SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
ENERGY EAST CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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and 0-11.
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ENERGY EAST CORPORATION
ALBANY, NEW YORK
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 2002
------------------------
To the holders of common stock of
Energy East Corporation:
You are cordially invited to attend the Annual Meeting of Stockholders of
Energy East Corporation which will be held at the Citicorp/Citibank Auditorium,
12th Floor, 399 Park Avenue, New York, New York on June 14, 2002 at 9:30 A.M.
(Eastern Daylight Saving Time). The meeting is being held to elect two directors
to serve in Class I for a term expiring at the 2005 Annual Meeting and for the
transaction of any other business properly brought before the meeting or any
adjournment thereof.
Holders of record of common stock at the close of business on April 25, 2002
will be entitled to notice of and to vote at the meeting.
In connection with the annual meeting, you have three ways to vote by proxy:
(a) by mail, (b) by telephone and (c) over the Internet. To vote by telephone or
over the Internet, you should follow the instructions on the enclosed proxy
form. To vote by mail, you should complete and return the enclosed proxy card in
the envelope provided, which requires no postage if mailed in the United States.
You may revoke your proxy at any time before the vote is taken by voting again
by telephone or over the Internet, by delivering to the Secretary of the Company
a written revocation or a proxy with a later date or by oral revocation in
person to any of the persons named on the enclosed proxy card at the annual
meeting.
By Order of the Board of Directors,
Robert D. Kump
VICE PRESIDENT, TREASURER & SECRETARY
Dated: April 29, 2002
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE
ENCLOSED FOR YOUR CONVENIENCE OR FOLLOW THE INSTRUCTIONS ON THE ENCLOSED PROXY
FORM TO VOTE BY TELEPHONE OR OVER THE INTERNET.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 2002
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the board of directors of Energy East Corporation (the
"Company"), for use at the Company's Annual Meeting of Stockholders to be held
on June 14, 2002, at the Citicorp/Citibank Auditorium, 12th Floor, 399 Park
Avenue, New York, New York. This proxy statement and the form of proxy were
first mailed to holders of common stock on or about April 29, 2002. The mailing
address of the Company's principal executive office is P.O. Box 12904, Albany,
New York 12212-2904.
ANNUAL REPORT
An Annual Report to Stockholders for the year ended December 31, 2001,
including consolidated financial statements, has been mailed to all stockholders
of record. The Annual Report is not a part of this proxy statement.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The close of business on April 25, 2002 has been fixed as the record date
for determining the stockholders entitled to vote at the meeting. As of the
record date, the Company had outstanding 116,831,563 shares of common stock.
Holders of common stock have cumulative voting rights for the election of
directors and one vote per share for all other purposes. Cumulative voting means
that the total number of votes which you may cast for the election of directors
of a given class shall equal the number of directors in such class to be elected
multiplied by the number of shares held, and you may cast all of such votes for
a single nominee for director or you may distribute them among both nominees in
such class, as you see fit.
The proxy represents the number of shares registered in your name as well as
the number of whole shares credited to your account under the Company's Dividend
Reinvestment and Stock Purchase Plan. If you are an employee of the Company or
any of its subsidiaries and participate in the Tax Deferred Savings Plans of New
York State Electric & Gas Corporation ("NYSEG"), The Southern Connecticut Gas
Company Target Plan, the Central Maine Power Company Savings and Investment
Plans, the Connecticut Natural Gas Corporation Savings Plans or the Berkshire
Energy Resources Savings Plans, the proxy constitutes an instruction for the
trustees of such plans to vote the whole shares in your account in such plans in
the manner specified on the proxy.
In voting for the election of directors, you may vote in favor of both
nominees or withhold your votes as to both or as to a specific nominee. The two
nominees receiving the highest number of affirmative votes cast, in person or by
proxy, by holders of common stock entitled to vote shall be elected to serve as
directors. As a result, votes that are withheld will not be counted and will
have no effect on the vote in connection with the election of directors.
Under the rules of the New York Stock Exchange ("NYSE"), member brokerage
firms that hold shares in street name for beneficial owners may, to the extent
that such beneficial owners do not furnish voting instructions with respect to
any or all proposals submitted for stockholder action, vote in their discretion
upon proposals which are considered "discretionary" proposals under the rules of
the NYSE. Under the rules of the NYSE, the election of directors is considered a
"discretionary item"
whereby brokerage firms may vote in their discretion on behalf of their clients
if such clients have not furnished voting instructions.
In determining whether a quorum is present, all duly executed proxies
(including those marked "abstain" or "withhold") will be counted.
ELECTION OF DIRECTORS
Your board of directors currently consists of twelve directors divided into
three classes. One class of directors is elected at each annual meeting of
stockholders for a term expiring at the third succeeding annual meeting of
stockholders.
The nominees for election at this Annual Meeting to serve as directors in
Class I for a term expiring at the 2005 Annual Meeting of Stockholders and
thereafter until their successors shall be elected and shall qualify are: John
M. Keeler and Peter J. Moynihan. Messrs. Keeler and Moynihan were elected to
Class I for a term expiring at the 2002 Annual Meeting of Stockholders. Alison
P. Casarett and Paul L. Gioia are not standing for re-election to the board of
directors.
Unless otherwise specified on the proxy, shares represented by proxies in
the accompanying form received on behalf of the board of directors will be voted
for the election of John M. Keeler and Peter J. Moynihan. Proxy holders reserve
the right to exercise cumulative voting rights and to cast the votes at the
meeting in such manner, and for such lesser number of said nominees, as they may
deem best, in order, so far as possible, to secure the election of said
nominees. While it is not anticipated that either of the nominees will be unable
to qualify or accept office, if one or both should be unable to do so, the proxy
holders reserve the right to vote for any substitute nominee or nominees
designated by the board of directors.
During 2001, there were nine meetings of the board of directors. All of the
directors attended 75% or more of the total number of meetings of the board of
directors and the committees of the board on which they served.
The following sets forth information for each nominee for election at this
Annual Meeting and for each director continuing in office.
CLASS I
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 2005
[PHOTO] JOHN M. KEELER
OF COUNSEL, HINMAN, HOWARD & KATTELL, LLP,(1)BINGHAMTON, NY;
ATTORNEYS AT LAW. Director of: Security Mutual Life
Insurance Company of New York, Binghamton, NY; the Stuart
and Willma Hoyt Foundation, Binghamton, NY; the Harriet L.
Dickenson Foundation, Binghamton, NY; and the Binghamton
University Foundation, Binghamton, NY. Past President of
Broome County Bar Association and of Broome County United
Way, both of Binghamton, NY. Mr. Keeler, 68, has been a
director of the Company (including its predecessor company)
since 1989.
2
CLASS II
DIRECTORS WHOSE TERMS EXPIRE IN 2003
[PHOTO] JOSEPH J. CASTIGLIA
FORMER VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
OF PRATT & LAMBERT UNITED, INC., BUFFALO, NY. Business
Consultant and Private Investor, JBC Enterprises, East
Aurora, NY. Chairman, Catholic Health System of Western New
York, Buffalo, NY; Chairman, HealthNow New York, Inc., DBA
Blue Cross & Blue Shield of Western New York, Buffalo, NY
and Blue Shield of Northeastern New York, Albany, NY.
