SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use Of The Commission Only (As Permitted By Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
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)(4) 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.
[_] 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 10, 2006
To the Holders of Shares of Common Stock:
I am pleased to invite you to the 2006 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 25, 2006, 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/us/proxy. 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
17, 2006. 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
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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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 a.m. on Tuesday, April 25, 2006
PLACE ........... Office of the Corporation
284 South Avenue
Poughkeepsie, New York 12601-4879
ITEMS OF BUSINESS (1) To elect three Directors, each to serve for a
three-year term expiring in 2009;
(2) To approve the adoption of the Corporation's
Long-Term Equity Incentive Plan;
(3) To ratify the appointment of PricewaterhouseCoopers
LLP as the Corporation's independent registered
public accounting firm for 2006; and
(4) 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, 2006, 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/us/proxy. 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 17, 2006. 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 10, 2006
TABLE OF CONTENTS
PAGE
----
PROXY STATEMENT ............................................................ 1
CURRENT DIRECTORS, CLASSES, AND TERMS OF OFFICE ............................ 3
PROPOSAL NO. 1 - ELECTION OF DIRECTORS ..................................... 4
GOVERNANCE OF THE CORPORATION .............................................. 8
REPORT OF THE AUDIT COMMITTEE .............................................. 17
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION ............. 19
EXECUTIVE COMPENSATION ..................................................... 23
PROPOSAL NO. 2 - APPROVAL OF THE ADOPTION OF THE CORPORATION'S
LONG-TERM EQUITY INCENTIVE PLAN ........................... 32
PROPOSAL NO. 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM ......................... 43
OTHER MATTERS .............................................................. 44
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 25, 2006 (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 10, 2006. 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, 2006. 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/us/proxy, 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 (i) the election of directors, (ii)
approval of the Corporation's Long-Term Equity Incentive Plan, and (iii)
ratifying the appointment of Pricewaterhouse Coopers LLP as the Corporation's
independent registered public accounting firm for 2006.
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 "PROPOSAL NO. 1 - ELECTION OF
DIRECTORS," "FOR" THE APPROVAL OF THE CORPORATION'S LONG-TERM EQUITY INCENTIVE
PLAN AS SET FORTH UNDER "PROPOSAL NO. 2 - APPROVAL OF THE ADOPTION OF THE
CORPORATION'S LONG-TERM EQUITY INCENTIVE PLAN," AND "FOR" THE RATIFICATION OF
THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AS SET
FORTH UNDER "PROPOSAL NO. 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM" HEREIN.
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.
1
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/us/proxy, 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.
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 COMMUNICATIONS
Highlights of the 2006 Annual Meeting of Shareholders will be published on
the Corporation's Internet site at www.chenergygroup.com and in the
Corporation's May 2006 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 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.
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.
2
The Lead Independent Director of the Board of Directors, Heinz K. Fridrich,
is an independent Director and has been designated by the Board to preside at
the executive sessions of the non-management Directors. Mr. Fridrich will be
stepping down as Lead Independent Director at the 2006 Annual Meeting of
Shareholders, as he has reached the age at which the Corporation's By-laws
provide that he may not stand for reelection. The Board, at the Annual Meeting
of the Board of Directors, will elect a new Lead Independent Director to serve
for a one-year term.
If interested parties wish to make a concern known to the non-management
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. Each such
writing submitted in accordance with these procedures will be communicated
directly to the Lead Independent Director of the Board.
SHAREHOLDER PROPOSALS
A shareholder who would like to have a proposal included in the
Corporation's 2007 Proxy Statement must submit the proposal so that the
Corporate Secretary receives it no later than November 11, 2006. The rules of
the Securities and Exchange Commission 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 2007
Annual Meeting of Shareholders to give the Corporation advance written notice
thereof no earlier than January 25, 2007, and no later than February 24, 2007.
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
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Edward F. X. Gallagher
Steven V. Lant
Jeffrey D. Tranen
CLASS II - 2008
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Margarita K. Dilley
Steven M. Fetter
Stanley J. Grubel
CLASS III - 2006
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Heinz K. Fridrich
E. Michel Kruse
On February 6, 2006, the Board of Directors increased the number of
Directors by one to a total of nine, and elected Mr. Manuel J. Iraola as a
Director. Mr. Iraola, as a Director elected by the Board, serves without a class
designation until the Annual Meeting. If elected at the Annual Meeting, Mr.
Iraola will be a Class III Director with a term expiring at the Annual Meeting
of Shareholders in 2009. Heinz K. Fridrich, a Class III Director, will not be
3
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. Mr.
Ernest R. Verebelyi is a nominee, proposed by the Board of Directors, for
election as a Class III Director with a term expiring at the Annual Meeting of
Shareholders in 2009. If elected, Mr. Verebelyi will fill the seat vacated by
Mr. Fridrich.
The nominees for these Directorship positions are set forth in Proposal No.
1 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.
PROPOSAL NO. 1 - 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 III - 2009
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E. Michel Kruse
Manuel J. Iraola
Ernest R. Verebelyi
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
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VOTE "FOR" THIS PROPOSAL NO. 1.
