SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 |_| Soliciting Material under Rule
|_| Confidential, for Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
CH ENERGY GROUP, INC
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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)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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CH ENERGY GROUP, INC.
284 SOUTH AVENUE
POUGHKEEPSIE, NEW YORK 12601-4879
March 1, 2007
To the Holders of Shares of Common Stock:
I am pleased to invite you to the 2007 Annual Meeting of Shareholders of
CH Energy Group, Inc. (the "Corporation").
The Annual Meeting of Shareholders will be held at the Corporation's
office in Poughkeepsie, New York on Tuesday, April 24, 2007, at 10:30 AM. A
Notice of the Annual Meeting of Shareholders and the Proxy Statement are
attached.
We request that you mark, sign, date, and mail the enclosed proxy
promptly. Prompt return of your voted proxy will reduce the cost of further
mailings. As an alternative to returning your proxy by mail, you can also vote
your shares by proxy by calling the toll-free number on your proxy or by using
the Internet at WWW.COMPUTERSHARE.COM/EXPRESSVOTE. Both methods of voting are
available twenty-four hours a day, seven days a week, and will be accessible
until 12:01 AM on April 16, 2007. You may revoke your voted proxy at any time
prior to the meeting or vote in person if you attend the meeting.
The response from our shareholders in the past to annual proxy statements
has been outstanding, and this year we are once again looking forward to
receiving your proxy.
You are cordially invited to attend the Annual Meeting of Shareholders in
person. It is always a pleasure for me and the other members of the Board of
Directors to meet with our shareholders. We look forward to greeting as many of
you as possible at the meeting.
Steven V. Lant
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
CH ENERGY GROUP, INC.
284 SOUTH AVENUE
POUGHKEEPSIE, NEW YORK 12601-4879
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To the Holders of Shares of Common Stock:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of CH
Energy Group, Inc. (the "Corporation") will be held:
TIME ....................... 10:30 AM on Tuesday, April 24, 2007
PLACE ...................... Office of the Corporation
284 South Avenue
Poughkeepsie, New York 12601-4879
ITEMS OF BUSINESS .......... (1) To elect two Directors, each to serve for a
three-year term expiring in 2010;
and
(2) To act upon any other matters that may
properly come before the meeting.
RECORD DATE ................ HOLDERS OF RECORD OF SHARES OF COMMON STOCK ON
THE CLOSE OF BUSINESS ON MARCH 1, 2007, ARE
ENTITLED TO VOTE AT THE MEETING.
ANNUAL REPORT .............. The Annual Report to Shareholders, as combined
with the Corporation's Annual Report on Form 10-K
filed with the Securities and Exchange
Commission, is enclosed.
PROXY VOTING ............... It is important that your shares be represented
and voted at the Annual Meeting of Shareholders.
Please MARK, SIGN, DATE, AND RETURN PROMPTLY the
enclosed proxy in the postage-paid envelope
furnished for that purpose. As an alternative to
returning your proxy by mail, you can also vote
your shares by proxy by calling the toll-free
number on your proxy or by using the Internet at
WWW.COMPUTERSHARE.COM/EXPRESSVOTE. Both Internet
and telephone voting are available twenty-four
hours a day, seven days a week, and will be
accessible until 12:01 AM on April 16, 2007. You
may revoke your voted proxy at any time prior to
the meeting or vote in person if you attend the
meeting. Any proxy may be revoked in the manner
described in the accompanying proxy statement at
any time prior to its exercise at the meeting.
By Order of the Board of Directors,
Lincoln E. Bleveans
CORPORATE SECRETARY
March 1, 2007
TABLE OF CONTENTS
PAGE
----
PROXY STATEMENT .......................................................... 1
CURRENT DIRECTORS, CLASSES, AND TERMS OF OFFICE .......................... 4
ELECTION OF DIRECTORS .................................................... 4
GOVERNANCE OF THE CORPORATION ............................................ 8
REPORT OF THE AUDIT COMMITTEE ............................................ 14
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS ............................. 16
STOCK EQUIVALENTS OWNERSHIP OF DIRECTORS ................................. 17
INSURANCE ................................................................ 18
EXECUTIVE COMPENSATION ................................................... 18
COMPENSATION COMMITTEE REPORT ............................................ 26
OTHER MATTERS ............................................................ 49
PROXY STATEMENT
The enclosed proxy is being solicited by the Board of Directors of CH
Energy Group, Inc. (the "Corporation") for use in connection with the
Corporation's Annual Meeting of Shareholders to be held on April 24, 2007 (the
"Annual Meeting"), at the offices of the Corporation, 284 South Avenue,
Poughkeepsie, New York 12601-4879.
This proxy statement and enclosed proxy are being sent to the
Corporation's shareholders on or about March 1, 2007. The mailing address of the
principal executive office of the Corporation is 284 South Avenue, Poughkeepsie,
New York 12601-4879.
The Corporation is the holding company parent of Central Hudson Gas &
Electric Corporation ("Central Hudson") and Central Hudson Enterprises
Corporation ("CHEC"), and their respective subsidiaries.
SHAREHOLDERS ENTITLED TO VOTE
The record of shareholders entitled to notice of, and to vote at, the
Annual Meeting was taken at the close of business on March 1, 2007. At that
date, there were 15,762,000 shares of common stock ($0.10 par value) of the
Corporation ("Common Stock") outstanding. Each share of Common Stock is entitled
to one vote. No other class of securities is entitled to vote at the Annual
Meeting.
PROXIES
HOW YOU CAN VOTE
Shareholders of record can give a proxy to be voted at the Annual Meeting
(i) by telephone, (ii) electronically, using the Internet, at
WWW.COMPUTERSHARE.COM/EXPRESSVOTE, or (iii) by mail. Shareholders who hold their
shares in "street name" must vote their shares in the manner prescribed by their
brokers.
The telephone and Internet voting procedures have been set up for
shareholder convenience and have been designed to authenticate shareholder
identity, to allow shareholders to give voting instructions, and to confirm that
those instructions have been recorded properly. If shareholders of record wish
to vote by proxy, by telephone, or by using the Internet, please refer to the
specific instructions set forth on the enclosed proxy. If shareholders wish to
vote using a paper format and return their signed proxy before the Annual
Meeting, their shares will be voted as directed.
Whether shareholders choose to vote by telephone, electronically using the
Internet, or by mail, each proxy will be voted in accordance with the
shareholder's instructions with respect to the election of Directors.
IF SHAREHOLDERS DO NOT SPECIFY ON THEIR PROXY (OR WHEN GIVING THEIR PROXY
BY TELEPHONE OR BY USING THE INTERNET) HOW THEY WANT TO VOTE THEIR SHARES, IT IS
THE INTENTION OF THE PERSONS NAMED ON THE PROXY TO VOTE "FOR" THE ELECTION OF
THE NOMINEES FOR DIRECTOR AS SET FORTH UNDER "ELECTION OF DIRECTORS."
ABSTENTIONS AND BROKER NON-VOTES ARE VOTED NEITHER "FOR" NOR "AGAINST" AND
HAVE NO EFFECT ON THE VOTE BUT ARE COUNTED IN THE DETERMINATION OF A QUORUM.
REVOCATION OF PROXIES
A shareholder may revoke his or her proxy, at any time before it is
exercised, in any of three ways:
(a) by submitting written notice of revocation to the Corporate
Secretary;
(b) by submitting another proxy by telephone, electronically, using the
Internet at WWW.COMPUTERSHARE.COM/EXPRESSVOTE, or by mail that is
later dated and (if by mail) that is properly signed; or
(c) by voting in person at the Annual Meeting.
1
COST OF PROXY SOLICITATION
The cost of preparing, printing, and mailing the notice of meeting, proxy
statement, proxy, and annual report will be borne by the Corporation. Proxy
solicitation other than by use of the mail may be made by regular employees of
the Corporation by telephone and personal solicitation. Banks, brokerage houses,
custodians, nominees, and fiduciaries are requested to forward soliciting
material to their principal(s) and to obtain authorization for the execution of
proxies, and may be reimbursed for their out-of-pocket expenses incurred in that
connection. In addition, the Corporation has retained D. F. King & Co., Inc. of
New York, New York, a proxy solicitation organization, to assist in the
solicitation of proxies. The fee of such organization in connection therewith is
estimated to be $7,500, plus reasonable out-of-pocket expenses.
SHAREHOLDER AND INTERESTED PARTY COMMUNICATIONS
Highlights of the 2007 Annual Meeting of Shareholders will be published on
the Corporation's Internet site at WWW.CHENERGYGROUP.COM and in the
Corporation's May 2007 Report to Shareholders. The text of the remarks of the
Chairman of the Board, President and Chief Executive Officer at the Annual
Meeting will also be published on the same Internet site.
Shareholders may obtain information relating to financial and statistical
reports of the Corporation and information relating to their own share ownership
by contacting the Corporation's Director of Shareholder Relations at
845-486-5383 or by writing to the Director of Shareholder Relations at 284 South
Avenue, Poughkeepsie, New York 12601-4879.
Shareholder communications related to any aspect of the Corporation's
business are also welcome. Space for comments is provided on the proxy given to
shareholders of record.
Shareholders may also submit written communications to the Corporation in
care of the Corporate Secretary at 284 South Avenue, Poughkeepsie, New York
12601-4879. Although all communications may not be answered on an individual
basis, they do assist the Directors and management in addressing the needs of
shareholders.
Each such communication received by the Corporate Secretary from a
shareholder is reviewed by him to determine how it should be handled. Not all
communications from shareholders are communicated directly to the Board of
Directors.
If the subject matter of a communication from a shareholder is a concern
or complaint regarding the accuracy or integrity of the Corporation's
accounting, auditing, or financial reporting, the Corporate Secretary follows
the procedures established by the Board of Directors for "Receiving and Handling
Concerns or Complaints Regarding Accounting, Auditing or Financial Reporting."
These procedures, set forth in Section IV of the Corporation's Code of Business
Conduct and Ethics, which is available on the Corporation's Internet site at
WWW.CHENERGYGROUP.COM, are as follows:
The Audit Committee of the Board of Directors of CH Energy
Group, Inc. has established the following procedures for persons to
follow in order to communicate concerns or complaints to the Company
about the accuracy and integrity of the Company's accounting,
auditing and financial reporting. All persons are encouraged to
submit good faith concerns and complaints without fear of
retaliation of any kind. The Company will not discharge, demote,
suspend, threaten, harass or in any other manner discriminate
against any employee in the terms and condition of his or her
employment because the employee has raised good faith concerns or
complaints in accordance with these procedures. If an employee
wishes to do so, he or she may communicate concerns anonymously in
accordance with paragraph (ii) below.
(I) SUBMISSION OF CONCERNS AND COMPLAINTS
Any person may submit a concern or complaint about accounting,
internal accounting controls or auditing matters by bringing the
matter directly to the attention of:
2
Joseph B. Koczko, Esq.; Thompson Hine LLP;
335 Madison Avenue; 12th Floor; New York, New York 10017-4611
Phone: 212-344-5680; Fax: 212-344-6101
Email: Joseph.Koczko@ThompsonHine.com
(II) ANONYMOUS SUBMISSIONS BY EMPLOYEES
If an employee wishes to submit a concern on an anonymous
basis regarding questionable accounting or auditing matters, he or
she may do so by communicating in writing with Mr. Koczko at the
above address. This writing should include sufficient information
and specificity to allow the Company to review the subject matter.
(III) TREATMENT OF CONCERNS AND COMPLAINTS
Upon receipt of a concern or complaint, Mr. Koczko will
communicate the concern or complaint to General Counsel, John E.
Gould, Esq., and he and Mr. Gould will consult with the Chairman of
the Audit Committee regarding the concern or complaint. Subject to
the authority of the Audit Committee, the Chairman of the Audit
Committee, in consultation with Mr. Koczko and Mr. Gould, will
determine how the concern or complaint should be evaluated and, if
necessary, investigated by Mr. Koczko, by Mr. Gould, or by such
other persons as may be appropriate. Prompt and corrective action
will be taken when and as warranted in the judgment of the Audit
Committee. The Company will make every effort to maintain, within
the limits allowed by law and consistent with the need to conduct an
adequate review, the confidentiality of anyone submitting a concern
or complaint.
(IV) RETENTION OF INFORMATION
Mr. Koczko shall maintain a file at Thompson Hine LLP
regarding each submission of a concern or complaint. The file shall
contain the original document(s) with respect to the submission of
the concern or complaint, together with other documents and records
regarding the evaluation, investigation and resolution of the
matter.
(V) QUARTERLY REPORTING TO THE AUDIT COMMITTEE
The Chairman of the Audit Committee shall report quarterly to
the Audit Committee with respect to the status of all pending
submissions of concerns or complaints concerning matters covered by
these procedures. Copies of each file will be maintained in
accordance with the Company's document retention policy. In
addition, Mr. Koczko shall prepare and maintain a written log
listing each submission by date and setting forth a brief written
description regarding the substance of the matter. A copy of this
log shall be provided to the Chairman of the Audit Committee and the
General Counsel on a quarterly basis.
A shareholder may send a written communication to the Board of Directors
or to specific individual Directors by addressing the communication to the Board
of Directors or to an individual Director and submitting the communication to
the Corporation in care of the Corporate Secretary at 284 South Avenue,
Poughkeepsie, New York 12601-4879.
The Lead Independent Director of the Board of Directors, E. Michel Kruse,
is an independent Director and has been designated by the Board to preside at
the executive sessions of the independent Directors. If interested parties wish
to make a concern known to the independent Directors, they may do so in a
writing addressed to the Lead Independent Director and submitted in accordance
with the procedures established by the Board of Directors for "Receiving and
Handling Concerns or Complaints Regarding Accounting, Auditing or Financial
Reporting." These procedures are set forth in Section IV of the Corporation's
Code of Business Conduct and Ethics, which is available on the Corporation's
Internet site at WWW.CHENERGYGROUP.COM, and are also set forth above. Each such
writing submitted in accordance with these procedures will be communicated
directly to Mr. Kruse.
3
SHAREHOLDER PROPOSALS
A shareholder who would like to have a proposal included in the
Corporation's 2008 Proxy Statement must submit the proposal so that the
Corporate Secretary receives it no later than November 10, 2007. The rules of
the Securities and Exchange Commission ("SEC") contain procedures governing
shareholder proposals that may be included in a proxy statement. In addition,
the Corporation's By-laws must be followed.
The By-laws require any shareholder wishing to make a nomination for
Director or to introduce a proposal or other business at the Corporation's 2008
Annual Meeting of Shareholders to give the Corporation advance written notice
thereof no earlier than January 26, 2008, and no later than February 25, 2008.
A copy of the Corporation's By-laws may be obtained by writing to the
Corporate Secretary, CH Energy Group, Inc., 284 South Avenue, Poughkeepsie, New
York 12601-4879.
CURRENT DIRECTORS, CLASSES, AND TERMS OF OFFICE
The Corporation's Restated Certificate of Incorporation and By-laws
require that the Board of Directors be divided into three classes as nearly
equal in number as possible with staggered terms so that, at each Annual Meeting
of Shareholders, one class of Directors will stand for election to a three-year
term. The Directors currently in classes are listed below and their respective
terms of office expire as of the Annual Meeting of Shareholders in the years
listed below:
CLASS I - 2007
--------------
Edward F. X. Gallagher
Steven V. Lant
Jeffrey D. Tranen
CLASS II - 2008
---------------
Margarita K. Dilley
Steven M. Fetter
Stanley J. Grubel
CLASS III - 2009
----------------
Manuel J. Iraola
E. Michel Kruse
Ernest R. Verebelyi
Edward F. X. Gallagher, a Class I Director, will not be standing for
reelection at the Annual Meeting as he has reached the age at which the
Corporation's By-laws provide that he may not stand for reelection. The Board
has decided not to replace Mr. Gallagher at this time. Thus, the size of the
Board will be decreased by one Director to a total of eight Directors.
The nominees for these Directorship positions are set forth below.
Although the Board of Directors does not contemplate that the nominees will be
unable to serve, should such a situation arise prior to the Annual Meeting, the
proxies will be voted in accordance with the best judgment of the persons acting
thereunder.
ELECTION OF DIRECTORS
The Board of Directors proposes the following nominees to be elected to
the Board of Directors at the Annual Meeting, their terms to expire at the
Annual Meeting of Shareholders in the year noted below or until a successor is
elected and qualified. The Board of Directors recommends a vote in favor of each
such nominee:
CLASS I - 2010
--------------
Steven V. Lant
Jeffrey D. Tranen
4
VOTE REQUIRED FOR ELECTION OF DIRECTORS
The nominees for Director receiving a plurality of the votes cast at the
Annual Meeting in person or by proxy shall be elected. Abstentions and broker
non-votes are voted neither "FOR" nor "AGAINST" and have no effect on the vote
but are counted in the determination of a quorum.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" EACH OF THE NOMINEES.
NOMINEES AND OTHER DIRECTORS
The following table sets forth (i) the name and age of each nominee and of
each Director of the Corporation whose term of office continues after the Annual
Meeting, (ii) the principal occupation and employment of each person during the
past five years, (iii) positions and offices with the Corporation held by each
person, and (iv) the period during which each has served as a Director of the
Corporation. Each nominee is currently serving as a Director of the Corporation.
PRINCIPAL OCCUPATION AND BUSINESS PERIOD OF
EXPERIENCE DURING THE PAST POSITIONS OR OFFICES WITH SERVICE AS
NAME AND AGE FIVE YEARS (1) THE CORPORATION DIRECTOR BEGAN
------------ --------------------------------- ------------------------- --------------
NOMINEES FOR ELECTION AS CLASS I DIRECTORS SERVING FOR A TERM EXPIRING IN 2007
Steven V. Lant .............. Present positions since 2004; Chairman, President and 2002
49 President and Chief Executive Chief Executive Officer of
Officer of the Corporation, the Corporation; Chairman
[PHOTO OMITTED] 2003-2004; Chief Operating and Chief Executive
Officer and Chief Financial Officer of Central Hudson;
Officer of the Corporation, Chairman, President and
2002-2003; Chief Financial Chief Executive Officer
Officer of the Corporation, of of CHEC; Director of
Central Hudson, and of Central the Corporation, of
Hudson Energy Services, Inc., Central Hudson, and
2001-2002 of CHEC
Poughkeepsie, NY
Jeffrey D. Tranen ........... Senior Managing Director, Lexecon Director 2004
60 (an FTI Company), a consulting
firm, 2000-present; Director,
[PHOTO OMITTED] Doble Engineering Company;
Director, Oglethorpe Power
Corporation, 2000-2004;
Director, Earthfirst Technologies
Incorporated, 2001-2002;
President and Chief Operating
Officer, Sithe Northeast Inc.,
1999-2000; President and Chief
Executive Officer, California
Independent System Operator,
1997-1999; President, New
England Power Company,
1993-1997
New York, NY
5
PRINCIPAL OCCUPATION AND BUSINESS PERIOD OF
EXPERIENCE DURING THE PAST POSITIONS OR OFFICES WITH SERVICE AS
NAME AND AGE FIVE YEARS (1) THE CORPORATION DIRECTOR BEGAN
------------ --------------------------------- ------------------------- --------------
INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 2008
Margarita K. Dilley ......... Consultant; Vice President, Chief Director; Chair of the 2004
49 Financial Officer, and Director Audit Committee of the
of Astrolink International LLC, Board of Directors
[PHOTO OMITTED] 1998-2004; Director of Strategy
& Corporate Development and
Treasurer of INTELSAT, 1992-
1998; Treasurer, Comsat
Corporation, 1987-1992
Washington, DC
Steven M. Fetter ............ President, Regulation UnFettered, Director; Chair of the 2002
54 a consulting firm, 2002-present; Governance and
Board member and former Nominating Committee
[PHOTO OMITTED] Chairman of the National of the Board of Directors
Regulatory Research Institute
(at Ohio State University);
Group Head and Managing
Director, Global Power Group,
FitchRatings, 1998-2002;
Chairman and Commissioner
of the Michigan Public Service
Commission, 1987-1993;
Acting Associate Deputy Under
Secretary of Labor, U.S.
Department of Labor, 1987
Henderson, NV
Stanley J. Grubel ........... Consultant; Director, Asyst Director; Chair of 1999
64 Technologies, Inc.; Vice the Compensation
President and General Manager, Committee of the
[PHOTO OMITTED] Philips Semiconductor Board of Directors
Manufacturing, Inc., 2000-2001;
Chief Executive Officer, MiCRUS,
1995-2000
Irvington, NY
6
PRINCIPAL OCCUPATION AND BUSINESS PERIOD OF
EXPERIENCE DURING THE PAST POSITIONS OR OFFICES WITH SERVICE AS
NAME AND AGE FIVE YEARS (1) THE CORPORATION DIRECTOR BEGAN
------------ --------------------------------- ------------------------- --------------
INCUMBENT CLASS III DIRECTORS SERVING FOR A TERM EXPIRING IN 2009
Manuel J. Iraola ............ Chairman, President and Chief Director 2006
58 Executive Officer, The Aloaris
Group, a consulting and
[PHOTO OMITTED] investment firm, 2002-present;
Chairman and Chief Executive
Officer, Homexperts, Inc. (d/b/a
Homekeys), a real estate services
company, 2005-present; Director,
Schweitzer-Mauduit International,
Inc., 2005-present; President,
Phelps Dodge Industries,
1995-2002
Coral Gables, FL
E. Michel Kruse ............. Retired; Chairman and Senior Director; Lead Independent 2002
62 Advisor - Financial Institutions Director; Chair of the
Group of UBS Warburg, 2000-2002; Strategy and Finance
[PHOTO OMITTED] Chief Executive of BHF- Bank AG, Committee of the
1997-1999; Chief Financial Officer Board of Directors
and Vice Chairman of the Board of
The Chase Manhattan Corporation,
1992-1996
Greenwich, CT
Ernest R. Verebelyi ......... Retired; Non-executive Chairman, Director 2006
59 2005-present, and Director, 2003-
present, Columbus McKinnon
[PHOTO OMITTED] Corporation, an industrial
manufacturing company; President-
Americas, Terex Corporation, 2001-
2002; President-Americas and
Mining, Terex Corporation, 2001
Ponte Vedra Beach, FL
----------
(1) Based on information furnished to the Corporation as of December 31, 2006.
