substantially his duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to the
Executive by the Company which specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties; (iii)
the Executive engages in conduct that constitutes gross neglect or willful
misconduct in carrying out his duties under this Agreement involving material
economic harm to the Company or any of its subsidiaries; or (iv) the Executive
has engaged in a material breach of Sections 6 or 7 of this Agreement. In the
event the termination notice is based on clause (ii) of the preceding sentence,
the Executive shall have ten (10) business days following receipt of the notice
of termination to cure his conduct, to the extent such cure is possible, and if
the Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by the Board
upon the recommendation of the Compensation and Succession Committee of the
Board. Following a Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the membership of the Board, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that Executive has
engaged in conduct which constitutes Cause (and at which Executive had a
reasonable opportunity, together with his counsel, to be heard before the Board
prior to such vote). The Executive shall not be entitled to the payment of any
additional compensation from the Company, except to the extent provided in
paragraph 4h hereof, in the event of the termination of his employment for
Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both (I)
has or should have had knowledge of conduct or an event allegedly constituting
Good Reason, and (ii) has reason to believe that such conduct or event could be
grounds for Good Reason. In such event, the Executive shall be entitled to the
severance benefits set forth in paragraph 4g below.
(I) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or responsibilities;
or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health plan, disability
plan or similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to participate in
immediately prior to the Change in Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof.
The Executive shall have the sole right to determine, in good faith, whether any
of the above events has occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the Executive
a lump sum severance benefit, equal to two years' base salary at the rate in
effect as of the date of termination, plus the greater of (I) two times the most
recent annual bonus paid to the Executive under the Corporation's Annual
Officers Incentive Compensation Plan (the "OICP") or any similar annual bonus
plan (excluding the pro rata bonus referred to in the next sentence) or (ii) two
times the average annual bonus paid to the Executive for the three prior years
under the OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days or more
have elapsed in the Company's fiscal year in which such termination occurs, the
Company shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the numerator of
which is the number of days in the fiscal year in which the termination occurs
through the termination date and the denominator of which is three hundred
sixty-five (365). For purposes of the first sentence of this paragraph 4f,
there shall be taken into account as bonus paid to the Executive for each of the
years 1996 and 1997 under the OICP one-half of the sum of (x) cash payments with
respect to Restricted Stock Units (and related Dividend Equivalents) granted to
the Executive under the Corporation's 1995 Stock Incentive Plan and (y) the
result of multiplying the number of Stock Appreciation Rights granted to the
Executive under the Corporation's 1995 Stock Incentive Plan by the difference
between (1) the value of one share of the Corporation's common stock on December
31, 1997 and (2) the Base Value ($10.75). If the termination of the Executive's
employment occurs prior to December 31, 1997 and prior to a Change in Control,
the amount of any adjustments to the severance benefit required as a result of
the preceding sentence of this paragraph 4f shall be paid to the Executive in a
lump sum no later than March 15, 1998.
In addition, in the event that the Executive's employment is terminated by the
Company without cause prior to a Change in Control, the Executive (and his
eligible dependents) shall be entitled to continue participation in the
Company's employee benefit plans for a two-year period from the date of
termination, provided, however, that if Executive cannot continue to participate
in any of the benefit plans, the Company shall otherwise provide equivalent
benefits to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the foregoing, in
the event Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits described
herein shall be secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses Executive for
any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (I) be covered by a life insurance policy providing a death benefit,
equal to 2.5 times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
Notwithstanding anything contained herein to the contrary, the Company's
obligations under this subparagraph to provide (I) benefits to Executive under
the Company's employee benefit plans and (ii) death benefits under a life
insurance policy shall be offset by any such benefits provided by the Company to
Executive as a retired employee of the Company.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination. In addition, in the event that the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason
following a Change in Control, the (I) Executive (and his eligible dependents)
shall be entitled to continue participation (the premiums for which will be paid
by the Company) in the Company's employee benefit plans providing medical,
prescription drug, dental, and hospitalization benefits for the remainder of the
Executive's life (ii) the Executive shall be entitled to continue participation
(the premiums for which will be paid by the Company) in the Company's other
employee benefit plans for a four year period from the date of termination;
provided, however, that if Executive cannot continue to participate in any of
the benefit plans, the Company shall otherwise provide equivalent benefits to
the Executive and his dependents on the same after-tax basis as if continued
participation had been permitted. Notwithstanding the foregoing, in the event
Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits described
herein shall be secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses Executive for
any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (I) be covered by
a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the Executive for
the purposes of seeking new employment following his termination of employment.
Notwithstanding anything contained herein to the contrary, the Company's
obligations under this subparagraph to provide (I) benefits to Executive under
the Company's employee benefit plans and (ii) death benefits under a life
insurance policy shall be offset by any such benefits provided by the Company to
Executive as a retired employee of the Company.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary earned
and unpaid to the date of termination.
I. Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company or
any entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4i)(the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to the Executive (or to the Internal Revenue
Service on behalf of the Executive) an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has
had paid to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, the Executive shall be deemed (I) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such paragraph 4i, including
whether and when a Gross-up Payment is required, the amount of such Gross-up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by the Company as
of the date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company (collectively, the "Determination"). In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company and the Company shall enter into any agreement
requested by the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i with respect to
any Payments shall be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such effect,
and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the Determination, it is possible that Gross-up Payment which will
not have been made by the Company should have been made ("Underpayment") or
Gross-up Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section 1274(b)
(2) (B) of the Code) shall be promptly paid by the Company to or for the
benefit of the Executive. In the event the amount of Gross-up Payment exceeds
the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been
made and any such Overpayment (together with interest at the rate provided in
Section 1274(b) (2) of the Code) shall be promptly paid by Executive (to the
extent he has received a refund if the applicable Excise Tax has been paid
to the Internal Revenue Service) to or for the benefit of the Company. The
Executive shall cooperate, to the extent his expenses are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with the
Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company, or
by the Executive of the validity of, or liability under, this Agreement or the
SERP (including any contest by the Executive about the amount of any payment
pursuant to this Agreement or pursuant to the SERP), plus in each case interest
on any delayed payment at the rate of 150% of the Prime Rate posted by the Chase
Manhattan Bank, N.A. or its successor, provided, however, that the Company shall
not be liable for the Executive's legal fees and expenses if the Executive's
position in such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other business
affairs of the Company, its subsidiaries and affiliates learned by him from the
Company or any such subsidiary or affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company or any of its subsidiaries or affiliates, whether
during or after his period of service with the Company, except (I) as such
disclosure may be required or appropriate in connection with his work as an
employee of the Company or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. The Executive agrees to give the Company advance
written notice of any disclosure pursuant to clause (ii) of the preceding
sentence and to cooperate with any efforts by the Company to limit the extent of
such disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which he may
then possess or have under his direct control, other than personal notes,
diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by the
Company and for a period of one year following the termination thereof for any
reason (other than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. The
Executive hereby covenants and agrees that, at all times during the period of
his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment. It is the intention of the
parties hereto that the restrictions contained in this Section be enforceable to
the fullest extent permitted by applicable law. Therefore, to the extent any
court of competent jurisdiction shall determine that any portion of the
foregoing restrictions is excessive, such provision shall not be entirely void,
but rather shall be limited or revised only to the extent necessary to make it
enforceable. Specifically, if any court of competent jurisdiction should hold
that any portion of the foregoing description is overly broad as to one or more
states of the United States, then that state or states shall be eliminated from
the territory to which the restrictions of paragraph (a) of this Section applies
and the restrictions shall remain applicable in all other states of the United
States.
8. No Mitigation. The Executive shall not be required to mitigate the amount
of any payments or benefits provided for in paragraph 4f or 4g hereof by seeking
other employment or otherwise and no amounts earned by the Executive shall be
used to reduce or offset the amounts payable hereunder, except as otherwise
provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company or any Affiliate which the Executive
may conceive or make or have conceived or made during the Executive's employment
with the Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the Company, at
its expense, shall execute and sign any and all applications, assignments or
other instruments and do all other things which the Company may deem necessary
or appropriate (I) to apply for, obtain, maintain, enforce, or defend letters
patent of the United States or any foreign country for any Work Product, or (ii)
to assign, transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of the New York
Civil Practice Law and Rules. Judgment upon the award may be entered in any
court of competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under Sections 6 or 7
hereof, or if the Company makes any claim under Sections 6 or 7, the Company
shall not be required to arbitrate such dispute or claim but shall have the
right to institute judicial proceedings in any court of competent jurisdiction
with respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. John W. Powers
112 Wooded Heights Drive
Camillus, NY 13031
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto, and supersedes, and is in full substitution for any and all
prior understandings or agreements, oral or written, with respect to the
Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain financing
vehicles, including a trust, to provide a source of funding for the Company's
obligations under this Agreement. Any such financing vehicles will be subject
to the claims of the general creditors of the Company. No such financing
vehicles shall relieve the Company, or its successors, of its obligation to
provide benefits under this Agreement, except to the extent the Executive
receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an Affiliate) or
by the Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company, whether by merger,
consolidation, reorganization, purchase of all or substantially all of the stock
or assets of the Company, or by operation of law.
16. Severability. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
John W. Powers
By:______________________________
DAVID J. ARRINGTON
Senior Vice President
Human Resources
SCHEDULE A
Modifications in Respect of John W. Powers ("Executive")
to the
Supplemental Executive Retirement Plan ("SERP")
of the
Niagara Mohawk Power Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide that
the term "Earnings" shall mean the sum of the (I) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by the Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the Executive's
employment with the Company and (ii) the average of the annual bonus earned by
the Executive under the Corporation's Annual Officers Incentive Compensation
Plan ("OICP"), whether or not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If (A) the Executive is an employee of
the Company on December 31, 1997 or (B) prior to December 31, 1997 the
Executive's employment is terminated and the Executive is entitled to payment
under Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP") for all
or a portion of the Stock Units and Stock Appreciation Rights granted to the
Executive under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of (x) cash
payments made with respect to Stock Units (and related Dividend Equivalents)
granted to the Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the SIP,
prorated if applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Corporation's common stock on December 31, 1997
and (2) the Base Value ($10.75). Notwithstanding the preceding sentence, if a
Change in Control occurs prior to December 31, 1997 (and, if applicable, prior
to the Executive's termination of employment), there shall be taken into account
for purposes of the first sentence hereof as an annual bonus under the OICP the
cash payments with respect to Stock Units (and related Dividend Equivalents) and
Stock Appreciation Rights which are payable to the Executive pursuant to Article
13 of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide that
full SERP benefits are vested following eight (8) years of continuous service
with the Company (i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less than age 55 at
the date of such termination of employment, the Executive shall be entitled to
receive benefits commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide that
in the event of (x) the Executive's involuntary termination of employment by the
Company, at any time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of this
Agreement), the Executive shall be 100% vested in his full SERP benefit (i.e.,
60% of Earnings (as modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service with the
Company. If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and
control participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (I)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (I) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (I), (ii) and (iii) of subparagraph (3) of this
Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (I) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 0% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (I) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
EXHIBIT 10-23
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of December, 1996, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and B. Ralph Sylvia (the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to accept/continue employment with the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning December 20, 1996
and expiring on December 31, 1999, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by one
year commencing on January 1, 1998 and on January 1st of each year thereafter,
unless either party notifies the other to the contrary not later than sixty (60)
days prior to such date. Notwithstanding any such notice by the Company, this
Agreement shall remain in effect for a period of thirty-six months from the date
of a "Change in Control" (as that term is defined in Schedule B hereto, unless
such notice was given at least 18 months prior to the date of the Change in
Control).