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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, except Mr. Verebelyi, 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 III DIRECTORS SERVING FOR A TERM EXPIRING IN 2009
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Manuel J. Iraola ....... Chairman, President and Chief Director 2006
57 Executive Officer, The Aloaris
Group, 2002-present; President,
Phelps Dodge Industries, 1995-
[GRAPHIC OMITTED] 2002
Coral Gables, FL
4
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
------------ --------------------------------- ------------------------- --------------
E. Michel Kruse ........ Retired; Chairman and Senior Director; Chairman of the 2002
61 Advisor - Financial Institutions Strategy and Finance
Group of UBS Warburg, 2000-2002; Committee of the
Chief Executive of BHF- Bank AG, Board of Directors
[GRAPHIC OMITTED] Frankfurt, Germany, 1997-1999;
Chief Financial Officer and Vice
Chairman of the Board of The
Chase Manhattan Corporation,
1992-1996
Greenwich, CT
Ernest R. Verebelyi .... Non-executive Chairman, Nominee for Director --
57 Columbus McKinnon
Corporation, 2005-present;
President-Americas, Terex
[GRAPHIC OMITTED] Corporation, 2002-2001,
President-Americas and
Mining, Terex Corporation,
2001
Westport, CT
INCUMBENT CLASS I DIRECTORS SERVING FOR A TERM EXPIRING IN 2007
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Edward F. X. Gallagher Retired; Chairman of a group Director 1999; served
72 of transportation companies, as a Director
including Gallagher Truck of Central
[GRAPHIC OMITTED] Center, Leprechaun Lines, Hudson
and TLC Tours, 1961-2005 beginning in
Newburgh, NY 1984 (2)
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
------------ --------------------------------- ------------------------- --------------
Steven V. Lant ......... Present positions since April 2004; Chairman, President and 2002
48 President and Chief Executive Chief Executive Officer of
Chief Executive Officer of the Corporation; Chairman
[GRAPHIC OMITTED] Officer of the Corporation, the and Chief Executive
Corporation; Chairman 2003-2004; Officer of Central Hudson;
Chief Operating and Chief Chairman, President and
Executive Officer and Chief Chief Executive Officer
Financial Officer of Central of CHEC; Director of
Hudson; Officer of the the Corporation, of
Corporation, Chairman, President Central Hudson, and
and 2002-2003; Chief Financial of CHEC
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 ("CH
Services"), 2001-2002; Chief of
CHEC Financial Officer and
Treasurer of the Corporation, of
Central Hudson, and of CH
Services, 1999-2001
Poughkeepsie, NY
Jeffrey D. Tranen ...... Senior Managing Director, Lexecon, Director 2004
59 an FTI Company, MA; Director,
Doble Engineering Company, MA;
Director, Oglethorpe Power
[GRAPHIC OMITTED] Corporation, GA, 2000-2004;
Director, Earthfirst
Technologies Incorporated, FL,
2001-2002; President and Chief
Operating Officer, Sithe
Northeast Inc., New York,
1999-2000; President and Chief
Executive Officer, California
Independent System Operator, CA,
1997-1999; President, New
England Power Company, 1993-1997
New York, NY
INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 2008
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Margarita K. Dilley .... Consultant; Vice President, Chief Director 2004
48 Financial Officer, and Director
of Astrolink International LLC,
1998-2004; Director of Strategy
[GRAPHIC OMITTED] & Corporate Development and
Treasurer of INTELSAT, 1992-
1998; Treasurer, Comsat
Corporation, 1987-1992
Washington, D.C.
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
------------ --------------------------------- ------------------------- --------------
Steven M. Fetter ...... President, Regulation UnFettered; Director; Chairman of the 2002
53 Board member and former Chairman Audit Committee of the
of the National Regulatory Research Board of Directors
Institute (at Ohio State University);
[GRAPHIC OMITTED] 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; Chairman of 1999;
63 Technologies, Inc., CA; Vice the Compensation served as
President and General Manager, Committee of the a Director
Philips Semiconductor Board of Directors of Central
[GRAPHIC OMITTED] Manufacturing, Inc., 2000-2001; Hudson
Chief Executive Officer, MiCRUS, beginning in
1995-2000 1999(2)
Irvington, NY
------------------------------
(1) Based on information furnished to the Corporation as of December 31, 2005.
(2) Resigned as a Director of Central Hudson, effective December 15, 1999, when
Central Hudson became a subsidiary of Energy Group.
7
GOVERNANCE OF THE CORPORATION
The Board of Directors has nine members.
During 2005, the Board of Directors held seven meetings and the Committees
held a total of twenty-six meetings. No Director attended fewer than 75% of (i)
all of the Board meetings held in the last year or (ii) the total number of
meetings held by all Committees of the Board on which any Director served. All
Directors serving on each of 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 and the Compensation
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 Securities and Exchange Commission 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;
(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
8
(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, charitable and
educational 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) 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 Mr. Steven 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.
9
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. Based on
the recommendation of the Governance and Nominating Committee, the Executive
Committee designated by the Board of Directors at the 2003 Annual Meeting of the
Board, although permitted by the By-laws, was dissolved by Board action on April
26, 2004. The Board of Directors has not designated an Executive Committee to
serve since that date.
AUDIT COMMITTEE
The members of the Audit Committee are Margarita K. Dilley, Steven M.