7
GOVERNANCE OF THE CORPORATION
The Board of Directors has nine members. As of the Annual Meeting, the
Board will have eight members as a result of the retirement of Edward F. X.
Gallagher.
During 2006, the Board of Directors held nine meetings and the Committees
held a total of 24 meetings. No Director attended fewer than 75% of all of the
Board meetings held in the last year. With the exception of Director Heinz K.
Fridrich (who retired from the Board as of the 2006 Annual Meeting), no Director
attended fewer than 75% of the total number of meetings held by all Committees
of the Board on which any Director served. Mr. Fridrich served on the Audit
Committee and the Governance and Nominating Committee until his retirement from
the Board, and attended one of the two Audit Committee meetings and all of the
Governance and Nominating Committee meetings held during that period. Other than
Mr. Fridrich, all Directors serving on each of the Compensation Committee, the
Governance and Nominating Committee, and the Strategy and Finance Committee
attended all of their respective Committee meetings. The Directors serving on
the Audit Committee attended more than 75% of their respective Committee
meetings.
The Board of Directors has adopted statements of governance principles set
forth in a document entitled "Corporate Governance." Section I of this document
sets forth the Corporation's statement of "Our Principles and Culture." Section
II of this document sets forth the Corporation's statement of "Our Governance
Guidelines." The entire document is available on the Corporation's Internet site
at WWW.CHENERGYGROUP.COM. A copy of the Corporation's governance principles may
also be obtained by writing to the Corporate Secretary, CH Energy Group, Inc.,
284 South Avenue, Poughkeepsie, New York 12601-4879.
DIRECTOR INDEPENDENCE
The Board of Directors makes determinations regarding whether individual
Directors are "independent" for purposes of applicable corporate governance
rules promulgated by the SEC and New York Stock Exchange listing standards based
on all relevant facts and circumstances. To be considered "independent" for
purposes of the Director qualification standards, the Board must affirmatively
determine that the Director has no material relationship with the Corporation,
directly or as an officer, shareholder, or partner of an organization that has a
relationship with the Corporation. The Board broadly considers all relevant
facts and circumstances. In this connection, the Board applies the following
standards:
o In no event will a Director be considered "independent" if:
(A) within the preceding three years:
(i) the Director was employed by the Corporation;
(ii) any member of the Director's immediate family was
employed by the Corporation as an executive officer;
(iii) the Director or any member of his or her immediate
family received more than $100,000 during a twelve-month
period in direct compensation from the Corporation
(other than Director's fees and pension or other forms
of deferred compensation for prior service with the
Corporation); or
(iv) an executive officer of the Corporation was on the
Compensation Committee of the Board of Directors of an
entity that employed either the Director or any member
of his or her immediate family as an executive officer;
or
(B) (i) the Director or any member of his or her immediate
family is a current partner of a firm that is the
Corporation's internal or external auditor;
(ii) the Director is a current employee of such a firm;
8
(iii) any member of the immediate family of the Director is a
current employee of such a firm and participates in the
firm's audit, assurance, or tax compliance (but not tax
planning) practice; or
(iv) the Director or any member of his or her immediate
family was within the last three years (but is no
longer) a partner or employee of such a firm and
personally worked on the Corporation's audit within that
time; or
(C) the Director is a current employee, or an immediate family
member of the Director is a current executive officer, of an
entity that has made payments to, or received payments from,
the Corporation for property or services in an amount which,
in any of the last three fiscal years, exceeds the greater of
$1 million or 2% of such other entity's consolidated gross
revenues.
In addition, the following standards identify categories of relationships
that will NOT be considered as material relationships that would impair a
Director's independence:
o Transactions between the Corporation and another entity with which a
Director or a member of a Director's immediate family is affiliated
--
(i) if the transactions occurred more than three years prior
to the determination of independence, or
(ii) if the transactions occur in the ordinary course of
business and are consistent with other arm's length
transactions in which the Corporation has engaged with
third parties, unless
(a) the Director is a current employee, executive
officer, director, or owner of 5% or more of the
voting stock of the other entity, or a member of
the Director's immediate family is a current
employee, executive officer, director, or owner of
5% or more of the voting stock of the other entity
AND
(b) such transactions represent, in any of the last
three fiscal years, more than the greater of $1
million or 2% of the other entity's consolidated
gross revenues; and
o Discretionary charitable contributions by the Corporation to
non-profit entities with which a Director or a member of the
Director's immediate family is affiliated, if such contributions
(i) occurred more than three years prior to the
determination of independence, or
(ii) are consistent with the Corporation's philanthropic
practices, unless
(a) the Director or family member is a current
executive officer, director, or trustee of the
entity and
(b) the Corporation's contributions represent, in any
of the last three fiscal years, more than the
greater of $1 million or 2% of such entity's
consolidated gross revenues.
Annually, the Board will review all relationships between the Corporation
and its Directors, including but not limited to commercial and charitable
relationships, to determine whether Directors are independent under the
standards described above. For relationships not qualifying as immaterial under
the categorical standards listed above, the determination of whether the
relationship is material, and therefore whether the Director is independent,
shall be made by the Directors who satisfy the above independence guidelines.
The Corporation will explain in its next proxy statement the basis for any Board
determination that a relationship was not material despite the fact that it did
not meet the categorical standards of immateriality set forth in the above
guidelines.
An Audit Committee member may not, other than in his or her capacity as a
member of the Audit Committee, the Board of Directors, or any other Board
Committee, (i) accept directly or indirectly any consulting, advisory, or other
compensatory fee from the Corporation or any subsidiary thereof, provided that,
compensatory fees do not include the receipt of fixed amounts of compensation
under a retirement plan (including deferred compensation)
9
for prior service with the listed issuer (provided that such compensation is not
contingent in any way on continued service); or (ii) be an affiliated person of
the Corporation or any subsidiary thereof.
As a result of its annual review, the Board has determined that all of the
Directors are independent, with the exception of Steven V. Lant. Mr. Lant is not
independent because he is an executive officer of the Corporation.
Only independent Directors serve on the Corporation's Audit Committee,
Governance and Nominating Committee, and Compensation Committee.
COMMITTEES OF THE BOARD OF DIRECTORS
The Corporation's standing Committees are the Audit Committee, the
Compensation Committee, the Governance and Nominating Committee, and the
Strategy and Finance Committee. These Committees are described below. Although
permitted by the By-laws, the Board of Directors has not appointed an Executive
Committee.
AUDIT COMMITTEE
The members of the Audit Committee are Margarita K. Dilley, Steven M.
Fetter, Edward F. X. Gallagher, Manuel J. Iraola, and Ernest R. Verebelyi. Ms.
Dilley is the Chair of the Audit Committee. The Audit Committee met ten times in
2006.
The Board of Directors has determined that these Committee members meet
the New York Stock Exchange listing standards and the Corporation's categorical
standards for independence.
The Board of Directors has determined that Margarita K. Dilley meets the
SEC criteria for an "audit committee financial expert" and the New York Stock
Exchange standard of having accounting or related financial management
expertise. Ms. Dilley's extensive background and experience includes serving as
the Chief Financial Officer of Astrolink International LLC.
The functions of the Audit Committee are to assist the Board of Directors
in its oversight of (a) the accounting and financial reporting processes of the
Corporation and (b) the auditing of the financial statements of the Corporation,
and those functions are further discussed in the Report of the Audit Committee,
which is set forth beginning on page 14 of this proxy statement.
The Audit Committee operates under a written Charter which sets out the
functions, responsibilities, and scope of authority of this Committee. A copy of
the Charter is available on the Corporation's Internet site at
WWW.CHENERGYGROUP.COM and may also be obtained by writing to the Corporate
Secretary, CH Energy Group, Inc., 284 South Avenue, Poughkeepsie, New York
12601-4879.
COMPENSATION COMMITTEE
The members of the Compensation Committee are Stanley J. Grubel, Margarita
K. Dilley, Manuel J. Iraola, and Ernest R. Verebelyi. Mr. Grubel is the Chair of
the Compensation Committee. The Compensation Committee met five times in 2006.
The Board of Directors has determined that these Committee members meet
the New York Stock Exchange listing standards and the Corporation's categorical
standards for independence.
The functions of the Compensation Committee are to (a) assist the Board of
Directors in its oversight of (i) the executive compensation and benefits
program of the Corporation, (ii) the compensation program for Directors of the
Corporation, and (iii) succession planning for officer positions of the
Corporation and (b) provide, in accordance with the rules of the SEC, an annual
"Compensation Committee Report" for inclusion in the Company's annual proxy
statement.
For additional information about the role and activities of the
Compensation Committee, please refer to the Executive Compensation section of
this proxy statement at page 18.
10
The Compensation Committee operates under a written Charter which sets out
the functions, responsibilities, and scope of authority of this Committee. The
Charter provides that the Committee may not delegate its authority. A copy of
the Charter is available on the Corporation's Internet site at
WWW.CHENERGYGROUP.COM and may also be obtained by writing to the Corporate
Secretary, CH Energy Group, Inc., 284 South Avenue, Poughkeepsie, New York
12601-4879.
GOVERNANCE AND NOMINATING COMMITTEE
The members of the Governance and Nominating Committee are Steven M.
Fetter, Jeffrey D. Tranen, and E. Michel Kruse. Mr. Fetter is the Chair of the
Governance and Nominating Committee. The Governance and Nominating Committee met
four times in 2006.
The Board of Directors has determined that these Committee members meet
the New York Stock Exchange listing standards and the Corporation's categorical
standards for independence.
The functions of the Governance and Nominating Committee are to assist the
Board of Directors in (a) organizing itself to effectively carry out its
responsibilities and (b) nominating for election to the Board persons who have
experience, backgrounds, and skills appropriate for the current needs of the
Corporation.
The Governance and Nominating Committee operates under a written Charter
which sets out the functions, responsibilities, and scope of authority of this
Committee. A copy of the Charter is available on the Corporation's Internet site
at WWW.CHENERGYGROUP.COM and may also be obtained by writing to the Corporate
Secretary, CH Energy Group, Inc., 284 South Avenue, Poughkeepsie, New York
12601-4879.
STRATEGY AND FINANCE COMMITTEE
The members of the Strategy and Finance Committee are Edward F. X.
Gallagher, Stanley J. Grubel, E. Michel Kruse, Steven V. Lant, and Jeffrey D.
Tranen. Mr. Kruse is the Chair of the Strategy and Finance Committee. The
Strategy and Finance Committee met five times in 2006.
The functions of the Strategy and Finance Committee are to assist the
Board of Directors in its oversight of the Corporation's strategic direction,
business and financial planning, financing policies, and consistent
implementation of business plans.
The Strategy and Finance Committee operates under a written Charter which
sets out the functions, responsibilities, and scope of authority of this
Committee. A copy of the Charter is available on the Corporation's Internet site
at WWW.CHENERGYGROUP.COM and may also be obtained by writing to the Corporate
Secretary, CH Energy Group, Inc., 284 South Avenue, Poughkeepsie, New York
12601-4879.
DIRECTOR NOMINATION PROCESS
The Governance and Nominating Committee of the Board of Directors is
responsible for identifying, evaluating, and recommending to the Board nominees
for election as Directors of the Corporation.
The Governance and Nominating Committee seeks to nominate persons for
election to the Board of Directors who have experience, backgrounds, and skills
appropriate for the current needs of the Corporation. In carrying out the
nomination process, the Governance and Nominating Committee works to identify
potential candidates and welcomes recommendations from other members of the
Board, members of management, shareholders, and other interested persons. From
time to time, the Governance and Nominating Committee also may retain a
professional search firm to assist in identifying and evaluating candidates.
On an annual basis, the Governance and Nominating Committee reviews the
current size, composition, and organization of the Board and of its Committees,
determines future needs, and makes recommendations to the Board as appropriate.
The Governance and Nominating Committee evaluates Director candidates, including
incumbent Directors, and seeks to recommend nominees who would strengthen the
Board and fill needs for particular skills or
11
attributes among the Directors. This evaluation is performed in the context of
Board-approved "Criteria for Selecting New Directors" and of Sections 2, 3, 4,
and 5 of the Corporation's Governance Guidelines. These Sections of the
Governance Guidelines relate to the functions of the Board, the responsibilities
and duties of Directors, the desired qualifications of Directors, and the
requirement that a majority of Directors be independent in accordance with the
Listed Company Manual of the New York Stock Exchange. The Corporation's
"Criteria for Selecting New Directors" and its Governance Guidelines are
available on the Corporation's Internet site at WWW.CHENERGYGROUP.COM and may
also be obtained by writing to the Corporate Secretary, CH Energy Group, Inc.,
284 South Avenue, Poughkeepsie, New York 12601-4879. All potential candidates,
including persons recommended by security holders, are evaluated in the same
manner and according to the same standards.
When the Governance and Nominating Committee identifies a candidate that
merits in-depth consideration, the Committee invites the Chairman of the Board,
President and Chief Executive Officer to assess the person's qualifications and
to discuss his views about the person with the Committee; this assessment may
involve the Chairman of the Board, President and Chief Executive Officer meeting
with the person.
When a candidate is identified by the Governance and Nominating Committee
as a potential nominee for election as a new Director of the Corporation, at
least two members of the Governance and Nominating Committee meet with the
person in face-to-face interviews. Subsequently, the Governance and Nominating
Committee meets to discuss and consider candidates' qualifications and then
chooses, by majority vote of the Committee members, the persons it wishes to
recommend to the Board as nominees for election as Directors of the Corporation.
A shareholder wishing to recommend a person for consideration as a
potential candidate for election to the Board of Directors may do so by sending
a written communication to the Governance and Nominating Committee in care of
the Corporate Secretary at 284 South Avenue, Poughkeepsie, New York 12601-4879.
The submission to the Governance and Nominating Committee must include (a) a
written statement signed by the potential candidate confirming that he or she
wishes to be considered as a candidate and would be willing and able to serve as
a Director if elected and (b) a writing signed by the shareholder that includes
sufficient information and specificity to (i) enable the Governance and
Nominating Committee to confirm the writer's status as a shareholder of the
Corporation and (ii) allow the Governance and Nominating Committee to evaluate
the potential candidate in the context of the Corporation's "Criteria for
Selecting New Directors" and its Governance Guidelines.
BOARD MEMBER ATTENDANCE AT ANNUAL MEETING OF SHAREHOLDERS
Directors are expected to attend the Annual Meeting of Shareholders, and
it is the practice of the Corporation to introduce each Director at the Annual
Meeting of Shareholders.
Each of the current members of the Corporation's Board of Directors
attended the 2006 Annual Meeting of Shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Only independent Directors served on the Compensation Committee in 2006.
Mr. Grubel served as the Chair of the Compensation Committee in 2006, and
continues to serve as its Chair through the date of this proxy. Mr. Grubel, Ms.
Dilley, and Mr. Tranen served on the Compensation Committee from January 1,
2006, until the Annual Meeting of the Corporation held on April 25, 2006. From
April 26, 2006, through December 31, 2006, Mr. Grubel, Ms. Dilley, Mr. Iraola,
and Mr. Verebelyi served as members of the Compensation Committee, and they
continue to serve as members of the Compensation Committee through the date of
this proxy. No Compensation Committee interlock relationships existed in 2006
for the Corporation or its subsidiary companies.
CODE OF BUSINESS CONDUCT AND ETHICS
The Corporation has a Code of Business Conduct and Ethics that sets forth
the commitment of the Corporation to conduct its business in accordance with the
highest ethical standards and all applicable laws, rules, and regula-
12
tions. The Code of Business Conduct and Ethics, adopted by the Board of
Directors, states the guiding principles by which the Corporation operates and
conducts its daily business with its shareholders, customers, suppliers,
government authorities, and employees. These principles apply to all Directors,
officers, and employees.
Employees are encouraged to report any conduct that they believe in good
faith to be an actual or apparent violation of the Code of Business Conduct and
Ethics.
Section II of the Code of Business Conduct and Ethics, in accordance with
Section 406 of the Sarbanes-Oxley Act of 2002, constitutes the Corporation's
Code of Ethics for Senior Financial Officers. This section, in conjunction with
the remainder of the Code of Business Conduct and Ethics, is intended to promote
honest and ethical conduct, full and accurate reporting, and compliance with
laws as well as other matters. A copy of the Code of Business Conduct and Ethics
is available on the Corporation's Internet site at WWW.CHENERGYGROUP.COM. The
Corporation has also filed a copy of the Code of Business Conduct and Ethics
with the SEC as an exhibit to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 2003. A copy of the Corporation's Code of Business
Conduct and Ethics may also be obtained free of charge by writing to the
Corporate Secretary, CH Energy Group, Inc., 284 South Avenue, Poughkeepsie, New
York 12601-4879.
If the Corporation's Board of Directors amends Section II of the Code of
Business Conduct and Ethics or grants any waiver to Section II of the Code of
Business Conduct and Ethics, which waiver relates to issues concerning actual or
apparent conflicts of interest, disclosures in the Corporation's SEC filings or
public communications, compliance with laws, rules, or regulations, or internal
compliance with the Code of Business Conduct and Ethics within the Corporation,
the Corporation will post such information on its Internet site at
WWW.CHENERGYGROUP.COM.
REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS
The Board of Directors has adopted a written policy and written procedures
for the review, approval, or ratification of transactions involving the
Corporation and "related persons" (I.E., Directors and their immediate family
members, executive officers and their immediate family members, and shareholders
owning five percent or more of the Corporation's outstanding stock). The policy
and procedures cover any related person transaction that exceeds the minimum
threshold for disclosure in our annual proxy statement under the relevant rules
of the SEC (generally, a transaction involving an amount in excess of $120,000,
or a series of transactions involving an aggregate amount in excess of $120,000
in any calendar year, in which a related person has a direct or indirect
material interest, and which does not fall under an explicitly stated exception
set forth in the applicable disclosure rules of the SEC). Such a covered related
person transaction is hereinafter referred to as a "Related Person Transaction."
POLICY
o The Governance and Nominating Committee, which consists solely of
independent Directors, must review all Related Person Transactions.
The Governance and Nominating Committee will approve a Transaction
only if it determines that the Transaction is consistent with the
business interests of the Corporation. In considering the
Transaction, the Committee will consider all relevant factors,
including as applicable (i) the Corporation's business rationale for
entering into the Transaction; (ii) whether the Transaction is on
terms comparable to those available to third parties, or in the case
of employment relationships, to employees generally; (iii) the
potential for the Transaction to lead to an actual or apparent
conflict of interest and any safeguards imposed to prevent such
actual or apparent conflicts; and (iv) the overall fairness of the
Transaction to the Corporation.
PROCEDURE
o Directors and executive officers are responsible for bringing a
potential Related Person Transaction to the attention of the
Chairman, President and Chief Executive Officer or to the attention
of the Chair of the Governance and Nominating Committee.
13
o The Chairman, President and Chief Executive Officer and the Chair of
the Governance and Nominating Committee shall jointly determine (or
if either is involved in the Transaction, the other shall determine
in consultation with the Lead Independent Director) whether the
matter is a Related Person Transaction that should be considered by
the Governance and Nominating Committee.
o If a Director is involved in the Related Person Transaction, he or
she shall be recused from all discussions and decisions about the
Transaction.
o The Transaction should be approved in advance whenever practicable,
and if not practicable, must be ratified as promptly as practicable.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised of Directors
who have no material relationship with the Corporation (either directly or as a
partner, shareholder, or officer of an organization that has a relationship with
the Corporation) and meet the New York Stock Exchange listing standards and the
Corporation's categorical standards for independence. The Audit Committee
operates under a written Charter adopted by the Board of Directors, which is
available at the Corporation's Internet site at WWW.CHENERGYGROUP.COM and may
also be obtained by writing to the Corporate Secretary, CH Energy Group, Inc.,
284 South Avenue, Poughkeepsie, New York 12601-4879.
In performing its duties, the Audit Committee (i) reviews the scope of the
audit by the Corporation's independent accountants, PricewaterhouseCoopers LLP,
and related matters pertaining to the examination of the financial statements;
(ii) reviews and evaluates, at least once a year, the qualifications,
independence, and performance of the independent accountants (which includes an
evaluation of the lead partner of the independent accountants); (iii) examines
the adequacy of the Corporation's internal control over financial reporting and
the Corporation's and its subsidiary companies' internal audit activities; (iv)
reviews the nature and extent of audit and non-audit services and pre-approves
such services provided by the Corporation's independent accountants; (v)
consults at least three times a year with the independent accountants regarding
financial issues; (vi) makes recommendations to the Board of Directors on the
foregoing matters as well as on the appointment of the Corporation's independent
accountants; (vii) meets regularly with the Corporation's Internal Auditing
Manager and Controller; and (viii) reviews quarterly and annual financial
statements and earnings releases filed with the SEC.