2. Duties. The Executive shall serve the Company as its Executive Vice
President - Electric Generation and Chief Nuclear Officer. During the term of
this Agreement, the Executive shall, except during vacation or sick leave,
devote the whole of the Executive's time, attention and skill to the business of
the Company during usual business hours (and outside those hours when reasonably
necessary to the Executive's duties hereunder); faithfully and diligently
perform such duties and exercise such powers as may be from time to time
assigned to or vested in the Executive by the Company's Board of Directors (the
"Board") or by any officer of the Company superior to the Executive; obey the
directions of the Board and of any officer of the Company superior to the
Executive; and use the Executive's best efforts to promote the interests of the
Company. The Executive may be required in pursuance of the Executive's duties
hereunder to perform services for any company controlling, controlled by or
under common control with the Company (such companies hereinafter collectively
called "Affiliates") and to accept such offices in any Affiliates as the Board
may require. The Executive shall obey all policies of the Company and
applicable policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$295,000, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan, Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to which
the Executive became entitled under the terms of this Agreement prior to death
(other than payment of base salary in respect of the period following the
Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of the
Executive's death. Any base salary earned and unpaid as of the date of the
Executive's death shall be paid to the Executive's estate in accordance with
paragraph 4g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (i) a physician selected by the Company advises theCompany that
the Executive's physical or mental condition has rendered the Executive unable
to perform the essential functions of the Executive's position in a reasonable
manner, with or without reasonable accommodation and will continue to render him
unable to perform the essential functions of the Executive's position in such
manner, for a period exceeding 12 consecutive months, or (ii) due to a physical
or mental condition, the Executive has not performed the essential functions of
the Executive's position in a reasonable manner, with or without reasonable
accommodation, for a period of 12 consecutive months. Following termination of
this Agreement pursuant to clause (i) of the preceding sentence of this
paragraph, the Executive shall continue to receive his base salary under
paragraph 3a hereof for a period of 12 months from the date of his Disability,
reduced by any benefits payable during such period under the Company's
short-term disability plan and long-term disability plan.
Thereafter, or in the event of termination of this Agreement pursuant to clause
(ii) of the preceding sentence, the Executive shall receive benefits under the
Company's long-term disability plan in lieu of any further base salary under
paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice within
ninety (90) days after the Board both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (i) the Executive is convicted of, or has plead
guilty or nolo contendere to, a felony; (ii) the willful and continued failure
by the Executive to perform substantially his duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to the
Executive by the Company which specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties; (iii)
the Executive engages in conduct that constitutes gross neglect or willful
misconduct in carrying out his duties under this Agreement involving material
economic harm to the Company or any of its subsidiaries; or (iv) the Executive
has engaged in a material breach of Sections 6 or 7 of this Agreement. In the
event the termination notice is based on clause (ii) of the preceding sentence,
the Executive shall have ten (10) business days following receipt of the notice
of termination to cure his conduct, to the extent such cure is possible, and if
the Executive does not cure within the ten (10) business day period, his
termination of employment in accordance with such termination notice shall be
deemed to be for Cause. The determination of Cause shall be made by the Board
upon the recommendation of the Compensation and Succession Committee of the
Board. Following a Change in Control, such determination shall be made in a
resolution duly adopted by the affirmative vote of not less than three-fourths
(3/4) of the membership of the Board, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that Executive has
engaged in conduct which constitutes Cause (and at which Executive had a
reasonable opportunity, together with his counsel, to be heard before the Board
prior to such vote). The Executive shall not be entitled to the payment of any
additional compensation from the Company, except to the extent provided in
paragraph 4h hereof, in the event of the termination of his employment for
Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both (I)
has or should have had knowledge of conduct or an event allegedly constituting
Good Reason, and (ii) has reason to believe that such conduct or event could be
grounds for Good Reason. In such event, the Executive shall be entitled to the
severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or responsibilities;
or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health plan, disability
plan or similar plan (as the same existed immediately prior to the Change in
Control) in which the Executive participated or was eligible to participate in
immediately prior to the Change in Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof.
The Executive shall have the sole right to determine, in good faith, whether any
of the above events has occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the Executive
a lump sum severance benefit, equal to two years' base salary at the rate in
effect as of the date of termination, plus the greater of (i) two times the most
recent annual bonus paid to the Executive under the Corporation's Annual
Officers Incentive Compensation Plan (the "OICP") or any similar annual bonus
plan (excluding the pro rata bonus referred to in the next sentence) or (ii) two
times the average annual bonus paid to the Executive for the three prior years
under the OICP or such similar plan (excluding the pro rata annual bonus
referred to in the next sentence). If one hundred eighty (180) days or more
have elapsed in the Company's fiscal year in which such termination occurs, the
Company shall also pay the Executive in a lump sum, within ninety (90) days
after the end of such fiscal year, a pro rata portion of Executive's annual
bonus in an amount equal to (A) the bonus which would have been payable to
Executive under OICP or any similar plan for the fiscal year in which
Executive's termination occurs, multiplied by (B) a fraction, the numerator of
which is the number of days in the fiscal year in which the termination occurs
through the termination date and the denominator of which is three hundred
sixty-five (365). For purposes of the first sentence of this paragraph 4f,
there shall be taken into account as bonus paid to the Executive for each of the
years 1996 and 1997 under the OICP one-half of the sum of (x) cash payments with
respect to Restricted Stock Units (and related Dividend Equivalents) granted to
the Executive under the Corporation's 1995 Stock Incentive Plan and (y) the
result of multiplying the number of Stock Appreciation Rights granted to the
Executive under the Corporation's 1995 Stock Incentive Plan by the difference
between (1) the value of one share of the Corporation's common stock on December
31, 1997 and (2) the Base Value ($10.75). If the termination of the Executive's
employment occurs prior to December 31, 1997 and prior to a Change in Control,
the amount of any adjustments to the severance benefit required as a result of
the preceding sentence of this paragraph 4f shall be paid to the Executive in a
lump sum no later than March 15, 1998.
In addition, in the event that the Executive's employment is terminated by the
Company without cause prior to a Change in Control, the Executive (and his
eligible dependents) shall be entitled to continue participation in the
Company's employee benefit plans for a two-year period from the date of
termination, provided, however, that if Executive cannot continue to participate
in any of the benefit plans, the Company shall otherwise provide equivalent
benefits to the Executive and his dependents on the same after-tax basis as if
continued participated had been permitted. Notwithstanding the foregoing, in
the event Executive becomes employed by another employer and becomes eligible to
participate in an employee benefit plan of such employer, the benefits described
herein shall be secondary to such benefits during the period of Executive's
eligibility, but only to the extent that the Company reimburses Executive for
any increased cost and provides any additional benefits necessary to give
Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (i) be covered by a life insurance policy providing a death benefit,
equal to 2.5 times the Executive's base salary at the rate in effect as of the
time of termination, payable to a beneficiary or beneficiaries designated by the
Executive, the premiums for which will be paid by the Company for the balance of
the Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the Executive
for the purposes of seeking new employment following his termination of
employment.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is terminated by the
Company without Cause or by the Executive for Good Reason following a Change in
Control, the (i) Executive (and his eligible dependents) shall be entitled to
continue participation (the premiums for which will be paid by the Company) in
the Company's employee benefit plans providing medical, prescription drug,
dental, and hospitalization benefits for the remainder of the Executive's life
(ii) the Executive shall be entitled to continue participation (the premiums for
which will be paid by the Company) in the Company's other employee benefit plans
for a four year period from the date of termination; provided, however, that if
Executive cannot continue to participate in any of the benefit plans, the
Company shall otherwise provide equivalent benefits to the Executive and his
dependents on the same after-tax basis as if continued participation had been
permitted. Notwithstanding the foregoing, in the event Executive becomes
employed by another employer and becomes eligible to participate in an employee
benefit plan of such employer, the benefits described herein shall be secondary
to such benefits during the period of Executive's eligibility, but only to
the extent that the Company reimburses Executive for any increased cost and
provides any additional benefits necessary to give Executive the benefits
provided hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (i) be covered by
a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of any
executive recruiting, counseling or placement firm selected by the Executive for
the purposes of seeking new employment following his termination of employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary earned
and unpaid to the date of termination.
i. Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company or
any entity which effectuates a Change in Control (or any of its affiliated
entities) to or for the benefit of the Executive (whether pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4i)(the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to the Executive (or to the Internal Revenue
Service on behalf of the Executive) an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has
had paid to the Internal Revenue Service on his behalf) an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive's adjusted gross income and
the highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. For purposes of determining
the amount of the Gross-up Payment, the Executive shall be deemed (i) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such paragraph 4i, including
whether and when a Gross-up Payment is required, the amount of such Gross-up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by the public accounting firm that is retained by the Company as
of the date immediately prior to the Change in Control (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of the receipt of notice from the
Company or the Executive that there has been a Payment, or such earlier time as
is requested by the Company (collectively, the "Determination"). In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company and the Company shall enter into any agreement
requested by the Accounting Firm in connection with the performance of the
services hereunder. The Gross-up Payment under subparagraph 4i with respect to
any Payments shall be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such effect,
and to the effect that failure to report the Excise Tax, if any, on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination by the
Accounting Firm shall be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the Determination, it is possible that Gross-up Payment which will
not have been made by the Company should have been made ("Underpayment") or
Gross-up Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made hereunder.
In the event that the Executive thereafter is required to make payment of any
Excise Tax or additional Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment (together
with interest at the rate provided in Section 1274(b) (2) (B) of the Code) shall
be promptly paid by the Company to or for the benefit of the Executive. In the
event the amount of Gross-up Payment exceeds the amount necessary to reimburse
the Executive for his Excise Tax, the Accounting Firm shall determine the amount
of the Overpayment that has been made and any such Overpayment (together with
interest at the rate provided in Section 1274(b) (2) of the Code) shall be
promptly paid by Executive (to the extent he has received a refund if the
applicable Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of the Company. The Executive shall cooperate, to the extent his
expenses are reimbursed by the Company, with any reasonable requests by the
Company in connection with any contests or disputes with the Internal Revenue
Service in connection with the Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company, or
by the Executive of the validity of, or liability under, this Agreement or the
SERP (including any contest by the Executive about the amount of any payment
pursuant to this Agreement or pursuant to the SERP), plus in each case interest
on any delayed payment at the rate of 150% of the Prime Rate posted by the Chase
Manhattan Bank, N.A. or its successor, provided, however, that the Company shall
not be liable for the Executive's legal fees and expenses if the Executive's
position in such contest, litigation or arbitration is found by the neutral
decision-maker to be frivolous.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other business
affairs of the Company, its subsidiaries and affiliates learned by him from the
Company or any such subsidiary or affiliate or otherwise before or after the
date of this Agreement, and not to disclose any such confidential matter to
anyone outside the Company or any of its subsidiaries or affiliates, whether
during or after his period of service with the Company, except (i) as such
disclosure may be required or appropriate in connection with his work as an
employee of the Company or (ii) when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. The Executive agrees to give the Company advance
written notice of any disclosure pursuant to clause (ii) of the preceding
sentence and to cooperate with any efforts by the Company to limit the extent of
such disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which he may
then possess or have under his direct control, other than personal notes,
diaries, Rolodexes and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by the
Company and for a period of one year following the termination thereof for any
reason (other than following a Change in Control), the Executive covenants and
agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company. The
Executive hereby covenants and agrees that, at all times during the period of
his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment.
