Retirement Benefits and Employment Agreements
Niagara Mohawk Pension Plan
The Niagara Mohawk Pension Plan ("Basic Plan") is a noncontributory,
tax-qualified defined benefit plan and provides all employees of the Company
with a minimum retirement benefit. This retirement benefit is related to
compensation--that is, base salary or pay--subject to the maximum annual limits
noted in the Retirement Benefits Table.
The participant's Basic Plan retirement benefit is based on one of two formulas
depending on age and years of service on July 1, 1998:
• the cash balance formula; or
• the highest five-year average compensation.
Effective July 1, 1998, the Basic Plan was amended to include a cash balance
formula. Under a cash balance formula a participant's retirement benefit grows
with pay credits (4% - 8% x salary) plus interest credits on a monthly basis.
A non-represented (management) employee who was at least 45 years of age and
has 10 years of service on July 1, 1998 or has at least 5 years of service and
50 points (age plus service) as of December 31, 1998 will receive the higher of
the two formulas--the cash balance formula or the highest consecutive five-year
compensation. All other non-represented employees' Basic Plan benefit will be
based on the cash balance formula only. Directors who are not employees are
not eligible to participate in the Basic Plan.
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan ("SERP") is a noncontributory,
nonqualified defined benefit plan that provides additional retirement benefits
to officers of the Company who have obtained age 55 and who have 20 or
more years of employment. The Committee may grant exceptions to the age and
service requirements.
The SERP provides a benefit equal to the greater of:
(i) 60% of base salary averaged over the final 36 months of employment,
reduced by benefits payable under the Basic Plan; retirement benefits
accrued during previous employment and one-half of the maximum
security benefit to which the participant may be entitled at the time
of retirement, or
(ii) benefits payable under the Basic Plan without regard to the annual
benefit limitations imposed by the Internal Revenue Code.
Provided certain established criteria are met, participants in the SERP may
elect to receive their benefit in a lump sum payment. However, if plan
participants cease to be employed by the Company or by National Grid after
the effective date of the closing of the proposed merger transaction with
National Grid due to the participants involuntary termination or voluntary
termination with "good reason," the SERP benefit will be paid in the form of
a lump sum.
The following table shows the maximum retirement benefit (adjusted for Social
Security) an officer can earn in aggregate under both the Basic Plan and the
SERP.
Annual Retirement Allowance
3-Year Average Years of Service
Annual Salary
10* 15* 20 25 30 35
$150,000 $21,090 $33,885 $ 77,500 $ 77,500 $ 77,500 $ 77,500
250,000 22,540 36,210 137,500 137,500 137,500 137,500
350,000 22,540 36,210 197,500 197,500 197,500 197,500
450,000 22,540 36,210 257,500 257,500 257,500 257,500
550,000 22,540 36,210 317,500 317,500 317,500 317,500
650,000 22,540 36,210 377,500 377,500 377,500 377,500
750,000 22,540 36,210 437,500 437,500 437,500 437,500
850,000 22,540 36,210 497,500 497,500 497,500 497,500
*Basic Plan benefit only.
The benefit calculations assume the officer has selected a straight life
annuity and retired on December 31, 2000 at age 65. Annual compensation
limits ($160,000 for 1998 and 1999 and $170,000 for 2000) under a tax-qualified
plan will reduce the benefit amount collectible under the Basic Plan for
some highly compensated officers.
As of December 31, 2000, the persons named in the Summary Compensation Table
had the following estimated credited years of benefit service for purposes of
the pension program: Xx. Xxxxx, 11 years; Xx. Xxxxxx, 6 years; Xx. Xxxx,
28 years; Xx. Xxxxxxx, 5 years; and Xx. Xxxxxxx, 22 years.