Director of: Vision Group of Funds and Vision Fiduciary
Funds, Inc., Buffalo, NY; Sevenson Environmental Services,
Inc., Niagara Falls, NY; and Community Foundation for
Greater Buffalo, Buffalo, NY. Mr. Castiglia was Vice
Chairman, President and Chief Executive Officer of Pratt &
Lambert United, Inc. from August 1994 until his retirement
in January 1996. Prior to that time, he was President and
Chief Executive Officer of Pratt & Lambert, Inc. from 1989
until July 1994, at which time the company was merged with
United Coatings, Inc. Mr. Castiglia, 67, has been a director
of the Company (including its predecessor company) since
1995.
[Photo] LOIS B. DEFLEUR
PRESIDENT OF THE STATE UNIVERSITY OF NEW YORK AT BINGHAMTON,
BINGHAMTON, NY. Director of: Broome County Chamber of
Commerce, Binghamton, NY; Broome County Charities, Endicott,
NY; and the ImagiNarium for Health, Healing and the Arts,
Vestal, NY; Director's Advisory Council, M&T Bank-Southern
Division, Endicott and Ithaca, NY. Dr. DeFleur, 65, has been
President of the State University of New York at Binghamton
since 1990, and has been a director of the Company
(including its predecessor company) since 1995.
3
[Photo] WALTER G. RICH
CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR
OF DELAWARE OTSEGO CORPORATION, COOPERSTOWN, NY, AND ITS
SUBSIDIARY, THE NEW YORK, SUSQUEHANNA & WESTERN RAILWAY
CORPORATION. Director of: Security Mutual Life Insurance
Company of New York, Binghamton, NY; Knovel Corporation,
Norwich, NY; and New York Business Development Corporation,
Albany, NY. He is a member of the Franklin Industrial
Advisory Board of the Syracuse University School of
Management, Syracuse, NY; and appointed by the Governor as a
member of the New York State Public Transportation Safety
Board, Albany, NY. Mr. Rich, 56, has been a director of the
Company (including its predecessor company) since 1997.
[Photo] WESLEY W. VON SCHACK
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER OF THE
COMPANY, ALBANY, NY. Director of: Mellon Financial
Corporation and Mellon Bank, N.A., Pittsburgh, PA; RTI
International Metals, Inc., Niles, OH; and AEGIS Insurance
Services, Inc., Jersey City, NJ. Director and member of the
Executive Committee of the American Gas Association,
Washington, DC. Vice Chairman of Peconic Land Trust, Inc.,
Long Island, NY. Mr. von Schack was Chairman, President &
Chief Executive Officer of NYSEG from September 1996 to
April 1999. Mr. von Schack, 57, has been Chairman,
President, Chief Executive Officer and a director of the
Company (including its predecessor company) since 1996.
CLASS III
DIRECTORS WHOSE TERMS EXPIRE IN 2004
[PHOTO] RICHARD AURELIO
FORMER PRESIDENT OF TIME WARNER CABLE GROUP, NYC, AND NYI
NEWS AND SENIOR ADVISOR TO THE CHAIRMAN AND CEO OF TIME
WARNER, INC., NEW YORK, NY. Director of: the Javits
Foundation, New York, NY; and City University Television,
New York, NY. Mr. Aurelio was a Time Warner executive from
1979 through 1998. Prior to that time, he served as deputy
mayor of New York City during the Lindsay administration, as
an administrative assistant to U. S. Senator Jacob K.
Javits, as news editor of Newsday and a public relations
executive. Mr. Aurelio, 73, has been a director of the
Company (including its predecessor company) since 1997.
4
[Photo] JAMES A. CARRIGG
FORMER CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER OF
NYSEG, ITHACA, NY. Director of: Security Mutual Life
Insurance Company of New York, Binghamton, NY; and National
Security Life and Annuity Company, Binghamton, NY. Trustee
of the Dr. G. Clifford & Florence B. Decker Foundation,
Binghamton, NY. Mr. Carrigg was Chairman, President & Chief
Executive Officer of NYSEG from January 1991 to September
1996, and was Chairman and Chief Executive Officer of NYSEG
from May 1988 to December 1990. Prior to that time, he was
President and Chief Operating Officer of NYSEG. Mr. Carrigg,
68, has been a director of the Company (including its
predecessor company) since 1983.
[Photo] DAVID J. JAGGER
PRESIDENT AND TREASURER OF JAGGER BROTHERS, INC.,
SPRINGVALE, ME. Trustee of: Industrial Development
Corporation, Sanford, ME; Springvale Public Library
Association, Springvale, ME; and Springvale Redevelopment
Corporation, Springvale, ME. Mr. Jagger was Chairman of the
Board of CMP Group, Inc. and Central Maine Power Company
from January 1996 to September 2000. Mr. Jagger, 60, has
been a director of the Company since September 2000 and was
a director of CMP Group, Inc. for 13 years prior to its
merger with the Company.
[Photo] BEN E. LYNCH
PRESIDENT OF WINCHESTER OPTICAL COMPANY, ELMIRA, NY. Past
Chairman of Arnot-Ogden Medical Center, Elmira, NY. Past
president of Horseheads Board of Education, Horseheads, NY.
Former Trustee of the Pennsylvania College of Optometry,
Philadelphia, PA; and of the Optometric Center of New York
Foundation, New York, NY. Mr. Lynch, 64, has been President
of Winchester Optical Company since 1965, and has been a
director of the Company (including its predecessor company)
since 1987.
------------------------
(1) The law firm of which Mr. Keeler is of counsel provided legal services to
the Company in 2001 and is expected to provide legal services to the Company
in 2002.
5
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of common stock and
common stock equivalent units beneficially owned as of March 1, 2002 by each
director and nominee, each of the executive officers named in the Summary
Compensation Table included elsewhere herein, and by the 16 current directors
and executive officers as a group and the percent of the outstanding securities
so owned.
COMMON STOCK TOTAL COMMON STOCK
BENEFICIALLY COMMON STOCK AND COMMON STOCK PERCENT
NAME OWNED(1) EQUIVALENT UNITS(2) EQUIVALENT UNITS OF CLASS
---- ------------ ------------------- ------------------ --------
Richard Aurelio...................... 2,000 7,070 9,070 (3)
James A. Carrigg..................... 34,400 23,282 57,682 (3)
Alison P. Casarett................... 1,235 28,863 30,098 (3)
Joseph J. Castiglia.................. 10,000 10,490 20,490 (3)
Lois B. DeFleur...................... 1,600 10,490 12,090 (3)
Michael I. German.................... 446,748 15,747 462,495 (3)
Paul L. Gioia........................ 6,046 12,467 18,513 (3)
David M. Jagger...................... 3,000 2,502 5,502 (3)
Kenneth M. Jasinski.................. 477,065 11,340 488,405 (3)
John M. Keeler....................... 2,952 19,328 22,280 (3)
Robert D. Kump....................... 195,494 2,889 198,383 (3)
Ben E. Lynch......................... 2,438 18,863 21,301 (3)
Peter J. Moynihan.................... 4,000 2,502 6,502 (3)
Walter G. Rich....................... 2,000 7,070 9,070 (3)
Robert E. Rude....................... 192,527 2,836 195,363 (3)
Wesley W. von Schack................. 1,134,082 24,206 1,158,288 (3)
16 current directors and executive
officers as a group................ 2,515,587 199,945 2,715,532 (3)
------------------------
(1) Includes shares of common stock which may be acquired through the exercise
of stock options which are exercisable currently. The persons who have such
options and the number of shares which may be acquired are as follows:
Mr. German, 417,584; Mr. Jasinski, 472,665; Mr. Kump, 190,000; Mr. Rude,
185,000; Mr. von Schack, 1,099,999; and all executive officers as a group,
2,365,248.