It is the intention of the parties hereto that the restrictions contained in
this Section be enforceable to the fullest extent permitted by applicable law.
Therefore, to the extent any court of competent jurisdiction shall determine
that any portion of the foregoing restrictions is excessive, such provision
shall not be entirely void, but rather shall be limited or revised only to the
extent necessary to make it enforceable. Specifically, if any court of
competent jurisdiction should hold that any portion of the foregoing description
is overly broad as to one or more states of the United States, then that state
or states shall be eliminated from the territory to which the restrictions of
paragraph (a) of this Section applies and the restrictions shall remain
applicable in all other states of the United States.
8. No Mitigation. The Executive shall not be required to mitigate the amount
of any payments or benefits provided for in paragraph 4f or 4g hereof by seeking
other employment or otherwise and no amounts earned by the Executive shall be
used to reduce or offset the amounts payable hereunder, except as otherwise
provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products") within
the scope of any business of the Company or any Affiliate which the Executive
may conceive or make or have conceived or made during the Executive's employment
with the Company shall be and are the sole and exclusive property of the
Company, and that the Executive, whenever requested to do so by the Company, at
its expense, shall execute and sign any and all applications, assignments or
other instruments and do all other things which the Company may deem necessary
or appropriate (i) to apply for, obtain, maintain, enforce, or defend letters
patent of the United States or any foreign country for any Work Product, or (ii)
to assign, transfer, convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company, shall
be settled by binding arbitration in the City of Syracuse, State of New York,
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association and shall be subject to the provisions of Article 75 of the New York
Civil Practice Law and Rules. Judgment upon the award may be entered in any
court of competent jurisdiction. Notwithstanding anything herein to the
contrary, if any dispute arises between the parties under Sections 6 or 7
hereof, or if the Company makes any claim under Sections 6 or 7, the Company
shall not be required to arbitrate such dispute or claim but shall have the
right to institute judicial proceedings in any court of competent jurisdiction
with respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
Mr. B. Ralph Sylvia
124 Coachmans Whip
Baldwinsville, NY 13027
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto, and supersedes, and is in full substitution for any and all
prior understandings or agreements, oral or written, with respect to the
Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at any
time to require the performance by the other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain financing
vehicles, including a trust, to provide a source of funding for the Company's
obligations under this Agreement. Any such financing vehicles will be subject
to the claims of the general creditors of the Company. No such financing
vehicles shall relieve the Company, or its successors, of its obligation to
provide benefits under this Agreement, except to the extent the Executive
receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors, administrators
and other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to an Affiliate) or
by the Executive without the prior written consent of the other party. This
Agreement shall be binding upon any successor to the Company, whether by merger,
consolidation, reorganization, purchase of all or substantially all of the stock
or assets of the Company, or by operation of law.
16. Severability. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision or
portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
_____________________________ NIAGARA MOHAWK POWER CORPORATION
B. Ralph Sylvia
By:______________________________
DAVID J. ARRINGTON
Senior Vice President
Human Resources
SCHEDULE A
Modifications in Respect of B. Ralph Sylvia ("Executive")
to the
Supplemental Executive Retirement Plan ("SERP")
of the
Niagara Mohawk Power Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide that
the term "Earnings" shall mean the sum of the (i) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by the Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the Executive's
employment with the Company and (ii) the average of the annual bonus earned by
the Executive under the Corporation's Annual Officers Incentive Compensation
Plan ("OICP"), whether or not deferred, in respect of the final 36 months of the
Executive's employment with the Company. If (A) the Executive is an employee of
the Company on December 31, 1997 or (B) prior to December 31, 1997 the
Executive's employment is terminated and the Executive is entitled to payment
under Article 9 of the Corporation's 1995 Stock Incentive Plan ("SIP") for all
or a portion of the Stock Units and Stock Appreciation Rights granted to the
Executive under SIP, there shall be taken into account for purposes of the
preceding sentence as an annual bonus under the OICP, the sum of (x) cash
payments made with respect to Stock Units (and related Dividend Equivalents)
granted to the Executive under the SIP and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the SIP,
prorated if applicable to Article 9 of the SIP, by the difference between (1)
the value of one share of the Corporation's common stock on December 31, 1997
and (2) the Base Value ($10.75). Notwithstanding the preceding sentence, if a
Change in Control occurs prior to December 31, 1997 (and, if applicable, prior
to the Executive's termination of employment), there shall be taken into account
for purposes of the first sentence hereof as an annual bonus under the OICP the
cash payments with respect to Stock Units (and related Dividend Equivalents) and
Stock Appreciation Rights which are payable to the Executive pursuant to Article
13 of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide that
full SERP benefits are vested following eight (8) years of continuous service
with the Company (i.e., 60% of Earnings (as modified above) without reduction
for an Early Commencement Factor) regardless of the Executive's years of
continuous service with the Company. If the Executive is less than age 55 at
the date of such termination of employment, the Executive shall be entitled to
receive benefits commencing no earlier than age 55, calculated pursuant to
Section III of the SERP without reduction for an Early Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide
that in the event of (x) the Executive's involuntary termination of employment
by the Company, at any time, other than for Cause, (y) the termination of this
Agreement on account of the Executive's Disability or (z) the Executive's
termination of employment for Good Reason within the 36 full calendar month
period following a Change in Control (as defined in Schedule B of this
Agreement), the Executive shall be 100% vested in his full SERP benefit (i.e.,
60% of Earnings (as modified above) without reduction for an Early Commencement
Factor) regardless of the Executive's years of continuous service with the
Company. If the Executive is less than age 55 at the date of such termination
of employment, the Executive shall be entitled to receive benefits commencing no
earlier than age 55, calculated pursuant to Section III of the SERP without
reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and control
participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (I)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subparagraph (3) of this
Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
EXHIBIT 10-24
December 20, 1996
Theresa A. Flaim, Ph.D.
2907 Fargo Road
Baldwinsville, NY 13027
Dear Theresa:
Niagara Mohawk Power Corporation (the "Company") considers the establishment
and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly
held corporations, the possibility of a change in control may arise and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders. Accordingly, the Board
of Directors of the Company (the "Board of Directors") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company (as defined in Section 2).
Hence, the Board of Directors has authorized the Company to enter into this
Agreement with you and certain other officers of the Company.
In consideration of your agreements set forth below, the Company agrees that
you shall receive the severance benefits described in this Agreement in the
event your employment with the Company is terminated following a Change in
Control in accordance with the terms of this Agreement.
1. TERM OF AGREEMENT.
When fully executed, this Agreement shall be effective as of the date hereof
and shall continue in effect through December 31, 1998, provided, however,
that commencing on January 1, 1998, and each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than September 30 of the preceding year, the Company shall have
given notice that it does not wish to extend this Agreement; and provided
further, that, notwithstanding the delivery of any such notice, this Agreement
shall continue in effect for a period of twenty-four (24) months after a
Change in Control unless such notice was given at least 18 months prior to the
date of the Change in Control.
2. CHANGE IN CONTROL.
No benefits shall be payable under this Agreement unless there shall have been
a Change in Control and your employment by the Company shall thereafter have
been terminated in accordance with Section 3. For purposes of this Agreement,
the term "Change in Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company (excluding
an acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant
to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in clauses
(i), (ii) and (iii) of subparagraph (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Company's Board
of Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger
or consolidation, (i) more than 75% of, respectively, the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and
any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 75% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors and (C) at least a majority of the members of the
board of directors of such corporation were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) Termination by the Company. You shall be entitled to the benefits
provided under this Agreement when there has been a Change in Control followed
by the termination of your employment by the Company within two years
following such Change in Control, except as otherwise provided in this
Agreement.
(b) Your Election to Terminate for Good Reason . You shall be entitled to
the benefits provided under this Agreement when there has been a Change in
Control followed by your election to terminate your employment within two
years following such Change in Control for Good Reason. Such election must be
made by written notice to the Company within ninety (90) days after you both
(i) have or should have had knowledge of conduct or an event allegedly
constituting Good Reason and (ii) have reason to believe that such conduct or
event could be grounds for Good Reason. For purposes of this Agreement, the
term "Good Reason" shall mean:
(1) the assignment to you of any duties which are materially inconsistent
in any adverse respect with your position or a substantial alteration adverse
to you in the nature or status of your responsibilities from those in effect
immediately prior to a Change in Control;
(2) a reduction by the Company in your base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(3) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan, stock ownership plan, stock purchase plan,
stock option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in Control)
in which you participated or were eligible to participate in immediately prior
to the Change in Control and in lieu thereof does not make available plans
providing at least comparable benefits; or
(4) the Company takes action which adversely affects your participation in,
or eligibility for, or materially reduces your benefits under, any of the
plans described in (b) (3) above, or deprives you of any material fringe
benefit enjoyed by you immediately prior to the Change in Control, or fails to
provide you with the number of paid vacation days to which you were entitled
immediately prior to the Change in Control; or
(5) the Company requires you to be based at any office or location other
than one within a 50-mile radius of the office or location at which you were
based immediately prior to the Change in Control; or
(6) the Company purports to terminate your employment otherwise than as
expressly permitted by this Agreement; or
(7) The failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement as contemplated in
Section 7.
You shall have the sole right to determine, in good faith, whether any of the
above events has occurred.
(c) Termination Not Resulting in Benefits. You shall not be entitled to the
benefits provided under this Agreement, whether or not there has been a Change
in Control, when the termination of your employment is due to (1) your
Retirement, (2) your termination for Disability, (3) your termination by the
Company for Cause, (4) your death or (5) your election to terminate for any
reason not listed in subsection 3(b) above, all as defined below.
(1) Retirement. "Retirement" shall mean termination on or after attaining
age 65.
(2) Disability. By notice to you, the Company may terminate this Agreement
upon your "Disability". You shall be deemed to incur a Disability when (i) a
physician selected by the Company advises the Company that your physical or
mental condition has rendered you unable to perform the essential functions of
your position in a reasonable manner, with or without reasonable accommodation
and will continue to render you unable to perform the essential functions of
your position in such manner, for a period exceeding 12 consecutive months, or
(ii) due to a physical or mental condition, you have not performed the
essential functions of your position in a reasonable manner, with or without
reasonable accommodation, for a period of 12 consecutive months.