Fetter, Heinz K. Fridrich, and Edward F. X. Gallagher. Mr. Fetter is the
Chairman of the Audit Committee. The Audit Committee met nine times in 2005. The
Chairman of the Audit Committee and other members of the Audit Committee also
met telephonically prior to the issuance of the Corporation's first quarter 2005
and second quarter 2005 earnings releases to discuss those releases. The
Committee subsequently decided to consider discussions of this kind as meetings
of the Committee, beginning with the Committee's discussions of the third
quarter 2005 earnings release.
The Board of Directors has determined that these Committee members have no
material relationships 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 Board of Directors has determined that Margarita K. Dilley meets the
Securities and Exchange Commission 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 17 of this proxy
statement.
The Audit Committee operates under a written Charter which sets out the
functions and responsibilities 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, and Jeffrey D. Tranen. Mr. Grubel is the Chairman of the Compensation
Committee. The Compensation Committee met nine times in 2005.
The Board of Directors has determined that these Committee members have no
material relationships 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 functions of the Compensation Committee are (a) to assist the Board of
Directors in its oversight of the executive and Director compensation and
benefits programs of the Corporation and (b) to produce, in accordance with the
rules of the Securities and Exchange Commission, an annual report on executive
compensation for inclusion in the Corporation's annual proxy statement.
The Compensation Committee operates under a written Charter which sets out
the functions and responsibilities of this Committee. A copy of the Charter is
available on the Corporation's Internet site at www.chenergygroup.com
10
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, Heinz K. Fridrich, and E. Michel Kruse. Mr. Fridrich is the Chairman of
the Governance and Nominating Committee. The Governance and Nominating Committee
met four times in 2005.
The Board of Directors has determined that these Committee members have no
material relationships 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 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 and responsibilities 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 Chairman of the Strategy and Finance Committee.
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 and responsibilities 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. In
this connection, Mr. Manuel J. Iraola, who was recently elected as a Director of
the Corporation and who is standing for election as a Class III Director at this
Annual Meeting, and Mr. Ernest R. Verebelyi, a nominee standing for election as
a Class III Director at this Annual Meeting, were each recommended to the
Governance and Nominating Committee by the professional search firm of Russell
Reynolds Associates, Inc. as a potential candidate for election to the Board.
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
11
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 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, except
for Mr. Iraola, attended the 2005 Annual Meeting of Shareholders. Mr. Iraola
became a member of the Board of Directors in February 2006.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Only independent Directors served on the Compensation Committee in 2005.
Mr. Grubel served as the Chairman of the Compensation Committee in 2005. Ms.
Dilley and Mr. Tranen continue to be members of the Compensation Committee. No
inside Directors serve on this Committee. No Compensation Committee interlock
relationships existed in 2005 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 regulations. The
Code of Business Conduct and Ethics, adopted by the Board of Directors, states
the guiding principles
12
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 Securities and Exchange Commission 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 Securities and
Exchange Commission 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.
COMPENSATION OF DIRECTORS OF THE BOARD
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 non-employee Directors for their service on the Board and its
Committees, and an equity component, designed to align the interests of
non-employee Directors and shareholders. Directors who are employees of the
Corporation receive no compensation for their services on the Board.
CASH COMPENSATION. Each non-employee Director is entitled to receive an
annual cash retainer of $50,000. The cash retainer is paid quarterly in advance
in four equal installments to each person serving as a non-employee Director at
the time when the particular quarterly payment is made.
Non-employee Directors who serve as a Committee Chair or Lead Independent
Director of the Board receive an additional annual retainer. Mr. Fridrich
received an annual retainer in the amount of $7,500 for his service as Lead
Independent Director of the Board and an annual retainer of $7,500 for his
service as Chairman of the Governance and Nominating Committee. Mr. Grubel
received an annual retainer of $7,500 for his service as Chairman of the
Compensation Committee. Mr. Fetter received an annual retainer of $10,000 for
his service as Chairman of the Audit Committee. Mr. Kruse received an annual
retainer of $7,500 for his service as Chairman of the Strategy and Finance
Committee.
EQUITY COMPENSATION. The equity component of annual compensation for each
non-employee Director is fixed at a number of phantom shares of the
Corporation's Common Stock having an aggregate value approximately equal to
$50,000. 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 phantom shares will be credited in four equal
installments to the account of each person serving as a non-employee Director at
the time when the particular quarterly installment is credited.
13
For additional information regarding the Directors and Executives Deferred
Compensation Plan, please see the subcaption "Directors and Executives Deferred
Compensation Plan" at page 26 of this proxy statement.
STOCK PLAN FOR OUTSIDE DIRECTORS
In 2003, the Corporation amended the Stock Plan for Outside Directors
("Stock Plan") to provide that no further benefits would be earned under the
Stock Plan for service as a non-employee Director following July 1, 2003. In
addition, the Stock Plan was amended to provide each current non-employee
Director with a one-time opportunity to elect to receive, in lieu of receiving
any benefits under the Stock Plan, a credit of phantom shares of Common Stock to
his or her account under the Directors and Executives Deferred Compensation
Plan, which credit was in an amount equal to the actuarial equivalent of the
benefits he or she had earned under the Stock Plan. All of the then-current
non-employee Directors elected to receive the phantom shares of Common Stock.
Therefore, the Stock Plan currently is maintained solely for the benefit of
non-employee Directors who retired from the Board prior to July 1, 2003. The
Stock Plan was also amended to provide that all distributions to those retired
non-employee Directors will be made in cash rather than in shares of Common
Stock. Six former Directors continue to receive benefits under this plan.