(2) Includes common stock equivalent units granted under the Long-Term Executive
Incentive Share Plan ("LTEISP") and the Director Share Plan for non-employee
directors for which the director, nominee or executive officer does not have
voting rights.
(3) Less than 2.4% of the outstanding common stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons holding ten percent
or more of the Company's equity securities to file reports of ownership and
changes in ownership with the SEC and the NYSE. Such reporting persons are also
required to provide the Company with copies of all Section 16(a) forms they
file. Specific due dates for these reports have been established by SEC
regulations. Based solely on its review of the copies of the reports received by
it and certain written representations from certain reporting persons, the
Company believes that during 2001 all filing requirements were satisfied by its
directors and executive officers.
6
STOCK PERFORMANCE GRAPH
The yearly change in the cumulative total stockholder return on the
Company's common stock during the five years ending December 31, 2001, compared
with the cumulative total return on the Standard & Poor's Utilities Index and
Standard & Poor's 500 Index, assuming $100 was invested on December 31, 1996,
and assuming reinvestment of dividends, is shown by the following:
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
ENERGY EAST CORPORATION, S&P UTILITIES, AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
Energy East Corporation $100.00 $174.03 $286.88 $218.27 $215.55 $217.73
Standard & Poor's Utilities $100.00 $124.65 $143.06 $130.36 $208.15 $144.82
Standard & Poor's 500 $100.00 $133.36 $171.48 $207.56 $188.66 $166.24
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------- -------- -------- -------- -------- --------
Energy East Corporation....................... $100 $174.03 $286.88 $218.27 $215.55 $217.73
Standard & Poor's Utilities................... $100 $124.65 $143.06 $130.36 $208.15 $144.82
Standard & Poor's 500......................... $100 $133.36 $171.48 $207.56 $188.66 $166.24
7
EXECUTIVE COMPENSATION
Compensation for services to the Company and its subsidiaries for each of
the last three fiscal years of the chief executive officer and the next four
highest compensated executive officers of the Company who served in such
capacities on December 31, 2001, is shown by the following:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND --------------------- OPTIONS/ LONG-TERM ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS SARS (#) INCENTIVE PLAN COMPENSATION(1)
------------------ -------- -------- ---------- -------- -------------- ---------------
Wesley W. von Schack......... 2001 $700,000 $1,498,039 400,000 $307,021 $49,068
Chairman, President & 2000 700,000 1,489,497 200,000 762,866 50,695
Chief Executive Officer 1999 661,218 1,764,400 200,000 617,616 55,819
Kenneth M. Jasinski.......... 2001 425,000 422,763 159,000 101,824 0
Executive Vice President 2000 425,000 664,409 100,000 0 0
and Chief Financial Officer 1999 409,487 371,875 100,000 0 0
Michael I. German............ 2001 425,000 181,184 80,000 116,846 6,800
Senior Vice President 2000 425,000 310,567 100,000 227,251 6,800
1999 409,487 256,222 100,000 245,786 6,150
Robert D. Kump............... 2001 200,000 99,474 60,000 24,806 2,910
Vice President, Treasurer & 2000 178,958 128,710 60,000 0 2,835
Secretary 1999 151,939 78,375 40,000 0 2,460
Robert E. Rude............... 2001 200,000 99,474 60,000 24,806 2,790
Vice President and 2000 178,333 128,710 60,000 0 2,580
Controller 1999 149,551 76,000 40,000 0 2,280
------------------------
(1) In 2001, the Company contributed for Messrs. von Schack, German, Kump, and
Rude, $2,550, $2,550, $2,550, and $2,550, respectively, under the Tax
Deferred Savings Plan. The Company contributed for Messrs. German, Kump and
Rude, $4,250, $360 and $240, respectively, under the Employees' Stock
Purchase Plan. For Mr. von Schack, $11,806 represents the dollar value of
the term portion, and $34,712 represents the benefit, projected on an
actuarial basis, of the whole-life portion of a premium paid for a life
insurance policy.
8
OPTION/SAR GRANTS IN LAST FISCAL YEAR (2001)
INDIVIDUAL GRANTS
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PERCENTAGE OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO
SARS EMPLOYEES EXERCISE OR GRANT DATE
GRANTED IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME #(1) YEAR ($/SH) DATE VALUE(3)
---- ---------- ------------- ----------- ---------- ----------
Wesley W. von Schack.............. 200,000 11.12% $18.55 02/01/11 $772,000
200,000(2) 11.12% $20.18 05/29/11 858,000(4)
Kenneth M. Jasinski............... 100,000 5.56% $18.55 02/01/11 386,000
59,000(2) 3.28% $20.18 05/29/11 253,110(4)
Michael I. German................. 80,000 4.45% $18.55 02/01/11 308,800
Robert D. Kump.................... 60,000 3.34% $18.55 02/01/11 231,600
Robert E. Rude.................... 60,000 3.34% $18.55 02/01/11 231,600
------------------------
(1) Pursuant to the 2000 Stock Option Plan, participants were granted options to
purchase a specified number of shares of common stock at specified exercise
prices. These options were granted in tandem with stock appreciation rights
and are for a term of ten years from the date of grant. The exercise price
of an option or tandem stock appreciation right may not be less than 100% of
the closing price of a share of common stock determined on the last trading
date before such option and tandem stock appreciation right are granted. The
exercise of an option or a tandem stock appreciation right will result in a
corresponding cancellation of the related stock appreciation right or option
to the extent of the number of shares of common stock as to which the option
or the stock appreciation right was exercised. Replacement options are
granted to participants at the time of an exercise of an option to the
extent that all or any portion of the option exercise price or taxes
incurred in connection with the exercise of the option are paid for by using
other shares of common stock of the Company or by the withholding of the
Company's common stock. The replacement option is granted for the number of
shares the participant tenders to pay the exercise price or taxes incurred.
Replacement options will first be exercisable no earlier than six months
from the date of their grant and will have an expiration date equal to the
expiration date of the original option. The options are transferable to
family members and certain entities under certain circumstances. The options
and tandem stock appreciation rights were granted on February 1, 2001 and
are exercisable in three installments regarding the original number of
options granted as follows: (a) in aggregate as to no more than 33 1/3% on
their grant date, February 1, 2001; (b) in aggregate as to no more than
66 2/3% on January 1, 2002; and (c) on January 1, 2003 as to 100% of all
options which have not been previously exercised.
(2) The options and tandem stock appreciation rights were granted on May 29,
2001 and are exercisable in three installments regarding the original number
of options granted as follows: (a) in aggregate as to no more than 33 1/3%
on their grant date, May 29, 2001; (b) in aggregate as to no
9
more than 66 2/3% on January 1, 2002; and (c) on January 1, 2003 as to 100%
of all options which have not been previously excercised.