In 2006, the Audit Committee met with management periodically during the
year to consider the adequacy of the Corporation's internal control over
financial reporting and the objectivity of its financial reporting. The Audit
Committee discussed these matters with the Corporation's independent accountants
and with appropriate Corporation financial personnel and internal auditors. The
Audit Committee also discussed with the Corporation's senior management and
independent accountants the process used for certifications by the Corporation's
Chief Executive Officer and the Chief Financial Officer, which certifications
are required for certain of the Corporation's filings with the SEC.
The Audit Committee also met privately at its regular meetings with both
the independent accountants and the Internal Auditing Manager, as well as with
the Controller.
For 2006, the Audit Committee has:
1. reviewed and discussed the audited financial statements with
management;
2. discussed with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61 (Codification of Statements
on Auditing Standards), as may be modified or supplemented;
3. received the written disclosures and the letter from the independent
accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as may be modified or
supplemented, and has discussed with and affirmed the independence of
PricewaterhouseCoopers LLP from the management of the Corporation and its
subsidiary companies; and
4. received the reports of the Chief Executive Officer and the Chief
Financial Officer relating to their evaluation of the Corporation's internal
control over financial reporting.
14
Based on the review and discussions referred to above and additional
matters deemed relevant and appropriate by the Audit Committee, the Audit
Committee recommended to the Corporation's Board of Directors that the audited
financial statements be included in the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 2006, for filing with the SEC.
Margarita K. Dilley, Chair
Steven M. Fetter
Edward F. X. Gallagher
Manuel J. Iraola
Ernest R. Verebelyi
The Audit Committee has appointed PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as the Corporation's independent
public accountants for 2007.
Representatives of PricewaterhouseCoopers LLP will be present at the
Annual Meeting. The PricewaterhouseCoopers representatives will be given the
opportunity to make a statement if desired and will be available to respond to
appropriate questions from shareholders.
Information on fees billed by PricewaterhouseCoopers LLP to the
Corporation during 2006 and 2005 is provided below:
PRINCIPAL ACCOUNTANT FEES AND SERVICES
---------------------------------------------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP 2006 2005
---------------------------------------------------------------------------------------------------------------------
Audit Fees $769,000 $712,000
Audit-Related Fees
Includes financing costs (2006) and accounting research (2005) $38,300 $26,000
---------------------------------------------------------------------------------------------------------------------
Tax Fees
Includes review of consolidated federal and state income tax returns
(2006 and 2005) and tax research (2005) $15,600 $25,000
---------------------------------------------------------------------------------------------------------------------
All Other Fees
Includes software licensing fee for accounting research tool $1,500 $1,500
---------------------------------------------------------------------------------------------------------------------
TOTAL $824,400 $764,500
---------------------------------------------------------------------------------------------------------------------
The Audit Committee also concluded that the provision of services for
which fees were paid under the captions "Audit-Related Fees," "Tax Fees," and
"All Other Fees" were compatible with the maintenance of PricewaterhouseCoopers
LLP's independence.
The Audit Committee has adopted guidelines regarding pre-approval of the
services to be provided by the Corporation's independent accountants. These
guidelines require that the Audit Committee review and approve, prior to the
start of the fiscal year, (i) an engagement letter for audit services from the
independent accountants, outlining the scope of the audit services to be
provided during the next fiscal year and including a fee proposal for such
services, and (ii) a list of, and a budget for, non-audit services that
management recommends be provided by the independent accountants during the next
fiscal year.
Management and the independent accountants confirmed that the recommended
non-audit services were permissible under all applicable requirements. The
Corporation has adopted a list of specific audit and non-audit services that may
be provided by the independent accountants.
If the scope or cost of the audit or non-audit services requires changes
during the fiscal year, the Audit Committee's procedures enable the Chair of the
Audit Committee to approve such changes, up to certain dollar limits, and to
report on any such changes at the next Audit Committee meeting. The
Corporation's Vice President of Accounting and Controller is responsible for
tracking all independent accountant fees against the budgets for audit and
non-audit services and reporting on such budget issues at least annually to the
Audit Committee.
In 2006, the Audit Committee approved all of the fees set forth in the
table above under the captions "Audit-Related Fees," "Tax Fees," and "All Other
Fees."
15
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table lists the number of shares of equity securities of the
Corporation beneficially owned by each of the Directors, by each executive
officer named in the Summary Compensation Table included under the caption
"Executive Compensation," by beneficial owners of more than 5% of the
Corporation's Common Stock, and by all Directors and executive officers of the
Corporation as a group:
AMOUNT AND NATURE OF % OF THE
BENEFICIAL OWNERSHIP OF CORPORATION'S
THE CORPORATION'S COMMON
NAME OF BENEFICIAL OWNER COMMON STOCK (1)(2) STOCK (3)
------------------------ ------------------- ---------
Margarita K. Dilley ......................................... 0 Less than 1%
Steven M. Fetter ............................................ 1,301 Less than 1%
Edward F. X. Gallagher ...................................... 8,157 Less than 1%
Stanley J. Grubel ........................................... 5,828 Less than 1%
Manuel J. Iraola ............................................ 0 Less than 1%
E. Michel Kruse ............................................. 1,100 Less than 1%
Steven V. Lant (7) .......................................... 12,944 Less than 1%
Jeffrey D. Tranen ........................................... 0 Less than 1%
Ernest R. Verebelyi ......................................... 0 Less than 1%
Christopher M. Capone (7) ................................... 58 Less than 1%
Joseph J. DeVirgilio, Jr. (7) ............................... 3,101 Less than 1%
Carl E. Meyer (7) ........................................... 6,508 Less than 1%
Arthur R. Upright ........................................... 3,441 Less than 1%
Barclays Global Investors, NA (4) ........................... 1,046,566 6.64%
Gabelli Asset Management Inc. (5) ........................... 1,495,150 9.49%
Manulife Financial Corporation (6) .......................... 1,063,850 6.75%
All Directors and Executive Officers as a Group
(16 Persons) .............................................. 46,095 Less than 1%
----------
(1) In the case of Directors and executive officers, based on information
furnished to the Corporation by them as of December 31, 2006. Unless
otherwise noted, each individual or entity named in the table has sole
voting and dispositive power.
(2) Includes shares of Common Stock that may be acquired through the exercise
of options that are exercisable currently. The persons who have such
options and the number of shares which may be acquired is as follows: Mr.
Fetter (1,000); Mr. Gallagher (4,000); Mr. Grubel (4,000); Mr. Kruse
(1,000); Mr. Lant (7,120); all other executive officers as a group
(3,160).
(3) The percentage ownership calculation for each beneficial owner has been
made on the basis of the amount of outstanding shares of Common Stock as
of the record date.
(4) Based upon a Schedule 13G filed with the SEC on January 23, 2007, by
Barclays Global Investors, NA on behalf of Barclays Global Investors, NA,
Barclays Global Fund Advisors, Barclays Global Investors, Ltd, Barclays
Global Investors Japan Trust and Banking Company Limited, and Barclays
Global Investors Japan Limited. As reported in the Schedule 13G, as of
December 31, 2006, Common Stock was beneficially owned as follows:
Barclays Global Investors, NA--582,885 shares (3.70%), of which Barclays
Global Investors, NA has voting power with respect to only 468,758 shares;
Barclays Global Fund Advisors, 455,049 shares (2.89%), and Barclays Global
Investors, Ltd., 8,632 shares (less than 1%). The principal business
address for each of the foregoing is 45 Fremont Street, San Francisco,
California 94105. In addition, Barclays PLC filed a Schedule 13G with the
SEC on February 9, 2006, on behalf of Barclays Bank PLC and other
entities, reporting as of December 31, 2005, 23,154 shares of Common Stock
(less than 1%) beneficially owned by Barclays Bank PLC, which are not
included in the table above for Barclays Global Investors, NA. The
principal business address for Barclays Bank PLC is 54 Lombard Street,
London, England EC3P 3AH.
(5) Based upon a Schedule 13 D/A filed with the SEC on December 5, 2002, by
Gabelli Asset Management Inc. on behalf of Gabelli Funds, LLC, GAMCO
Investors, Inc., MJG Associates, Inc., Gabelli & Co. Inc. Profit Sharing
Plan, Gabelli Foundation, Inc., and Gabelli Group Capital Partners, Inc.
As reported in the Schedule 13 D/A, as of September 30, 2002, the
Corporation's Common Stock was beneficially owned as follows: Gabelli
Funds--369,400 (2.28%), GAMCO--1,116,250 (6.90%), Gabelli Foundation,
Inc.--6,000 (0.04%), Gabelli
16
& Co. Inc. Profit Sharing Plan--2,000 (0.01%), MJG Associates--1,500
(0.01%). GAMCO does not have the authority to vote 51,800 of the reporteD
shares. The principal business address for each of the foregoing, other
than MJG Associates and Gabelli Foundation is One Corporate Center, Rye,
New York 10580. The principal business address for MJG Associates is 8
Sound Shore Drive, Greenwich, Connecticut 06830. The principal business
address for Gabelli Foundation is 165 West Liberty Street, Reno, Nevada
89501.
(6) Based upon a Schedule 13G/A filed by Manulife Financial Corporation with
the SEC on February 8, 2007. As reported on said Schedule 13G/A, as of
December 31, 2006, Common Stock was beneficially owned by indirect
wholly-owned subsidiaries of Manulife Financial Corporation as follows:
John Hancock Advisers, LLC and MFC Global Investment Management (U.S.),
LLC--1,056,200 shares (6.7%), as to which they share voting and
dispositive power, and MFC Global Investment Management (U.S.A.)
Limited--7,650 shares (less than 1%). The principal business address for
Manulife Financial Corporation and MFC Global Investment Management
(U.S.A.) Limited is 200 Bloor Street, East, Toronto, Ontario, Canada M4W
1E5. The principal business address for John Hancock Advisers, LLC is 601
Congress Street, Boston, Massachusetts 02210. The principal business
address for MFC Global Investment Management (U.S.), LLC is 101 Huntington
Street, Boston, Massachusetts 02199.
(7) Certain of the named executives have deferred compensation accounts under
the Directors and Executives Deferred Compensation Plan that are credited
with phantom shares of Common Stock: Mr. Capone (485 phantom shares), Mr.
DeVirgilio (678 phantom shares), and Mr. Meyer (1,104 phantom shares). Mr.
Upright does not have phantom shares credited to his account. The phantom
shares credited to Mr. Lant's account under the plan are shown in the
table "Stock Equivalents Ownership of Directors," immediately below. Such
shares are not reflected on the "Security Ownership of Directors and
Officers" table.
STOCK EQUIVALENTS OWNERSHIP OF DIRECTORS
The following table sets forth the number of phantom shares of Common
Stock, as of December 31, 2006, credited to the accounts of the Corporation's
participating Directors under the Directors and Executives Deferred Compensation
Plan, including reinvested dividends (rounded to the nearest whole number).
The phantom shares shown in the following table are the sum of (i) phantom
shares granted to the Corporation's independent Directors (I.E., each Director
other than Mr. Lant) as a part of their compensation for service as a Director
of the Corporation and (ii) phantom shares resulting from the deferral, if any,
into phantom shares of an independent Director's fees which would have otherwise
been paid to the Director in cash. The phantom shares shown in the following
table for Mr. Lant are the sum of the phantom shares resulting from Mr. Lant's
deferral into phantom shares of compensation earned by Mr. Lant for his services
as an executive of the Corporation.
Under the Directors and Executives Deferred Compensation Plan, payments
are made in cash and are generally made following termination of service as a
Director based on the market value of the Common Stock at the time of
termination. For additional information, see the subcaption "Director
Compensation" at page 46 of this proxy statement.
NAME NUMBER OF PHANTOM SHARES (A)
---- ----------------------------
Steven V. Lant ........................ 2,784
Margarita K. Dilley ................... 2,291
Steven M. Fetter ...................... 4,113
Edward F. X. Gallagher ................ 5,068
Stanley J. Grubel ..................... 4,639
Manuel J. Iraola ...................... 1,065
E. Michel Kruse ....................... 3,973
Jeffrey D. Tranen ..................... 3,410
Ernest R. Verebelyi ................... 784
Total (b) ............................. 25,343
----------
(a) The information in this table is as of December 31, 2006.
(b) The total for each individual is less than 1% of the outstanding shares of
Common Stock, and the total for the group of all participating independent
Directors (8 persons) is less than 1% of the outstanding shares of Common
Stock, both percentages calculated as of the record date.
17
INSURANCE
The Corporation provides liability insurance for its Directors and
officers. Federal Insurance Company (CHUBB), Associated Electric and Gas
Insurance Services, Ltd., Energy Insurance Mutual, and American International
Group Companies are the principal underwriters of the current coverage, which
extends until June 1, 2007. The annual cost of this coverage is approximately
$980,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and Directors and any person who owns more than 10% of a
registered class of the Corporation's equity securities (collectively "Reporting
Persons") to file initial reports of ownership and reports of changes in
ownership with the SEC. These Reporting Persons are required by SEC regulations
to furnish the Corporation with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of these forms furnished to the
Corporation and written representations from the Corporation's officers and
Directors: (i) Mr. Tranen filed one late Form 4 (reporting grants of a total of
312 deferred fee phantom stock units). This filing was not made timely due to an
internal error at the plan administrator; (ii) Each of Ms. Dilley and Messrs.
Fetter, Gallagher, Grubel, Iraola, Kruse, Tranen, and Verebelyi filed one late
Form 4 (each reporting a grant of a total of 269 deferred fee phantom stock
units). Each of these filings was untimely by one day; and (iii) Donna S. Doyle,
an officer of the Corporation, filed one late Form 4 (reporting the exercise of
stock options (right-to-buy) resulting in 18 shares of Common Stock). This
filing was untimely by one day. As noted, each of the Form 4 filings referred to
in this paragraph has since been made.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis explains our compensation
program for the Chief Executive Officer (the "CEO"), the Chief Financial
Officer, and the other three most highly compensated executive officers. These
individuals are referred to collectively in this proxy statement as our Named
Executive Officers.
OBJECTIVES AND PRINCIPLES OF OUR EXECUTIVE COMPENSATION PROGRAM
The Compensation Committee is responsible for developing and administering
our executive compensation program for our Named Executive Officers. Our
executive compensation program is designed to achieve the following objectives:
o Attract and retain experienced and talented executives;
o Align the interests of our executive officers and shareholders by
motivating executive officers to increase shareholder value and by
rewarding executive officers when shareholder value increases; and
o Provide a compensation package that is weighted heavily towards pay
for performance, and in which an executive's total compensation
opportunity is dependent on corporate business results, personal
performance, and the creation of shareholder value.
We use the following two general principles to guide our decisions
regarding executive compensation.
PAY COMPETITIVELY WITHIN THE RELEVANT MARKET FOR EXECUTIVE TALENT
The Corporation believes that it must provide a competitive compensation
package to successfully attract and retain talented executives. As a result, we
believe that our executive compensation program should provide a total
compensation package for our executive team that is, in the aggregate, at or
near the market median level of total compensation provided by our industry peer
groups. In this connection, the Compensation Committee has retained the Hay
Group ("Hay" or the "Hay Group") to advise the Committee on compensation
matters. For more information about the Hay Group, please see the section
entitled "Benchmarking Our Compensation Program" below.
18
MOTIVATE EXECUTIVES TO MEET OR EXCEED PERFORMANCE GOALS
Our executive compensation program emphasizes pay for performance.
Performance is measured based on performance goals and metrics that align the
interests of executives with the interests of the Corporation and its
shareholders. The performance goals are established so that target attainment is
not assured. Instead, our executives are required to demonstrate significant
effort, dedication, and achievement to attain payment for performance at target
or above. Consistent with the practices of the companies in our industry peer
groups and the practices of public companies in the United States generally, the
Corporation's compensation program is being tilted on an increasing basis
towards a combination of short-term and long-term performance-based incentive
compensation, with the percentage of performance-based compensation increasing
as the levels of executive responsibility increase.
BENCHMARKING OUR COMPENSATION PROGRAM
As described above, the Corporation believes that it must provide a
competitive compensation package to successfully recruit and retain talented
executives. To do that, it needs information about compensation practices of
companies in the relevant competitive market for executive talent. In this
connection, the Compensation Committee has retained the Hay Group to advise the
Committee on compensation matters. Hay is an independent consulting firm that,
among other things, specializes in gathering and analyzing data with respect to
the compensation practices and compensation levels of companies in the United
States, and in advising corporations on structuring compensation programs
appropriate to their particular markets and business goals. Hay reports directly
to the Compensation Committee of the Corporation and serves at the sole pleasure
of the Compensation Committee.
Each year, in consultation with Hay, the Compensation Committee reviews
information about the compensation being paid to executives (i) who are working
at companies engaged in businesses comparable to the Corporation's businesses
and (ii) who have roles and responsibilities that are similar to the roles and
responsibilities of the Corporation's executives. The Committee conducts this
review to assess the Corporation's relative competitive position with regard to
compensation being paid within the market in which the Corporation competes for
executive talent. Specifically, the Committee compares the Corporation's
compensation structure and pay levels with those of companies in groups
identified by Hay and the Committee as "comparator groups."
The first comparator group used for 2006 was a custom peer group of 15
utility and energy companies operating in the United States. The criteria for
inclusion of companies in this custom peer group were developed by the
Compensation Committee in consultation with Hay. Specifically, the criteria were
that the company have between 50% and 200% of the Corporation's annual revenues
and have at least 5% of its assets invested in non-regulated businesses. The
compensation information used by the Hay Group with respect to this comparator
group was gathered from the proxy statements filed by each company in the group
with the SEC.
This group of 15 companies served as a primary comparator group for use in
determining the compensation levels for Mr. Lant, Mr. Meyer, and Mr. Capone in
2006. It was used for these three senior officers because Hay and the
Compensation Committee believe (i) the scope and complexity of the respective
positions of Mr. Lant, Mr. Meyer, and Mr. Capone match-up well with the
responsibilities of persons occupying similar positions at the companies in this
comparator group and (ii) this custom peer group of companies, based on size of
revenues and diversification of business activities, provides information that
reasonably corresponds to the market for executive talent that is relevant to
the compensation of Mr. Lant, Mr. Meyer, and Mr. Capone. The 15 companies in
this comparator group were:
Vectren Corp UIL Holdings
Southwest Gas Corp DQE Inc
DPL Inc. Cleco Corp
Avista Corp Energen Corp
Laclede Group Idacorp
Equitable Resources South Jersey Industries
Unisource Energy El Paso Electric
Semco Energy
19
This 15 company peer group was not used as a comparator group for Mr.
DeVirgilio and Mr. Upright because the Hay Group concluded that their job
positions involve numerous functions that are not necessarily performed by
persons with similar titles at different companies. Rather, in reviewing Mr.
DeVirgilio's and Mr. Upright's compensation levels, the Hay Group made use of a
comparator group known as "The Hay Group's National Utility Database." This
comparator group was also used as a secondary resource by Hay in connection with
its analyses of the competitiveness of Mr. Lant's, Mr. Capone's, and Mr. Meyer's
compensation.
For 2006, the Hay Group's National Utility Database consisted of 45
utilities in the United States, including the Corporation, that participated in
a national survey conducted by Hay regarding compensation structures and pay
levels. Based on information supplied by the 45 participating utility companies,
Hay compiled a proprietary database with respect to the roles, responsibilities,
and compensation levels of the officer positions at the 45 participating
companies. This information was gathered and analyzed in recognition of the
practical reality that job responsibilities of persons with similar titles may
vary significantly from company to company, and that a person's title is not
necessarily descriptive of a person's duties. Using its own proprietary
evaluation methodology, Hay considered the scope and complexity of each
officer's position within the 44 other participating companies, compared it with
the scope and complexity of the officer positions at the Corporation, and
provided the Compensation Committee with an assessment of the relative position
of the compensation being paid to the Corporation's officers in light of the
compensation being paid to persons carrying duties of similar scope and
complexity at the companies participating in the survey.
Hay's proprietary evaluation methodology focuses on identifying positions
within the comparator group that have a scope and complexity of responsibilities
that are comparable to those duties exercised by particular executives of the
Corporation. While information about positions in each of the 44 other companies
was considered, particular companies in the comparator group may not have had
any positions that were considered comparable to the complexity and scope of the
particular positions at the Corporation, while other companies may have had a
number of positions that were considered comparable.
