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.
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.
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.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Company has nothing to report for this item.
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:
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:
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.
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:
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").
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.
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%.
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:
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
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.
* Does not include the deferred tax benefit of $36,273 associated with the extraordinary item for the discontinuance of regulatory accounting principles.
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.
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:
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:
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.
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 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:
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.
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 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.
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, 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
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) - ----------------------- --------- ----------- ---------- -----------------
----
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 ============ ============== ===========
----
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 =========== ============== ===========
----
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
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.
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
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.
* Does not include the deferred tax benefit of $36,273 associated with the extraordinary item for the discontinuance of regulatory accounting principles.
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.
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:
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:
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.
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 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:
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.
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 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.
ITEM 9.
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.
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.
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.
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.
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.
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, 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
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) - ----------------------- --------- ----------- ---------- -----------------
----
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 ============ ============== ===========
----
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 =========== ============== ===========
----
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