(3) Cause. By notice to you, the Company may terminate your employment at
any time for "Cause". The Company must deliver such notice within ninety (90)
days after the Board of Directors both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to
believe that such conduct or event could be grounds for Cause. For purposes
of this Agreement "Cause" shall mean (i) you are convicted of, or you have
plead guilty or nolo contendere to, a felony; (ii) your willful and continued
failure to perform substantially your duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness)
after a demand for substantial performance is delivered to you by the Company
which specifically identifies the manner in which the Company believes you
have not substantially performed your duties; or (iii) you engage in conduct
that constitutes gross neglect or willful misconduct in carrying out your
duties under this Agreement involving material economic harm to the Company or
any of its subsidiaries. In the event the termination notice is based on
clause (ii) of the preceding sentence, you shall have ten (10) business days
following receipt of the notice of termination to cure your conduct, to the
extent such cure is possible, and if you do not cure within the ten (10)
business day period, your termination of employment in accordance with such
termination notice shall be deemed to be for Cause. The determination of
Cause shall be made by the Board of Directors. Following a Change in
Control, such determination shall be made in a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the membership of the
Board of Directors, excluding members who are employees of the Company, at a
meeting called for the purpose of determining that you have engaged in conduct
which constitutes Cause (and at which you had a reasonable opportunity,
together with your counsel, to be heard before the Board of Directors prior to
such vote). You shall not be entitled to the payment of any additional
compensation from the Company in the event of the termination of your
employment for Cause.
(d) Notice of Termination. Any termination by either party shall be
communicated by written Notice of Termination to the other party in accordance
with Section 11. A "Notice of Termination" shall indicate the specific
termination provision in this Agreement relied upon and shall set forth the
facts and circumstances claimed to provide a basis for termination of your
employment.
(e) Date of Termination. "Date of Termination" shall mean the date
specified in the Notice of Termination.
4. COMPENSATION.
Where there has been a Change in Control followed by the termination of your
employment by the Company within two years following such Change in Control,
the following severance benefits shall be in lieu of any severance benefits to
which you may otherwise be entitled under employee benefit plans of the
Company.
(a) Upon Termination for Disability. If your employment is terminated for
Disability, your disability benefits shall be determined in accordance with
the disability plans of the Company then in effect.
(b) Upon Termination for Cause. If your employment is terminated for Cause,
the Company shall pay you only your full salary through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, and the Company shall have no further obligations to you under this
Agreement.
(c) Upon Termination for Reasons Other Than Retirement, Disability, or
Cause. If your employment is terminated (i) by the Company for reasons other
than Retirement, Disability, or Cause, or (ii) by you for Good Reason, you
shall be entitled to the following benefits:
(1) The Company shall pay you your full salary through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given;
(2) The Company shall pay you a lump sum severance benefit, equal to 24
times your monthly salary rate in effect immediately prior to the circumstance
giving rise to the Notice of Termination. In addition, you shall be entitled
to continue participation in the Company's employee benefit plans for a 24-month
period from the date of termination, provided, however, that if you
cannot continue to participate in any of the benefit plans, the Company shall
otherwise provide equivalent benefits to you and your dependents on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event you become employed by another
employer and become eligible to participate in an employee benefit plan of
such employer, the benefits described herein shall be secondary to such
benefits during the period of your eligibility, but only to the extent that
the Company reimburses you for any increased cost and provides any additional
benefits necessary to give you the benefits provided hereunder; and
(3) The Company shall pay up to $25,000 in fees and expenses of any
executive recruiting, counseling, or placement firm selected by you for
purposes of seeking new employment following the Date of Termination.
(d) The payments provided to you under this Section will be in full and
complete satisfaction of any and all obligations owing to you under this
Agreement.
5. LIMITATION ON PAYMENTS.
It is understood and agreed that no severance benefits hereunder shall be paid
to the extent that such benefits (either alone or when aggregated with other
benefits contingent on a Change in Control and paid to or for your benefit)
constitute "excess parachute payment" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
under the circumstances set forth below, severance benefits payable under this
Agreement shall be subject to the following reduction notwithstanding anything
in this Agreement to the contrary. If the aggregate present value (as
determined pursuant to Section 280G of the Code) of severance benefits payable
under this Agreement which, together with all other payments by the Company to
you or for your benefit, would be "parachute payments" within the meaning of
Section 280G of the Code, the payments pursuant to this Agreement shall be
reduced (reducing first the severance benefit provided in the first sentence
of Section 4 (c)(2) above hereof) to the largest amount as will result in no
portion of such payments being treated as excess parachute payments.
The determination of whether and to what extent the payments shall be reduced
under this Agreement, including apportionment among specific payments and
benefits, shall be made by you in good faith, and such determination shall be
conclusive and binding on the Company. The Company shall make the
calculations referred to above within thirty days following the termination of
your employment and shall provide such calculations and the basis therefor to
you within such period. In the event a reduction is required, you shall give
notice to the Company, within 20 days of your receipt of such calculations and
related information, of your determination of the reduction.
6. LEGAL FEES.
The Company shall pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which you may reasonably incur as a result of
any contest, litigation or arbitration (regardless of the outcome thereof) by
the Company, or by you of the validity of, or liability under, this Agreement
(including any contest by you about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the rate of
150% of the Prime Rate posted by the Chase Manhattan Bank, N.A. or its
successor, provided, however, that the Company shall not be liable for your
legal fees and expenses if your position in such contest, litigation or
arbitration is found by the neutral decision-maker to be frivolous.
7. SUCCESSOR LIABILITY.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform. As used in this Agreement, "Company"
shall mean the company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
8. CONFIDENTIAL INFORMATION.
You agree to keep secret and retain in the strictest confidence all
confidential matters which relate to the Company, its subsidiaries and
affiliates, including, without limitation, customer lists, client lists, trade
secrets, pricing policies and other business affairs of the Company, its
subsidiaries and affiliates learned by you from the Company or any such
subsidiary or affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone outside
the Company or any of its subsidiaries or affiliates, whether during or after
your period of service with the Company, except (i) as such disclosure may be
required or appropriate in connection with your work as an employee of the
Company or (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with
apparent jurisdiction to order you to divulge, disclose or make accessible
such information. You agree to give the Company advance written notice of any
disclosure pursuant to clause (ii) of the preceding sentence and to cooperate
with any efforts by the Company to limit the extent of such disclosure. Upon
request by the Company, you agree to deliver promptly to the Company upon
termination of your services for the Company, or at any time thereafter as the
Company may request, all Company subsidiary or affiliate memoranda, notes,
records, reports, manuals, drawings, designs, computer file in any media and
other documents (and all copies thereof) relating to the Company's or any
subsidiary's or affiliate's business and all property of the Company or any
subsidiary or affiliate associated therewith, which you may then possess or
have under your direct control, other than personal notes, diaries, Rolodexes
and correspondence.
9. NO MITIGATION.
You shall not be required to mitigate the amount of any payments or benefits
provided for in Section 4(c) hereof by seeking other employment or otherwise
and no amounts earned by you shall be used to reduce or offset the amounts
payable hereunder, except as otherwise provided in Section 4(c).
10. ARBITRATION.
Any dispute or controversy between the parties relating to this Agreement
(except any dispute relating to Section 8 hereof) or relating to or arising
out of your employment with the Company, shall be settled by binding
arbitration in the City of Syracuse, State of New York, pursuant to the
Employment Dispute Resolution Rules of the American Arbitration Association
and shall be subject to the provisions of Article 75 of the New York Civil
Practice Law and Rules. Judgment upon the award may be entered in any court
of competent jurisdiction. Notwithstanding anything herein to the contrary,
if any dispute arises between the parties under Section 8 hereof, or if the
Company makes any claim under Section 8, the Company shall not be required to
arbitrate such dispute or claim but shall have the right to institute judicial
proceedings in any court of competent jurisdiction with respect to such
dispute or claim. If such judicial proceedings are instituted, the parties
agree that such proceedings shall not be stayed or delayed pending the outcome
of any arbitration proceedings hereunder.
11. NOTICES.
For the purposes of this Agreement, all notices shall be in writing and either
hand delivered or delivered by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective
addresses set forth below or to such other address as either party may have
furnished to the other in writing. Notice of change of address shall be
effective only upon receipt. Notices shall be sent:
(a) To the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(b) To you :
Theresa A. Flaim, Ph.D.
2907 Fargo Road
Baldwinsville, NY 13027
12. ENTIRE AGREEMENT.
No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
expressly set forth in this Agreement.
13. AMENDMENT.
This Agreement may be amended only by an instrument in writing signed by the
parties hereto, and any provision hereof may be waived only by an instrument
in writing signed by the party or parties against whom or which enforcement of
such waiver is sought. The failure of either party hereto at any time to
require the performance by the other party hereto of any provision hereof
shall in no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. MISCELLANEOUS.
This Agreement is binding on and is for the benefit of the parties hereto and
their respective successors, heirs, executors, administrators and other legal
representatives. Neither this Agreement nor any right or obligation hereunder
may be assigned by the Company (except to an Affiliate) or by you without the
prior written consent of the other party.
15. SEVERABILITY.
If any provision of this Agreement, or portion thereof, is so broad, in scope
or duration, so as to be unenforceable, such provision or portion thereof
shall be interpreted to be only so broad as is enforceable.
16. GOVERNING LAW.
The validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of New York without reference to
principles of conflicts of law.
17. SURVIVAL OF COVENANTS.
Your obligations set forth in Sections 8 and 10 represent independent
covenants by which you are and will remain bound notwithstanding any breach by
the Company, and shall survive the termination of this Agreement.
If this Agreement correctly sets forth our agreement on the subject matter
hereof, please sign and return to the Company the enclosed copy of this
Agreement which will then constitute our entire agreement on this subject.
NIAGARA MOHAWK POWER CORPORATION
By:________________________________
DAVID J. ARRINGTON
Senior Vice President - Human Resources
APPROVED AND AGREED:
__________________________________
Theresa A. Flaim
Date: _________________________
EXHIBIT 10-25
December 20, 1996
Mr. Steven W. Tasker
1719 North Road
Tully, NY 13159
Dear Steve:
Niagara Mohawk Power Corporation (the "Company") considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may arise and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders. Accordingly, the Board of
Directors of the Company (the "Board of Directors") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company (as defined in Section 2).
Hence, the Board of Directors has authorized the Company to enter into this
Agreement with you and certain other officers of the Company.
In consideration of your agreements set forth below, the Company agrees that you
shall receive the severance benefits described in this Agreement in the event
your employment with the Company is terminated following a Change in Control in
accordance with the terms of this Agreement.
1. TERM OF AGREEMENT.
When fully executed, this Agreement shall be effective as of the date hereof and
shall continue in effect through December 31, 1998, provided, however, that
commencing on January 1, 1998, and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; and provided further,
that, notwithstanding the delivery of any such notice, this Agreement shall
continue in effect for a period of twenty-four (24) months after a Change in
Control unless such notice was given at least 18 months prior to the date of the
Change in Control.
2. CHANGE IN CONTROL.
No benefits shall be payable under this Agreement unless there shall have been a
Change in Control and your employment by the Company shall thereafter have been
terminated in accordance with Section 3. For purposes of this Agreement, the
term "Change in Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subparagraph (c) of this
Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 75% of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) Termination by the Company. You shall be entitled to the benefits
provided under this Agreement when there has been a Change in Control followed
by the termination of your employment by the Company within two years following
such Change in Control, except as otherwise provided in this Agreement.