(3) There is no assurance the value realized will be at or near the value based
on the Black-Scholes option-pricing model. The actual value, if any, will
depend on the excess of the stock price over the exercise price on the date
the option is exercised. In determining the "Grant Date Present Value," the
following common assumptions were used: stock price volatility, 24.94%;
risk-free interest rate, 4.92%; dividend yield, 3.49%; and an expected term
before exercise of 5.75 years. Should the Company's common stock double in
value over the ten-year option term (from $18.55 per share to $37.10 per
share), stockholder value would increase an estimated $2,165,112,519, while
the value of grants to individuals listed in the Option/SAR Grants table
would increase an estimated $9,275,000 or 0.43% of the total gain realized
by all stockholders.
(4) In determining the "Grant Date Present Value," the following common
assumptions were used: stock price volatility, 24.91%, risk-free interest
rate, 5.32%; dividend yield, 3.56%; and an expected term before exercise of
5.75 years. Should the Company's common stock double in value over the
ten-year option term (from $20.18 per share to $40.36 per share),
stockholder value would increase an estimated $2,355,362,298, while the
value of grants to individuals listed in the Option/SAR Grants table would
increase an estimated $5,226,620 or 0.22% of the total gain realized by all
stockholders.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (2001)
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT AT
ACQUIRED ON FISCAL YEAR-END (#) FISCAL YEAR-END(2)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Wesley W. von Schack............ 0 $0 766,665 333,335 $1,051,333 $58,667
Kenneth M. Jasinski............. 0 0 319,665 139,335 14,667 29,333
Michael I. German............... 0 0 334,250 86,668 360,433 23,467
Robert D. Kump.................. 0 0 130,000 60,000 40,375 17,600
Robert E. Rude.................. 0 0 125,000 60,000 35,113 17,600
------------------------
(1) The "Value Realized" is equal to the difference between the option exercise
price and the closing price of a share of common stock on the NYSE on the
date of exercise.
(2) The "Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End" is
equal to the difference between the option exercise price and the closing
price of $18.99 a share of common stock on the New York Stock Exchange on
December 31, 2001.
10
PENSION PLAN TABLE
The following table sets forth the maximum retirement benefits payable to
executive officers who retire at age 60 or later, in specified compensation and
years of service classifications, pursuant to the Retirement Benefit Plan and
the Supplemental Executive Retirement Plan ("SERP") as they presently exist, and
assuming no optional payment form is elected. The amounts listed below reflect
the deduction for Social Security benefits. There are no other offset amounts.
YEARS OF SERVICE
------------------------------------------------------------------------------
AVERAGE ANNUAL SALARY* 10 15 20 25 30 35 40**
---------------------- -------- -------- -------- --------- --------- --------- ---------
$1,800,000...................... 524,100 794,100 902,100 1,010,100 1,118,100 1,226,100 1,334,100
1,600,000...................... 464,100 704,100 800,100 896,100 992,100 1,088,100 1,184,100
1,400,000...................... 404,100 614,100 698,100 782,100 866,100 950,100 1,034,100
1,200,000...................... 344,100 524,100 596,100 668,100 740,100 812,100 884,100
1,000,000...................... 284,100 434,100 494,100 554,100 614,100 674,100 734,100
800,000....................... 224,100 344,100 392,100 440,100 488,100 536,100 584,100
600,000....................... 164,100 254,100 290,100 326,100 362,100 398,100 434,100
400,000....................... 104,100 164,100 188,100 212,100 236,100 260,100 284,100
300,000....................... 74,100 119,100 137,100 155,100 173,100 191,100 209,100
------------------------
* Average of the salaries, including awards under the Annual Executive
Incentive Plan ("AEIP"), but not including other amounts listed under
"Bonus" in the Summary Compensation Table (which other amounts, in the case
of Mr. von Schack, consists of a special one-time bonus of $1,000,000 in
1999 and $700,000 in each of the following two years) and not including
amounts listed under "Long-Term Compensation Awards Options/SARs,"
"Long-Term Compensation Payouts Long-Term Incentive Plan," and "All Other
Compensation" in the Summary Compensation Table, for the five highest paid
consecutive years during the last ten years of employment service.
** Maximum years of employment service for Retirement Benefit Plan and SERP
purposes.
The Retirement Benefit Plan provides retirement benefits for hourly and
salaried employees, including executive officers of the Company and certain
subsidiaries, based on length of service and the average for the five highest
paid consecutive years during the last ten years of employment service. For the
purposes of the Retirement Benefit Plan, compensation includes certain amounts
deferred under the Deferred Compensation Plan for Salaried Employees. The
Retirement Benefit Plan is non-contributory and is funded under a trust
arrangement and an insurance contract. Amounts paid into the Retirement Benefit
Plan are computed on an actuarial basis. The Retirement Benefit Plan provides
for normal or early retirement benefits.
The SERP provides that key employees, including certain executive officers
of the Company and certain subsidiaries, who have completed five years of
service, and who terminate employment prior to becoming eligible for the SERP
benefit described in the next sentence, shall receive the benefits of the
Retirement Benefit Plan without regard to any limitations imposed by the federal
tax law. Participants who have at least five years of service, and who retire at
age 55 or later, shall receive a total retirement benefit (including benefits
payable from the Retirement Benefit Plan and Social Security), based on
11
years of service, of up to 75% of the average of their highest three consecutive
years of eligible compensation within the last five years of employment.
Benefits payable prior to age 60 are reduced for early retirement.
Messrs. von Schack and German each have an agreement which provides that,
for purposes of the SERP, they each will be credited with three years of service
for each year actually worked. Mr. Jasinski has an agreement which provides
that, for purposes of the SERP, he will be credited with three years of service
for each year actually worked so long as he is employed by the Company or Energy
East Management through October 15, 2003, and he will be credited with four
years of service for each year actually worked so long as he is employed by the
Company or Energy East Management through October 15, 2005. If, however, they
retire from the Company after their sixtieth birthday, they will be credited
with the maximum years of employment service for SERP purposes.
Messrs. von Schack, Jasinski, German, Kump and Rude have 15, 4, 21, 15, and
25 credited years of service, respectively, under the SERP (after taking into
account the service adjustments described in the previous paragraph).
EMPLOYMENT, CHANGE IN CONTROL AND OTHER ARRANGEMENTS
Messrs. von Schack and Jasinski each have an employment agreement having
terms ending February 7, 2005. Mr. von Schack's agreement provides that he shall
be Chairman, President & Chief Executive Officer of the Company and
Mr. Jasinski's agreement provides that he shall be Executive Vice President and
Chief Financial Officer of the Company. Each agreement provides for automatic
one-year extensions unless either party to an agreement gives notice that such
agreement is not to be extended. Each agreement was unanimously approved by the
board of directors and provides for, among other things, a base salary of
$700,000 for Mr. von Schack and $425,000 for Mr. Jasinski, subject to increase
by the board of directors, and in the case of Mr. von Schack, the payment of the
annual premium on a life insurance policy (the "Life Insurance Policy") on his
life. The agreements also provide for eligibility for participation in the
Company's other compensation and benefit plans and for certain payments in the
event of the termination of employment due to disability.
Mr. German has an employment agreement having a term ending December 31,
2003. Mr. German's agreement provides for his employment as Senior Vice
President, Business Development of Energy East Management and President and
Chief Executive Officer of The Energy Network. The agreement provides for
automatic one-year extensions unless either party to the agreement gives notice
that such agreement is not to be extended. The agreement was unanimously
approved by the board of directors of Energy East Management and provides for,
among other things, a base salary of $300,000, subject to increase by the board
of directors of Energy East Management. The agreement also provides for
eligibility for participation in Energy East Management's other compensation and
benefit plans and for certain payments in the event of the termination of
employment due to disability.