The 45 companies included in this comparator group for 2006 were:
A&N Electric Cooperative Montana Dakota Utility
AGL Resources Nashville Electric Service
Alabama Electric Cooperative National Fuel Gas
Allegheny Energy New York Independent System Operator
Allete New York Power Authority
Atmos Energy - TXU Gas Nuclear Management
California Independent System Operator Philadelphia Gas Works
CenterPoint Energy Piedmont Natural Gas
CH Energy Group, Inc. Progress Energy
Des Moines Water Works Public Works Commission of the City of
Dominion Resources Fayetteville, NC
East Kentucky Power Cooperative Sacramento Municipal Utilities District
Edison International - Edison Mission Energy Sierra Southwest Cooperative Services
ElectriCities of North Carolina South Jersey Industries
FPL Group - Florida Power & Light South Mississippi Electric Power
Iroquois Pipeline Southern Company
Kinder Morgan Southern Minnesota Municipal Power Agency
MidAmerican Energy Southwest Gas
Mid-Carolina Electric Cooperative SUEZ Energy
Midland Cogeneration Venture Texas Gas Transmission
Midwest Independent Transmission System Operator UGI
Minnkota Power Cooperative Unitil
Mirant Wisconsin Public Service
20
DESCRIPTION OF OUR EXECUTIVE COMPENSATION PROGRAM
According to information provided annually by the Hay Group, the
compensation programs of virtually all companies in the above-described
comparator groups make use of four primary compensation elements: (i) base
salary; (ii) annual short-term incentives; (iii) long-term incentives; and (iv)
retirement benefits. Because of this common practice in the relevant market for
executive talent, and because the Corporation believes there are sound reasons
for each element, the Corporation's compensation program for the Named Executive
Officers has four primary elements:
o base salary;
o annual short-term incentives;
o long-term incentives; and
o retirement benefits.
The Corporation also provides our Named Executive Officers with severance
benefits, health and welfare benefits, and certain limited perquisites.
PROCESS FOR MAKING COMPENSATION DECISIONS
Each year the Compensation Committee reviews the base salary, short-term
incentive, and long-term incentive compensation level for each Named Executive
Officer. This adjustment process usually occurs in November and December.
With respect to the compensation of individual executive officers, the
Compensation Committee considers the person's level and complexity of
responsibility, experience and skills, and performance in his or her position
over time. In this connection, Steven V. Lant, as Chairman of the Board,
President and Chief Executive Officer, provides the Compensation Committee with
an annual evaluation of the performance of each executive officer. Mr. Lant is
solely responsible for preparing the evaluations of the three Named Executive
Officers who report directly to him: Carl E. Meyer, Christopher M. Capone, and
Joseph J. DeVirgilio, Jr. In turn, these three executives provide Mr. Lant with
their evaluations of the officers who report directly to each of them. After
reviewing these evaluations in the context of his own assessment of each such
officer's performance, Mr. Lant develops his annual evaluation of each such
officer for presentation to the Committee. Mr. Lant meets with the Compensation
Committee and reviews the evaluations of each executive officer. After
discussing these evaluations with Mr. Lant, and after making its own assessment
of the performance of each such executive officer, the Compensation Committee
recommends to the independent Directors of the Board, for their review and
approval, the compensation level for each such executive officer with respect to
each of three elements of the Corporation's compensation program; I.E., base
salary, annual short-term incentives, and long-term incentives.
The Compensation Committee evaluated the performance of Mr. Lant during
2005 and made recommendations to the independent Directors of the Board
regarding Mr. Lant's compensation level for 2006. These recommendations were
approved by the independent Directors of the Board without material
modifications. The Compensation Committee's analysis took into consideration the
salary, annual short-term incentives, and long-term incentives provided to the
chief executive officers of companies in the two comparator groups used for Mr.
Lant. In addition, Mr. Lant's compensation also reflects the greater policy and
decision making responsibility of the Chief Executive Officer position and the
higher level of responsibility that he bears with respect to the strategic
direction and the financial and operating results of the Corporation. In setting
Mr. Lant's compensation for 2006, the Compensation Committee also took into
consideration the fact that Mr. Lant had served as Chief Executive Officer for a
relatively short period of time, I.E., since May 1, 2004.
ELEMENTS OF COMPENSATION
A summary of each element of the compensation program for our Named
Executive Officers is set forth below. The Compensation Committee believes that
each element complements the others and that together they serve to
21
achieve the Corporation's compensation objectives. In accordance with our
overall objectives, the executive compensation program for 2006 was competitive
with our industry peer group; however, the actual amount earned by our
executives was below the median level of the comparator groups because the
Corporation did not achieve the performance goals applicable to the performance
shares for the 2004-2006 performance cycle (see "Long-Term Incentives", below).
Consistent with our pay for performance philosophy, assuming payout at target
levels, our 2006 annual incentive opportunities and long-term incentive
opportunities represented, in the aggregate, from 55% to 115% of a Named
Executive Officer's base salary, depending on the executive's role.
BASE SALARY
We provide competitive base salaries to attract and retain key executive
talent. The Committee believes that a competitive base salary is an important
component of compensation as it provides a degree of financial stability for our
executives. Base salaries also form the basis for calculating other compensation
opportunities for our Named Executive Officers. For example, base salaries are
used to determine each executive officer's annual incentive opportunity (see
"Annual Short-Term Incentives," below) and long-term incentive awards (see
"Long-Term Incentives," below). Moreover, base salaries are included in an
executive's "final average pay" for purposes of determining his retirement
benefits (see "Retirement Benefits," below) and are included in the formula for
calculating severance benefits in the event of a change in control (see
"Severance Arrangements," below).
Base salaries are designed to be competitive with base salaries paid by
the companies in the comparator groups to executives with similar
responsibilities to the responsibilities being exercised by the particular
executive officers of the Corporation. The salaries are normally set at target
levels within the second or third quartile of the salary distribution levels in
the comparator groups, adjusted to reflect the individual's scope of
responsibilities, level of experience and skill, and the quality of his or her
performance over time. Attention is also given to maintaining appropriate
internal salary relationships among the Corporation's executive officers, and to
recognizing succession planning goals.
For 2006, the base salaries for our Named Executive Officers were
increased over their base salaries for 2005 as follows: (i) Mr. Lant received a
6.5% increase, (ii) Mr. Capone received a 14.3% increase, (iii) Mr. Meyer
received a 3.2% increase, (iv) Mr. DeVirgilio received a 3.3% increase, and (v)
Mr. Upright received a 5% increase. For more information about the 2006 base
salaries for each of our Named Executive Officers, please refer to the "Salary"
column of the Summary Compensation Table at page 26.
ANNUAL SHORT-TERM INCENTIVES
Consistent with our emphasis on pay for performance incentive compensation
programs, we have established the Executive Annual Incentive Plan under which
our executive officers, including our Named Executive Officers, are eligible to
receive annual incentive cash payments based on performance against annual
established performance targets. The annual incentive is designed to reward
achievement of each year's business plan objectives in a manner consistent with
achievement of the Corporation's strategy of achieving long-term shareholder
value.
In order to ensure that our compensation package is weighted heavily
towards pay for performance, the annual incentive for 2006 represented from 30%
to 50% of a Named Executive Officer's base salary (assuming payout at the target
level), depending on the executive's level of responsibility. Moreover, annual
incentives are included in an executive's "final average pay" for purposes of
determining his retirement benefits (see "Retirement Benefits," below) and are
included in the formula for calculating severance benefits in the event of a
change in control (see "Severance Arrangements," below).
Under the Executive Annual Incentive Plan, our Named Executive Officers
have the opportunity to earn targeted incentive cash payments that are
calculated as a percentage of each person's annual base salary. These
percentages are developed by the Compensation Committee, and approved by the
independent Directors on our Board, according to each person's position and
level of responsibility. Annual incentive award opportunities for our Named
Executive Officers, in the aggregate, are targeted to result in cash payments
that are approximately equal
22
to the market median of our comparator groups assuming our target business
objectives are achieved. For 2006, the targeted percentage for each of our Named
Executive Officers was as follows: (i) 50% of base salary for Mr. Lant, (ii) 35%
of base salary for each of Messrs. Meyer, DeVirgilio, and Capone, and (iii) 30%
of base salary for Mr. Upright.
These percentages of base salary can be earned as incentive cash payments
if incentive performance targets for the year are achieved. The Compensation
Committee establishes the incentive performance targets each year, which are
primarily quantitative and financial in nature. For 2006, the targets related to
earnings per share and, at the subsidiary level, to the achievement of
additional specified customer satisfaction levels. Performance is measured
according to levels established each year for threshold performance, targeted
performance, and superior performance. The performance levels are established so
that target attainment is not assured. Instead, our executives are required to
demonstrate significant effort, dedication, and achievement to attain payment
for performance at target or above. In fact, actual achievement levels have been
below target for three of the last six performance periods prior to 2006 (I.E.,
2000 through 2005).
After the end of each calendar year, management assesses the performance
of the Corporation for each performance target and calculates the annual
incentive amounts for the prior year. These assessments and calculations are
verified for accuracy each year by the Hay Group. The Compensation Committee
then reviews the verified assessments and calculations and approves the
resulting annual incentive amounts. The incentive compensation opportunity will
vary, from 0% to 150% of the targeted percentage of base salary, according to
the level of overall corporate performance achieved for the year relative to the
established performance targets. For 2006, actual performance ranged from 107.6%
to 116% of target performance level. Please refer to the "Non-Equity Incentive
Plan Compensation" column of the Summary Compensation Table for the annual
incentive amounts for each Named Executive Officer under the Executive Annual
Incentive Plan for the 2006 performance period.
The annual incentive amounts for each Named Executive Officer may be
adjusted upwards or downwards by up to 50% based upon the Committee's assessment
of the individual's performance. Such adjustments, if made, are based on an
evaluation of each officer's contribution to achieving corporate opportunities
and meeting corporate challenges, as well as an evaluation of the quality of the
individual's performance in exercising responsibility described in his position
description. In this regard, adjustments were made to the 2006 annual incentive
amounts for the following Named Executive Officers: Mr. Lant, a 20% upward
adjustment; Mr. Capone, a 15% upward adjustment; and Mr. Meyer, a 15% upward
adjustment. The amounts of the discretionary adjustments for 2006 for these
Named Executive Officers are included in the "Bonus" column of the Summary
Compensation Table.
For more information on the 2006 annual incentive opportunity for our
Named Executive Officers, including a description of the applicable performance
goals, please refer to the "Grants of Plan-Based Awards" section of this proxy
statement at page 28. The "Estimated Future Payouts Under Non-Equity Incentive
Plan Awards" column of the "Grants of Plan-Based Awards" table provides the
estimated payouts for our Named Executive Officers at Threshold, Target, and
Maximum performance levels.
LONG-TERM INCENTIVES
We award long-term incentive grants to executive officers, including the
Named Executive Officers, as part of our total compensation package. These
awards are consistent with our pay for performance principles because they are
designed to focus the attention of executives on strategic goals spanning more
than the current year, and to align the interest of executives with the
Corporation's goal of creating long-term shareholder value. In order to ensure
that our compensation package is weighted heavily towards pay for performance,
the long-term incentive opportunity for 2006 represented from 25% to 65% of a
Named Executive Officer's base salary (assuming payout at the target level),
depending on the executive's role.
Long-term incentives have included two components in recent years: (i)
options to purchase the Corporation's Common Stock, and (ii) performance shares
that vest depending upon the Corporation's performance over a three-year
performance period. The long-term incentives in 2003 consisted of 25% stock
options and 75% performance shares. The long-term incentives in 2004 and 2005
consisted of 100% performance shares. This shift away from options
23
occurred because the Compensation Committee, in consultation with the Hay Group,
concluded that performance shares were preferable for the Corporation because
the shares are earned through corporate performance over a defined time period
(I.E., a performance cycle), the number of shares actually received at the end
of a performance cycle increases or decreases according to the level of
performance achieved during the performance cycle, and the value of the shares
granted can be expected to increase as corporate performance increases.
For 2006, the Compensation Committee recommended to the independent
Directors on the Board, and the independent Directors agreed, that the long-term
incentives would again consist solely of performance shares and that no stock
options would be issued. The performance shares are granted under our Long-Term
Equity Incentive Plan and are intended to comply with the performance-based
compensation exception to Section 162(m) of the Internal Revenue Code.
The target number of performance shares granted to each Named Executive
Officer is generally determined in November or December of the year preceding
the year in which the grant will be made. The target number is based on a
percentage of the individual's base salary that will be in effect at the
beginning of the next calendar year. These percentages are determined for each
officer by the Committee according to the person's position and level of
responsibility, and are targeted, in the aggregate for the executive team, at
the median amount of long-term incentive compensation that is available to
persons with similar responsibilities within the comparator groups. For 2006,
the targeted percentage of base salary for each of our Named Executive Officers
was as follows: (i) 65% of base salary for Mr. Lant, (ii) 35% of base salary for
each of Messrs. Meyer, DeVirgilio, and Capone, and (iii) 25% of base salary for
Mr. Upright. The actual number of performance shares granted to each Named
Executive Officer is determined by dividing each person's performance target
(I.E., an amount equal to a percentage of his or her salary in effect at the
beginning of the next calendar year) by the closing price of the Corporation's
Common Stock on the first Monday following the first Tuesday in January of the
following calendar year.
Payment of the performance shares granted in 2006 will be based on the
extent to which the Corporation performs with respect to established performance
metrics during a three-year performance cycle starting January 1, 2006, and
ending December 31, 2008. In the past, these performance metrics were based on
the Corporation's total shareholder return compared to the total shareholder
return of the companies in the Edison Electric Institute Index of combination
natural gas and electric investor-owned utilities (the "EEI Index"). Starting in
2005, upon the recommendation of the Hay Group, the Committee shifted away from
stock-based performance metrics to operational performance metrics. This change
was designed to (i) align the long-term incentive opportunities of our
executives with performance metrics within their control, and (ii) ensure that
the cost of the long-term incentive opportunities for financial accounting
purposes better reflects the actual benefit received by the executives. As a
result, the performance metrics for the 2006 performance shares consist of two
measurements of equal weight, I.E., each measurement accounts for 50% of the
total performance share metric:
1. the percentage growth in the Corporation's earnings per share over the
three-year performance cycle as compared to the percentage growth in earnings
per share of the companies in the EEI Index over the same time period; and
2. the average of the Corporation's annual dividend yield on book value
over the three-year performance cycle as compared to the average of the annual
dividend yield on book value of the companies in the EEI Index over the same
time period.
The number of shares of the Corporation's Common Stock earned and paid
will range, according to the level of performance achieved, from 0% to 150% of
the performance shares granted. The performance levels are established so that
target attainment is not assured and is dependent on the Corporation's relative
performance compared against the companies in the EEI Index.
Performance shares may be granted on a year-to-year basis, with the result
that there are normally over-lapping three-year performance cycles in effect on
a concurrent basis. Indeed, during 2006 there were three open performance
cycles: 2004-2006, 2005-2007, and 2006-2008. Following the completion of the
2004-2006 performance
24
cycle, the Compensation Committee determined that the Corporation did not attain
the applicable performance objectives for that cycle. Therefore our Named
Executive Officers did not receive any payout of performance shares with respect
to that cycle.
For more information on the performance shares granted to our Named
Executive Officers in 2006, please refer to the "Grants of Plan-Based Awards"
section of this proxy statement at page 28. The "Estimated Future Payouts Under
Equity Incentive Plan Awards" column of the "Grants of Plan-Based Awards" table
provides the estimated payouts for our Named Executive Officers at Threshold,
Target, and Maximum performance levels. The accompanying narrative to that table
summarizes the applicable performance goals for each of our Named Executive
Officers, including the applicable Threshold, Target and Maximum performance
levels. For information about the total number of equity awards outstanding as
of the end of 2006 with respect to each Named Executive Officer, please refer to
the "Outstanding Equity Awards at Fiscal Year-End" section of this proxy
statement at page 31.
RETIREMENT BENEFITS
In order to attract and retain key executive talent at the Corporation and
its utility subsidiary, Central Hudson, the Compensation Committee believes that
it is important to provide the executive officers, including the Named Executive
Officers, with retirement benefits that are in addition to those provided to its
employees generally. These retirement benefits are provided primarily under the
Supplemental Executive Retirement Plan, which provides benefits in excess of
those provided under the Retirement Income Plan. The Supplemental Executive
Retirement Plan is designed to work in conjunction with the Retirement Income
Plan to provide each Named Executive Officer with a retirement benefit equal to
57% of his or her applicable final average pay at age 61 with 30 years of
service. A participant's Supplemental Executive Retirement Plan benefit
generally becomes vested if, while employed by the Corporation or its
affiliates, he or she attains the normal retirement age of 61, or attains his or
her early retirement date of age 55 with ten years or more of vesting service.
The retirement program was designed in consultation with the Hay Group.
The Compensation Committee believes that the retirement program is consistent
with the programs offered by companies in the comparator groups. Moreover, the
Compensation Committee believes that the vesting schedule of the Supplemental
Executive Retirement Plan enhances our retention program for our Named Executive
Officers and rewards their long-term commitment to the Corporation.
For more information on these retirement benefits and our retirement
program, please refer to the "Pension Benefits" section of this proxy statement
at page 34.
HEALTH, WELFARE AND OTHER PERSONAL BENEFITS
In addition to the principal compensation components described above, our
Named Executive Officers are entitled to participate in all health, welfare,
fringe benefit, and other arrangements generally available to other salaried
employees. We also may, as considered reasonable and appropriate on a case by
case basis, provide our officers, including our Named Executive Officers, with
limited additional perquisites and other personal benefits. For example, on
March 1, 2004, the Corporation established a financial planning program for its
executives, including its Named Executive Officers. After an executive completes
his initial financial planning program, the executive is eligible for up to one
thousand dollars of financial planning services on an annual basis. A full
financial plan update is available to each executive in the sixth year (or the
fourth year for those executives age 55 and over) following the completion of
his initial financial planning program.
The Compensation Committee believes that these health, welfare, and other
personal benefits are reasonable and consistent with the practices of public
companies in the United States. The Compensation Committee also believes that
these benefits assist the Corporation in attracting and retaining key
executives.
25
SEVERANCE ARRANGEMENTS
The Corporation does not have employment agreements with its executive
officers. The Compensation Committee believes that the absence of employment
agreements provides the Corporation with more flexibility in adjusting the
compensation levels of its executive officers.
However, the Corporation has entered into change in control agreements
with its executive officers, including its Named Executive Officers. The
agreements are designed to encourage the executive's full attention and
dedication to the Corporation currently and in the event of any threatened or
pending change in control. Under these agreements, each Named Executive Officer
would be entitled to certain payments and benefits if a change in control were
to occur and the Corporation or its affiliates terminated the executive's
employment without "cause" or the executive terminated his employment with the
Corporation or its affiliates for "good reason" within a three-year period (a
two-year period for Mr. Upright) following such change in control. The
Compensation Committee believes that the protections afforded by the change in
control agreements are a valuable incentive for attracting and retaining key
executives and are competitive with those of other corporations.
For more information on the change in control agreements, please refer to
the "Potential Payments Upon Termination or Change in Control" section of this
proxy statement at page 39.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis contained in this proxy statement with the management of
the Corporation and, based on such review and discussion, the Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this proxy statement and incorporated in the
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
2006.
The Compensation Committee:
Stanley J. Grubel, Chair
Margarita K. Dilley
Manuel J. Iraola
Ernest R. Verebelyi
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation for
the year ended December 31, 2006, of the Named Executive Officers.
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CHANGE IN
PENSION
NON-EQUITY VALUE AND
INCENTIVE NONQUALIFIED ALL
NAME AND STOCK OPTION PLAN DEFERRED OTHER
PRINCIPAL SALARY BONUS AWARDS AWARDS COMPEN- COMPENSATION COMPEN-
POSITION YEAR ($) ($) ($) ($) SATION($) EARNINGS($) SATION($) TOTAL($)
(A)(1) (B) (C)(2) (D)(3) (E)(4) (F)(5) (G)(6) (H)(7) (I)(8) (J)
---------------------------------------------------------------------------------------------------------------------------------
Steven V. Lant 2006 490,000 56,840 220,996 15,658 284,200 481,300 7,500 1,556,494
---------------------------------------------------------------------------------------------------------------------------------
Christopher M.
Capone 2006 240,000 14,616 66,077 0 97,440 54,900 7,500 480,533
---------------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer 2006 291,000 16,456 72,076 14,730 109,707 6,900 7,500 518,369
---------------------------------------------------------------------------------------------------------------------------------
Joseph J.
DeVirgilio, Jr. 2006 250,000 0 67,307 8,592 101,500 145,200 7,500 580,099
---------------------------------------------------------------------------------------------------------------------------------
Arthur R. Upright 2006 230,000 0 42,076 7,572 80,040 148,100 28,733 536,521
---------------------------------------------------------------------------------------------------------------------------------
----------
(1) The principal positions each of the Named Executive Officers are as
follows:
26
Mr. Lant - Chairman, President and Chief Executive Officer of the
Corporation; Chairman and Chief Executive Officer of Central Hudson;
Chairman, President and Chief Executive Officer of CHEC.
Mr. Capone - Chief Financial Officer and Treasurer of the
Corporation, Central Hudson, and CHEC.
Mr. Meyer - Executive Vice President of the Corporation; President
and Chief Operating Officer of Central Hudson.
Mr. DeVirgilio - Executive Vice President - Corporate Services of
the Corporation and of Central Hudson; Executive Vice President of
CHEC.
Mr. Upright - Senior Vice President of the Corporation; Senior Vice
President - Regulatory Affairs of Central Hudson.
(2) SALARY. The "Salary" column of the Summary Compensation Table shows the
salaries paid in 2006 to each of the Named Executive Officers.