For additional information, see the subcaption "Directors and Executives
Deferred Compensation Plan" at page 26 of this proxy statement.
LONG-TERM PERFORMANCE-BASED INCENTIVE PLAN
The Corporation's Long-Term Performance-Based Incentive Plan, approved by
shareholders at the 2000 Annual Meeting of Shareholders and subsequently
amended, became effective January 1, 2000 (as amended, the "Incentive Plan").
The purposes of the Incentive Plan are to provide key executives with long-term
compensation incentives that are tied to performance and to create increased
shareholder value, and for non-employee Directors, to provide additional equity
compensation. With respect to non-employee Directors, the Incentive Plan
permits, upon authorization of the Compensation Committee, an annual grant of a
non-qualified stock option for the purchase of 1,000 shares of Common Stock to
each non-employee Director. If such grant were made, the option would have an
exercise price equal to the fair market value of Common Stock on the date of
grant, would have a term of ten years, and would have been exercisable on and
after the date of grant. The Compensation Committee has determined that,
consistent with the Corporation's goals and objectives, it will likely be more
appropriate in the future for non-employee Directors to receive phantom shares
of Common Stock under the Directors and Executives Deferred Compensation Plan
rather than stock options pursuant to the Incentive Plan. For additional
information, see the subcaption "Compensation of Directors of the Board" on page
13 of this proxy statement and the subcaption "Directors and Executives Deferred
Compensation Plan" at page 26 of this proxy statement.
The Board of Directors of the Corporation has adopted a Long-Term Equity
Incentive Plan and is submitting the adoption of that plan to the shareholders
for approval at the Annual Meeting. Upon shareholder approval of the
Corporation's Long-Term Equity Incentive Plan, the Long-Term Performance-Based
Incentive Plan will terminate and no new awards will be granted under such plan,
although outstanding awards granted under the plan will continue in accordance
with their terms and the provisions of the Long-Term Performance-Based Incentive
Plan.
14
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, each executive officer
listed in the table 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 .................................. 2,310 Less than 1%
Heinz K. Fridrich ................................. 8,799 Less than 1%
Edward F. X. Gallagher ............................ 8,157 Less than 1%
Stanley J. Grubel ................................. 5,750 Less than 1%
E. Michel Kruse ................................... 1,100 Less than 1%
Steven V. Lant (7) ................................ 12,018 Less than 1%
Jeffrey D. Tranen ................................. 0 Less than 1%
Christopher M. Capone ............................. 56 Less than 1%
Joseph J. DeVirgilio, Jr. (7) ..................... 4,150 Less than 1%
Carl E. Meyer (7) ................................. 8,353 Less than 1%
Arthur R. Upright ................................. 4,176 Less than 1%
Barclays Global Investors, NA (4) ................. 892,018 5.66%
Gabelli Asset Management Inc. (5) ................. 1,495,150 9.24%
Manulife Financial Corporation (6) ................ 1,061,622 6.73%
All Directors and Executive Officers as a Group
(15 Persons) .................................... 59,105 Less than 1%
----------------------------
(1) Based on information furnished to the Corporation by the Directors and
executive officers of the Corporation as of December 31, 2005.
(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. Fridrich (4,000); Mr. Gallagher (4,000); Mr. Grubel
(4,000); Mr. Kruse (1,000); Mr. Lant (6,960); all other executive officers
as a group (8,260).
(3) The percentage ownership calculation for each beneficial owner has been
made on the basis of the amount of outstanding shares of the Corporation's
Common Stock as of the record date.
(4) Based upon a Schedule 13G filed with the Securities and Exchange Commission
on January 26, 2006, by Barclays Global Investors, NA on behalf of:
Barclays Global Investors, NA, Barclays Global Fund Advisors, Barclays
Global Investors, Ltd, and Barclays Global Investors Japan Trust And
Banking Company Limited. As reported on said Schedule 13G, as of December
31, 2005, the Corporation's Common Stock is beneficially owned as follows:
Barclays Global Investors, NA--526,156 (3.34%) and Barclays Global Fund
Advisors, 365,862 (2.32%). 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 Securities and
Exchange Commission on February 9, 2006, on behalf of Barclays Bank PLC and
other entities, reporting as of December 31, 2005, the Corporation's Common
Stock is beneficially owned as follows: Barclays Bank PLC--23,154 (0.15%).
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 Securities and Exchange
Commission 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 on said Schedule 13 D/A,
as of September 30, 2002, the Corporation's Common Stock is beneficially
owned as follows: Gabelli Funds--369,400 (2.28%), GAMCO--1,116,250 (6.90%),
Gabelli Foundation, Inc.--6,000 (0.04%), Gabelli & 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,
15
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 Securities and Exchange Commission on February 9, 2006. As reported on
said Schedule 13G/A, as of December 31, 2005, the Corporation's Common
Stock is beneficially owned as follows: Manulife Financial Corporation's
indirect wholly owned subsidiaries John Hancock Advisers, LLC--1,056,200
(6.7%) and MFC Global Investment Management (U.S.A.) Limited--5,422
(0.03%). Manulife Financial Corporation does not have the authority to vote
the shares held by either of John Hancock Advisers, LLC or MFC Global. 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.
(7) Certain of the named executives have deferred compensation under a benefit
plan and hold phantom shares. Such shares are not reflected on this table
as they are payable only in cash. For further information concerning these
holdings, see footnote 5 to the Summary Compensation Table.