Messrs. von Schack's and Jasinski's agreements provide that, if the
officer's employment is terminated either by the Company without cause or by the
officer for good reason, he will receive a lump-sum payment equal to three times
the sum of (i) his then-annual base salary and (ii) the average of the highest
three consecutive awards earned under the AEIP within the previous five years.
12
Mr. German's agreement provides that, if he is terminated either without cause
or if he terminates his employment for good reason, he will receive a lump-sum
payment equal to three times the sum of (i) his then-annual base salary and
(ii) the average of the three most recent awards earned under the AEIP. In the
event of such termination, all three agreements provide that the officer's life
(other than the Life Insurance Policy), disability, accident and health
insurance benefits will continue for a period of thirty-six months, and, in the
case of Mr. von Schack, a lump-sum premium payment will be made so that no
future premiums are due on the Life Insurance Policy. In addition, the executive
will receive an amount equal to all earned but unpaid awards under the AEIP and
a pro rata portion of any award under the AEIP with respect to the year in which
the termination occurs, provided, however, that payments made pursuant to the
agreements will be reduced by any payments made under the AEIP in the event a
change in control occurs during such year. Also, in the event of such
termination, the officer will be given additional age credit and maximum service
credit under the SERP and the present value of any SERP benefits will be paid in
a lump sum to the officer, unless the officer elects to receive such SERP
benefits over a period of time in the manner provided in the SERP. In the event
that any payments made under the agreements or otherwise would subject the
officer to federal excise tax he will be entitled to be made whole for the
payment of any such taxes, interest or penalties.
Messrs. Kump and Rude each have a severance agreement with Energy East
Management in order to provide for certain payments if, generally, within two
years following a change in control of the Company, the individual's employment
is terminated either by the Company without cause or by the individual for good
reason. The severance agreements have terms ending on December 31, 2003 with
automatic one-year extensions unless either party to an agreement gives notice
that the agreement is not to be extended. The benefits consist of a lump-sum
severance payment equal to two times the sum of (i) the individual's then-annual
base salary, and (ii) the higher of any award paid to the individual under the
AEIP with respect to the year immediately preceding the year in which the
termination occurs or the average of the AEIP awards paid to the individual in
the three years preceding the year in which the change in control occurs. In the
event of such termination, the individual's life, disability, accident and
health insurance benefits will continue for a period of twenty-four months and
the individual will receive an amount equal to all earned but unpaid awards
under the AEIP and a pro rata portion of any award under the AEIP with respect
to the year in which the termination occurs, provided, however, that there shall
be no duplication of payments made pursuant to his agreement and the AEIP. Also,
in the event of such termination, the individual will be given additional age
and service credit under the SERP. In the event that any payments made on
account of a change in control of the Company, whether under the agreement or
otherwise, would subject the individual to federal excise tax or interest or
penalties with respect to such federal excise tax, the individual will be
entitled to be made whole for the payment of any such taxes, interest or
penalties. Messrs. Kump and Rude also have entered into Employee Invention and
Confidentiality Agreements with Energy East Management. The agreements provide
for, among other things, payments (up to one year's salary) and certain health
insurance premiums in the event that their employment is terminated whether
voluntarily or involuntarily, and the noncompetition and nonsolicitation
provisions of the agreement prevent them from obtaining other appropriate
employment, so long as they are not entitled to receive payments under their
severance agreements.
13
In the event of a change in control of the Company, participants in the AEIP
will be paid an amount which includes all earned but unpaid awards, a pro rata
portion of any award with respect to the year in which such change in control
occurs and if the AEIP continues in effect for the remainder of the performance
period an additional payment at the end of the year in which such change in
control occurs, to the extent that the award earned under the normal terms of
the AEIP exceeds the amount paid upon such change in control. In addition,
participants in the LTEISP will be paid an amount which includes (i) the payment
of awards for all cycles in progress at the time of such change in control,
computed and paid out in full (rather than pro rata) and based on the assumption
that the Company's performance was at the 50th percentile; and (ii) if the
LTEISP continues in effect for the remainder of a performance period, any
amounts earned under the normal terms of the LTEISP through the end of such
performance cycle, to the extent those amounts exceed the amounts paid at the
time of such change in control. All change in control payments under the LTEISP
are to be valued based on the change in control price of the Company's common
stock. After a change in control of the Company, officers and certain key
employees of the Company and certain subsidiaries who qualify, and whose
employment is terminated, other than for cause, shall receive a total retirement
benefit as determined under the SERP. The SERP provides that, in the case of a
change in control, a participant with 5 or more years of service may receive the
present value of any SERP benefits in a lump sum, if the participant has so
elected upon commencement of participation.
The Executive Compensation and Succession Committee of the board of
directors in its discretion may take certain actions in order to preserve, in
the event of a change in control of the Company, a participant's rights under an
award issued pursuant to the 1997 Stock Option Plan, the 2000 Stock Option Plan
or the Restricted Stock Plan.
Grantor trusts have been established to provide for the payment of certain
employee and director benefits, including severance benefits that might become
payable after a change in control of the Company.
DIRECTORS' COMPENSATION
Directors of the Company, other than officers of the Company or officers of
any subsidiary of the Company, receive an annual retainer of $22,000, plus
$1,000 for each directors' and committee meeting attended. The Chairperson of
each standing committee receives additional compensation of $2,500 for serving
as Chairperson of such committee. Under the terms of the Deferred Compensation
Plan for Directors, directors can elect to defer a portion or all of their
compensation. Such deferred compensation, together with interest thereon, is
payable in a lump sum or over a period of years following retirement as a
director.
Pursuant to the Director Share Plan for Directors, persons who are
non-employee directors are eligible for certain benefits to be paid upon their
ceasing to serve as directors of the Company. On each January 1, April 1,
July 1, and October 1, all non-employee directors receive 400 phantom shares
pursuant to the Director Share Plan. Phantom shares granted earn dividend
equivalents in the form of additional phantom shares. Upon a director ceasing to
serve as a director of the Company, cash payments representing the value of the
phantom shares held by the director are to be made to the director. The value of
the phantom shares is to be determined by multiplying the number of phantom
14
shares by the average of the daily closing prices of the Company's common stock
for the five trading days preceding the date the director ceases to serve as a
director. Under the terms of the Deferred Compensation Plan for the Director
Share Plan, a director may defer a portion or all of the cash payment to be made
under the Director Share Plan over a period of years following the director's
ceasing to serve as a director.
COMMITTEES
The Company's board of directors has an Audit Committee, a Nominating
Committee and an Executive Compensation and Succession Committee.
The Nominating Committee, which consists of Richard Aurelio, Chairman, Lois
B. DeFleur, John M. Keeler and Walter G. Rich, had five meetings in 2001. The
Nominating Committee is responsible for recommending to the board the slate of
persons to be nominated to the board, appointment of directors as members of
committees of the board and candidates to fill vacancies on the board of
directors. The Committee makes recommendations to the board of directors
regarding criteria for nomination as a candidate to the board of directors.
Stockholders wishing to recommend candidates for consideration by the Nominating
Committee should submit to the Secretary of the Company the name, a statement of
qualifications and the written consent of any candidate. Recommendations will be
brought to the attention of the Nominating Committee.