(3) BONUS. The "Bonus" column of the Summary Compensation Table shows the
discretionary increases, if any, in the annual incentive amounts for our
Named Executive Officers under the Executive Annual Incentive Plan for the
2006 performance period. For additional information about the 2006 annual
incentive opportunities, please refer to the "Grants of Plan-Based Awards"
section of this proxy statement at page 28. Please also refer to the
"Compensation Discussion and Analysis" section of this proxy statement at
page 22, under the sub-heading "Annual Short-Term Incentives."
(4) STOCK AWARDS. The "Stock Awards" column of the Summary Compensation Table
shows the aggregate dollar amount recognized for financial statement
reporting purposes for the fiscal year ending December 31, 2006, with
respect to performance share awards granted to each Named Executive
Officer for the 2004-2006 performance period, the 2005-2007 performance
period, and the 2006-2008 performance period. The aggregate dollar amount
was determined in accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 123 (revised 2004), SHARE
BASED PAYMENT ("FAS 123R"); however, the calculations disregard the
estimate of forfeitures related to service-based vesting conditions. See
Note 10 of the Consolidated Financial Statements contained in the
Corporation's Annual Report on Form 10-K for the year ended December 31,
2006, for an explanation of the assumptions made by the Corporation in the
valuation of these awards. The Corporation did not attain the applicable
performance objectives governing the performance shares for the 2004-2006
performance period. Therefore, the Named Executive Officers forfeited
those performance shares in their entirety as of the end of 2006. For
information about the performance shares granted in 2006, please refer to
the "Grants of Plan-Based Awards" section of this proxy statement at page
28. Please also refer to the "Compensation Discussion and Analysis"
section of this proxy statement at page 23, under the sub-heading
"Long-Term Incentives." For information on all of the outstanding
performance shares as of December 31, 2006, please refer to the
"Outstanding Equity Awards at Fiscal Year-End" section of this proxy
statement at page 31.
(5) OPTION AWARDS. The "Option Awards" column of the Summary Compensation
Table shows the aggregate dollar amount recognized for financial statement
reporting purposes for the fiscal year ending December 31, 2006, with
respect to outstanding stock options granted to our Named Executive
Officers in 2003. The aggregate dollar amount recognized for financial
statement reporting purposes includes the incremental fair value
attributable to the modification of the vesting schedule of Mr. Upright's
stock options in connection with his planned retirement. The aggregate
dollar amount was determined in accordance with FAS 123R; however, the
calculations disregard the estimate of forfeitures related to
service-based vesting conditions. See Note 10 of the Consolidated
Financial Statements contained in the Corporation's Annual Report on Form
10-K for the year ended December 31, 2006, for an explanation of the
assumptions made by the Corporation in the valuation of these awards. For
information on the stock options outstanding as of December 31, 2006, for
each Named Executive Officer, please refer to the "Outstanding Equity
Awards at Fiscal Year-End" section of this proxy statement at page 31. For
information about the modification of Mr. Upright's stock options, please
refer to the "Grants of Plan-Based Awards" section of this proxy statement
at page 28.
27
(6) NON-EQUITY INCENTIVE PLAN COMPENSATION. The "Non-Equity Incentive Plan
Compensation" column of the Summary Compensation Table shows the annual
incentive award earned by our Named Executive Officers under the Executive
Annual Incentive Plan for the 2006 performance period. Please refer to the
"Bonus" column of the Summary Compensation Table for the amount of the
discretionary increases, if any, in the annual incentive award earned by
our Named Executive Officers under the Executive Annual Incentive Plan for
the 2006 performance period. For additional information about the 2006
annual incentive opportunities under the Executive Annual Incentive Plan,
please refer to the "Grants of Plan-Based Awards" section of this proxy
statement at page 28. Please also refer to the "Compensation Discussion
and Analysis" section of this proxy statement at page 22, under the
sub-heading "Annual Short-Term Incentives."
(7) CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS.
The "Change in Pension Value and Nonqualified Deferred Compensation
Earnings" column of the Summary Compensation Table shows the increase in
the present value of the accumulated benefits under the Retirement Income
Plan, Supplemental Executive Retirement Plan, Retirement Benefit
Restoration Plan, and Supplementary Retirement Plan. The increase in the
present value of the accumulated benefits was measured from (i) September
30, 2005, to September 30, 2006 (the measurement date used for reporting
purposes in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2006), for the Retirement Income Plan; and (ii)
December 31, 2005, to December 31, 2006, for the Supplemental Executive
Retirement Plan, Retirement Benefit Restoration Plan, and Supplementary
Retirement Plan. For information on these plans and benefits, please refer
to the "Pension Benefits" section of this proxy statement at page 34. Our
Named Executive Officers did not accrue any above-market earnings under
the Directors and Executives Deferred Compensation Plan during 2006, and
therefore we have not reported any earnings credited under that plan in
this column. For information on the Directors and Executives Deferred
Compensation Plan, please refer to the "Nonqualified Deferred
Compensation" section of this proxy statement at page 38.
(8) ALL OTHER COMPENSATION. The "All Other Compensation" column of the Summary
Compensation Table shows the $7,500 contribution that Central Hudson made
on behalf of each Named Executive Officer in 2006 under the 401(k) Plan.
The column also includes accrued vacation pay in the amount of $21,233
that was paid to Mr. Upright at the end of 2006 in connection with his
planned retirement.
GRANTS OF PLAN-BASED AWARDS
The following table sets forth information for each Named Executive
Officer regarding estimated payouts of the (i) annual cash incentive
opportunities granted under the Executive Annual Incentive Plan during 2006, and
(ii) performance shares granted under the Long-Term Equity Incentive Plan during
2006.
GRANT DATE
ESTIMATED FUTURE PAYOUTS UNDER ESTIMATED FUTURE PAYOUTS UNDER FAIR VALUE
DATE OF NON-EQUITY INCENTIVE PLAN AWARDS(1) EQUITY INCENTIVE PLAN AWARDS(2) OF STOCK
GRANT BOARD ------------------------------------- ---------------------------------- AND OPTION
NAME DATE ACTION THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM AWARDS
(A) (B) (B-1)(3) ($)(C) ($)(D) ($)(E) (#)(F) (#)(G) (#)(H) (L)(4)
---- ---- ------- --------- ------ ------- --------- ------ ------- ----------
Steven V. Lant 4/25/06 2/10/06 122,500 245,000 367,500 229 6,940 10,410 208,389
Christopher M.
Capone 4/25/06 2/10/06 42,000 84,000 126,000 60 1,820 2,730 54,650
Carl E. Meyer 4/25/06 2/10/06 50,925 101,850 152,775 73 2,210 3,315 66,360
Joseph J.
DeVirgilio, Jr. 4/25/06 2/10/06 43,750 87,500 131,250 63 1,900 2,850 57,052
Arthur R. Upright 4/25/06 2/10/06 34,500 69,000 103,500 41 1,250 1,875 40,138
----------
(1) ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS. This
column provides information about the annual incentive opportunities
granted under the Executive Annual Incentive Plan during 2006 to our Named
Executive Officers. The information included in the "Threshold," "Target,"
and "Maximum" columns reflects the range of potential payouts under the
Executive Annual Incentive Plan when the performance goals were
established by the Compensation Committee and the Board of Directors in
December 2005. The actual 2006 annual incentive awards earned by each
Named Executive Officer under the Executive Annual Incentive
28
Plan were determined on February 13, 2007. Please refer to the "Non-Equity
Incentive Plan Compensation" column of the Summary Compensation Table for
the amount of the annual incentive award earned by our Named Executive
Officers under the Executive Annual Incentive Plan for the 2006
performance period. Please refer to the "Bonus" column of the Summary
Compensation Table for the amount of the discretionary increases, if any,
in the annual incentive award earned by our Named Executive Officers under
the Executive Annual Incentive Plan for the 2006 performance period. For a
brief description of the Executive Annual Incentive Plan, please refer to
the narrative summary that follows this table and to the "Compensation
Discussion and Analysis" section of this proxy statement at page 18.
(2) ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS. This column
provides information about the performance shares granted under the
Long-Term Equity Incentive Plan during 2006 to our Named Executive
Officers. The information included in the "Threshold," "Target," and
"Maximum" columns reflects the range of potential payouts under the
performance shares when the performance goals were established by the
Compensation Committee in January 2006. The actual payout will depend on
the extent to which the Corporation achieves the applicable performance
goals. For a brief description of the performance shares, please refer to
the narrative summary that follows this table and to the "Compensation
Discussion and Analysis" section of this proxy statement at page 18.
(3) DATE OF BOARD ACTION. The Compensation Committee authorized the grant of
the performance shares on February 10, 2006, subject to shareholder
approval of the Long-Term Equity Incentive Plan. Our shareholders approved
the Long-Term Equity Incentive Plan on April 25, 2006, which is treated as
the actual grant date for the performance shares. The difference between
the two dates does not have an impact on the value of the performance
shares.
(4) GRANT DATE FAIR VALUE OF STOCK AND OPTION AWARDS. The amount in this
column consists of the grant date fair value, as determined in accordance
with FAS 123R, of outstanding performance share awards granted to each
Named Executive Officer in 2006. With respect to Mr. Upright only, the
column also includes the incremental fair value attributable to the
modification of the vesting schedule of his stock options, as determined
in accordance with FAS 123R. See Note 10 of the Consolidated Financial
Statements contained in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 2006, for an explanation of the assumptions
made by the Corporation in the valuation of these awards. For a
description of the modification to Mr. Upright's stock options, please
refer to the narrative summary that follows this table.
29
EXECUTIVE ANNUAL INCENTIVE PLAN. Under the Executive Annual Incentive
Plan, our Named Executive Officers have the opportunity to earn incentive cash
payments that are calculated as a percentage of each person's annual base
salary. For 2006, the annual incentive award opportunities were as follows: (i)
50% of annual base salary for Mr. Lant; (ii) 35% of annual base salary for
Messrs. Capone, Meyer, and DeVirgilio; and (iii) 30% of annual base salary for
Mr. Upright. The incentive compensation opportunity will vary, from 0% to 150%
of the targeted percentage of base salary, according to the level of overall
performance achieved for the year relative to each established performance
target, as set forth below:
---------------------------------------------------------------------------------------------------------------------------
MAXIMUM
BELOW THRESHOLD TARGET PERFORMANCE
THRESHOLD PERFORMANCE PERFORMANCE OR ABOVE
---------------------------------------------------------------------------------------------------------------------------
Payout Percentage 0% 50% 100% 150%
---------------------------------------------------------------------------------------------------------------------------
For 2006, the performance goals and weighting of each goal were as
follows:
------------------------------------------------------------------------------------------------------------
NAMED
EXECUTIVE
PERFORMANCE GOAL OFFICER WEIGHT
------------------------------------------------------------------------------------------------------------
The Corporation's earnings per share, adjusted Lant, Capone, 100%
for unusual weather and excluding interest and DeVirgilio and
earnings from investment program Upright
------------------------------------------------------------------------------------------------------------
Central Hudson's earnings per share, adjusted Meyer 60%
for unusual weather
------------------------------------------------------------------------------------------------------------
Customer Satisfaction
1) J.D. Powers Customer Satisfaction Survey
Results for the Eastern Division -2006 20%
------------------------------------------------------------------------------------------------------------
2) "How Did We Do?" survey administered by
Central Hudson during 2006
------------------------------------------------------------------------------------------------------------
a. Highly Satisfied 10%
b. Satisfied and Highly Satisfied 10%
------------------------------------------------------------------------------------------------------------
Each Named Executive Officer's annual incentive compensation amount is
based on overall achievement of the annual incentive performance targets, but it
may be adjusted upwards or downwards by up to 50% based upon an assessment of
the individual's performance. The annual incentive will be paid in the form of
cash no later than March 15, 2007. An executive's right to receive the annual
incentive will be forfeited if he or she terminates employment with the
Corporation and its affiliates for any reason (other than his or her death,
disability, or retirement) during the year. Upon an executive's retirement,
death, or disability prior to the end of the year, the CEO and/or the Board of
Directors (or appropriate committee thereof) would determine the extent to which
the applicable performance goals have been achieved at year-end, and the
resulting award will be pro-rated based on the number of days the executive had
been employed during the year.
PERFORMANCE SHARES. Payment of the performance shares is based on the
extent to which the Corporation achieves two equally weighted performance goals
during a three-year performance period starting January 1, 2006, and ending
December 31, 2008. The first performance goal is based on the Corporation's
percentage growth in earnings per share during the performance period as
compared to the percentage growth in earnings per share of the companies in the
EEI Index during the same period. The second performance goal is based on the
average of the Corporation's annual dividend yield on book value during the
performance period as compared to the average of the annual dividend yield on
book value of the companies in the EEI Index during the same period. The number
of shares earned and paid will range, according to the percentile rank of each
performance goal relative to the companies in the EEI Index, from 0% to 150% of
the performance shares granted, as set forth below:
30
---------------------------------------------------------------------------------------------------------------------------
BELOW
THRESHOLD - MAXIMUM -
PERCENTILE THRESHOLD - TARGET - PERCENTILE
RANK OF 20% PERCENTILE PERCENTILE RANK OF 80%
OR LESS RANK OF 21% RANK OF 50% OR MORE
---------------------------------------------------------------------------------------------------------------------------
Payout Percentage 0% 3.3% 100% 150%
---------------------------------------------------------------------------------------------------------------------------
Payment of any performance shares that become earned will be made in the
form of shares of the Corporation's Common Stock no later than March 15, 2009.
An executive's right to receive the performance shares will be forfeited if he
or she terminates employment with the Corporation and its affiliates for any
reason (other than his or her death or retirement) prior to payment of the
performance shares. If, however, an executive retires or dies during the
performance period, the Board of Directors (or appropriate committee thereof)
would determine the extent to which the applicable performance goals had been
achieved during the full fiscal quarters completed during the performance
period, and the resulting award would be pro-rated based on the number of days
the executive had been employed during the performance period. Upon a "change in
control" of the Corporation, the Board of Directors (or appropriate committee
thereof) would determine the extent to which the applicable performance goals
have been achieved through the full fiscal quarters completed prior to that date
and the resulting award would be paid without pro-ration. The Named Executive
Officers have no right to dividends and no right to vote the performance shares
until they are paid.
MODIFICATION TO MR. UPRIGHT'S STOCK OPTIONS
Mr. Upright retired on January 1, 2007. In connection with his retirement
and in recognition of his significant contributions to the Corporation and its
subsidiaries over the past 40 years, the Compensation Committee exercised its
discretion to accelerate the vesting of stock options held by him covering 800
shares of the Corporation's Common Stock.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information for each Named Executive
Officer with respect to (i) each option to purchase the Corporation's Common
Stock that had not been exercised and remained outstanding as of December 31,
2006, and (ii) each award of performance shares that had not vested and remained
outstanding as of December 31, 2006.
---------------------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
---------------------------------------------------------------------------------------------------------------------------------
EQUITY
EQUITY INCENTIVE
INCENTIVE PLAN
PLAN AWARDS:
MARKET AWARDS: MARKET
VALUE NUMBER OR PAYOUT
EQUITY OF OF VALUE OF
INCENTIVE SHARES UNEARNED UNEARNED
PLAN NUMBER OR SHARES, SHARES,
AWARDS: OF SHARES UNITS UNITS OR UNITS OR
NUMBER OF NUMBER OF NUMBER OF OR UNITS OF OTHER OTHER
SECURITIES SECURITIES SECURITIES OF STOCK STOCK RIGHTS RIGHTS
UNDERLYING UNDERLYING UNDERLYING THAT THAT THAT THAT
UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION HAVE NOT HAVE NOT HAVE NOT HAVE NOT
OPTIONS (#) OPTIONS(#) UNEARNED EXERCISE EXPIRATION VESTED VESTED VESTED VESTED
NAME GRANT EXERCISABLE UNEXERCISABLE OPTIONS(#) PRICE($) DATE (#) ($) (#) ($)
(A) YR (B)(1) (C)(2) (D) (E)(3) (F) (G) (H) (I)(4) (J)(5)
---------------------------------------------------------------------------------------------------------------------------------
Steven V. 2001 3,600 0 0 $44.06 January 1, 0 0
Lant 2011
---------------------------------------------------------------------------------------------------------------------------------
Christopher 2003 2,640 1,760 0 $48.62 January 1, 0 0
M. Capone 2013
0 0 0 0 0 499.72 26,385
0 0 0 0 0 150.28 7,935
---------------------------------------------------------------------------------------------------------------------------------
Carl E. 2003 0 1,440 0 $48.62 January 1, 0 0
Meyer 2013
0 0 0 0 0 163.15 8,614
---------------------------------------------------------------------------------------------------------------------------------
Joseph J. 2003 0 800 0 $48.62 January 1, 0 0
DeVirgilio, 2013
Jr. 0 0 0 0 0 152.92 8,074
---------------------------------------------------------------------------------------------------------------------------------
Arthur R. 2003 800 0 0 $48.62 January 1, 0
Upright 2012 (6)
0 0 0 0 0 95.40 5,037
---------------------------------------------------------------------------------------------------------------------------------
31
----------
(1) NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS EXERCISABLE. This
column shows the number of shares underlying outstanding stock options
that have vested as of December 31, 2006.
(2) NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS UNEXERCISABLE. This
column shows the number of shares underlying outstanding stock options
that have not vested as of December 31, 2006. Of this number, one-half of
the shares vested on January 1, 2007, and the remaining one-half will vest
on January 1, 2008. The stock options vest in full upon a change in
control of the Corporation or upon the Named Executive Officer's
termination of employment due to death.
(3) OPTION EXERCISE PRICE. This column shows the exercise price for each stock
option reported in the table, which equals the fair market value per share
of the underlying option shares on the date of grant.
(4) EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER
RIGHTS THAT HAVE NOT VESTED. This column shows the aggregate number of
performance shares for each Named Executive Officer outstanding as of
December 31, 2006, for the 2005-2007 performance period and the 2006-2008
performance period, assuming "threshold" performance of 3.3% of target. In
order to provide a more complete picture of the number of performance
shares actually outstanding as of the end of 2006, a summary of the number
of outstanding performance shares granted to each Named Executive Officer
for each performance period, assuming "target" performance, is set forth
below:
# OF TARGET PERFORMANCE SHARES # OF TARGET PERFORMANCE SHARES
NAME 2006-2008 PERFORMANCE PERIOD 2005-2007 PERFORMANCE PERIOD*
---- --------------------------- -----------------------------
Lant ..................... 6,940 8,203
Capone ................... 1,820 2,734
Meyer .................... 2,210 2,734
DeVirgilio ............... 1,900 2,734
Upright .................. 1,250 1,641
----------
* Cash dividends paid on the performance shares for the 2005-2007
performance period are reinvested in additional performance shares,
subject to the Corporation's attainment of the applicable performance
goals. The number of "target" performance shares listed above for the
2005-2007 has been increased by a factor of 9.379% to reflect the
reinvestment of dividends paid during 2005 and 2006 into additional
performance shares.
The performance shares vest based on the extent to which the Corporation
achieves the applicable performance goals as of the end of the applicable
performance period (I.E., December 31, 2007, or December 31, 2008, as the case
may be). In general, the executive must be employed on the date that the earned
performance shares, if any, are paid, which generally occurs within 2 1/2 months
following the end of the applicable performance period. Upon a "change in
control" the Board of Directors (or appropriate committee thereof) is required
to determine the extent to which the applicable performance goals have been
achieved through such date (or, with respect to the 2006-2008 performance
period, through the full fiscal quarters completed prior to that date), and the
resulting award is required to be paid to the executives without pro-ration.
Upon a Named Executive Officer's death or "retirement" during the performance
period, the Board of Directors (or appropriate committee thereof) is required to
determine the extent to which the applicable performance goals had been achieved
as of such time, and the resulting award is required to be paid to the
executive, prorated based on the executive's service during the performance
period. For additional information about the performance shares for the
2006-2008 performance period, please refer to the "Grants of Plan-Based Awards"
section of this proxy statement at page 28.
(5) EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE OF UNEARNED SHARES,
UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED. This column shows the
aggregate dollar value of the performance shares disclosed, using the
closing stock price on December 29, 2006, of $52.80 per share and assuming
"threshold" performance of 3.3% of target.
(6) OPTION EXPIRATION DATE FOR MR. UPRIGHT. Mr. Upright retired on January 1,
2007. Pursuant to the terms of his stock option agreement, his options
remain exercisable for five years following his retirement. Therefore, the
option expiration date for his outstanding stock options became January 1,
2012, effective on his retirement.
32
OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END
The following table sets forth information for each Named Executive
Officer with respect to (i) the exercise of options to purchase shares of the
Corporation's Common Stock during 2006, and (ii) the payout (if any) of the
performance share awards for the 2004-2006 performance period.