STOCK EQUIVALENTS OWNERSHIP OF DIRECTORS
The following table sets forth the number of phantom shares of Common
Stock, as of December 31, 2005, credited to the accounts of the Corporation's
participating non-employee Directors under the Directors and Executives Deferred
Compensation Plan, including reinvested dividends (rounded to the nearest whole
number). 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 "Directors and
Executives Deferred Compensation Plan" at page 26 of this proxy statement.
NAME NUMBER OF PHANTOM SHARES
---- ------------------------
Margarita K. Dilley .................... 1,082
Steven M. Fetter ....................... 2,825
Heinz K. Fridrich ...................... 3,749
Edward F. X. Gallagher ................. 3,739
Stanley J. Grubel ...................... 3,329
Manuel J. Iraola ....................... 0(a)
E. Michel Kruse ........................ 2,692
Jeffrey D. Tranen ...................... 4,217
Total (b) (c) .......................... 21,633
------------------------
(a) The data in this table is as of December 31, 2005. Mr. Iraola became a
director on February 6, 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 non-employee
Directors (7 persons) is less than 1% of the outstanding shares of Common
Stock, both percentages calculated as of the record date.
(c) Mr. Lant is an employee-Director, and is therefore not included in the
above table because Mr. Lant does not receive compensation for his service
as a Director of the Corporation.
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
Companies are the principal underwriters of the current coverage, which extends
until June 1, 2006. The annual cost of this coverage is approximately $988,000.
16
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.
The members of the Audit Committee are Margarita K. Dilley, Steven M.
Fetter, Heinz K. Fridrich, and Edward F. X. Gallagher. Mr. Fetter is the
Chairman of the Audit Committee. The Audit Committee had nine meetings during
2005.
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 Securities and Exchange
Commission.
In 2005, 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 Securities and
Exchange Commission.
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 2005, 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.
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
17
financial statements be included in the Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 2005, for filing with the Securities and
Exchange Commission.
Steven M. Fetter, Chairman
Margarita K. Dilley
Heinz K. Fridrich
Edward F. X. Gallagher
The Audit Committee also considered whether the provision of services for
which fees were paid under the captions "Audit-Related Fees," "Tax Fees," and
"All Other Fees" is compatible with maintaining the independence of
PricewaterhouseCoopers LLP.
The Audit Committee has appointed PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as the Corporation's independent
public accountants for 2006. Although shareholder approval of the Audit
Committee's appointment is not required by law, the Board of Directors believes
that it is good corporate governance to give shareholders an opportunity to
ratify this selection. If this proposal is not approved at the Annual Meeting,
the Audit Committee may reconsider its selection.
Even if the appointment is ratified, the Audit Committee may, in its
discretion, change the appointment at any time during the year if it determines
that such a change would be in the best interests of the Corporation and its
shareholders.
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 2005 and 2004 is provided below:
PRINCIPAL ACCOUNTING FEES AND SERVICES
PRICEWATERHOUSECOOPERS LLP 2005 2004
-------------------------- -------- ---------
Audit Fees .............................................................. $712,000 $535,100
Audit-Related Fees
Includes accounting research (2005) and SEC comment letter
review (2004) ....................................................... $26,000 $20,000
Tax Fees
Includes review of consolidated federal and state income tax returns
and tax research .................................................... $25,000 $44,800
-------- ---------
All Other Fees
Includes software licensing fee for accounting research tool and
consultation regarding competitive business subsidiaries (2004) ..... $1,500 $2,300
TOTAL ................................................................... $764,500 $602,200
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 will confirm that the
recommended non-audit services are 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.
18
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 Chairman 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 2005, 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."
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed entirely
of persons determined by the Corporation's Board of Directors to be independent
directors under the applicable standards of Section 303A of the New York Stock
Exchange Listed Company Manual and the Corporation's categorical standards of
independence. Each member of the Compensation Committee also qualifies as (i) a
non-employee director under Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended and (ii) as an outside director for
purposes of Section 162(m) of the Internal Revenue Code. The Compensation
Committee submits this report to summarize the policies that the Committee
applied in making executive compensation decisions with respect to 2005.
COMPENSATION OBJECTIVES AND METHODOLOGY
The Compensation Committee seeks to achieve an executive compensation
program that attracts, retains, and motivates executive officers to create
long-term shareholder value. The design of the executive compensation program is
intended to incorporate base salary, annual short-term incentives, long-term
incentives, and retirement benefits which, in aggregate, result in a total
remuneration program that is approximately at the median for persons with
similar responsibilities in the relevant competitive marketplace.
In consultation with an independent compensation consulting firm, the
Compensation Committee annually reviews data from proxy statements and the
consulting firm's independent database to assess the Corporation's relative
competitive position on the following components of executive compensation:
o base salary;
o annual short-term incentives; and
o long-term incentives.
In making this assessment of relative compensation levels in the
marketplace, the Compensation Committee recognizes that job responsibilities of
persons with particular titles may vary substantially from company to company,
and that a person's title is not necessarily descriptive of a person's duties.
In this regard, and to provide an appropriate breadth of information on
compensation levels and types of job responsibilities, the Compensation
Committee's independent consultant uses its own proprietary database to assess
the compensation practices of 37 electric and natural gas utilities and energy
services companies in the United States (the "Comparator Group") to identify for
the Committee the compensation levels being paid in the relevant competitive
marketplace to persons with responsibilities that are similar in scope to the
responsibilities of the Corporation's executive officers.