The Executive Compensation and Succession Committee, which consists of
Joseph J. Castiglia, Chairman, Richard Aurelio and Ben E. Lynch, had five
meetings in 2001. That Committee, among other things, recommends compensation
for officers, awards under the AEIP and candidates for election as officers.
15
REPORT OF AUDIT COMMITTEE
The Audit Committee, which consists of Ben E. Lynch, Chairman, Lois B.
DeFleur, Paul L. Gioia and David M. Jagger, is composed entirely of independent,
outside directors and had three meetings in 2001. Each member of the Audit
Committee is financially literate and meets the independence requirements of the
New York Stock Exchange. At least one of the members has accounting or financial
management expertise. The board of directors has adopted a written charter for
the Audit Committee, which is included as Appendix A to this proxy statement.
The Audit Committee recommends the appointment of the independent accountants
and reviews with them the audit plan and results of the audit. It also meets
with the independent accountants, internal auditor and management to discuss the
adequacy of the Company's system of internal controls and the annual and
quarterly financial reporting process, meets with the internal auditor to
discuss the results of completed internal audits and assists the board of
directors in overseeing the Company's Corporate Compliance Program.
The Audit Committee has reviewed and discussed the consolidated financial
statements with management and the independent auditors. The Audit Committee
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication With Audit Committees). In
addition, the Committee received the letter from the independent auditors
required by Independence Standards Board Standard No. 1 (Independence
Discussions With Audit Committees) and discussed with the independent auditors
the auditor's independence from the
Company and its management.
In reliance on the reviews and discussions referred to in the prior
paragraph, the Audit Committee recommended to the board of directors that the
audited financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, for filing with the SEC.
AUDIT COMMITTEE
Ben E. Lynch, Chairman Paul L. Gioia
Lois B. DeFleur David M. Jagger
REPORT OF EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE
The Executive Compensation and Succession Committee is composed entirely of
independent outside directors. Under the guidance of the Committee, the
Company's overall compensation policy is designed to manage the Company toward
enhanced profitability and increased shareholder value. Accordingly, two
principles guide the Company's compensation policy for its senior management:
- aligning the financial interests of senior management with those of the
shareholders, and
- rewarding senior management for corporate and individual performance.
16
These principles are reflected in the structure of the Company's
compensation program, which consists of three basic components: base salary,
short-term incentive compensation awards and long-term incentive compensation
awards. The Committee continues to place an increased emphasis on the at risk
elements of compensation. The Committee believes that placing compensation at
risk and linking such compensation to performance better aligns senior
management's financial interests with those of the shareholders, which in turn
supports the Company's overall objective of enhancing long-term shareholder
value.
Based on the Committee's general policy that senior management compensation
should be competitive so as to attract and retain talented executives, base
salaries are generally targeted at competitive levels, subject to adjustment by
the Committee depending on the individual's performance. The Committee has
retained independent consultants to review executive compensation data and has
also reviewed certain salary surveys to assist in its decision-making. The
Committee has also considered a number of quantitative and qualitative factors,
including financial and operational achievements, the individual's experience,
responsibilities and effectiveness in performing those responsibilities and in
leading or helping the Company respond to the rapidly changing utility industry
by developing and implementing effective short- and long-term strategies.
In evaluating each officer's performance, including Mr. von Schack's, the
Committee considered them within the context of the year experienced by the
Company in terms of achieving the objectives of its operating plan, as well as
their leadership in planning and implementing strategic and operating
initiatives designed to increase the Company's long-term value. In
February 2001, the Company announced a merger with RGS Energy Group, Inc., which
will combine two companies with complementary geographies, strengths and skills
and who share a common vision for upstate New York. The RGS Energy merger,
together with the mergers with three gas companies and one electric company
completed in 2000, demonstrates the Company's continued excellent progress in
its transformation from a vertically integrated upstate New York utility into a
super-regional energy services and delivery company with a presence in five
Northeastern states and with approximately three million customers. This
strategic repositioning has allowed the Company to diversify earnings, enhance
growth opportunities through scale and synergies and continue to provide
reliable energy and stable prices. The Company's cost reduction efforts continue
and have enabled the Company to share operating efficiencies and synergies with
both customers and shareholders, and the Company continues to be widely
acclaimed for its superior service and reliability. In addition, the Company
expects the completed mergers to enhance growth opportunities both in the
development of new service franchises and increased penetration in existing
markets. The Company continued to implement strategies to help manage energy
price volatility by developing gas and electric peaking assets. The Company also
sold its 18% interest in a nuclear generating facility at a net gain and no
stranded costs for customers or shareholders. These results and individual
performances are reflected in the at risk portion of senior management
compensation.
Since joining the Company in September 1996, Mr. von Schack has provided the
strong leadership and strategic focus necessary to prepare the Company to meet
the challenges of a competitive energy industry. Under Mr. von Schack's watch,
the Company successfully repelled a hostile takeover attempt which would have
harmed customers, employees and shareholders, has grown into a super-regional
17
energy services and delivery company, and has improved its long-term earnings
potential. With such opportunities come risks, including energy price
volatility, changes in regulation, and unforeseen consequences that may result
from dramatic changes in the energy business. Mr. von Schack's guidance has
focused the Company on positioning itself to effectively manage the risks
inherent in the energy business today. Mr. von Schack's total compensation
reflects the Committee's evaluation of his effective leadership and the
Company's performance with him at the helm.
The Annual Executive Incentive Plan provides for short-term cash performance
incentive awards if certain annual goals are achieved. For 2001, annual
performance incentive awards were based on earnings targets and individual
performance objectives. Awards ranged from approximately 43% to 114% of the
participant's base salary, depending upon the participant's position, and the
performance levels achieved. See the Bonus column in the Summary Compensation
Table, which includes performance incentive awards earned for 2001. The
Committee decided to terminate the Long-Term Executive Incentive Share Plan,
which provided for cash incentive awards based on the Company's long-term
financial performance relative to the long-term financial performance of
companies in the same industry. Therefore, no performance share grants were made
in 2001 under the Long-Term Executive Incentive Share Plan. There are, however,
outstanding grants under the Long-Term Executive Incentive Share Plan for the
performance cycle ending December 31, 2002. See the Long-Term Compensation
Payouts Long-Term Incentive Plan column in the Summary Compensation Table for
cash incentive payouts under the Long-Term Executive Incentive Share Plan in
2001. Awards under the 2000 Stock Option Plan and the Restricted Stock Plan are
intended to more closely align the long-term financial interests of management
with those of the shareholders by providing long-term incentives to those
individuals who can significantly affect the future growth and success of the
Company. For example, should the Company's shares double in value over the
ten-year option term (from $18.55 per share to $37.10 per share), shareholder
value would increase an estimated $2,165,112,519, while the value of the grants
to the individuals listed in the Option/SAR Grants Table would increase an
estimated $9,275,000 or 0.43% of the total gain realized by all shareholders.
See the Option/SAR Grants Table for a description of the 2000 Stock Option Plan
and awards made under the 2000 Stock Option Plan. No awards were made under the
Restricted Stock Plan in 2001.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a company for compensation in excess of $1 million paid to a
company's chief executive officer and each of the next four most highly
compensated executive officers, except that qualifying performance-based
compensation that meets certain specified criteria is not subject to
Section 162(m). The Committee's overall policy is designed to increase
shareholder value, and tax deductibility is only one factor. Thus, the Committee
will review tax consequences as well as other relevant considerations when
making compensation decisions within the context of the overall operation of the
Company's compensation program and will consider what actions should be taken,
if any, to operate the compensation program in a tax-effective manner.
EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE
Joseph J. Castiglia, Chairman Richard Aurelio Ben E. Lynch
18
INDEPENDENT ACCOUNTANTS
The Company has appointed PricewaterhouseCoopers LLP, a firm of independent
certified public accountants, as auditors for the year 2002. Representatives of
PricewaterhouseCoopers are expected to be present at the meeting and will have
an opportunity to make a statement if they desire to do so. They will also be
available to answer questions that you may have. During 2001,
PricewaterhouseCoopers
performed certain non-audit services for the Company. The Audit Committee has
considered whether the provision of information technology services and other
non-audit services is compatible with maintaining PricewaterhouseCoopers'
independence. Beginning in 2002, PricewaterhouseCoopers will not be retained to
do consulting work, other than consulting work related to the annual audit and
the Company's system of internal controls, unless otherwise approved by the
Audit Committee.
AUDIT FEES
Aggregate fees billed for professional services rendered for the audit of
the Company's consolidated annual financial statements for the year ended
December 31, 2001 and the reviews of the financial statements included in the
Company's Forms 10-Q for the year 2001 were $959,300.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company did not engage PricewaterhouseCoopers to provide advice
regarding its financial information systems design and implementation during
2001.
ALL OTHER FEES
Aggregate fees billed for professional services rendered by
PricewaterhouseCoopers, other than services covered above for the year 2001,
were $838,689, consisting of the following:
Employee Benefit Plans............................ $128,000
SEC work related to financings.................... 133,250
Assessment of IT controls......................... 46,100
Tax matters....................................... 508,389
RGS Energy transaction............................ 19,750
Miscellaneous..................................... 3,200
--------
Total............................................. $838,689
========
DEADLINE FOR STOCKHOLDER PROPOSALS
For a stockholder proposal to be considered for inclusion in our proxy
statement and form of proxy for the 2003 Annual Meeting, it must be received by
the Company's Secretary at P.O. Box 12904, Albany, New York, 12212-2904 by
December 30, 2002. Under our by-laws, if you wish to nominate
19
candidates for election to the board of directors or if you wish to bring any
matter before the 2003 Annual Meeting (other than those matters included in our
proxy material), you must notify the Company's Secretary in writing no later
than March 16, 2003 and no earlier than February 14, 2003. The notice must also
contain: (a) in the case of a nomination for election to the board of directors,
certain information concerning the proposed nominee, or, in the case of business
to be brought before the meeting, a brief description of such business and the
reasons for conducting the business at the meeting, (b) the shareholder's name
and record address, (c) the class and number of shares of the Company's common
stock that are owned by the stockholder, (d) a description of any arrangement
between the stockholder, the proposed nominee and any other person or any
arrangement between the stockholder and any other person in connection with the
proposal of such business by the stockholder, and a description of any material
interest of such stockholder in the business to be brought before the meeting,
and (e) a representation that the stockholder intends to appear in person or by
proxy to nominate such person or present such business before the meeting.
SEC regulations permit the Company to exercise discretionary voting
authority to vote on a matter brought before the annual meeting which is not
included in the Company's proxy statement if the Company does not have notice of
the matter between 90 days and 120 days prior to the anniversary date of the
prior year's annual meeting. In addition, the Company may exercise discretionary
voting authority if it receives timely notice of a matter (as described in the
preceding sentence) and if it describes the nature of such matter in its proxy
statement. Accordingly, any such notice must be received by the Company's
Secretary in writing no later than March 16, 2003 and no earlier than
February 14, 2003.
OTHER MATTERS
We do not know of any other matters of business to be presented for action
at the meeting. However, the enclosed form of proxy will confer discretionary
authority for the transacting of any such other and further business if properly
brought before the meeting or any adjournment thereof. If any such business is
so brought before the meeting, the persons named in the enclosed form of proxy,
or their substitutes, will vote according to their discretion.
The proxy is revocable by you at any time before the exercise thereof, and
the giving of such proxy will not affect your right to vote in person, should
you later find it convenient to attend the meeting.
State law requires the Company to inform stockholders of the initiation or
renewal of insurance indemnifying itself and its officers and directors. This
insurance, which is carried with Associated Electric & Gas Insurance Services
Limited (AEGIS), Energy Insurance Mutual Limited (EIM), CNA Insurance Company
and Munich American, has been renewed for one year beginning October 28, 2001,
at a premium of $850,168. In addition, the Pension Trust Liability Insurance,
which is carried with Chubb Insurance Company, AEGIS and EIM, covering the
Company, its subsidiaries, and its directors and those officers considered
fiduciaries under the Employee Retirement Income Security Act of 1974, has been
renewed for one year beginning September 1, 2001 at a premium of $222,438.
20
COST OF SOLICITATION
The accompanying proxy is solicited on behalf of the board of directors. The
costs of this solicitation, including reimbursement of charges of brokerage
houses and others for their expenses in forwarding proxy materials to beneficial
owners of stock, will be paid by the Company. In addition, directors, officers,
and employees of the Company or of its subsidiaries may solicit proxies by
telephone, telegram or in person, without additional compensation. The Company
has retained Innisfree M&A to aid in the solicitation of proxies at an
anticipated fee of approximately $12,000, plus reimbursement of out-of-pocket
expenses incurred by that firm on behalf of the Company.
By Order of the Board of Directors,
Robert D. Kump
VICE PRESIDENT, TREASURER & SECRETARY
Dated: April 29, 2002
21
APPENDIX A
ENERGY EAST CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the audit committee is to assist the board of
directors in overseeing financial reporting and the system of internal controls
of Energy East Corporation (the company). The audit committee has responsibility
for reviewing the company's financial reporting process and system of internal
controls and for maintaining a direct line of communication between the audit
committee and the company's independent public accountant, accounting officer
and general auditor. The Audit Committee also assists the Board of Directors in
overseeing the company's Compliance Program.
COMPOSITION
The audit committee is composed of at least three members of the board of
directors. The members of the audit committee and the chair of the committee are
appointed by the board of directors. Each member appointed to the audit
committee must be financially literate and meet the independence requirements of
the New York Stock Exchange. At least one member must have accounting or
financial management expertise.
MEETINGS
The audit committee meets at least three times annually. Additional meetings
may be called by the chair of the audit committee in the chair's sole
discretion, or at the request of the board of directors, the accounting officer,
the general auditor or the company's independent public accountant. Attendance
at committee meetings by officers and employees of the company, the independent
public accountant and others is at the discretion of the audit committee chair.
RESPONSIBILITIES
In carrying out its responsibilities, the audit committee:
1. Annually recommends to the board of directors the appointment of the
independent public accountant to audit the company's financial statements
and employee benefit plans. Advises such accountant that they are
ultimately accountable to the board of directors and the audit committee,
and that the committee and the board have ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
accountant. Reviews the experience and qualifications of the senior
members of the independent public accountant who are engaged on the
company's account and the quality control procedures of the independent
public accountant. Is responsible for ensuring that the independent
public accountant submits on a periodic basis a formal written statement
delineating all relationships between the accountant and the company and
engaging in a dialogue with the accountant with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the accountant
A-1
and recommending, if appropriate, that the board take action to satisfy
itself of the accountant's independence. Meets with the independent
public accountant to discuss the scope of the upcoming audit and again to
discuss the results of the audit. Is advised by management of the
proposed audit fees.