---------------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
---------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES SHARES
ACQUIRED ON VALUE REALIZED ACQUIRED ON VALUE REALIZED
NAME DATE OF EXERCISE(#) ON EXERCISE($) VESTING(#) ON VESTING($)
(A) EXERCISE (B) (C)(1) (D)(2) (E)
---------------------------------------------------------------------------------------------------------------------------
Steven V. Lant 5/19/06 720 9,929 $0 $0
---------------------------------------------------------------------------------------------------------------------------
Christopher M. Capone $0 $0
---------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer 3/3/2006 720 3,002 $0 $0
11/13/06 2,160 7,085 $0 $0
---------------------------------------------------------------------------------------------------------------------------
Joseph J. DeVirgilio, Jr. 3/2/06 440 2,130 $0 $0
11/13/06 1,200 3,936 $0 $0
---------------------------------------------------------------------------------------------------------------------------
Arthur R. Upright 3/2/06 440 2,130 $0 $0
3/2/06 1,200 336 $0 $0
---------------------------------------------------------------------------------------------------------------------------
----------
(1) VALUE REALIZED ON EXERCISE. This column reflects the product of (i) the
number of shares acquired upon the exercise of the stock option,
multiplied by (ii) the excess of (x) the average of the high and low price
per share of the Corporation's Common Stock on the date of exercise, over
(y) the per share exercise price of the stock option.
(2) NUMBER OF SHARES ACQUIRED ON VESTING. The Corporation did not attain the
applicable performance objectives governing the performance shares for the
2004-2006 performance period. Therefore, the Named Executive Officers
forfeited those performance shares in their entirety as of the end of
2006.
33
PENSION BENEFITS
The following table sets forth information regarding the pension benefits
of our Named Executive Officers.
--------------------------------------------------------------------------------------------------------------------------------
PRESENT PAYMENTS
NUMBER OF VALUE OF DURING
YEARS CREDITED ACCUMULATED LAST FISCAL
SERVICE BENEFIT YEAR
NAME PLAN NAME (1) (#) ($)(2) ($)
(A) (B) (C) (D) (E)
--------------------------------------------------------------------------------------------------------------------------------
Steven V. Lant Retirement Income Plan 25 yrs. 11 mos. 921,900 0
Supplemental Executive Retirement Plan 26 yrs. 1 mo. 1,486,900 0
Retirement Benefit Restoration Plan 26 yrs. 1 mo. 333,600 0
Supplementary Retirement Plan N/A 0 0
--------------------------------------------------------------------------------------------------------------------------------
Christopher M. Retirement Income Plan 5 yrs. 5 mos. 117,200 0
Capone Supplemental Executive Retirement Plan 5 yrs. 8 mos. 50,300 0
Retirement Benefit Restoration Plan 5 yrs. 8 mos. 1,600 0
Supplementary Retirement Plan N/A 0 0
--------------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer Retirement Income Plan 36 yrs. 2 mos. 1,626,500 0
Supplemental Executive Retirement Plan 36 yrs. 5 mos. 484,000 0
Retirement Benefit Restoration Plan 36 yrs. 5 mos. 517,100 0
Supplementary Retirement Plan N/A 0 0
--------------------------------------------------------------------------------------------------------------------------------
Joseph J. Retirement Income Plan 33 yrs. 3 mos. 1,568,000 0
DeVirgilio, Jr. Supplemental Executive Retirement Plan 33 yrs. 6 mos. 557,300 0
Retirement Benefit Restoration Plan 33 yrs. 6 mos. 26,600 0
Supplementary Retirement Plan N/A 0 0
--------------------------------------------------------------------------------------------------------------------------------
Arthur R. Retirement Income Plan 41 yrs. 2 mos. 1,610,500 0
Upright Supplemental Executive Retirement Plan 41 yrs. 5 mos. 46,800 0
Retirement Benefit Restoration Plan 41 yrs. 5 mos. 10,400 0
Supplementary Retirement Plan N/A 264,300 0
--------------------------------------------------------------------------------------------------------------------------------
----------
(1) The formal name of each plan is included in the narrative description of
the plans following this table.
(2) The number of years of credited service in column (c) and the present
value of accumulated benefit in column (d) are calculated (i) as of
September 30, 2006, for the Retirement Income Plan, which is the
measurement date used for reporting purposes in the Consolidated Financial
Statements contained in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 2006; and (ii) as of December 31, 2006, for
the Supplemental Executive Retirement Plan, Retirement Benefit Restoration
Plan, and Supplementary Retirement Plan. The present value of accumulated
benefits was prepared based on the same assumptions used in the
Consolidated Financial Statements contained in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 2006, including a
5.80% discount rate and the Retirement Plan 2000 Combined Table Projected
to 2006, no collar adjustment, and a retirement age of 61 under the
Supplemental Executive Retirement Plan and a retirement age of 55 under
the Retirement Income Plan and the Retirement Benefit Restoration Plan.
DESCRIPTION OF DEFINED BENEFIT RETIREMENT PLANS
In 2005, the Corporation restructured its retirement program to reduce
complexity and align the program more closely to comparable market practice. The
new program is designed to provide each Named Executive Officer with a
retirement benefit equal to 57% of his or her applicable final average pay (as
defined below) at age 61 with 30 years of service. The new program consists
primarily of the Retirement Income Plan and the Supplemental Executive
Retirement Plan. Benefit accruals under prior non-qualified plans have been
frozen. A more detailed description of each of the defined benefit plans that
comprise the Corporation's retirement program follows.
34
RETIREMENT INCOME PLAN. The Retirement Income Plan of Central Hudson Gas &
Electric Corporation ("Retirement Income Plan" or "RIP") is a tax-qualified
defined benefit plan and generally covers all employees of Central Hudson. A
participant's benefit under the Retirement Income Plan may be based on one or
both of the following benefit formulas: (i) the "service benefit" formula or
(ii) the "account benefit" formula. Each of these two formulas are described
below.
o SERVICE BENEFIT FORMULA. All of our Named Executive Officers are
eligible for the Retirement Income Plan's regular service benefit
and supplementary past service benefit, with Messrs. Meyer,
DeVirgilio, and Upright having currently satisfied the eligibility
requirements for early retirement.
o The regular service benefit is generally based on the
accumulation over the participant's career of a percentage of
the participant's annual compensation (base salary for periods
before 2005 and base salary and annual incentive for periods
on and after January 1, 2005) for each year of eligible
employment. For periods on and after October 1, 1989, the
percentage is 2% of eligible compensation, except that for
years after the October 1st coincident with or following the
participant's 50th birthday, the percentage is increased to
2.5%.
o The supplementary past service benefit generally provides a
benefit for service prior to October 1, 2003, based on a
percentage of a participant's average earnings at October 1,
2003 (being 50% of each of the base salaries at October 1,
2000, and 2003, and 100% of each of the base salaries at
October 1, 2001, and 2002), and the number of years of servic
e while a participant of the Retirement Income Plan prior to
October 1, 2003. The percentage is 1.45% for average earnings
up to $37,500 and 1.75% for average earnings in excess of
$37,500.
Both the regular service benefit and past service benefit are
subject to certain limitations. Beginning October 1, 2006, the
monthly benefit with respect to the regular service benefit and
supplementary past service benefit of each Named Executive Officer
may not collectively exceed 1/12th of 57% of the participant's final
average pay (base salary and annual incentive) multiplied by a
fraction, the numerator of which is years of benefit service (not to
exceed 30) and the denominator of which is 30, and which resulting
amount is reduced by 0.333% for each full month by which his or her
benefit commencement date precedes the date the participant attains
age 61.
The Retirement Income Plan's regular service benefit and
supplementary past service benefit are payable in the form of a
monthly life annuity following normal retirement at age 65. The
regular service benefit and supplementary past service benefit are
also payable following early retirement at or after age 55 with at
least ten years of service, with no reduction in the monthly life
annuity for commencement before normal retirement age. Payment at
normal or early retirement is also available in the form of
actuarial equivalent joint and survivor annuities, which provide a
reduced monthly amount for the participant's life with the surviving
joint annuitant receiving 30%, 40%, 50%, 75%, or 100%, as elected,
of the reduced monthly amount. An active employee, upon attaining
normal retirement age, may elect one of the optional forms of
payment as a pre-retirement death benefit. Otherwise, if an active
vested participant dies before benefit commencement, a
pre-retirement surviving spouse annuity generally is payable to the
participant's surviving spouse beginning on the later of when the
participant died or would have attained age 55 in the amount of the
participant's accrued benefit. For a former employee who dies, the
pre-retirement surviving spouse annuity is reduced for commencement
prior to normal retirement age.
o ACCOUNT BENEFIT FORMULA. All of our Named Executive Officers except
for Mr. Capone are also eligible for the Retirement Income Plan's
account benefit, with Messrs. Meyer, DeVirgilio, and Upright having
currently satisfied the eligibility requirements to receive the
account benefit upon termination of employment. The account benefit
is comprised of amounts credited to a hypothetical account on behalf
of participants under the following formula: For those participants
in the Retirement Income Plan on January 1, 1987, 10% of their base
salary as of that date, plus, for those participants in the
Retirement Income Plan on September 30, 1991, 5% of their base
salary as of that date, plus, for those
35
participants in the Retirement Income Plan on September 30, 1997, 5%
of their base salary as of that date, plus, for those participants
in the Retirement Income Plan on September 30, 1999, 5% of their
base salary as of that date, plus, annual interest on the account
balance generally based on the yield for 30-year Treasury Bonds.
The account benefit is payable in the form of a lump sum in the
amount credited to the hypothetical account at the time of benefit
commencement (I.E., following termination of employment). Payment is
also available in the form of a single life annuity (for a
participant who is not married) or a joint and 50% or 100% surviving
spouse annuity (for a participant who is married) based on the
actuarial equivalent of the account balance. If the account benefit
is commenced at the same time as the regular service benefit and
supplementary past service benefit, the actuarial equivalent of the
account balance may be paid in the same form as the service
benefits. Upon a participant's death, the amount credited to the
account is payable in a lump sum to the participant's beneficiary,
and, if the beneficiary is the participant's spouse, payable either
in a lump sum or in a spousal annuity based on the actuarial
equivalent of the account balance.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The CH Energy Group, Inc.
Supplemental Executive Retirement Plan (the "SERP") is an unfunded, unsecured
pension benefit plan for a select group of highly compensated employees. A
participant's SERP benefit becomes vested if, while employed by the Corporation
or its affiliates, he or she attains the normal retirement age of 61, attains
his or her early retirement date of age 55 with ten years or more of vesting
service, or a change in control occurs. A participant will forfeit his or her
SERP benefit (whether or not vested at the time) if his or her employment with
the Corporation is terminated for "cause."
The SERP retirement benefit of a participant equals the excess, if any, of
the (i) participant's normal retirement benefit or early retirement benefit
described below, over (ii) the actuarial equivalent of the participant's
cumulative benefits under the Retirement Income Plan (excluding the account
benefit component), Central Hudson Retirement Benefit Restoration Plan
(described below) and the CH Energy Group, Inc. Supplementary Retirement Plan
(described below), each calculated as though paid in the form of a single life
annuity on the date the normal retirement benefit becomes payable under the
SERP.
o NORMAL RETIREMENT BENEFIT. If a participant terminates employment on
or after the date he or she attains age 61, he or she will be
entitled to a normal retirement benefit. The normal retirement
benefit is equal to the product of (i) 57% of the participant's
highest consecutive 3-year average of base salary and annual
incentive during the ten-year period that precedes the participant's
termination of employment, and (ii) a fraction, the numerator of
which is the participant's years of benefit service under the
Retirement Income Plan (not to exceed 30) and the denominator of
which is 30.
o EARLY RETIREMENT BENEFIT. Upon the participant's vested termination
of employment before the date he or she attains age 61, the
participant will be entitled to an early retirement benefit equal to
the normal retirement benefit (described above) reduced by 0.333%
for each full month by which his or her benefit commencement date
precedes the date the participant attains age 61. Messrs. Meyer,
DeVirgilio, and Upright are entitled to the early retirement
benefit.
The SERP retirement benefit commences on the first day of the seventh
month following the participant's vested termination of employment in the form
of a life annuity selected by the participant and is paid monthly, except that a
participant who is vested solely as a result of a change in control shall
commence to receive payment on the later of the first day of the seventh month
following his or her termination of employment or age 55. The normal form of
benefit under the SERP is a single life annuity for single participants and a
joint and 100% survivor annuity for married participants. However, participants
may select a single life annuity or a 30%, 40%, 50%, 75%, or 100% joint and
survivor annuity (or other annuity permitted by the Corporation).
36
A SERP benefit is also payable if a participant is vested in his or her
benefit at the time of his or her death or disability. A participant's
compensation and years of additional benefit service provided under a change in
control agreement between the Corporation and the participant will be used in
calculating the participant's SERP benefit if the participant's vested
termination occurs in connection with a change in control.
For more information on the death, disability and change in control
benefits under the SERP, please refer to the applicable description under the
heading "Potential Payments Upon Termination or Change in Control" on page 39 of
this proxy statement.
CENTRAL HUDSON RETIREMENT BENEFIT RESTORATION PLAN. The Central Hudson
Retirement Benefit Restoration Plan ("RBRP") is an unfunded, unsecured pension
benefit plan for a select group of highly compensated employees. As of December
31, 2005, the RBRP was terminated with respect to any participant who was not
vested, closed to new participants, and frozen with respect to additional
benefit accruals of vested participants. The RBRP provides a benefit in excess
of the Internal Revenue Service ("IRS") compensation and benefit limits imposed
by Sections 401(a)(17) and 415 of the Internal Revenue Code, respectively, with
respect to the service benefit component of the Retirement Income Plan and the
account benefit component of the Retirement Income Plan. The pension benefit
under the RBRP is calculated as the excess, if any, of (x) the participant's
Retirement Income Plan benefit as of December 31, 2005, without regard to the
Section 401(a)(17) compensation limit ($210,000 for 2005) and without regard to
the Section 415 benefit limitation ($170,000 for 2005) over (y) the
participant's actual Retirement Income Plan benefit as of December 31, 2005.
Compensation and years of service under the RBRP have the same meanings provided
under the Retirement Income Plan. Benefits generally become payable under the
RBRP at the time payments become payable from the Retirement Income Plan and are
paid over the life of the participant and over the life of the participant's
spouse upon the participant's death, in the form selected by the participant
under the Retirement Income Plan.
SUPPLEMENTARY RETIREMENT PLAN. The CH Energy Group, Inc. Supplementary
Retirement Plan (the "SRP") is an unfunded, unsecured pension benefit plan for a
select group of highly compensated employees. As of December 31, 2005, the SRP
was terminated with respect to any participant who was not vested as of December
31, 2005. The annual SRP benefit is payable in monthly installments for ten
years, commencing on retirement, to eligible participants (generally those who
retire at age 60 or older and with ten or more years of service, or at age 65
without regard to years of service) of the following percentage of base pay at
retirement: age 60 to 63 - 10%; age 63 to 65 - 15%; age 65 or over - 20%. Upon
the participant's death, on or after the date he or she has become vested, the
participant's monthly benefit will be paid to the participant's beneficiary.
Only Mr. Upright is entitled to a benefit under the SRP. Mr. Upright's annual
SRP benefit equals 15% of his base pay at his retirement, since he was age 63 at
the end of 2006.
IMPACT OF SECTION 409A. Section 409A was added to the Internal Revenue
Code in the fall of 2004. Section 409A imposes new restrictions on the SERP,
RBRP, and SRP described above with respect to amounts deferred after December
31, 2004, and earnings thereon (and with respect to plans that are "materially
modified" after October 3, 2004). These new restrictions generally define the
earliest date that payments may commence under the plans and limit the ability
of participants to receive accelerated payments or to change their deferral and
payment elections. As permitted under existing guidance, the Corporation will
amend the plans described above on or before December 31, 2007, to conform to
Section 409A. In the meantime, the Corporation has adopted a resolution
providing that the plans are deemed amended to the extent necessary to comply
with Section 409A and that the plans will be administered in good faith
compliance with the new rules, as permitted by current IRS guidance.
37
NONQUALIFIED DEFERRED COMPENSATION
The following table sets forth information regarding the nonqualified
deferred compensation of our Named Executive Officers as of December 31, 2006.
------------------------------------------------------------------------------------------------------------------------------
AGGREGATE
EXECUTIVE REGISTRANT AGGREGATE AGGREGATE BALANCE
CONTRIBUTIONS CONTRIBUTIONS EARNINGS IN WITHDRAWALS/ AT LAST
IN LAST FY IN LAST FY LAST FY DISTRIBUTIONS FYE
------------------------------------------------------------------------------------------------------------------------------
NAME ($)(1) ($) ($) ($) ($)(2)
(A) (B) (C) (D) (E) (F)
Steven V. Lant 0 0 40,236 0 $ 260,590
------------------------------------------------------------------------------------------------------------------------------
Christopher M. Capone 0 0 20,641 0 125,113
------------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer 96,030 0 146,872 0 1,102,899
------------------------------------------------------------------------------------------------------------------------------
Joseph J. DeVirgilio, Jr. 0 0 14,449 0 377,472
------------------------------------------------------------------------------------------------------------------------------
Arthur R. Upright 0 0 7,393 0 128,016
------------------------------------------------------------------------------------------------------------------------------
----------
(1) EXECUTIVE CONTRIBUTIONS IN LAST FY. Each Named Executive Officer is
eligible to defer base salary, annual incentive awards, and performance
shares under the terms of the Directors and Executives Deferred
Compensation Plan, described below. The "Executive Contributions in Last
FY" column shows the aggregate deferrals for each Named Executive Officer
during 2006. The base salary deferrals are included in the "Salary" column
of the "Summary Compensation" table.
(2) AGGREGATE BALANCE AT LAST FYE. The aggregate balance as of December 31,
2006, reported in column (f) for each Named Executive Officer includes
prior deferrals of base salary, annual incentives, and performance shares
that were previously reported as compensation on the Summary Compensation
Table for prior years. For example, from 2000-2005, our Named Executive
Officers deferred the following amounts under the Directors and Executives
Deferred Compensation Plan that were previously reported as compensation
in the Summary Compensation Table: (i) Mr. Lant - $290,287; (ii) Mr.
Capone - $90,060; (iii) Mr. Meyer - $678,713; (iv) Mr. DeVirgilio -
$291,885; and (v) Mr. Upright - $129,743. These amounts have since been
adjusted, pursuant to the terms of the Directors and Executives Deferred
Compensation Plan, for investment performance (E.G., earnings and losses),
deferrals credited during 2006, and in-service distributions.
DESCRIPTION OF DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
The amounts reflected in the above table are maintained under the CH
Energy Group, Inc. Directors and Executives Deferred Compensation Plan, which is
an unfunded, unsecured deferred compensation plan for a select group of highly
compensated employees. Under the Directors and Executives Deferred Compensation
Plan, our Named Executive Officers may elect to defer up to 50% of their base
salary and up to 100% of their annual incentive and performance shares on a
pre-tax basis. Payments are made under the Directors and Executives Deferred
Compensation Plan in cash at certain future dates specified by participants or
upon his or her earlier termination of employment, death, or disability. If a
participant terminates employment on or after age 55, as a result of his or her
long-term disability, or in certain circumstances in connection with a "change
in control" of the Corporation, then amounts credited to his or her account
generally will be paid in a lump sum or in equal quarterly installments over a
period of five, ten, or fifteen years as elected by the participant. Otherwise,
amounts are payable in a single lump sum. The Corporation may accelerate payment
in the event of a participant's "financial hardship." Moreover, a participant
may elect to receive an immediate distribution of all or a portion of any
amounts deferred prior to January 1, 2005 (and related earnings), provided,
however, that he or she will forfeit 10% of the amount of his or her account(s)
that he or she has elected to receive. The deferred compensation is credited
with earnings, gains, and losses in accordance with deemed investment elections
made by participants from among various crediting options established by the
Corporation from time to time. Participants are permitted to change their deemed
investment elections daily. For 2006, the investment options tracked returns on
the Corporation's Common Stock and returns under publicly available and
externally managed investment funds such as mutual funds.
38
Section 409A was added to the Internal Revenue Code in the fall of 2004.
Section 409A imposes new restrictions on the Directors and Executives Deferred
Compensation Plan described above with respect to amounts deferred after
December 31, 2004, and earnings thereon (and with respect to plans that are
"materially modified" after October 3, 2004). These new restrictions generally
define the earliest date that payments may commence under the plan and limit the
ability of participants to receive accelerated payments or to change their
deferral and payment elections. As permitted under existing guidance, the
Corporation will amend the Directors and Executives Deferred Compensation Plan
on or before December 31, 2007, to conform to Section 409A. In the meantime, the
Corporation has adopted a resolution providing that the Directors and Executives
Deferred Compensation Plan is deemed amended to the extent necessary to comply
with Section 409A and that the plan will be administered in good faith
compliance with the new rules, as permitted by current IRS guidance.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The Corporation has entered into certain agreements and maintains certain
plans and arrangements that require the Corporation or its successors to pay or
provide certain compensation and benefits to its Named Executive Officers in the
event of certain terminations of employment or a change in control of the
Corporation. The estimated amount of compensation and benefits payable or
provided to each Named Executive Officer in each situation is summarized below.
These estimates are based on the assumption that the various triggering events
occur on the last business day of the 2006 calendar year (I.E., December 29,
2006). We have noted below other material assumptions used in calculating the
estimated compensation and benefits under each triggering event. The actual
amounts that would be paid to a Named Executive Officer upon certain
terminations of employment or upon a change in control can only be determined at
the time the actual triggering event occurs.