Employment Agreements
The Company has entered into employment agreements with Messrs. Xxxxx, Xxxxxx,
Xxxxxxx, Xxxxxxx and Xx. Xxxx, which have a rolling 3-year term. In the event
of a change in control (as defined in the agreement), the agreement will remain
in effect for a period of at least 36 months thereafter unless a notice not to
extend the term of the agreement was given at least 18 months prior to the
change in control. The agreements provide that the executive will receive a
base salary equal to the executive's annual salary at the effective date of the
agreements or such greater amount determined by the Company, that the executive
will be able to participate in the Company's incentive compensation plans and
that the executive is entitled to vacation, fringe benefits, insurance coverage
and other terms and conditions of the agreement as are provided to employees of
the Company with comparable rank and seniority. If the executive has completed
eight years of service and attained age 55 at the time of the executive's
termination of employment, the executive (and eligible dependents) will be
entitled to coverage for medical, prescription drug, dental and hospitalization
benefits for the remainder of the executive's life with all premiums therefor
paid by the Company. If an executive has completed eight years of service but
has not attained age 55 upon terminating employment, such benefits will be
provided when the executive attains age 55.
The employment agreements also provide that the executive's benefits under the
SERP will be based on the executive's annual base salary at the time of
termination and annual incentive awards. Further, if the executive's
employment is terminated by the Company without cause at any time, or by the
executive for good reason after a change in control (as such terms are defined
in the agreement), or after completing eight years of service, the agreements
provide that the executive will be deemed fully vested under the SERP without
reductionfor early commencement. If the executive is under age 55, the
executive will be entitled to a fully vested SERP benefit upon attaining age
55, without reduction for early commencement.
If the executive's employment is terminated by the Company without cause prior
to a change in control, the executive will be entitled to a lump sum severance
benefit in an amount equal to two times the executive's base salary plus an
amount equal to two times the greater of the executive's (i) most recent annual
incentive award or (ii) average annual incentive award paid over the previous
three years. In addition, the executive will receive a pro rata portion of the
incentive award which would have been payable to the executive for the fiscal
year in which termination of employment occurs, provided that the executive has
been employed for 180 days in such fiscal year. The executive will also be
entitled to continued participation in the Company's employee benefit plans for
two years, coverage for the balance of the executive's life under a life
insurance policy providing a death benefit equal to 2.5 times the executive's
base salary at termination and payment by the Company of fees and expenses of
an executive recruiting or placement firm in seeking new employment.
If, following a change in control, the executive's employment is terminated by
the Company without cause or by the executive for good reason, the executive
will be entitled to a lump sum severance benefit equal to four times
the executive's base salary. The executive will also be entitled to the
additional benefits referred to in the last sentence of the preceding
paragraph, except that employee benefit plan coverage for medical, prescription
drug, dental and hospitalization benefits will continue for the remainder of
the executive's life with all premiums therefor paid by the Company and
coverage under other employee benefit plans will continue for four years. In
the event that the payments to the executive upon termination of employment
following a change in control would subject the executive to the excise tax on
excess parachute payments under the Internal Revenue Code, the Company will
reimburse the executive for such excise tax (and the income tax and excise tax
on suchreimbursement). In the event of a dispute over an executive's rights
under the executive's agreement following a change in control of the Company,
the Company will pay the executive's reasonable legal fees with respect to the
dispute unless the executive's claims are found to be frivolous.
Change to By-Laws
The Board of Directors amended the provisions of Section 6.6 of Article VI of
the By-Laws of the Company. The text of these amendments is attached as
Appendix B. No shareholder approval was necessary for these amendments.
ther Information
What is the deadline for submitting a proposal for next year's annual
meeting?
Shareholders who want to have a proposal included in the Company's proxy
statement and proxy card for the 2002 Annual Meeting of Shareholders must
notify the Secretary of the Company. The proposal must be received on or
before Friday, November 30, 2001 and should be addressed to:
Office of the Secretary
Niagara Mohawk Holdings, Inc.