(b) Your Election to Terminate for Good Reason . You shall be entitled to
the benefits provided under this Agreement when there has been a Change in
Control followed by your election to terminate your employment within two years
following such Change in Control for Good Reason. Such election must be made by
written notice to the Company within ninety (90) days after you both (i) have or
should have had knowledge of conduct or an event allegedly constituting Good
Reason and (ii) have reason to believe that such conduct or event could be
grounds for Good Reason. For purposes of this Agreement, the term "Good Reason"
shall mean:
(1) the assignment to you of any duties which are materially inconsistent in
any adverse respect with your position or a substantial alteration adverse to
you in the nature or status of your responsibilities from those in effect
immediately prior to a Change in Control;
(2) a reduction by the Company in your base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(3) the Company discontinues any bonus or other compensation plan or any other
benefit, retirement plan, stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health plan, disability plan or similar plan
(as the same existed immediately prior to the Change in Control) in which you
participated or were eligible to participate in immediately prior to the Change
in Control and in lieu thereof does not make available plans providing at least
comparable benefits; or
(4) the Company takes action which adversely affects your participation in, or
eligibility for, or materially reduces your benefits under, any of the plans
described in (b) (3) above, or deprives you of any material fringe benefit
enjoyed by you immediately prior to the Change in Control, or fails to provide
you with the number of paid vacation days to which you were entitled immediately
prior to the Change in Control; or
(5) the Company requires you to be based at any office or location other than
one within a 50-mile radius of the office or location at which you were based
immediately prior to the Change in Control; or
(6) the Company purports to terminate your employment otherwise than as
expressly permitted by this Agreement; or
(7) The failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement as contemplated in
Section 7.
You shall have the sole right to determine, in good faith, whether any of the
above events has occurred.
(c) Termination Not Resulting in Benefits. You shall not be entitled to the
benefits provided under this Agreement, whether or not there has been a Change
in Control, when the termination of your employment is due to (1) your
Retirement, (2) your termination for Disability, (3) your termination by the
Company for Cause, (4) your death or (5) your election to terminate for any
reason not listed in subsection 3(b) above, all as defined below.
(1) Retirement. "Retirement" shall mean termination on or after attaining age
65.
(2) Disability. By notice to you, the Company may terminate this Agreement
upon your "Disability". You shall be deemed to incur a Disability when (i) a
physician selected by the Company advises the Company that your physical or
mental condition has rendered you unable to perform the essential functions of
your position in a reasonable manner, with or without reasonable accommodation
and will continue to render you unable to perform the essential functions of
your position in such manner, for a period exceeding 12 consecutive months, or
(ii) due to a physical or mental condition, you have not performed the
essential functions of your position in a reasonable manner, with or without
reasonable accommodation, for a period of 12 consecutive months.
(3) Cause. By notice to you, the Company may terminate your employment at any
time for "Cause". The Company must deliver such notice within ninety (90) days
after the Board of Directors both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to believe
that such conduct or event could be grounds for Cause. For purposes of this
Agreement "Cause" shall mean (i) you are convicted of, or you have plead guilty
or nolo contendere to, a felony; (ii) your willful and continued failure to
perform substantially your duties with the Company (other than any such failure
resulting from incapacity due to physical or mental illness) after a demand for
substantial performance is delivered to you by the Company which specifically
identifies the manner in which the Company believes you have not substantially
performed your duties; or (iii) you engage in conduct that constitutes gross
neglect or willful misconduct in carrying out your duties under this Agreement
involving material economic harm to the Company or any of its subsidiaries. In
the event the termination notice is based on clause (ii) of the preceding
sentence, you shall have ten (10) business days following receipt of the notice
of termination to cure your conduct, to the extent such cure is possible, and if
you do not cure within the ten (10) business day period, your termination of
employment in accordance with such termination notice shall be deemed to be for
Cause. The determination of Cause shall be made by the Board of Directors.
Following a Change in Control, such determination shall be made in a resolution
duly adopted by the affirmative vote of not less than three-fourths (3/4) of the
membership of the Board of Directors, excluding members who are employees of the
Company, at a meeting called for the purpose of determining that you have
engaged in conduct which constitutes Cause (and at which you had a reasonable
opportunity, together with your counsel, to be heard before the Board of
Directors prior to such vote). You shall not be entitled to the payment of any
additional compensation from the Company in the event of the termination of your
employment for Cause.
(d) Notice of Termination. Any termination by either party shall be
communicated by written Notice of Termination to the other party in accordance
with Section 11. A "Notice of Termination" shall indicate the specific
termination provision in this Agreement relied upon and shall set forth the
facts and circumstances claimed to provide a basis for termination of your
employment.
(e) Date of Termination. "Date of Termination" shall mean the date specified
in the Notice of Termination.
4. COMPENSATION.
Where there has been a Change in Control followed by the termination of your
employment by the Company within two years following such Change in Control, the
following severance benefits shall be in lieu of any severance benefits to which
you may otherwise be entitled under employee benefit plans of the Company.
(a) Upon Termination for Disability. If your employment is terminated for
Disability, your disability benefits shall be determined in accordance with the
disability plans of the Company then in effect.
(b) Upon Termination for Cause. If your employment is terminated for Cause,
the Company shall pay you only your full salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, and the
Company shall have no further obligations to you under this Agreement.
(c) Upon Termination for Reasons Other Than Retirement, Disability, or Cause.
If your employment is terminated (i) by the Company for reasons other than
Retirement, Disability, or Cause, or (ii) by you for Good Reason, you shall be
entitled to the following benefits:
(1) The Company shall pay you your full salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given;
(2) The Company shall pay you a lump sum severance benefit, equal to 24 times
your monthly salary rate in effect immediately prior to the circumstance giving
rise to the Notice of Termination. In addition, you shall be entitled to
continue participation in the Company's employee benefit plans for a 24-month
period from the date of termination, provided, however, that if you cannot
continue to participate in any of the benefit plans, the Company shall otherwise
provide equivalent benefits to you and your dependents on the same after-tax
basis as if continued participation had been permitted. Notwithstanding the
foregoing, in the event you become employed by another employer and become
eligible to participate in an employee benefit plan of such employer, the
benefits described herein shall be secondary to such benefits during the period
of your eligibility, but only to the extent that the Company reimburses you for
any increased cost and provides any additional benefits necessary to give you
the benefits provided hereunder; and
(3) The Company shall pay up to $25,000 in fees and expenses of any executive
recruiting, counseling, or placement firm selected by you for purposes of
seeking new employment following the Date of Termination.
(d) The payments provided to you under this Section will be in full and
complete satisfaction of any and all obligations owing to you under this
Agreement.
5. LIMITATION ON PAYMENTS.
It is understood and agreed that no severance benefits hereunder shall be paid
to the extent that such benefits (either alone or when aggregated with other
benefits contingent on a Change in Control and paid to or for your benefit)
constitute "excess parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, under the
circumstances set forth below, severance benefits payable under this Agreement
shall be subject to the following reduction notwithstanding anything in this
Agreement to the contrary. If the aggregate present value (as determined
pursuant to Section 280G of the Code) of severance benefits payable under this
Agreement which, together with all other payments by the Company to you or for
your benefit, would be "parachute payments" within the meaning of Section 280G
of the Code, the payments pursuant to this Agreement shall be reduced (reducing
first the severance benefit provided in the first sentence of Section 4 (c)(2)
above hereof) to the largest amount as will result in no portion of such
payments being treated as excess parachute payments.
The determination of whether and to what extent the payments shall be reduced
under this Agreement, including apportionment among specific payments and
benefits, shall be made by you in good faith, and such determination shall be
conclusive and binding on the Company. The Company shall make the calculations
referred to above within thirty days following the termination of your
employment and shall provide such calculations and the basis therefor to you
within such period. In the event a reduction is required, you shall give notice
to the Company, within 20 days of your receipt of such calculations and related
information, of your determination of the reduction.
6. LEGAL FEES.
The Company shall pay promptly as incurred, to the full extent permitted by law,
all legal fees and expenses which you may reasonably incur as a result of any
contest, litigation or arbitration (regardless of the outcome thereof) by the
Company, or by you of the validity of, or liability under, this Agreement
(including any contest by you about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the rate of
150% of the Prime Rate posted by the Chase Manhattan Bank, N.A. or its
successor, provided, however, that the Company shall not be liable for your
legal fees and expenses if your position in such contest, litigation or
arbitration is found by the neutral decision-maker to be frivolous.
7. SUCCESSOR LIABILITY.
The Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform. As used in this Agreement, "Company" shall mean the
company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
8. CONFIDENTIAL INFORMATION.
You agree to keep secret and retain in the strictest confidence all confidential
matters which relate to the Company, its subsidiaries and affiliates, including,
without limitation, customer lists, client lists, trade secrets, pricing
policies and other business affairs of the Company, its subsidiaries and
affiliates learned by you from the Company or any such subsidiary or affiliate
or otherwise before or after the date of this Agreement, and not to disclose any
such confidential matter to anyone outside the Company or any of its
subsidiaries or affiliates, whether during or after your period of service with
the Company, except (i) as such disclosure may be required or appropriate in
connection with your work as an employee of the Company or (ii) when required to
do so by a court of law, by any governmental agency having supervisory authority
over the business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order you to
divulge, disclose or make accessible such information. You agree to give the
Company advance written notice of any disclosure pursuant to clause (ii) of the
preceding sentence and to cooperate with any efforts by the Company to limit the
extent of such disclosure. Upon request by the Company, you agree to deliver
promptly to the Company upon termination of your services for the Company, or at
any time thereafter as the Company may request, all Company subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer file in any media and other documents (and all copies thereof) relating
to the Company's or any subsidiary's or affiliate's business and all property of
the Company or any subsidiary or affiliate associated therewith, which you may
then possess or have under your direct control, other than personal notes,
diaries, Rolodexes and correspondence.
9. NO MITIGATION.
You shall not be required to mitigate the amount of any payments or benefits
provided for in Section 4(c) hereof by seeking other employment or otherwise and
no amounts earned by you shall be used to reduce or offset the amounts payable
hereunder, except as otherwise provided in Section 4(c).
10. ARBITRATION.
Any dispute or controversy between the parties relating to this Agreement
(except any dispute relating to Section 8 hereof) or relating to or arising out
of your employment with the Company, shall be settled by binding arbitration in
the City of Syracuse, State of New York, pursuant to the Employment Dispute
Resolution Rules of the American Arbitration Association and shall be subject to
the provisions of Article 75 of the New York Civil Practice Law and Rules.
Judgment upon the award may be entered in any court of competent jurisdiction.
Notwithstanding anything herein to the contrary, if any dispute arises between
the parties under Section 8 hereof, or if the Company makes any claim under
Section 8, the Company shall not be required to arbitrate such dispute or claim
but shall have the right to institute judicial proceedings in any court of
competent jurisdiction with respect to such dispute or claim. If such judicial
proceedings are instituted, the parties agree that such proceedings shall not be
stayed or delayed pending the outcome of any arbitration proceedings hereunder.
11. NOTICES.
For the purposes of this Agreement, all notices shall be in writing and either
hand delivered or delivered by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth below or to such other address as either party may have furnished to
the other in writing. Notice of change of address shall be effective only upon
receipt. Notices shall be sent:
(a) To the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(b) To you :
Mr. Steven W. Tasker
1719 North Road
Tully, NY 13159
12. ENTIRE AGREEMENT.
No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
expressly set forth in this Agreement.