With respect to the compensation of each executive officer, the
Compensation Committee considers the person's level and complexity of
responsibility, experience and skills, and over-all performance in his or her
position. 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. After
reviewing these evaluations, and after making its own assessment of the
performance of each such executive officer, the Compensation Committee
recommends to the independent Directors on the Board, and the independent
Directors
19
approve, the compensation level for each such executive officer of the
Corporation. In 2005, the independent Directors of the Board did not reject, or
modify in any material way, any recommendation made to them by the Compensation
Committee.
COMPONENTS OF COMPENSATION
BASE SALARIES AND SHORT-TERM INCENTIVES
Base salaries for executives are determined on the basis of each person's
performance, job responsibilities, level of experience and skill, and
information received from the Corporation's independent consulting firm
regarding salaries paid to persons with comparable responsibilities at companies
in the Comparator Group. The Compensation Committee also gives attention to
maintaining appropriate internal salary relationships among the Corporation's
executive officers.
Short-term incentives are developed to reward achievement of each year's
business plan objectives and to promote achievement of the Corporation's
strategy of achieving long-term shareholder value. The intent is to offer senior
executives the opportunity to earn targeted incentive cash payments that are
calculated as a percentage of each person's annual base salary. These
percentages are determined by the Compensation Committee according to each
person's position and level of responsibility. In 2005, the targeted percentages
were set by the Compensation Committee in the range of 20% to 30% of the
applicable base salary for individual executive officers other than Mr. Lant.
These percentages of base salary can be earned as incentive cash payments if
incentive performance targets for the year are achieved. Performance is measured
according to target measures established each year for threshold performance,
targeted performance, and superior performance. 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 the established measures of performance. Each individual's
short-term 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 Compensation Committee establishes annual incentive performance targets
which are primarily quantitiative and financial in nature. For 2005, the targets
related to earnings per share and, at the subsidiary level, to the achievement
of specified operational milestones. The aggregate annual cash compensation,
consisting of salary and short-term incentive awards, for executive officers
other than Mr. Lant is targeted at approximately the median level of the cash
compensation paid to persons with similar responsibilities within the Comparator
Group.
LONG-TERM INCENTIVES
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.
For 2005, the Compensation Committee recommended to the independent
Directors on the Board, and the independent Directors agreed, that the long-term
incentives would consist solely of performance shares and that no stock options
would be issued. The number of performance shares granted to an executive
officer is based on a percentage of the individual's base salary that was in
effect at the beginning of the fiscal year. The percentages ranged, in 2005,
from 15% to 35% of the base salary for executive officers other than Mr. Lant.
These percentages are determined for each officer by the Committee according to
the person's position and level of responsibility, and are targeted at the
median amount of long-term incentive compensation that is available to persons
with similar responsibilities within the Comparator Group.
Payment of the performance shares granted in 2005 is based on the extent to
which the Corporation achieves two equally weighted performance goals during a
three-year performance cycle starting January 1, 2005, and ending December 31,
2007. The first performance goal is based on the Corporation's percentage growth
in earnings per share during the performance cycle as compared to the percentage
growth in earnings per share of the companies
20
in the Edison Electric Institute Index of combination natural gas and electric
investor-owned utilities (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 cycle 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 of Common Stock earned and paid will
range, according to the level of performance achieved, from 0% to 150% of the
performance shares granted. Cash dividends paid on the performance shares during
the performance cycle will be reinvested in additional performance shares,
subject to the Corporation's attainment of the performance goals described
above.
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.
Additional information concerning these performance shares is set forth on
page 35 herein.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Lant is the President, Chief Executive Officer and Chairman of the
Board of Directors of the Corporation. 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 for 2005. These
recommendations were approved by the independent Directors of the Board without
material modification.
The Compensation Committee's analysis took into consideration the salary,
short-term incentives, and long-term incentives provided to the chief executive
officers of companies in a peer group of 12 utility and energy companies
operating within the United States. The criteria for inclusion of companies in
this custom peer group were that a company have between 50% and 175% of this
Corporation's annual revenues and have at least 5% of its assets invested in
non-regulated businesses. This peer group was formed on the basis of advice and
information provided to the Compensation Committee by its independent
compensation consulting firm.
The Comparator Group used for other executive officers was not used for Mr.
Lant because (i) the Compensation Committee believed his responsibilities in the
position of Chief Executive Officer match-up well with the responsibilities of
chief executive officers of other public companies and (ii) the Compensation
Committee believed it more effective to develop a custom peer group of
companies, based on size of revenues and diversification of business activities,
that more closely corresponds to the market for executive talent perceived as
relevant to Mr. Lant's compensation.
The Comparator Group and the custom peer group are not the same as the
group of companies used in the EEI Index for comparing the Corporation's
five-year cumulative return (See page 30 herein). While the Committee believes
the EEI Index is appropriate for comparing shareholder returns, the Compensation
Committee believes the Comparator Group and the custom peer group are more
appropriate sources for information relevant to the competitive marketplace
facing the Corporation with respect to executive talent.