000 Xxxx Xxxxxxxxx Xxxx, X-0
Xxxxxxxx, Xxx Xxxx 00000
A shareholder must be a registered or beneficial owner of at least one percent
of the Company's outstanding common stock or stock with a market value of
$2,000 and the shareholder must continue to own such stock through the date on
which the meeting is held.
Shareholders who wish to present a proposal at the 2002 Annual Meeting, must
notify the Secretary of the Company in writing not less than 90 days nor more
than 120 days before the annual meeting.
Any nominations for director to be made at a shareholder meeting must contain
the specific information required in the Company By-Laws. A copy of the
relevant portion of the By-Laws may be obtained upon written request from
the Secretary of the Company.
There would be no further annual meetings following the National Grid merger.
What does the Company pay for indemnification insurance?
The directors and officers of the Company and its subsidiaries are insured
against obligations, which may be incurred as a result of the Company's
indemnification of its directors and officers. The coverage also insures
the directors and officers against liabilities for which they may not be
indemnified by the Company or its subsidiaries, except for a dishonest act or
breach of trust. The insurance was purchased from the National Union
Fire Insurance Company, Associated Electric & Gas Insurance Services, Ltd.,
Energy Insurance Mutual, Federal Insurance Company and ACE Insurance Company
Ltd., for the term from January 31, 2001, to January 30, 2002, for an
aggregate premium of $756,799.
How much will it cost the Company to solicit votes?
• NM Holdings retained X.X. Xxxx & Co. to assist in the solicitation
of proxies for the 2001 Annual Meeting of Shareholders at a fee of
$11,500 plus out-of-pocket expenses. The Company pays all costs of
solicitation, including certain expenses of brokers and nominees who
mail proxy material to their customers or principals.
• In addition to the use of the mail, proxies may be solicited
personally, by telephone or telegram or by the Company officers and
employees without additional compensation.
Who is the Company's independent accountant?
The Company has selected the independent accounting firm of
PricewaterhouseCoopers LLP to examine the financial statements of the Company
and its subsidiaries for the year ended December 31, 2001.
Audit Fees
The estimated fees for provessional services rendered by PricewaterhouseCoopers
LLP for the audit of the Company's annual financial statements for the fiscal
year ended December 31, 2000 and for the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q for that fiscal year
are $643,600, of which $607,600 has been billed as of March 15, 2001.
All Other Fees
The estimated fees for services rendered by PricewaterhouseCoopers LLP to the
Company, other than the services described above, for the fiscal year ended
December 31, 2000 are $808,425, of which $763,725 has been billed as of
March 15, 2001.
Representatives of PricewaterhouseCoopers LLP will be present at the meeting to
make a statement if they wish to do so and will be available to respond to
appropriate questions.
Who do I contact to receive quarterly reports?
Shareholders who are not receiving quarterly reports directly from the Company
and who would like to receive the Company's quarterly reports may write to:
Investor Relations
Niagara Mohawk Power Corporation
000 Xxxx Xxxxxxxxx Xxxx, X-0
Xxxxxxxx, XX 00000-0000.
By Order of the Board of Directors,
Xxxxx X. Xxxx
Secretary
Dated: March 30, 2001
Appendix A
Audit Committee Charter
Composition:
Annually, the Board of Directors shall designate an Audit Committee
consisting of three or more directors, each of whom shall have no
relationship to the Corporation that may interfere with the
exercise of their independence from management and the Corporation and
shall otherwise satisfy the applicable membership requirements under
the rules of the New York Stock Exchange, Inc., as such requirements
are interpreted by the Board of Directors in its business judgment.