13. AMENDMENT.
This Agreement may be amended only by an instrument in writing signed by the
parties hereto, and any provision hereof may be waived only by an instrument in
writing signed by the party or parties against whom or which enforcement of such
waiver is sought. The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall in no way
affect the full right to require such performance at any time thereafter, nor
shall the waiver by either party hereto of a breach of any provision hereof be
taken or held to be a waiver of any succeeding breach of such provision or a
waiver of the provision itself or a waiver of any other provision of this
Agreement.
14. MISCELLANEOUS.
This Agreement is binding on and is for the benefit of the parties hereto and
their respective successors, heirs, executors, administrators and other legal
representatives. Neither this Agreement nor any right or obligation hereunder
may be assigned by the Company (except to an Affiliate) or by you without the
prior written consent of the other party.
15. SEVERABILITY.
If any provision of this Agreement, or portion thereof, is so broad, in scope or
duration, so as to be unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
16. GOVERNING LAW.
The validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of New York without reference to
principles of conflicts of law.
17. SURVIVAL OF COVENANTS.
Your obligations set forth in Sections 8 and 10 represent independent covenants
by which you are and will remain bound notwithstanding any breach by the
Company, and shall survive the termination of this Agreement.
If this Agreement correctly sets forth our agreement on the subject matter
hereof, please sign and return to the Company the enclosed copy of this
Agreement which will then constitute our entire agreement on this subject.
NIAGARA MOHAWK POWER CORPORATION
By:________________________________
DAVID J. ARRINGTON
Senior Vice President -Human Resources
APPROVED AND AGREED:
__________________________________
Steven W. Tasker
Date: _________________________
EXHIBIT 10-26
December 20, 1996
Mrs. Kapua A. Rice
12 Elmridge Road
Jamesville, NY 13078
Dear Kip:
Niagara Mohawk Power Corporation (the "Company") considers the establishment
and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly
held corporations, the possibility of a change in control may arise and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders. Accordingly, the Board
of Directors of the Company (the "Board of Directors") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company (as defined in Section 2).
Hence, the Board of Directors has authorized the Company to enter into this
Agreement with you and certain other officers of the Company.
In consideration of your agreements set forth below, the Company agrees that
you shall receive the severance benefits described in this Agreement in the
event your employment with the Company is terminated following a Change in
Control in accordance with the terms of this Agreement.
1. TERM OF AGREEMENT.
When fully executed, this Agreement shall be effective as of the date hereof
and shall continue in effect through December 31, 1998, provided, however,
that commencing on January 1, 1998, and each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than September 30 of the preceding year, the Company shall have
given notice that it does not wish to extend this Agreement; and provided
further, that, notwithstanding the delivery of any such notice, this Agreement
shall continue in effect for a period of twenty-four (24) months after a
Change in Control unless such notice was given at least 18 months prior to the
date of the Change in Control.
2. CHANGE IN CONTROL.
No benefits shall be payable under this Agreement unless there shall have been
a Change in Control and your employment by the Company shall thereafter have
been terminated in accordance with Section 3. For purposes of this Agreement,
the term "Change in Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company (excluding
an acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant
to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in clauses
(i), (ii) and (iii) of subparagraph (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Company's Board
of Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger
or consolidation, (i) more than 75% of, respectively, the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and
any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 75% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors and (C) at least a majority of the members of the
board of directors of such corporation were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) Termination by the Company. You shall be entitled to the benefits
provided under this Agreement when there has been a Change in Control followed
by the termination of your employment by the Company within two years
following such Change in Control, except as otherwise provided in this
Agreement.
(b) Your Election to Terminate for Good Reason . You shall be entitled to
the benefits provided under this Agreement when there has been a Change in
Control followed by your election to terminate your employment within two
years following such Change in Control for Good Reason. Such election must be
made by written notice to the Company within ninety (90) days after you both
(i) have or should have had knowledge of conduct or an event allegedly
constituting Good Reason and (ii) have reason to believe that such conduct or
event could be grounds for Good Reason. For purposes of this Agreement, the
term "Good Reason" shall mean:
(1) the assignment to you of any duties which are materially inconsistent
in any adverse respect with your position or a substantial alteration adverse
to you in the nature or status of your responsibilities from those in effect
immediately prior to a Change in Control;
(2) a reduction by the Company in your base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(3) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan, stock ownership plan, stock purchase plan,
stock option plan, life insurance plan, health plan, disability plan or
similar plan (as the same existed immediately prior to the Change in Control)
in which you participated or were eligible to participate in immediately prior
to the Change in Control and in lieu thereof does not make available plans
providing at least comparable benefits; or
(4) the Company takes action which adversely affects your participation in,
or eligibility for, or materially reduces your benefits under, any of the
plans described in (b) (3) above, or deprives you of any material fringe
benefit enjoyed by you immediately prior to the Change in Control, or fails to
provide you with the number of paid vacation days to which you were entitled
immediately prior to the Change in Control; or
(5) the Company requires you to be based at any office or location other
than one within a 50-mile radius of the office or location at which you were
based immediately prior to the Change in Control; or
(6) the Company purports to terminate your employment otherwise than as
expressly permitted by this Agreement; or
(7) The failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement as contemplated in
Section 7.
You shall have the sole right to determine, in good faith, whether any of the
above events has occurred.
(c) Termination Not Resulting in Benefits. You shall not be entitled to the
benefits provided under this Agreement, whether or not there has been a Change
in Control, when the termination of your employment is due to (1) your
Retirement, (2) your termination for Disability, (3) your termination by the
Company for Cause, (4) your death or (5) your election to terminate for any
reason not listed in subsection 3(b) above, all as defined below.
(1) Retirement. "Retirement" shall mean termination on or after attaining
age 65.
(2) Disability. By notice to you, the Company may terminate this Agreement
upon your "Disability". You shall be deemed to incur a Disability when (i) a
physician selected by the Company advises the Company that your physical or
mental condition has rendered you unable to perform the essential functions of
your position in a reasonable manner, with or without reasonable accommodation
and will continue to render you unable to perform the essential functions of
your position in such manner, for a period exceeding 12 consecutive months, or
(ii) due to a physical or mental condition, you have not performed the
essential functions of your position in a reasonable manner, with or without
reasonable accommodation, for a period of 12 consecutive months.
(3) Cause. By notice to you, the Company may terminate your employment at
any time for "Cause". The Company must deliver such notice within ninety (90)
days after the Board of Directors both (i) has or should have had knowledge of
conduct or an event allegedly constituting Cause, and (ii) has reason to
believe that such conduct or event could be grounds for Cause. For purposes
of this Agreement "Cause" shall mean (i) you are convicted of, or you have
plead guilty or nolo contendere to, a felony; (ii) your willful and continued
failure to perform substantially your duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness)
after a demand for substantial performance is delivered to you by the Company
which specifically identifies the manner in which the Company believes you
have not substantially performed your duties; or (iii) you engage in conduct
that constitutes gross neglect or willful misconduct in carrying out your
duties under this Agreement involving material economic harm to the Company or
any of its subsidiaries. In the event the termination notice is based on
clause (ii) of the preceding sentence, you shall have ten (10) business days
following receipt of the notice of termination to cure your conduct, to the
extent such cure is possible, and if you do not cure within the ten (10)
business day period, your termination of employment in accordance with such
termination notice shall be deemed to be for Cause. The determination of
Cause shall be made by the Board of Directors. Following a Change in
Control, such determination shall be made in a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the membership of the
Board of Directors, excluding members who are employees of the Company, at a
meeting called for the purpose of determining that you have engaged in conduct
which constitutes Cause (and at which you had a reasonable opportunity,
together with your counsel, to be heard before the Board of Directors prior to
such vote). You shall not be entitled to the payment of any additional
compensation from the Company in the event of the termination of your
employment for Cause.
(d) Notice of Termination. Any termination by either party shall be
communicated by written Notice of Termination to the other party in accordance
with Section 11. A "Notice of Termination" shall indicate the specific
termination provision in this Agreement relied upon and shall set forth the
facts and circumstances claimed to provide a basis for termination of your
employment.
(e) Date of Termination. "Date of Termination" shall mean the date
specified in the Notice of Termination.
4. COMPENSATION.
Where there has been a Change in Control followed by the termination of your
employment by the Company within two years following such Change in Control,
the following severance benefits shall be in lieu of any severance benefits to
which you may otherwise be entitled under employee benefit plans of the
Company.
(a) Upon Termination for Disability. If your employment is terminated for
Disability, your disability benefits shall be determined in accordance with
the disability plans of the Company then in effect.
(b) Upon Termination for Cause. If your employment is terminated for Cause,
the Company shall pay you only your full salary through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, and the Company shall have no further obligations to you under this
Agreement.
(c) Upon Termination for Reasons Other Than Retirement, Disability, or
Cause. If your employment is terminated (i) by the Company for reasons other
than Retirement, Disability, or Cause, or (ii) by you for Good Reason, you
shall be entitled to the following benefits:
(1) The Company shall pay you your full salary through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given;
(2) The Company shall pay you a lump sum severance benefit, equal to 24
times your monthly salary rate in effect immediately prior to the circumstance
giving rise to the Notice of Termination. In addition, you shall be entitled
to continue participation in the Company's employee benefit plans for a 24-month
period from the date of termination, provided, however, that if you
cannot continue to participate in any of the benefit plans, the Company shall
otherwise provide equivalent benefits to you and your dependents on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event you become employed by another
employer and become eligible to participate in an employee benefit plan of
such employer, the benefits described herein shall be secondary to such
benefits during the period of your eligibility, but only to the extent that
the Company reimburses you for any increased cost and provides any additional
benefits necessary to give you the benefits provided hereunder; and
(3) The Company shall pay up to $25,000 in fees and expenses of any
executive recruiting, counseling, or placement firm selected by you for
purposes of seeking new employment following the Date of Termination.
(d) The payments provided to you under this Section will be in full and
complete satisfaction of any and all obligations owing to you under this
Agreement.
5. LIMITATION ON PAYMENTS.
It is understood and agreed that no severance benefits hereunder shall be paid
to the extent that such benefits (either alone or when aggregated with other
benefits contingent on a Change in Control and paid to or for your benefit)
constitute "excess parachute payment" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
under the circumstances set forth below, severance benefits payable under this
Agreement shall be subject to the following reduction notwithstanding anything
in this Agreement to the contrary. If the aggregate present value (as
determined pursuant to Section 280G of the Code) of severance benefits payable
under this Agreement which, together with all other payments by the Company to
you or for your benefit, would be "parachute payments" within the meaning of
Section 280G of the Code, the payments pursuant to this Agreement shall be
reduced (reducing first the severance benefit provided in the first sentence
of Section 4 (c)(2) above hereof) to the largest amount as will result in no
portion of such payments being treated as excess parachute payments.
The determination of whether and to what extent the payments shall be reduced
under this Agreement, including apportionment among specific payments and
benefits, shall be made by you in good faith, and such determination shall be
conclusive and binding on the Company. The Company shall make the
calculations referred to above within thirty days following the termination of
your employment and shall provide such calculations and the basis therefor to
you within such period. In the event a reduction is required, you shall give
notice to the Company, within 20 days of your receipt of such calculations and
related information, of your determination of the reduction.