The estimated amount of compensation and benefits described below does not
take into account compensation and benefits that a Named Executive Officer has
earned prior to the applicable triggering event, such as earned but unpaid
salary, or accrued vacation pay. The estimates also do not take into account
benefits to which our Named Executive Officers would be entitled to receive upon
termination of employment generally under the retirement plans and programs
described in the Pension Benefits section of this proxy statement at page 34 and
the Nonqualified Deferred Compensation section of this proxy statement at page
38. Nonetheless, this section identifies and quantifies the extent to which
those retirement benefits are enhanced or accelerated upon the triggering events
described below.
VOLUNTARY TERMINATION OR INVOLUNTARY TERMINATION FOR "CAUSE"
The Corporation does not maintain any plans or arrangements that would
provide benefits to our Named Executive Officers solely as a result of a
voluntary termination (other than upon "retirement" as described below) or an
involuntary termination for "cause" (as defined under the heading "Qualifying
Termination Following Change in Control" below).
INVOLUNTARY TERMINATION WITHOUT "CAUSE"
Pursuant to its corporate policy, the Corporation would have provided each
Named Executive Officer with outplacement services from a recognized
outplacement provider, with a value not to exceed $30,000, in the event of the
executive's involuntary termination without "cause" (as defined under the
heading "Qualifying Termination Following Change in Control" below) on December
29, 2006.
RETIREMENT OR DEATH
As described below, a Named Executive Officer's termination of employment
with the Corporation due to "retirement" (as defined below) or death can result
in enhanced benefits under the outstanding performance shares and Executive
Annual Incentive Plan.
39
PERFORMANCE SHARES. Except as otherwise provided below, a Named Executive
Officer would forfeit his right to all outstanding performance shares if his
employment terminated during the applicable performance period. If, however, a
Named Executive Officer had retired or died during a performance period, then
the Board of Directors (or appropriate committee thereof) would have determined
the extent to which the applicable performance goals had been achieved as of
such time, and the resulting award would have been prorated based on the
executive's service during the performance period. For purposes of the table
below, the Corporation has determined, based on its assessment of performance
through December 31, 2006, that if a Named Executive Officer retired or died on
December 29, 2006, he would have been entitled to (i) no payout under the
2004-2006 performance period, (ii) a payout under the 2005-2007 performance
period at 80% of target (including reinvested dividends), pro-rated based on the
performance of services during 2/3 of the performance period, and (iii) a payout
under the 2006-2008 performance period at 80% of target (with no reinvested
dividends), prorated based on the performance of services during 1/3 of the
performance period. Such amounts would have been paid in a single lump sum in
the form of shares of the Corporation's Common Stock. For additional information
about the performance shares, please refer to the "Grants of Plan-Based Awards"
section of this proxy statement at page 28 and the "Outstanding Equity Awards at
Fiscal Year-End" section of this proxy statement at page 31.
EXECUTIVE ANNUAL INCENTIVE PLAN. Except as otherwise provided below, a
Named Executive Officer would forfeit his right to his 2006 annual incentive if
his employment terminated during the year. If, however, a Named Executive
Officer had retired or died during the year, then the CEO and/or the Board of
Directors (or appropriate committee thereof) would have determined the extent to
which the applicable goals established under the Executive Annual Incentive Plan
had been achieved at year-end, and the resulting award would have been pro-rated
based on the executive's service during the year and paid in a lump sum. For
additional information about the Executive Annual Incentive Plan, please refer
to the "Grants of Plan-Based Awards" section of this proxy statement at page 28.
STOCK OPTIONS. Except as otherwise provided below, a Named Executive
Officer would forfeit his unvested stock options upon termination of employment.
If, however, a Named Executive Officer had died on or before December 29, 2006,
then all unvested stock options held by him would have become fully vested and
remained exercisable for 3 years (or if shorter, the remaining term). For
additional information about the stock options, including their vesting dates,
please refer to the "Outstanding Equity Awards at Fiscal Year-End" section of
this proxy statement at page 31.
DEFINITIONS. For purposes of the above, the term "retirement" means
termination of employment with the Corporation or an affiliate either (i) on or
after age 65 or (ii) on or after age 55 with ten years or more of service
pursuant to the early retirement provisions of the Retirement Income Plan. Only
Messrs. Meyer, DeVirgilio, and Upright would have satisfied this definition of
"retirement" on December 29, 2006.
Based on the above, the Corporation would have provided each Named
Executive Officer (or his beneficiary) with the following estimated payments, in
a lump sum, if he had "retired" (as defined above) from the Corporation and its
affiliates on December 29, 2006, or if he had died while employed with the
Corporation or its affiliates on December 29, 2006.
-------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE PERFORMANCE PERFORMANCE
SHARES: SHARES: SHARES: EXECUTIVE ACCELERATED
2004-2006 2005-2007 2006-2008 ANNUAL VESTING OF TOTAL ON
PERFORMANCE PERFORMANCE PERFORMANCE INCENTIVE STOCK RETIREMENT
NAME PERIOD(1) PERIOD(2) PERIOD(3) PLAN(4) OPTIONS(5) OR DEATH
-------------------------------------------------------------------------------------------------------------------------------
Steven V. Lant $0 $230,996 $97,715 $284,200 $7,357 $620,268
-------------------------------------------------------------------------------------------------------------------------------
Christopher M. Capone $0 $76,989 $25,626 $97,440 $0 $200,055
-------------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer $0 $76,989 $31,117 $109,707 $6,019 $223,832
-------------------------------------------------------------------------------------------------------------------------------
Joseph J. DeVirgilio, Jr. $0 $76,989 $26,752 $101,500 $3,344 $208,585
-------------------------------------------------------------------------------------------------------------------------------
Arthur R. Upright $0 $46,211 $17,600 $80,040 $3,344 $147,195
-------------------------------------------------------------------------------------------------------------------------------
----------
(1) Following the completion of the 2004-2006 performance period, the
Compensation Committee determined that the Corporation did not attain the
applicable performance objectives for that period. Therefore, our Named
Executive Officers did not receive any payout of performance shares with
respect to that performance period.
40
(2) The value of the performance shares for the 2005-2007 performance period
is calculated as follows: (i) the number of performance shares earned
assuming a payout of 80% of target (including reinvested dividends),
pro-rated based on the performance of services during 2/3 of the
performance period, multiplied by (ii) the closing price of the
Corporation's Common Stock on December 29, 2006, of $52.80 per share.
(3) The value of the performance shares for the 2006-2008 performance period
is calculated as follows: (i) the number of performance shares earned
assuming a payout of 80% of target (with no reinvested dividends),
prorated based on the performance of services during 1/3 of the
performance period, multiplied by (ii) the closing price of the
Corporation's Common Stock on December 29, 2006, of $52.80 per share.
(4) The annual incentive is based on actual performance for 2006, without
pro-ration, and without any discretionary adjustments.
(5) The value of the accelerated vesting of stock options equals the excess,
if any, of the (i) market value of the underlying option shares on
vesting, based on the closing price of the Corporation's Common Stock on
December 29, 2006, of $52.80 per share, over (ii) the exercise price of
the stock options. The accelerated vesting only applies in the event of a
Named Executive Officer's death. The stock options do not automatically
accelerate upon "retirement."
DISABILITY
As described below, a Named Executive Officer's termination of employment
with the Corporation due to "disability" (as defined below) can result in
enhanced benefits under the Supplemental Executive Retirement Plan and the
Executive Annual Incentive Plan.
ADDITIONAL SERVICE CREDIT UNDER THE SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN. If a Named Executive Officer who was vested under the SERP had become
disabled (within the meaning of the Corporation's long-term disability plan) on
December 29, 2006, then his benefit would have been calculated as if he had
received additional years of benefit service (up to five), consistent with the
disability crediting rules under the Retirement Income Plan. For additional
information about the SERP, please refer to the "Pension Benefits" section of
this proxy statement at page 34.
EXECUTIVE ANNUAL INCENTIVE PLAN. Except as otherwise provided below, a
Named Executive Officer would forfeit his right to his 2006 annual incentive if
his employment terminated during the year. If, however, a Named Executive
Officer had become disabled (as determined by the Board of Directors) during the
year, then the CEO and/or the Board of Directors (or appropriate committee
thereof) would have determined the extent to which the applicable goals
established under the Executive Annual Incentive Plan had been achieved at
year-end, and the resulting award would have been pro-rated based on the
executive's service during the year and paid in a lump sum. For additional
information about the Executive Annual Incentive Plan, please refer to the
"Grants of Plan-Based Awards" section of this proxy statement at page 28.
Based on the above, the Corporation would have provided each Named
Executive Officer with the following estimated payments or benefits if he hade
become "disabled" (as defined above) while employed with the Corporation and its
affiliates on December 29, 2006.
------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL SERVICE EXECUTIVE
CREDIT UNDER THE ANNUAL
NAME SERP(1) INCENTIVE PLAN(2) TOTAL ON DISABILITY
------------------------------------------------------------------------------------------------------------------------------
Steven V. Lant $ 0 $284,200 $284,200
------------------------------------------------------------------------------------------------------------------------------
Christopher M. Capone $ 0 $ 97,440 $ 97,440
------------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer $385,100 $109,707 $494,807
------------------------------------------------------------------------------------------------------------------------------
Joseph J. DeVirgilio, Jr. $520,200 $101,500 $621,700
------------------------------------------------------------------------------------------------------------------------------
Arthur R. Upright $ 46,800 $ 80,040 $126,840
------------------------------------------------------------------------------------------------------------------------------
----------
(1) The value of the additional service credit under the SERP equals the
excess, if any, of (i) the present value of the individual's VESTED SERP
benefit as of December 29, 2006, calculated as if he remained employed for
an additional 5 years, over (ii) the present value of the individual's
VESTED SERP benefit as of December 29, 2006.
41
The present value was determined based on a 5.80% discount rate and the
Retirement Plan 2000 Combined Table Projected to 2006, no collar
adjustment, and assuming that no additional service is credited past age
60. For additional information about the SERP, please refer to the
"Pension Benefits" section of this proxy statement at page 34.
(2) The annual incentive is based on actual performance for 2006, without
pro-ration, and without any discretionary adjustments.
CHANGE IN CONTROL
As described below, each Named Executive Officer would be entitled to
accelerated vesting of outstanding performance shares and stock options, along
with accelerated vesting of his Supplemental Executive Retirement Plan benefit
in the event of a "change in control" (as defined below).
PERFORMANCE SHARES. Upon a change in control (as defined below), the Board
of Directors (or appropriate committee thereof) is required to determine the
extent to which the applicable performance goals have been achieved through such
date (or, with respect to the 2006-2008 performance period, through the full
fiscal quarters completed prior to that date), and the resulting award is
required to be paid to the executives without pro-ration. For purposes of the
table below, the Corporation has determined, based on its assessment of
performance through December 31, 2006, that if a change in control occurred on
December 29, 2006, our Named Executive Officers would have been entitled to
receive: (i) no payout under the 2004-2006 performance period, (ii) a payout
under the 2005-2007 performance period at 80% of target (including reinvested
dividends), and (iii) a payout under the 2006-2008 performance period at 80% of
target (not including reinvested dividends). Such amounts would have been paid
in a single lump sum in the form of either shares or cash. For additional
information about the performance shares, please refer to the "Grants of
Plan-Based Awards" section of this proxy statement at page 28 and the
"Outstanding Equity Awards at Fiscal Year-End" section of this proxy statement
at page 31.
STOCK OPTIONS. If a change in control (as defined below) occurred on
December 29, 2006, all unvested stock options held by the Named Executive
Officers would have become fully vested and exercisable. For additional
information about the stock options, including their vesting dates, please refer
to the "Outstanding Equity Awards at Fiscal Year-End" section of this proxy
statement at page 31.
ENHANCED SERP BENEFIT. If a change in control (as defined below), occurred
on December 29, 2006, each Named Executive Officer would have fully vested in
his or her benefit under the SERP. The SERP benefit will commence to be paid
upon the later of his or her termination of employment or attainment of age 55.
For additional information about the SERP, please refer to the "Pension
Benefits" section of this proxy statement at page 34.
DEFINITIONS. For purposes of the above, a change in control is defined as
follows:
o With respect to the accelerated vesting of the performance shares
for the 2004-2006 performance period and accelerated vesting of
stock options, the term "change in control" means (i) an acquisition
of 50% or more of the Corporation's stock; (ii) shareholder approval
of a complete liquidation of the Corporation; or (iii) the sale of
all or substantially all of the Corporation's assets or the merger
or consolidation of the Corporation with or into another
corporation.
o With respect to the accelerated vesting of the performance shares
for the 2005-2007 and 2006-2008 performance period, the term "change
in control" is defined under the heading "Qualifying Termination
Following Change in Control" immediately below.
Based on the above, each Named Executive Officer would have been entitled
to the following estimated payments and benefits from the Corporation or its
successor in the event that a change in control (as defined above) occurred on
December 29, 2006.
42
----------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE PERFORMANCE PERFORMANCE
SHARES: SHARES: SHARES: ACCELERATED ACCELERATED
2004-2006 2005-2007 2006-2008 VESTING OF VESTING OF TOTAL ON
PERFORMANCE PERFORMANCE PERFORMANCE STOCK SERP CHANGE IN
NAME PERIOD(1) PERIOD(2) PERIOD(3) OPTIONS(4) BENEFIT(5) CONTROL
----------------------------------------------------------------------------------------------------------------------------------
Steven V. Lant $0 $346,495 $293,146 $7,357 $1,488,800 $2,135,798
----------------------------------------------------------------------------------------------------------------------------------
Christopher M. Capone $0 $115,484 $ 76,877 $ 0 $ 31,700 $ 224,061
----------------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer $0 $115,484 $ 93,350 $6,019 $ 0 $ 214,853
----------------------------------------------------------------------------------------------------------------------------------
Joseph J. DeVirgilio, Jr. $0 $115,484 $ 80,256 $3,344 $ 0 $ 199,084
----------------------------------------------------------------------------------------------------------------------------------
Arthur R. Upright $0 $ 69,316 $ 52,800 $3,344 $ 0 $ 125,460
----------------------------------------------------------------------------------------------------------------------------------
----------
(1) Following the completion of the 2004-2006 performance period, the
Compensation Committee determined that the Corporation did not attain the
applicable performance objectives for that period. Therefore, our Named
Executive Officers did not receive any payout of performance shares with
respect to that performance period.
(2) The value of the performance shares for the 2005-2007 performance period
is calculated as follows: (i) the number of performance shares earned
assuming a payout of 80% of target (including reinvested dividends),
without pro-ration, multiplied by (ii) the closing price of the
Corporation's Common Stock on December 29, 2006, of $52.80 per share.
(3) The value of the performance shares for the 2006-2008 performance period
is calculated as follows: (i) the number of performance shares earned
assuming a payout of 80% of target (with no reinvested dividends), without
pro-ration, multiplied by (ii) the closing price of the Corporation's
Common Stock on December 29, 2006, of $52.80 per share.
(4) The value of the accelerated vesting of stock options equals the excess,
if any, of the (i) market value of the underlying option shares on
vesting, based on the closing price of the Corporation's Common Stock on
December 29, 2006, of $52.80 per share, over (ii) the exercise price of
the stock options.
(5) The value of the accelerated vesting of the SERP benefit equals the
excess, if any, of (i) the present value of the individual's SERP benefit
as of December 29, 2006 (whether or not vested), over (ii) the present
value of the individual's VESTED SERP benefit as of December 29, 2006. The
present value was determined based on a 5.80% discount rate and the
Retirement Plan 2000 Combined Table Projected to 2006, with no collar
adjustment. Each of Messrs. Meyer, DeVirgilio, and Upright was fully
vested in his SERP benefit as of December 29, 2006, so he would not have
received any additional benefit had a change in control occurred on that
date. For additional information about the SERP, please refer to the
"Pension Benefits" section of this proxy statement at page 34.
QUALIFYING TERMINATION FOLLOWING CHANGE IN CONTROL
As described below, each Named Executive Officer would be entitled to
certain payments and benefits if a "change in control" (as defined below) occurs
and the Corporation or its affiliates terminates the executive's employment
without "cause" (as defined below) or the executive terminates his employment
with the Corporation or its affiliates for "good reason" (as defined below)
within certain time periods following such change in control.
CHANGE IN CONTROL AGREEMENTS. The Corporation has a change in control
agreement ("Change in Control Agreement") with certain of its executive
officers, including its Named Executive Officers. The Change in Control
Agreements generally become effective only upon a change in control of the
Corporation (as defined below) and provide certain benefits and protections to
the covered executives during the three-year period (the two-year period for Mr.
Upright) following a change in control. For example, the Change in Control
Agreements generally provide that an executive's terms and conditions of
employment (including position, location, base salary, annual incentive, and
benefits) would not be adversely changed during the applicable two-year or
three-year period following a change in control. Moreover, the Change in Control
Agreements provide that the executive would be entitled to certain severance
benefits if, during the applicable two or three-year period following a change
in control, the Corporation or its affiliates terminate the executive's
employment without "cause" (as defined below) or the
43
executive terminates his employment with the Corporation or its affiliates for
"good reason" (as defined below). In general, the executive would be entitled to
receive:
o A pro-rated annual incentive based on the average of the executive's
last three pre-change in control annual incentives ("Average Annual
Incentive"), paid in a lump sum;
o An amount equal to three times (or two times for Mr. Upright) the
sum of the executive's base salary and Average Annual Incentive,
payable in 12 equal monthly installments;
o Outplacement services from a recognized outplacement provider, with
a value not to exceed $30,000;
o Continued welfare benefits (including health care benefits) for a
period of three years (two years for Mr. Upright) following
termination (subject to mitigation upon receiving similar benefits
from another employer); and
o Reimbursement for all legal fees and expenses reasonably incurred in
asserting his rights under the Agreements, regardless of the outcome
of the dispute (unless a tribunal determines that the executive's
position was frivolous or maintained in bad faith). For purposes of
the above calculations, we have assumed that the executive will not
incur legal fees to enforce his rights under the Change in Control
Agreement.
DEFINITIONS. For purposes of the Change in Control Agreement, the
following words have the meanings set forth below:
o CHANGE IN CONTROL. A change in control means any of the following:
(i) an acquisition of 20% or more of the Corporation's stock; (ii) a
change in the membership of the Corporation's Board of Directors,
such that the current incumbents and their approved successors no
longer constitute a majority; (iii) a business combination in which
any one of the following is true: the Corporation's old shareholders
do not hold at least 60% of the combined enterprise; there is a
20%-or-more shareholder of the combined enterprise (other than as a
result of conversion of the shareholder's pre-combination interest
in the Corporation); or the members of the Corporation's Board of
Directors (immediately before the combination) do not make up a
majority of the board of the combined enterprise; or (iv)
shareholder approval of a complete liquidation of the Corporation.
o CAUSE. A termination is for cause if it is for any of the following
reasons: (i) the willful and continued failure of the executive to
perform substantially his duties with the Corporation or any of its
affiliated companies (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the executive;
(ii) the willful engaging by the executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to
the Corporation or any of its affiliated companies; (iii) the
repeated use of alcohol by the executive that materially interferes
with his duties, use of illegal drugs by the executive, or a
violation of the drug and/or alcohol policies of the Corporation or
any of its affiliated companies; (iv) a conviction, guilty plea, or
plea of NOLO CONTENDERE of the executive for any crime involving
moral turpitude or for any felony; (v) a breach by the executive of
his fiduciary duties of loyalty or care to the Corporation or any of
its affiliated companies or a material violation of the Code of
Business Conduct and Ethics, or similar policies, of the Corporation
or any of its affiliated companies; or (vi) the breach by the
executive of the confidentiality provision of the Change in Control
Agreement.
o GOOD REASON. A termination by the executive is for good reason if it
is for any of the following reasons: (i) any material reduction in
the executive's authority, duties, or responsibilities without the
executive's written consent that is not remedied promptly after
receipt of notice thereof given by the executive; (ii) any failure
by the Corporation to maintain the executive's base salary, annual
incentive, and benefits levels as provided in the Change in Control
Agreement that is not remedied promptly after receipt of notice
thereof given by the executive; (iii) any required relocation of the
executive's office of 50 miles or more; (iv) any purported
termination by the Corporation or any of its affiliated companies of
the executive's employment otherwise
44
than as expressly permitted by the Change in Control Agreement; or
(v) any failure by the Corporation or any of its affiliated
companies to require a successor to assume the Change in Control
Agreement.
ENHANCED SERP BENEFIT. If a Named Executive Officer is entitled to
benefits under his or her Change in Control Agreement following a change in
control, then his or her SERP benefit will be calculated as if he or she had
remained employed with the Corporation and its affiliates for a two-year period
(the three-year period for Messrs. Lant, Meyer, DeVirgilio, and Capone)
following the change in control. Such benefit will commence to be paid upon the
later of the executive's termination of employment or attainment of age 55. For
additional information about the SERP, please refer to the "Pension Benefits"
section of this proxy statement at page 34.
280G TAX GROSS-UP. On or after a change in control, Mr. Lant may be
subject to certain excise taxes pursuant to Section 280G of the Internal Revenue
Code ("280G"). The Corporation or its successor is obligated under the Change in
Control Agreement to reimburse Mr. Lant for all 280G excise taxes that are
imposed on him, whether as a result of payments received under his Change in
Control Agreement or otherwise, and any income and excise taxes that are payable
by the executive as a result of such reimbursements. If, however, the aggregate
parachute payments do not exceed 110% of the maximum total payments that could
be made without triggering the excise tax under Section 280G, then the parachute
payments would be automatically reduced to such maximum amount and no gross-up
payment would be made. In general, the reimbursements would be made to Mr. Lant
by the Corporation or its successors at the same time that the payments or
benefits subject to the excise tax are paid or provided. In contrast, the other
Named Executive Officers would be responsible for paying the applicable excise
taxes under 280G imposed on any payments under the Change in Control Agreement
or otherwise, but any payments subject to the excise tax would be reduced if
such reduction provides a larger after-tax benefit than if the excise tax
applied.