Purposes:
The function of the Audit Committee is oversight. The management of
the Corporation is responsible for the preparation, presentation and
integrity of the Corporation's financial statements. Management is
responsible for maintaining appropriate accounting and financial
reporting principles and policies and the internal auditing department
is responsible for conducting reviews of internal controls designed to
assure compliance with policies, procedures and processes of the
Corporation. The independent auditor is responsible for planning and
carrying out a proper audit of the Company's annual financial
statements, reviews of the Corporation's quarterly financial statements
prior to the filing of each quarterly report on Form 10-Q, and other
procedures. In fulfilling their responsibilities hereunder, it is
recognized that members of the Audit Committee are not full-time
employees of the Corporation and are not, and do not represent
themselves to be, accountants or auditors by profession or experts in
the fields of accounting or auditing including in respect of auditor
independence. As such, it is not the duty or responsibility of the
Audit Committee or its members to conduct "field work" or other types
of auditing or accounting reviews or procedures or to set auditor
independence standards, and each member of the Audit Committee shall be
entitled to rely on (i) the integrity of those persons and
organizations within and outside the Corporation from which it receives
information, (ii) the accuracy of the financial and other information
provided to the Audit Committee by such persons or organizations absent
actual knowledge to the contrary (which shall be promptly reported to
the Board of Directors), and (iii) representations made by management
as to any information technology, internal audit and other non-audit
services provided by the auditors to the Company.
The purposes of the Audit Committee are to assist the Board of
Directors:
1. in its oversight of the Corporation's accounting and financial
reporting principles and policies and internal accounting
controls and procedures;
2. in its oversight of the Corporation's financial statements and
the independent audit thereof;
3. in selecting, evaluating and, where deemed appropriate,
replacing the independent auditor; and
4. in evaluating the independence of the independent auditor.
The independent auditor for the Corporation is ultimately accountable
to the Board of Directors (via the Audit Committee). The Committee
shall have direct access to the independent auditor, as well as to the
Corporation's internal auditor and all officers and employees of the
Corporation. The Board of Directors, with the assistance of the Audit
Committee, has the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the independent auditor.
Responsibilities:
The Audit Committee shall:
1. Evaluate and recommend to the Board of Directors the accounting
firm to be selected by the Board as independent auditor of the
Corporation and its subsidiaries.
2. Act on behalf of the Board in meeting and conducting reviews
with the independent auditor, the internal auditor, the ethics
officer and the appropriate corporate officers.
3. Consider the impact on the Corporation's financial statements
of any changes in accounting procedures and policies, and
adequacy of internal controls, and make recommendations on such
matters to the Board of Directors.
4. Meet with the independent auditor, the appropriate corporate
officers and the Corporation's internal auditor during each
year to (a) review and make recommendations to the Board
concerning the independent auditor's proposal on the scope of
their audit and related fees and services and the scope of the
respective audits of the internal auditor; (b) review the
results of such audits; (c) review the form of opinion the
independent auditor proposes to render to the Corporation;
(d) review interim and annual financial reports and disclosures
prior to release and submit to the Board any recommendations it
may have from time-to-time with respect to financial reporting
and accounting practices and policies; (e) obtain from the
independent auditor assurance that the audit was conducted in
a manner consistent with Section 10A of the Securities Exchange
Act of 1934, as amended, which sets forth certain procedures to
be followed in any audit of financial statements required under
the Securities Exchange Act of 1934; and (f) discuss with the
Corporation's General Counsel any significant legal matters
that may have a material effect on the financial statements,
the Corporation's compliance policies, including material
notices to or inquiries received from governmental agencies.
5. Instruct the independent auditor that the independent auditor
is ultimately accountable to the Board of Directors and Audit
Committee.
6. Ensure that the independent auditor submits on a periodic basis
to the Committee a formal written statement delineating all
relationships between the independent auditor and the
Corporation addressing each non-audit service provided to the
Company and the matters set forth in Independence Standards
Board No. 1, and actively engage in a dialogue with the
independent auditor with respect to any disclosed relationships
or services that may impact the objectivity and independence of
the independent auditor.