2. Reviews management's plans for engaging the independent public
accountant to perform non-audit work, including the scope of the work and
proposed fees. Considers the possible impact this work may have on the
independence of the independent public accountant. The independent public
accountant will not be retained to do consulting work, other than
consulting work related to the annual audit and the company's system of
internal controls, unless otherwise approved by the audit committee.
3. Meets at least annually with the independent public accountant, the
accounting officer and the general auditor to discuss the adequacy of the
company's system of internal controls and the annual and quarterly
financial reporting process. Reviews the company's annual financial
statements and the related opinion of the independent public accountant
with management, the accounting officer and the independent public
accountant prior to the release to shareholders and the filing with the
Securities and Exchange Commission of the company's annual financial
statements and the related opinion of the independent public accountant.
4. Reviews with management and the independent public accountant any
changes in accounting principles or financial disclosure practices.
Candidly discusses with management and the independent public accountant
their qualitative judgments about the appropriateness, not just the
acceptability, of the accounting principles and financial disclosure
practices used or proposed to be adopted. Is advised when management
seeks a second opinion on an accounting matter from another independent
public accounting firm.
5. Reviews with management and the independent public accountant, either as
the committee or through the chair, the company's quarterly financial
statements prior to filing the Form 10-Q, including the results of the
independent public accountant's review of the quarterly financial
statements and the adoption of any new accounting principles or changes
to existing principles.
6. Reviews with the general auditor at each audit committee meeting the
results of completed audits. Annually reviews the internal audit
department's objectives, planned work and staffing plans, as well as its
coordination of activities with the independent public accountant. Meets
in executive session with the general auditor at each audit committee
meeting.
7. Reviews any changes to the internal audit department charter and the
appointment or replacement of the general auditor.
8. Oversees the operation of the company's Compliance Program by meeting,
no less than twice each year, with the company's Executive Vice President
and Chief Financial Officer and the company's Compliance Officer to
(a) on an annual basis, review the company's Compliance Program to
prevent and detect violations of laws and regulations by company
employees and agents; (b) on an as-needed basis, review reports of
significant compliance and ethics related
A-2
activities within the company; and (c) on an annual basis, review
certifications by the company's Executive Vice President and Chief
Financial Officer and the company's Compliance Officer that the company's
Compliance Program is effective and complies with the applicable legal
and regulatory requirements.
9. Advises the independent public accountant that it expects to be informed
as soon as practicable concerning any possible illegal acts that have
been detected, unless the illegal act is clearly inconsequential. Ensures
that management takes timely and appropriate remedial actions with
respect to the reported illegal acts.
10. Provides the report required by the Securities and Exchange Commission
to be included in the company's annual meeting proxy statement.
11. Meets in executive session at each audit committee meeting, with the
independent public accountant, the accounting officer and the company's
outside legal counsel.
12. Inquires at each audit committee meeting of the accounting officer,
general auditor and the independent public accountant whether there are
any areas that require the audit committee's special attention.
13. Reports to the board of directors on the audit committee's activities on
a regular basis.
14. Reviews and assesses the adequacy of this charter on an annual basis and
recommends any proposed changes to the board of directors for approval.
15. Approves the company's hiring of employees of the independent public
accountant who were engaged on the company's account.
RESOURCES AND AUTHORITY
The audit committee has access to all corporate documents and records. It
may, in its sole discretion:
1. Enlist the aid of the company's staff to perform work necessary to
fulfill its responsibilities.
2. Retain special counsel or other experts to fulfill its responsibilities.
3. Institute investigations of improprieties or suspected improprieties.
4. Take any additional action it deems necessary to fulfill its
responsibilities.
While the audit committee has the responsibilities set forth in this
charter, it is not the duty of the audit committee to plan or conduct audits or
to determine that the company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent public accountant.
Amended by the board of directors April 12, 2002.
A-3
ENERGY EAST CORPORATION
INSTRUCTIONS FOR VOTING YOUR PROXY
Shareholders of record have three ways to vote their proxies:
|_| BY TELEPHONE (using a touch-tone telephone)
|_| THROUGH THE INTERNET (using a browser)
|_| BY MAIL (traditional method)
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you had returned your proxy card. We encourage you to
use these cost effective and convenient ways of voting, 24 hours a day, 7 days a
week.
-------------------
TELEPHONE VOTING
-------------------
This method of voting is available for residents of the U.S. and Canada.
o On a touch-tone telephone , call TOLL FREE 1-888-216-1286 , 24 hours a
day, 7 days a week.
o You will be asked to enter the CONTROL NUMBER shown below followed by
the pound sign (#).
o Have your proxy card ready, then follow the prerecorded instructions.
o Your vote will be confirmed and cast as you directed.
-------------------
INTERNET VOTING
-------------------
o Visit the Internet voting Website at https://www.proxyvotenow.com/eec
o Enter the CONTROL NUMBER shown below and follow the instructions on
your screen.
o You will incur only your usual Internet charges.
-------------------
VOTING BY MAIL
-------------------
o Simply mark, sign and date your proxy card and return it in the
postage-paid envelope.
YOU MAY VOTE BY TELEPHONE OR INTERNET ANYTIME UNTIL 5:00 P.M. EASTERN
DAYLIGHT TIME, ON JUNE 13, 2002.
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
---------------------------------
YOUR CONTROL NUMBER IS:
---------------------------------
TO VOTE BY MAIL PLEASE DETACH PROXY CARD HERE AND RETURN IN ENVELOPE PROVIDED
.................................................................................
Please mark votes
}X| as in this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1.
1. Election of Directors, |_| For all Nominees listed |_| Withhold Authority
as provided in the to vote for all
Company's Proxy Statement. Nominees listed
(Instructions: TO WITHHOLD AUTHORITY to vote for any individual
nominee, print that nominee's name on the line provided below.) 01 -
J.M. Keeler, 02 - P.J. Moynihan
--------------------------------------------------------------
The undersigned hereby revokes any other
proxy to vote at such Annual Meeting, and
hereby ratifies and confirms all that said
attorneys and proxies, and each of them, may
lawfully do by virtue hereof. With respect
to matters not known at the time of the
solicitation hereof, said proxies are
authorized to vote in accordance with their
best judgement.
DATE: , 2002
---------------------------------
--------------------------------------------
--------------------------------------------
(SIGNATURE/S)
This proxy should be marked, dated and
signed by the stockholder(s) exactly as his
name appears hereon, and returned promptly
in the enclosed envelope. Persons signing as
a fiduciary should so indicate. If shares
are held by joint tenants or as community
property, both must sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
THIS PROXY CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ENERGY EAST CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
The undersigned appoints K.M. Jasinski, R.D. Kump, R.E. Rude, or any one
or more of them, with power of substitution, proxies of the undersigned,
to vote, as specified below, and in their discretion with respect to any
other business properly brought before the meeting, all shares of stock
of Energy East Corporation which the undersigned is entitled to vote at
the Annual Meeting of Stockholders of said Corporation to be held on June
14, 2002, and at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO
CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR ALL THE NOMINEES AND
AS SAID PROXIES SHALL DEEM ADVISABLE ON SUCH OTHER BUSINESS AS MAY COME
BEFORE THE MEETING.
(Continued and to be signed on the reverse side.)