NON-SOLICITATION AND NON-COMPETITION PROVISIONS. As a condition to each
executive's entitlement to receive severance benefits under the Change in
Control Agreement, each Named Executive Officer must not solicit employees of
the Corporation and its successor for a one-year period following termination of
employment and must comply with a confidentiality restriction. The acquiring or
successor entity generally retains the right to suspend certain payments and
pursue judicial remedies in the event that an executive breaches any of his
confidentiality, non-solicitation, or similar obligations. Moreover, a
terminated executive is required to sign a release of all claims against the
Corporation, the acquiring or successor entity, and any of their officers,
directors, employees, or shareholders, prior to receiving severance benefits
under the Change in Control Agreements.
Based on the above, each Named Executive Officer would have been entitled
to the following estimated payments and benefits from the Corporation or its
successor if a "change in control" (as defined above) occurred on December 29,
2006, and the Corporation or its affiliates terminated the executive's
employment without "cause" (as defined above) or the executive terminated his
employment with the Corporation or its affiliates for "good reason" (as defined
above) immediately following such change in control.
-------------------------------------------------------------------------------------------------------------------------------
CONTINUED TOTAL ON A
WELFARE QUALIFYING
BENEFITS ENHANCED SECTION TERMINATION
OUTPLACE- CONTINUED (OTHER THAN SERP 280G FOLLOWING A
CASH MENT HEALTHCARE HEALTHCARE) BENEFIT GROSS-UP CHANGE IN
NAME SEVERANCE SERVICES BENEFITS(1) (2) (3) (4) CONTROL
-------------------------------------------------------------------------------------------------------------------------------
Steven V. Lant $2,487,538 $30,000 $49,000 $6,348 $950,500 $2,542,939 $6,066,325
-------------------------------------------------------------------------------------------------------------------------------
Christopher M.
Capone $ 975,824 $30,000 $36,800 $3,111 $141,100 $ 0 $1,186,835
-------------------------------------------------------------------------------------------------------------------------------
Carl E. Meyer $1,246,221 $30,000 $59,600 $3,771 $155,500 $ 0 $1,495,092
-------------------------------------------------------------------------------------------------------------------------------
Joseph J.
DeVirgilio, Jr. $1,051,986 $30,000 $54,400 $3,240 $220,900 $ 0 $1,360,526
-------------------------------------------------------------------------------------------------------------------------------
Arthur R. Upright $ 686,585 $30,000 $41,200 $1,988 $265,100 $ 0 $1,024,873
-------------------------------------------------------------------------------------------------------------------------------
----------
(1) The present value of the continued healthcare benefits is calculated in
accordance with Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 106, EMPLOYER'S ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The values assume continued
healthcare coverage for the individual and his spouse
45
for the applicable continuation period. See Note 9 of the Consolidated
Financial Statements contained in the Corporation's Annual Report on Form
10-K for the year ended December 31, 2006, for an explanation of the
assumptions made by the Corporation in the valuation of the continued
health care benefits.
(2) Represents the value of premiums for continued group life insurance during
the applicable two or three-year continuation period.
(3) The value of the enhanced SERP benefit equals the present value of the
increase in the individual's SERP benefit as of December 29, 2006,
calculated as if he had remained employed with the Corporation and its
affiliates for an additional three-year period (a two-year period for Mr.
Upright) following termination. The present value was determined based on
a 5.80% discount rate and the Retirement Plan 2000 Combined Table
Projected to 2006, with no collar adjustment. For additional information
about the SERP, please refer to the "Pension Benefits" section of this
proxy statement at page 34.
(4) The amount in this column is merely an estimate. The 280G tax gross-up
amount is based on the following assumptions: (i) a 280G excise tax rate
of 20% and a combined federal, state, and local income and employment tax
rate of 43.45%, (ii) the closing price of the Corporation's Common Stock
on December 29, 2006, was $52.80 per share, (iii) 120% of the semiannual
applicable federal rate for December 2006 was 5.89%, (iv) no amounts were
discounted as attributable to reasonable compensation and no value was
attributed to the non-solicitation or non-competition covenants contained
in the Change in Control Agreement, and (v) unvested stock options were
assumed by the acquirer instead of cashed-out.
DIRECTOR COMPENSATION
The following table sets forth information regarding compensation for the
year ended December 31, 2006, for the Directors other than Mr. Lant.
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN
PENSION VALUE
FEES AND
EARNED OR OPTION NON-EQUITY NONQUALIFIED
PAID IN STOCK AWARDS INCENTIVE PLAN DEFERRED ALL OTHER
CASH($) AWARDS($) ($) COMPENSATION COMPENSATION COMPENSATION
NAME (B) (C) (D) ($) EARNINGS ($) TOTAL($)
(A) (1) (2) (3) (E) (F) (G) (H)
-------------------------------------------------------------------------------------------------------------------------------
Margarita K. Dilley 59,167 54,659 0 0 0 0 113,826
-------------------------------------------------------------------------------------------------------------------------------
Steven M. Fetter 60,833 54,659 0 0 0 0 115,492
-------------------------------------------------------------------------------------------------------------------------------
Heinz K. Fridrich 21,667 16,794 0 0 0 0 38,461
-------------------------------------------------------------------------------------------------------------------------------
Edward F. X. Gallagher 52,500 54,659 0 0 0 0 107,159
-------------------------------------------------------------------------------------------------------------------------------
Stanley J. Grubel 60,000 54,659 0 0 0 0 114,659
-------------------------------------------------------------------------------------------------------------------------------
Manuel J. Iraola 48,333 50,224 0 0 0 0 98,557
-------------------------------------------------------------------------------------------------------------------------------
E. Michel Kruse 65,000 54,659 0 0 0 0 119,659
-------------------------------------------------------------------------------------------------------------------------------
Jeffrey D. Tranen 52,500 54,659 0 0 0 0 107,159
-------------------------------------------------------------------------------------------------------------------------------
Ernest R. Verebelyi 35,833 37,895 0 0 0 0 73,728
-------------------------------------------------------------------------------------------------------------------------------
----------
(1) FEES EARNED OR PAID IN CASH. Amounts shown in this column include fees
paid to the independent Directors for service on the Board under an annual
retainer fee arrangement along with fees paid on an annual retainer basis
for service in a leadership capacity related to the Board's activities.
Independent Directors receive no other current period cash compensation
for service on the Board.
(2) STOCK AWARDS. The "Stock Awards" column shows the aggregate dollar amount
recognized for financial statement reporting purposes for the fiscal year
ending December 31, 2006, with respect to phantom stock credited to the
account of each Director under the Directors and Executives Deferred
Compensation Plan. The phantom stock was credited in four equal
installments to the account of each person serving as an independent
Director at the time when the particular quarterly installment was
credited. The dollar amount reported in the Stock Awards column was
determined under FAS 123R using the fair market value of the Corporation's
Common Stock on the date each credit was made. The amount reported in this
column also equals the grant date fair
46
value of the phantom stock awards under FAS 123R. For more information
about these phantom stock credits, please refer to the narrative
description of the Director compensation program that follows this table.
The total number of phantom shares of the Corporation's Common Stock
credited to the account of each Director under the Directors and
Executives Deferred Compensation Plan as of December 31, 2006, is listed
below:
THE TOTAL NUMBER OF PHANTOM
SHARES CREDITED TO THE ACCOUNT
NAME OF EACH DIRECTOR AS OF 12/31/2006
---- ---------------------------------
Margarita K. Dilley ............... 2,291
Steven M. Fetter .................. 4,113
Heinz K. Fridrich ................. 0
Edward F. X. Gallagher ............ 5,068
Stanley J. Grubel ................. 4,639
Manuel J. Iraola .................. 1,065
E. Michel Kruse ................... 3,973
Jeffrey D. Tranen ................. 3,410
Ernest R. Verebelyi ............... 784
(3) OPTION AWARDS. The Corporation did not recognize any amount for financial
statement reporting purposes for the fiscal year ending December 31, 2006,
with respect to outstanding Director stock options. The outstanding stock
options held by our Directors are listed below. The stock options were
granted with an exercise price equal to the fair market value of the
underlying shares on the date of grant. The stock options were fully
vested on the date of grant.
# OF SHARES UNDERLYING STOCK # OF SHARES UNDERLYING STOCK
NAME OPTIONS GRANTED ON 1/1/2003 OPTIONS GRANTED ON 1/1/2001
---- --------------------------- ---------------------------
Steven M. Fetter..................................... 1,000 N/A
Edward F. X. Gallagher............................... 1,000 3,000
Stanley J. Grubel.................................... 1,000 3,000
E. Michel Kruse...................................... 1,000 N/A
Exercise Price per Share:............................ $48.62 $44.06
DESCRIPTION OF DIRECTOR COMPENSATION PROGRAM
The Corporation's Director compensation program is designed to enhance the
Corporation's ability to attract and retain highly qualified Directors and to
align their interests with the long-term interests of the Corporation's
shareholders. The program consists of both a cash component, designed to
compensate independent Directors for their service on the Board and its
Committees, and an equity component, designed to align the interests of
independent Directors and shareholders. Mr. Lant receives no compensation for
his service on the Board.
CASH COMPENSATION. During 2006, the basic annual retainer paid to
independent Directors was $50,000 for the period January 1 through June 30, and
$55,000 for the period July 1 through December 31. The cash retainer is paid
quarterly in advance in four equal installments to each person serving as an
independent Director at the time when the particular quarterly payment is made.
Based on the above, the total basic annual retainer for 2006 amounted to
$52,500 for each independent Director serving for the full year, including
Margarita K. Dilley, Steven M. Fetter, Edward F. X. Gallagher, Stanley J.
Grubel, E. Michel Kruse, and Jeffrey D. Tranen. Those independent Directors who
did not serve for the entire year were paid amounts related to the basic annual
retainer that was in effect during their term of service during the year on a
pro-rata basis as measured from the initiation or termination of their service
during the year as the case may be. Independent Directors who were paid less
than the total annual retainer on this basis and the amounts that they were paid
are included in column (b) above as follows: Heinz K. Fridrich ($16,667), Manuel
J. Iraola ($48,333), and Ernest R. Verebelyi ($35,833).
47
Independent Directors who serve as a Committee Chair or as the Lead
Independent Director of the Board receive an additional annual retainer. The
capacities carrying the payment of an additional retainer along with the annual
amount of such additional annual retainer during 2006 were as follows: Lead
Independent Director ($7,500), Chair of the Audit Committee ($10,000), Chair of
the Governance and Nominating Committee ($7,500), Chair of the Compensation
Committee ($7,500), and Chair of the Strategy and Finance Committee ($7,500).
Such additional retainers are generally paid quarterly, in advance, and are
prorated based on the period of service of a Director during the year of a
Director in any of those capacities. Amounts included in column (b) above for
each of the Directors serving in any such capacity or capacities during 2006 are
as follows:
Margarita K. Dilley:............ Chair of the Audit Committee ($6,667)
Steven M. Fetter................ Chair of the Audit Committee ($3,333)
Chair of the Governance and Nominating Committee ($5,000)
Heinz K. Fridrich............... Lead Independent Director ($2,500)
Chair of the Governance and Nominating Committee ($2,500)
Stanley J. Grubel............... Chair of the Compensation Committee ($7,500)
E. Michel Kruse................. Lead Independent Director ($5,000)
Chair of the Strategy and Finance Committee ($7,500)
EQUITY COMPENSATION. During 2006, the equity component of annual
compensation for each independent Director was fixed at a number of phantom
shares of the Corporation's Common Stock having an aggregate value approximately
equal to an annual rate of $50,000 for the period January 1 through June 30 and
an annual rate of $55,000 for the period July 1 through December 31. These
shares are credited to each Director's account under the Directors and Executive
Deferred Compensation Plan. The program requires this credit to remain invested
in phantom shares until the termination of the Director's service on the Board
and to be paid only in cash after termination of Board service. The number of
phantom shares to be credited to each Director's account will be calculated on
the basis of the closing price of the Corporation's Common Stock on the first
Tuesday following the first Monday of January in each year (the number of
phantom shares credited for the period July 1 through December 31 was based on
the closing price of the Corporation's Common Stock on June 30, 2006). The
phantom shares were credited in four equal installments to the account of each
person serving as an independent Director at the time when the particular
quarterly installment was credited.
CHANGES TO DIRECTOR COMPENSATION PROGRAM. On May 25, 2006, after
conducting its annual review of Director compensation, the Board of Directors
approved an increase in the compensation paid to its independent Directors. The
Board increased the compensation for independent Directors, effective July 1,
2006, from an annual cash retainer of $50,000 and $50,000 in phantom shares, to
an annual cash retainer of $55,000 and $55,000 in phantom shares. The increases
were made pro-rata for the remainder of 2006. The increase was based on
recommendations from the Compensation Committee, which analyzed external
benchmarking data provided by the Hay Group. The increase offers a compensation
package that the Board believes is comparable with other relevant public
companies and serves to align Director and shareholder interests.
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN. An independent
Director also may elect to defer payment of all or part of the cash compensation
received as a Director under the Corporation's Directors and Executives Deferred
Compensation Plan. If the Director so elects, any deferred cash compensation may
be credited to a bookkeeping account of phantom shares, whose value is tied to
the value of the Corporation's Common Stock, or to other investment options
provided under the Directors and Executives Deferred Compensation Plan from time
to time. Compensation deferred in accordance with the Directors and Executives
Deferred Compensation Plan is paid to Directors (adjusted to reflect investment
earnings and losses) at the time the Director ceases being a member of the Board
of Directors, either in a lump sum or over a period of time depending on the
circumstances of cessation and/or distribution elections.
48
OTHER MATTERS
The Board of Directors does not know of any matters to be brought before
the Annual Meeting other than those referred to in the notice hereof. If any
other matters properly come before the Annual Meeting, it is the intention of
the persons named in the form of proxy to vote the proxy in accordance with
their judgment on such matters.
By Order of the Board of Directors,
Lincoln E. Bleveans
CORPORATE SECRETARY
March 1, 2007
49
ROUTE TO CH ENERGY GROUP, INC.
[MAP OMITTED]
FROM NEW YORK CITY AREA:
o Taconic State parkway North to
Interstate 84 (I-84)
o I-84 West to Exit 13 (Route 9)
o Turn right off ramp onto Route 9 North
o Route 9 approximately 12 miles to the
Academy Street / South Avenue Exit
o Bear left at end of ramp and go
under overpass
o Turn right into CH Energy Group, Inc.
entrance
FROM CONNECTICUT:
o I-84 West to Exit 13 (Route 9)
o Continue as above
FROM PENNSYLVANIA:
o I-84 East to Exit 13 (Route 9)
o Turn left off ramp onto Route 9 North
o Continue as above
FROM NEW JERSEY AND UPSTATE NEW YORK:
o New York State Thruway (I-87) to Exit 18 (New Paltz)
o Turn right onto Route 299
o Route 299 approximately 5 miles, turn
right onto Route 9W South
o Route 9W approximately 2 miles, bear
right for FDR/Mid-Hudson Bridge
o After crossing bridge take first right
(Route 9 South)
o Bear right off exit ramp into CH Energy
Group, Inc. entrance
|||||||||||||||||||||||||
[Graphic Omitted
ADMISSION TICKET
CH ENERGY GROUP, INC.
||||||||||||||||||||||||||||||||| C123456789
--
-- MR A SAMPLE 000004 000000000.000000 ext 000000000.000000 ext
-- DESIGNATION (IF ANY) 000000000.000000 ext 000000000.000000 ext
-- ADD 1 000000000.000000 ext 000000000.000000 ext
-- ADD 2
-- ADD 3 ELECTRONIC VOTING INSTRUCTIONS
-- ADD 4
-- ADD 5 YOU CAN VOTE BY INTERNET OR TELEPHONE!
-- ADD 6 AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK!
--
-- Instead of mailing your proxy, you may
-- ||||||||||||||||||||||||| choose one of the two voting methods
-- outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE
TITLE BAR.
PROXIES SUBMITTED BY THE INTERNET OR
TELEPHONE MUST BE RECEIVED BY 12:01 A.M.,
CENTRAL TIME, ON APRIL 16, 2007
VOTE BY INTERNET
[graphic omitted] o Log on to the Internet and go
to www.investorvote.com
o Follow the steps outlined on
the secured website.
VOTE BY TELEPHONE
[graphic omitted] o Call toll free 1-800-652-VOTE
(8683) within the United
States, Canada & Puerto Rico
any time on a touch tone
telephone. There is NO CHARGE
to you for the call.
o Follow the instructions
provided by the recorded
message.
Using a black ink pen, mark your votes with an X
as shown in this example. Please do not write
outside the designated areas. [X]
================================================================================
ANNUAL MEETING PROXY CARD 123456 C0123456789 12345
================================================================================
o IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. o
--------------------------------------------------------------------------------
[A] PROPOSALS - THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL THE NOMINEES
LISTED AND FOR PROPOSALS 2 - 5.
1. Election of Class I Directors 2010: FOR WITHHOLD FOR WITHHOLD
[ ] [ ] [ ] [ ] +
01 - Steven V. Lant 02 - Jeffrey D. Tranen
[B] ISSUES
2. In their discretion, upon such other business as may properly come before
the annual meeting or any adjournment or postponement thereof.
MEETING ATTENDANCE
Mark the box to the right if you plan to [ ]
attend the Annual Meeting.
ANNUAL REPORT
Mark the box to the right if you would
like to stop receiving an Annual Report. [ ]
CHANGE OF ADDRESS - Please print new address below. COMMENTS - Please print your comments below.
----------------------------------------------------------- -----------------------------------------------------------
----------------------------------------------------------- -----------------------------------------------------------
[C] AUTHORIZED SIGNATURES - THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. - DATE AND SIGN BELOW
Please sign exactly as name(s) appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, corporate officer, trustee,
guardian, or custodian, please give full title.
Date (mm/dd/yyyy) - Please print date below. Signature 1 - Please keep signature within the box.
---------------------------------------------------------- -----------------------------------------------------------
/ /
/ /
---------------------------------------------------------- -----------------------------------------------------------
Signature 2 - Please keep signature within the box.
----------------------------------------------------------
----------------------------------------------------------
MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE
[Graphic Omitted] C 1234567890J JNT 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
1 U P X 0 1 1 9 3 0 1 MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +
ADMISSION TICKET
ANNUAL MEETING OF SHAREHOLDERS
April 24, 2007, 10:30 a.m.
CH ENERGY GROUP, INC.
284 South Avenue, Poughkeepsie, NY
--------------------------------------------------------------------------------
AGENDA
- Election of Directors
--------------------------------------------------------------------------------
IT IS IMPORTANT THAT ALL SHARES BE REPRESENTED AT THIS MEETING,
WHETHER OR NOT YOU ATTEND THE MEETING IN PERSON.
TO MAKE SURE ALL SHARES ARE REPRESENTED,
WE URGE YOU TO COMPLETE AND MAIL THE PROXY CARD BELOW.
--------------------------------------------------------------------------------
If planning to attend the Annual Meeting,
please mark the appropriate box on the reverse side.
Present this Admission Ticket to the representative
at the entrance to the Annual Meeting room.
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o IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. o
[Graphic Omitted]
CH ENERGY GROUP, INC.
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PROXY - CH ENERGY GROUP, INC.
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PROXY OF COMMON SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MARGARITA K. DILLEY, STEVEN M. FETTER, STANLEY
J. GRUBEL and E. MICHEL KRUSE, or any one or more of them, as proxy, with full
power of substitution, to vote, as designated on the reverse hereof, all shares
of Common Stock owned of record by the undersigned on March 1, 2007, at the
Annual Meeting of Shareholders of CH Energy Group, Inc. to be held at the office
of the Corporation, 284 South Avenue, in the City of Poughkeepsie, Dutchess
County, New York, on April 24, 2007, or any adjournment thereof, upon all such
matters as may properly come before the meeting, including the following
proposal described in the Proxy Statement, dated March 1, 2007, a copy of which
has been received by the undersigned.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED WITH REGARD TO
ELECTION OF DIRECTORS. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF THE LISTED NOMINEES FOR ELECTION AS DIRECTORS.
You may vote the shares held in this account by telephone or electronically
using the Internet. Voting by telephone or using the Internet will eliminate the
need to mail voted proxy card(s) representing shares held in the account;
therefore if voting using the Internet or by telephone, please do not mail your
card. Both voting systems preserve the confidentiality of every vote and will
confirm the voting instructions with you.You may also change selections on any
or all of the proposals to be voted. To vote by telephone or using the Internet,
please have this proxy card and your social security number available. Please
follow the steps below.
As an added convenience, you may sign up to receive next year's annual report
and proxy materials via the Internet. Next year when the materials are
available, we will send you an e-mail with instructions which will enable you to
review these materials on-line. To sign up for this optional service, visit
www.copmutershare.com/us/ecomms.
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