7. Ensure that independent auditor shall submit to the Corporation
annually a formal written statement of the fees billed for each
of the following categories of services rendered by the
independent auditor: (i) the audit of the Corporation's annual
financial statements for the most recent fiscal year and the
reviews of the financial statements included in the
Corporation's Quarterly Reports on Form 10-Q for that fiscal
year; (ii) information technology consulting services for the
most recent fiscal year, in the aggregate and by each service
(and separately identifying fees for such services relating to
financial information systems design and implementation); and
(iii) all other services rendered by the independent auditor
for the most recent fiscal year, in the aggregate and by each
service. Consider the results of the independent auditors'
last peer review, litigation status, and disciplinary actions,
if any.
8. Consider the effect of the independent auditor's provision of
(a) information technology consulting services relating to
financial information systems design and implementation and (b)
other non-audit services to the Corporation on the independence
of the independent auditor (it being understood that the Audit
Committee will rely on the accuracy of the information provided
by the independent auditor as to the services provided and the
fees paid and will rely on the representations of management in
connection with such consideration).
9. Advise the internal auditor that he or she is expected to
provide to the Audit Committee summaries of and, as
appropriate, the significant reports to management prepared by
the internal auditing department and management's responses
thereto.
10. Meet with the ethics officer during each year to review the
Corporation's ethics initiatives and obtain information about
ethics related matters.
11. Review the results of the internal audit department's
assessment of related party transactions.
12. Be consulted, and its consent obtained, prior to the selection
or termination of the internal auditor and ethics officer.
13. Review management's assessment of financial risks.
14. Authorize special investigations and studies which arise out of
the Committee's areas of responsibility.
15. Report on the Committee's activities on a regular basis to the
Board of Directors.
16. Conduct a self-assessment at least every three years.
17. Advise management, the internal auditing department and the
independent auditor that they are expected to provide to the
Audit Committee a timely analysis of significant financial
reporting issues and practices.
18. Consider any reports or communications (and management's and/or
the internal audit department's responses thereto) submitted to
the Audit Committee by the independent auditor required by or
referred to in SAS 61 (as codified by AU Section 380), as may
be modified or supplemented.
19. Prepare any report of the Committee or other disclosures
required by the rules of the Securities and Exchange Commission
to be included in the Corporation's annual proxy statement.
20. Perform any other functions deemed appropriate by the Board of
Directors.
21. Review this Charter at least annually and recommend any changes
to the Board of Directors.
Meetings:
The Audit Committee shall meet at least four times annually to discuss
with management the annual audited financial statements and quarterly
financial results. The Audit Committee should meet separately at least
annually with management, the director of the internal auditing
department and the independent auditor to discuss any matters that the
Audit Committee or any of these persons or firms believe should be
discussed privately. The Audit Committee may request any officer or
employee of the Corporation or the Corporation's outside counsel or
independent auditor to attend a meeting of the Audit Committee or to
meet with any members of, or consultants to, the Audit Committee.
Members of the Audit Committee may participate in a meeting of the
Audit Committee by means of conference call or similar communications
equipment by means of which all persons participating in the meeting
can hear each other.
* * * * *
Appendix B
BY-LAWS OF NIAGARA MOHAWK HOLDINGS, INC.
ARTICLE VI
OTHER MATTERS
Section 6.6. Indemnification of Directors and Officers. (a) For
purposes of this Section 6.6 of these By-Laws: service "at the request of the
Corporation" shall include service as a director, officer, or employee
of the Corporation which imposes duties on, or involves services by, such
director, officer, or employee with respect to an employee benefit plan, its
participants, or beneficiaries; any excise taxes assessed on a person
with respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; action taken or omitted by a person with respect to an employee
benefit plan, which such person reasonably believes to be in the interest of
the participants and beneficiaries of such plan, shall be deemed to be action
not opposed to the best interests of the Corporation; and "Continuing Director"
means (i) any person who was a member of the Board of Directors on June 13,
2000, and (ii) any person who subsequently becomes a member of the Board of
Directors, if such person's nomination for election is recommended by a
majority of the Continuing Directors.