6. LEGAL FEES.
The Company shall pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which you may reasonably incur as a result of
any contest, litigation or arbitration (regardless of the outcome thereof) by
the Company, or by you of the validity of, or liability under, this Agreement
(including any contest by you about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the rate of
150% of the Prime Rate posted by the Chase Manhattan Bank, N.A. or its
successor, provided, however, that the Company shall not be liable for your
legal fees and expenses if your position in such contest, litigation or
arbitration is found by the neutral decision-maker to be frivolous.
7. SUCCESSOR LIABILITY.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform. As used in this Agreement, "Company"
shall mean the company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
8. CONFIDENTIAL INFORMATION.
You agree to keep secret and retain in the strictest confidence all
confidential matters which relate to the Company, its subsidiaries and
affiliates, including, without limitation, customer lists, client lists, trade
secrets, pricing policies and other business affairs of the Company, its
subsidiaries and affiliates learned by you from the Company or any such
subsidiary or affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone outside
the Company or any of its subsidiaries or affiliates, whether during or after
your period of service with the Company, except (i) as such disclosure may be
required or appropriate in connection with your work as an employee of the
Company or (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with
apparent jurisdiction to order you to divulge, disclose or make accessible
such information. You agree to give the Company advance written notice of any
disclosure pursuant to clause (ii) of the preceding sentence and to cooperate
with any efforts by the Company to limit the extent of such disclosure. Upon
request by the Company, you agree to deliver promptly to the Company upon
termination of your services for the Company, or at any time thereafter as the
Company may request, all Company subsidiary or affiliate memoranda, notes,
records, reports, manuals, drawings, designs, computer file in any media and
other documents (and all copies thereof) relating to the Company's or any
subsidiary's or affiliate's business and all property of the Company or any
subsidiary or affiliate associated therewith, which you may then possess or
have under your direct control, other than personal notes, diaries, Rolodexes
and correspondence.
9. NO MITIGATION.
You shall not be required to mitigate the amount of any payments or benefits
provided for in Section 4(c) hereof by seeking other employment or otherwise
and no amounts earned by you shall be used to reduce or offset the amounts
payable hereunder, except as otherwise provided in Section 4(c).
10. ARBITRATION.
Any dispute or controversy between the parties relating to this Agreement
(except any dispute relating to Section 8 hereof) or relating to or arising
out of your employment with the Company, shall be settled by binding
arbitration in the City of Syracuse, State of New York, pursuant to the
Employment Dispute Resolution Rules of the American Arbitration Association
and shall be subject to the provisions of Article 75 of the New York Civil
Practice Law and Rules. Judgment upon the award may be entered in any court
of competent jurisdiction. Notwithstanding anything herein to the contrary,
if any dispute arises between the parties under Section 8 hereof, or if the
Company makes any claim under Section 8, the Company shall not be required to
arbitrate such dispute or claim but shall have the right to institute judicial
proceedings in any court of competent jurisdiction with respect to such
dispute or claim. If such judicial proceedings are instituted, the parties
agree that such proceedings shall not be stayed or delayed pending the outcome
of any arbitration proceedings hereunder.
11. NOTICES.
For the purposes of this Agreement, all notices shall be in writing and either
hand delivered or delivered by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective
addresses set forth below or to such other address as either party may have
furnished to the other in writing. Notice of change of address shall be
effective only upon receipt. Notices shall be sent:
(a) To the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
Attention: Corporate Secretary
(b) To you :
Mrs. Kapua A. Rice
12 Elmridge Road
Jamesville, NY 13078
12. ENTIRE AGREEMENT.
No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
expressly set forth in this Agreement.
13. AMENDMENT.
This Agreement may be amended only by an instrument in writing signed by the
parties hereto, and any provision hereof may be waived only by an instrument
in writing signed by the party or parties against whom or which enforcement of
such waiver is sought. The failure of either party hereto at any time to
require the performance by the other party hereto of any provision hereof
shall in no way affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
14. MISCELLANEOUS.
This Agreement is binding on and is for the benefit of the parties hereto and
their respective successors, heirs, executors, administrators and other legal
representatives. Neither this Agreement nor any right or obligation hereunder
may be assigned by the Company (except to an Affiliate) or by you without the
prior written consent of the other party.
15. SEVERABILITY.
If any provision of this Agreement, or portion thereof, is so broad, in scope
or duration, so as to be unenforceable, such provision or portion thereof
shall be interpreted to be only so broad as is enforceable.
16. GOVERNING LAW.
The validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of New York without reference to
principles of conflicts of law.
17. SURVIVAL OF COVENANTS.
Your obligations set forth in Sections 8 and 10 represent independent
covenants by which you are and will remain bound notwithstanding any breach by
the Company, and shall survive the termination of this Agreement.
If this Agreement correctly sets forth our agreement on the subject matter
hereof, please sign and return to the Company the enclosed copy of this
Agreement which will then constitute our entire agreement on this subject.
NIAGARA MOHAWK POWER CORPORATION
By:________________________________
DAVID J. ARRINGTON
Senior Vice President - Human Resources
APPROVED AND AGREED:
__________________________________
Kapua A. Rice
Date: _________________________
EXHIBIT 10-27
NIAGARA MOHAWK POWER CORPORATION
OUTSIDE DIRECTOR DEFERRED STOCK UNIT PLAN
Article 1. Establishment, Purpose and Duration
1.1 Establishment of the Plan. Niagara Mohawk Power Corporation
(hereinafter referred to as the "Company"), hereby establishes a plan to be
known as the "Niagara Mohawk Power Corporation Outside Director Deferred Stock
Unit Plan" (hereinafter referred to as the "Plan"), as set forth in this
document. The Plan provides for the granting of deferred stock units and
dividend equivalent deferred stock units, as described in Article 3. The Plan is
effective as of January 1, 1996 (hereinafter referred to as the "Effective
Date") and shall remain in effect until terminated as set forth hereunder.
1.2 Plan Purpose. The Plan is intended to link the long-term compensation
of outside directors of the Company to the longer-term performance of the
Company's stock through the payment of a portion of their compensation in
deferred stock units, and permitting outside directors to elect to defer payment
of additional compensation in deferred stock units, which become payable
following the termination of the director's service on the Board of Directors of
the Company (hereinafter referred to as the "Board").
Article 2. Administration
2.1 The Committee. The Plan shall be administered by the Compensation and
Succession Committee of the Board. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the
Board.
2.2 Authority of the Committee. The Committee shall have full power except
as limited by law, the Articles of Incorporation and the Bylaws of the Company,
subject to such other restricting limitations or directions as may be imposed by
the Board and subject to the provisions herein, to determine the terms of
deferred stock unit grants in a manner consistent with the Plan; to construe and
interpret the Plan, or any agreement or instrument entered into under the Plan;
to establish, amend or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 10 herein) to amend
the terms and conditions of any outstanding grant. Further, the Committee shall
make all other determinations that may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee may delegate its
authorities as identified hereunder.
2.3 Decision Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its shareholders, employees, participants in the Plan
(hereinafter referred to as "participants") and their estates and
beneficiaries.
2.4 Costs. The Company shall pay all costs of administration of the Plan.
Article 3. Eligibility and Participation
3.1 Eligibility. All directors of the Company who are not (i) employees of
the Company or (ii) former employees of the Company receiving benefits under the
Company's Pension Plan or Supplemental Executive Retirement Plan (hereinafter
referred to as "Outside Directors"), shall be eligible to participate in the
Plan.
3.2 Participation. Eligible Outside Directors who are credited with deferred
stock units (hereinafter referred to as "DSUs"), as hereinafter provided in
Article 4, will be regarded as Participants.
Article 4. Deferred Stock Units
4.1 Definition. A DSU is equal in value to one share of the Company's
common stock and entitles the Participant to cash payments, following the
termination of the Participant's Board service, in the manner elected by the
Participant.
4.2 DSU Grants.
(a) Each Outside Director, as of the business day immediately following the
Annual Meeting of the Company's shareholders, shall receive an annual grant of
DSUs on such business day equal to the result of dividing (i) 50% of the
Participant's annual retainer for service on the Board (60% if the Participant
is a Committee Chairperson) by (ii) the average of the daily opening and closing
stock prices of one share of the Company's common stock as reported in the
consolidated transaction reporting system (hereinafter referred to as "Fair
Market Value") on the date of grant. Notwithstanding the foregoing, the grant
for calendar year 1996 shall be made on December 2, 1996.
(b) Each Outside Director as of the Effective Date shall receive a grant of DSUs
on December 2, 1996 equal to the result of dividing (i) the present value of the
Participant's retirement benefit as of the Effective Date under the Company's
Outside Director Retirement Plan by (ii) the Fair Market Value on December 2,
1996. Notwithstanding the foregoing sentence, each such Outside Director who
had attained age 60 as of the Effective Date may elect within 45 days after the
date the Plan was adopted by the Board to have none or one-half of the present
value of the Participant's retirement benefit converted to DSUs.
(c) Outside Directors may elect to defer payment of some portion of their annual
retainer into DSUs of equivalent value at the time such election is approved by
the Committee.
4.3 Dividend Equivalent Deferred Stock Units. Each time a cash dividend is
declared on the Company's common stock, Participants will be credited with
dividend equivalent deferred stock units on each DSU they have in their DSU
accounts. These cash dividend credits will be converted into dividend
equivalent DSUs by dividing the total of such cash dividend credits by the Fair
Market Value of one share of the Company's common stock on the date the dividend
was paid. Dividend equivalent DSUs will also entitle the Participant to future
dividend credits. In the case of stock dividends, the number of dividend
equivalent DSUs credited on each stock dividend payment date shall be equal to
the number of shares (including fractional shares) that would have been issued
as a stock dividend in respect of the Participant's DSUs and dividend equivalent
DSUs previously credited to the Participant, as if such DSUs were actual
shares.
4.4 DSU Accounts. A bookkeeping account will be established for each
Participant which shall be credited with all DSUs and dividend equivalent DSUs
that have been granted or credited to the Participant in accordance with the
terms of this Plan.
Article 5. DSU Payments
The value of all DSU's credited to Participants' accounts will be paid
in cash upon their termination of service from the Board in the manner which
they have elected, as provided below. Notwithstanding the foregoing, all DSUs
will become payable in a lump sum in cash immediately upon a Change in Control
as defined in Article 6, based on the Fair Market Value of one share of the
Company's common stock on the date of the Change in Control.
In the event the Company enters bankruptcy before all DSUs have been paid
to Participants, any outstanding DSUs credited to their accounts will not be
paid until a period of six months following the date the Company, or any
successor(s), emerges from bankruptcy. At that time, payment of unpaid DSUs
will be made in accordance with the payment elections previously made by
Participants.
All Participants will receive payment following their termination of
Board service as elected by the Participant, in a lump sum amount based on Fair
Market Value of one share of the Company's common stock at the date of their
termination, or in five annual installments. The first installment will be paid
within 90 days following termination based on the stock price at time of
termination, with the other installments paid on the first through fourth
anniversaries of the Participant's date of termination from the Board. A
Participant can change a payment election, provided it is made prior to the
beginning of the year before the year of the Participant's termination of Board
service. The Committee, may, however, accelerate the payment of any unpaid DSU
installments if it deems this to be appropriate.