As Chief Executive Officer, Mr. Lant participates in the same programs and
receives compensation based on the same criteria as the other executive officers
of the Corporation. In addition, Mr. Lant's compensation also reflects the
greater policy and decision making 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 2005, the Compensation Committee also took into
consideration the relative size of the Corporation in relation to the other
companies in the custom peer group and the fact that Mr. Lant had served as
Chief Executive Officer for a relatively short period of time, I.E., since May
1, 2004.
BASE SALARY
Mr. Lant's base salary was $460,000 for 2005.
21
ANNUAL INCENTIVE COMPENSATION
For 2005, the target percentage of Mr. Lant's base salary used in
determining his annual short-term incentive award was 45%. This percentage was
applied to Mr. Lant's salary of $460,000. The annual incentive award to Mr. Lant
for 2005 is shown as his bonus amount in the Summary Compensation Table. In
addition to the factors discussed above, this bonus amount was based on the
Corporation's performance with respect to an earnings per share target and on
the Compensation Committee's assessment of Mr. Lant's responsiveness to problems
and opportunities.
LONG-TERM INCENTIVE COMPENSATION
For 2005, the target percentage of Mr. Lant's base salary used in
determining his long-term incentive award was 60% of his salary. On this basis,
Mr. Lant was granted 7,500 performance shares in 2005. Additional details
concerning these performance shares are set forth on page 20 herein.
SECTION 162(m) OF THE INTERNAL REVENUE CODE ("TAX CODE")
The Compensation Committee and the Board of Directors have considered the
federal income tax deduction limitations established under Section 162(m) of the
Tax Code, which provide that, unless an appropriate exemption applies, a federal
income tax deduction for the Corporation for remuneration of any officer named
in the caption "Executive Compensation" (See page 23 herein) will not be allowed
to the extent this remuneration in any taxable year exceeds $1 million. To the
extent Tax Code Section 162(m) would limit the Corporation's federal income tax
deductions, the Compensation Committee intends to qualify the performance-based
compensation of the Executive Officers for full deductibility whenever possible
and consistent with the goals of the Compensation Committee's policies.
Stanley J. Grubel, Chairman
Margarita K. Dilley
Jeffrey D. Tranen
22
EXECUTIVE COMPENSATION
The Summary Compensation Table set forth below includes compensation
information on the Chairman of the Board, President and Chief Executive Officer
and each of the Corporation's other four most highly compensated executive
officers whose salary and any bonus in 2005 exceeded $100,000 for services
rendered to the Corporation and its subsidiary or affiliated companies.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL -----------------------
COMPENSATION (g) (h)
------------------------------------ SECURITIES LTIP (i)
(b) (c) (d) UNDERLYING PAYOUTS ALL OTHER
YEAR SALARY($)(1) BONUS($)(2) OPTIONS(#)(3) ($)(4)(5) COMPENSATION($)(6)
---- ------------ ----------- ------------- --------- ------------------
STEVEN V. LANT, CHAIRMAN, 2005 $460,000 $388,125 0 $ 0 $ 7,000
President and Chief Executive 2004 $413,258 $171,105 0 $ 0 $ 6,500
Officer of the Corporation; 2003 $327,500 $205,000 4,400 $ 51,262 $ 6,000
Chairman and Chief Executive
Officer of Central Hudson;
Chairman, President and Chief
Executive Officer of CHEC
CARL E. MEYER, Executive 2005 $282,000 $111,672 0 $ 0 $ 7,000
Vice President of the 2004 $282,000 $ 62,816 0 $ 0 $ 6,500
Corporation and President 2003 $274,500 $105,786 3,600 $ 51,262 $ 6,000
and Chief Operating Officer
of Central Hudson
JOSEPH J. DEVIRGILIO, JR., 2005 $242,000 $108,900 0 $ 0 $ 7,000
Executive Vice President - 2004 $220,000 $ 49,088 0 $ 0 $ 6,500
Corporate Services and 2003 $207,875 $ 68,846 2,000 31,470 $ 6,000
Administration of the
Corporation and of Central
Hudson; Executive Vice
President of CHEC
ARTHUR R. UPRIGHT, Senior 2005 $219,000 $106,763 0 $ 0 $ 7,000
Vice President of the 2004 $210,000 $ 53,550 0 $ 0 $ 6,500
Corporation; Senior Vice 2003 $193,000 $ 66,625 2,000 31,470 $ 6,000
President - Regulatory
Affairs of Central Hudson
CHRISTOPHER M. CAPONE, 2005 $210,000 $ 94,500 0 $ 0 $ 6,972
Chief Financial Officer and 2004 $180,000 $ 45,900 0 $ 0 $ 5,760
Treasurer of the Corporation, 2003 $109,000 $ 81,731 0 $ 0 $ 4,081
of Central Hudson, and of
CHEC
-------------------------
(1) This base salary amount reflects salary earned by the named executives for
the applicable fiscal year and includes amounts deferred under (i) Central
Hudson's Flexible Benefits Plan, which Plan is established pursuant to
Section 125 of the Tax Code, which permits those electing to participate to
defer salary, within specified limits, to be applied to qualified medical
and/or child care benefit payments, (ii) Central Hudson's Savings Incentive
Plan ("SIP"), a "defined contribution" plan which meets the requirements of
the Tax Code, including Tax Code Section 401(k), which, among other things,
permits, within limits, participants to tax-defer base salary, and, within
limits, provides for Central Hudson contributions to participants, and
(iii) the Corporation's Directors and Executives Deferred Compensation Plan
(more fully described herein under the sub-caption "Directors and
Executives Deferred Compensation Plan").