(b) Indemnification: The Corporation shall fully indemnify,
to the extent not expressly prohibited by law, each person involved in, or
made or threatened to be made a party to, any action, claim or proceeding,
whether civil or criminal, including any investigative, administrative,
legislative, or other proceeding, and including an action by or in the right
of the Corporation or any other corporation, or any partnership, joint
venture, trust, employee benefit plan, or other enterprise, and including
appeals therein (any such action or proceeding being hereinafter referred to
as a "Matter"), by reason of the fact that such person, such person's
testator or intestate (i) is or was a director or officer of the Corporation,
or (ii) is or was serving, at the request of the Corporation, as a director,
officer, or in any other capacity, any other corporation, or any
partnership, joint venture, trust, employee benefit plan, or other
enterprise, against any and all judgments, fines, penalties, amounts paid in
settlement, and expenses, including attorneys' fees actually and reasonably
incurred as a result of or in connection with any Matter, except as provided in
the next paragraph.
No indemnification shall be made to or on behalf of any such
person if a judgment or other final adjudication adverse to such person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that such person personally gained in fact a
financial profit or other advantage to which such person was not legally
entitled. In addition, no indemnification shall be made with respect to any
Matter initiated by any such person against the Corporation, or a director or
officer of the Corporation, other than to enforce the terms of this
Section 6.6, unless such Matter was authorized by a majority of the
Continuing Directors. Further, no indemnification shall be made with respect
to any settlement or compromise of any Matter unless and until the
Corporation has consented to such settlement or compromise.
In making any determination regarding any person's entitlement to
indemnification hereunder, it shall be presumed that such person is entitled
to indemnification, and the Corporation shall have the burden of proving
the contrary.
(c) Advancement of Expenses: Except in the case of a Matter
against a director, officer, or other person, specifically approved by a
majority of the Continuing Directors, the Corporation shall, subject to
subsection 6.6(b) above, pay expenses actually and reasonably incurred
by or on behalf of such a person in connection with any Matter in advance of
the final disposition of such Matter. Such payments shall be made
promptly upon receipt by the Corporation, from time to time, of a written
demand of such person for such advancement, together with an undertaking by
or on behalf of such person to repay any expenses so advanced to the extent
that the person receiving the advancement is ultimately found not be entitled
to indemnification for part or all of such expenses.
(d) Rights Not Exclusive: The rights to indemnification and
advancement of expenses granted by or pursuant to this Section 6.6: (i) shall
not limit or exclude, but shall be in addition to, any other rights
which may be granted by or pursuant to any statute, resolution, or agreement,
(ii) shall be deemed to constitute contractual obligations of the Corporation
to any director, officer, or other person who serves in a capacity referred to
herein at any time while this Section 6.6 is in effect, (iii) are intended to
be retroactive and shall be available with respect to events occurring prior
to the adoption of this Section 6.6, and (iv) shall continue to exist after
the repeal or modification hereof with respect to events occurring prior
thereto. It is the intent of this Section 6.6 to require the Corporation to
indemnify the persons referred to herein for the aforementioned judgments,
fines, penalties, amounts paid in settlement, and expenses, including
attorneys' fees in each and every circumstance in which such indemnification
could lawfully be permitted by express provisions of By-Laws, and the
indemnification required by this Section 6.6 shall not be limited by the
absence of an express recital of such circumstances.
(e) Authorization of Contracts: The Corporation may, with
the approval of the Board of Directors, enter into an agreement with any person
who is, or is about to become, a director or officer of the Corporation, or
who is serving, or is about to serve, at the request of the Corporation, as a
director, officer, or in any other capacity, any other corporation, or any
partnership, joint venture, trust, employee benefit plan, or other enterprise,
which agreement may provide for indemnification of such person and advancement
of expenses to such person upon terms, and to the extent, not prohibited
by law. The failure to enter into any such agreement shall not affect or
limit the rights of any such person under this Section 6.6.
(f) Severability: If any provision of this Section 6.6 is
determined at any time to be unenforceable in any respect, the other provisions
shall not in any way be affected or impaired thereby.
* * * * *