If a Participant dies prior to receiving payment of all DSUs credited to
the Participant's account, all unpaid DSUs will be paid in cash to the
Participant's designated beneficiary, or the Participant's estate if no
beneficiary is designated or survives the Participant. Such payments will be
based on the Fair Market Value of one share of the Company's common stock at the
time of the Participant's death.
Article 6. Change in Control
"Change in Control" of the Company shall be deemed to have occurred as of
the first day that any one or more of the following conditions shall have been
satisfied:
(1) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (hereinafter referred to as a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of common stock of the
Company (hereinafter referred to as the "Outstanding Shares") or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (i) any acquisition directly from
the Company (excluding an acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if, following
such reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subparagraph (3) below are satisfied; or
(2)Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) more than 75 % of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger
or consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors are then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Shares and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or consolidation, in
substantially the same proportions as their ownership immediately prior to such
reorganization, merger or consolidation, of the Outstanding Shares and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Shares or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a complete liquidation or
dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Shares and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in substantially
the same proportion as their ownership immediately prior to such sale or other
disposition of the Outstanding Shares and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and any
Person beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding Shares or Outstanding
Company Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board providing for such
sale or other disposition of assets of the Company; provided, however, that the
implementation of the corporate restructuring contemplated by the Company's
PowerChoice proposal filed with the New York Public Service Commission on
October 6, 1995, or any substantially similar corporate restructuring (as
determined by the Committee) shall not be deemed to be a "Change in Control".
Article 7. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any DSUs credited to the Participant's account under the Plan is to be paid
in case of his death before he receives payment in full of such DSUs. Each such
designation shall revoke all prior designations by the same Participant, shall
be in a form prescribed by the Committee, and will be effective only when filed
by the Participant in writing with the Committee during the Participant's
lifetime. In the absence of any such designation or if no beneficiary survives
the Participant, DSUs credited to the Participant's account remaining unpaid at
the Participant's death shall be paid to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of beneficiary or beneficiaries other
than the spouse.
Article 8. Transferability of DSUs
Notwithstanding the foregoing, the Committee may in its discretion
authorize a Participant to transfer all or a portion of any DSUs credited to the
Participant's account to the Participant's family members on such terms
prescribed by the Committee. No DSUs granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all DSUs
granted to a Participant under the Plan shall be exercisable/payable during his
or her lifetime only by or to such Participant or his or her legal
representative, except as provided in this Article.
Article 9. Adjustments in DSU Credits
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, share
combination or other change in the corporate structure affecting the Company's
shares, adjustments shall be made in the number of DSUs credited to
Participants' accounts, as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement of
rights.
Article 10. Plan Amendment, Modification and Termination
The Board may, at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part. No such amendment, modification or
termination shall adversely affect any DSUs previously credited to Participants'
accounts under the Plan, without the written consent of Participants, unless
such Plan amendment, modification, or termination is required by applicable
law.
Article 11. Successors
All obligations of the Company under the Plan, with respect to DSUs
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company .
Article 12. Legal Construction
12.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
12.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
12.3 Requirements of Law. The granting of DSUs under the Plan shall be
subject to all applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
12.4 Governing Law. To the extent not preempted by Federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with, and governed
by, the laws of the State of New York, without regard to conflicts of law
provisions.
EXHIBIT 11
- ----------
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARIES
COMPUTATION OF AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
Average Number
of Shares Out-
standing as Shown
on Consolidated
(1) (2) Statements of In-
Shares of Number (3) come (3 Divided
Common of Days Share Days by Number of Days
Year Ended December 31, Stock Outstanding (2 x 1) in Year)
- ----------------------- --------- ----------- ---------- -----------------
1996
----
January 1 - December 31 144,332,123 366 52,825,557,018
Shares issued at various
times during the year -
Acquisition - Syracuse
Suburban Gas Company,
Inc. 33,091 * 6,397,653
------------ ---------------
144,365,214 52,831,954,671 144,349,603
============ ============== ===========
1995
----
January 1 - December 31 144,311,466 365 52,673,685,090
Shares issued -
Dividend Reinvestment
Plan - January 31 19,016 335 6,370,360
Acquisition - Syracuse
Suburban - Gas Company,
Inc. - October 4 1,641 89 146,049
----------- --------------
144,332,123 52,680,201,499 144,329,319
=========== ============== ===========
1994
----
January 1 - December 31 142,427,057 365 51,985,875,805
Shares issued at various
times during the year -
Dividend Reinvestment
Plan 1,026,709 * 152,123,611
Employee Savings
Fund Plan 857,700 * 152,153,100
----------- --------------
144,311,466 52,290,152,516 143,260,692
=========== ============== ===========
* Number of days outstanding not shown as shares represent an accumulation of weekly,
monthly and quarterly issues throughout the year. Share days for shares issued are
based on the total number of days each share was outstanding during the year.
Note: Earnings per share calculated on both a primary and fully diluted basis are the same
due to the effects of rounding.
/TABLE
EXHIBIT 12
- ----------
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
STATEMENT SHOWING COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES, RATIO OF EARNINGS TO
FIXED CHARGES WITHOUT AFC AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
A. Net Income per Statements
of Income $110,390 $248,036 $176,984 $271,831 $256,432
B. Taxes Based on Income or
Profits 66,221 159,393 111,469 147,075 155,504
-------- -------- -------- -------- --------
C. Earnings, Before Income
Taxes 176,611 407,429 288,453 418,906 411,936
D. Fixed Charges (a) 308,323 314,973 315,274 319,197 332,413
-------- -------- -------- -------- --------
E. Earnings Before Income
Taxes and Fixed Charges 484,934 722,402 603,727 738,103 744,349
F. Allowance for Funds Used
During Construction 7,355 9,050 9,079 16,232 21,431
-------- -------- -------- ------- -------
G. Earnings Before Income
Taxes and Fixed Charges
without AFC $477,579 $713,352 $594,648 $721,871 $722,918
======== ======== ======== ======== ========
Preferred Dividend Factor:
H. Preferred Dividend
Requirements $ 38,281 $ 39,596 $ 33,673 $ 31,857 $ 36,512
-------- -------- -------- --------- --------
I. Ratio of Pre-Tax Income
to Net Income (C / A) 1.60 1.64 1.63 1.54 1.61
-------- --------- --------- --------- ---------
J. Preferred Dividend Factor
(H x I) $ 61,250 $ 64,937 $ 54,887 $ 49,060 $ 58,784
K. Fixed Charges as above (D) 308,323 314,973 315,274 319,197 332,413
-------- -------- -------- -------- --------
L. Fixed Charges and Preferred
Dividends Combined $369,573 $379,910 $370,161 $368,257 $391,197
======== ======== ======== ======== ========
M. Ratio of Earnings to
Fixed Charges (E / D) 1.57 2.29 1.91 2.31 2.24
-------- -------- -------- -------- --------
N. Ratio of Earnings to Fixed
Charges without AFC (G / D) 1.55 2.26 1.89 2.26 2.17
-------- -------- -------- -------- --------
O. Ratio of Earnings to Fixed
Charges and Preferred
Dividends Combined (E / L) 1.31 1.90 1.63 2.00 1.90
-------- ------- -------- -------- --------
(a) Includes a portion of rentals deemed representative of the interest factor: $26,600 for
1996, $27,312 for 1995, $29,396 for 1994, $27,821 for 1993 and $31,697 for 1992.
/TABLE
EXHIBIT 21
- ----------
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
SUBSIDIARIES OF THE REGISTRANT
Name of Company State of Organization
- --------------- ---------------------
Opinac Energy Corporation Province of Ontario, Canada
(Note 1)
NM Uranium, Inc. Texas
EMCO-TECH, Inc. (Note 2) New York
NM Suburban Gas, Inc. New York
NM Holdings, Inc. (Note 3) New York
Moreau Manufacturing Corporation New York
Beebee Island Corporation New York
NM Receivables Corp. New York
Note 1: At December 31, 1996, Opinac Energy Corporation has a 50 percent interest in CNP,
which is incorporated in the Province of Ontario, Canada. In addition, Opinac Energy
Corporation has a 100 percent interest in an unregulated company, Plum Street
Enterprises, Inc., which is incorporated in the State of Delaware. CNP owns Cowley
Ridge Partnership (an Alberta, Canada general partnership) and Canadian Niagara Wind
Power Company, Inc. (incorporated in the Province of Alberta, Canada).
Note 2: EMCO-TECH, Inc. is inactive at December 31, 1996.
Note 3: At December 31, 1996, NM Holdings, Inc. owns Salmon Shores, Inc., Moreau Park, Inc.,
Riverview, Inc., Hudson Pointe, Inc., Upper Hudson Development, Inc., Land Management
& Development, Inc., OPropco, Inc. and LandWest, Inc.
/TABLE
EXHIBIT 23
Consent of Independent Accountants
- ----------------------------------
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (Nos. 33-36189, 33-42771 and
333-13781) and to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (Nos.
33-45898, 33-50703, 33-51073, 33-54827 and 33-55546) of Niagara
Mohawk Power Corporation of our report dated March 13, 1997
appearing in the Company's Form 10-K dated March 27, 1997. We also
consent to the incorporation by reference of our report on the
financial statement schedules, which appears in this Form 10-K.
PRICE WATERHOUSE LLP
Syracuse, New York
March 27, 1997
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
NIAGARA MOHAWK POWER CORPORATION
(Registrant)
Date March 27, 1997 By /s/ Steven W. Tasker
---------------------------
Steven W. Tasker
Vice President-Controller
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ William F. Allyn Director March 27, 1997
- ---------------------
William F. Allyn
Director,
President and Chief
/s/ Albert J. Budney, Jr. Operating Officer March 27, 1997
- ------------------------
Albert J. Budney, Jr.
/s/ Lawrence Burkhardt, III Director March 27, 1997
- ---------------------------
Lawrence Burkhardt, III
/s/ Douglas M. Costle Director March 27, 1997
- ---------------------
Douglas M. Costle
Chairman of the
Board of Directors
and Chief Executive
/s/ William E. Davis Officer March 27, 1997
- --------------------
William E. Davis
/s/ William J. Donlon Director March 27, 1997
- ---------------------
William J. Donlon
/s/ Anthony H. Gioia Director March 27, 1997
- --------------------
Anthony H. Gioia
/s/Bonnie Guiton Hill Director March 27, 1997
- ---------------------
Bonnie Guiton Hill
/s/ Henry A. Panasci, Jr. Director March 27, 1997
- ------------------------
Henry A. Panasci, Jr.
/s/ Patti McGill Peterson Director March 27, 1997
- -------------------------
Patti McGill Peterson
/s/ Donald B. Riefler Director March 27, 1997
- ---------------------
Donald B. Riefler
/s/ Stephen B. Schwartz Director March 27, 1997
- -----------------------
Stephen B. Schwartz
Senior Vice President
and Chief Financial
/s/ John W. Powers Officer March 27, 1997
- --------------------
John W. Powers
Vice President-Controller
and Principal Accounting
/s/ Steven W. Tasker Officer March 27, 1997
- --------------------
Steven W. Tasker