23
(2) The bonus amounts include amounts deferred under the Corporation's
Directors and Executives Deferred Compensation Plan (more fully described
herein under the sub-caption "Directors and Executives Deferred
Compensation Plan").
(3) Indicates the number of shares of Common Stock underlying stock options
granted during the year.
(4) Indicates the dollar value of performance shares awarded, based on
achievement versus a defined index, multiplied by the closing price of
Common Stock on December 31 of the year in which a performance period
concludes, plus accrued dividends over the three-year performance period
then concluded. See footnote (1) to the table entitled "Long-Term Incentive
Plan -- Awards in Fiscal Year 2005."
(5) Certain of the named executives elected to defer certain of their 2003
Performance Share awards under the Directors and Executives Deferred
Compensation Plan, to be held as phantom shares under such plan. As of
December 31, 2005, the executives' phantom shares, including dividend
reinvestments pursuant to the plan and the Corporation's common stock price
at December 31, 2005, totalled: Mr. Lant, 1,174 shares ($53,870), Mr.
Meyer, 1,057 shares ($48,493), and Mr. DeVirgilio, 649 shares ($29,773).
The phantom shares, because they are payable only in cash, are not
otherwise reflected in the table captioned "Security Ownership of Directors
and Officers" on page 15. See page 26 for a description of the Directors
and Executives Deferred Compensation Plan.
(6) These are amounts contributed by Central Hudson under the SIP for the
benefit of the named individual.
No stock options were granted in fiscal year 2005.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2005 AND FISCAL YEAR END
OPTION VALUES
The following table sets forth information concerning the exercise of stock
options by the Corporation's named executive officers during the last fiscal
year and the value of unexercised options on an aggregated basis.
(a) (b) (c) (d) (e)
NUMBER OF
SHARES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN THE
NUMBER OF OPTIONS AT MONEY OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED (#) ($)
ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
---- -------- -------------- --------------- -----------------
Steven V. Lant ................. 0 0 6,960/1,760 19,087/--
Carl E. Meyer .................. 1,440 12,859 2,880/1,440 3,175/--
Joseph J. DeVirgilio, Jr. ...... 880 7,955 1,640/800 1,940/--
Arthur R. Upright .............. 880 9,222 1,640/800 1,940/--
Christopher M. Capone .......... 0 0 0 0
24
LONG-TERM INCENTIVE PLAN -- AWARDS (1) IN FISCAL YEAR 2005
The following table sets forth the number of Performance Shares awarded to
each of the named executive officers in 2005 under the Corporation's Long-Term
Performance-Based Incentive Plan:
(c)
(b) PERFORMANCE
NUMBER OF OR OTHER PERIOD ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICED BASED PLANS
(a) PERFORMANCE UNTIL MATURATION (d) (e) (f)
NAME SHARES OR PAYOUT THRESHOLD (#) TARGET (#) MAXIMUM (#)
---- ----------- ---------------- ------------- ---------- -----------
Steven V. Lant 7,500 January 1, 2008 0 7,500 11,250
Carl E. Meyer 2,500 January 1, 2008 0 2,500 3,750
Joseph J. DeVirgilio, Jr. 2,500 January 1, 2008 0 2,500 3,750
Arthur R. Upright 1,500 January 1, 2008 0 1,500 2,250
Christopher M. Capone 2,500 January 1, 2008 0 2,500 3,750
---------------------------
(1) 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 cycle starting January 1, 2005, and ending December
31, 2007. The first performance goal is based on the Corporation's
percentage growth in earnings per share during the performance cycle 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 cycle 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 level of performance achieved, from 0% to 150% of the performance
shares granted. Cash dividends paid on the performance shares during the
performance cycle will be reinvested in additional performance shares,
subject to the Corporation's attainment of the performance goals described
above. Columns (d), (e), and (f) do not include values associated with
reinvested dividends. An executive's right to receive the performance
shares and associated reinvested dividends will be forfeited if he or she
terminates employment with the Corporation and its affiliates for any
reason (other than his or her retirement) during the performance cycle or
before the performance goals are satisfied. If, however, an executive
retires during the performance cycle, he or she is entitled to receive a
pro-rated amount of performance shares based on his or her length of
employment during the performance cycle and on the Corporation's
performance from the beginning of the performance cycle through the end of
the calendar quarter last completed prior to the executive's retirement.
PENSIONS/DEFERRED COMPENSATION PLANS
THE CORPORATION'S RETIREMENT PROGRAM
Historically, the Corporation maintained a three-component retirement
program for executives. These components were 1) the Central Hudson Retirement
Income Plan (the "Retirement Plan"), which is a qualified plan that applies to
all Central Hudson employees, 2) the Central Hudson Retirement Benefit
Restoration Plan, a non-qualified plan for certain highly compensated employees
to provide retirement benefits above those permitted under the qualified plan,
and 3) the Supplementary Retirement Plan, a non-qualified plan intended to
incent executives to continue with the Corporation until at least age 60, and
preferably, age 65.
Over the past year, the Compensation Committee determined that it wished to
restructure the Corporation's retirement program to reduce complexity and align
the program more closely to comparable market practice. The new program consists
of 1) the Retirement Plan and 2) the Supplemental Executive Retirement Plan, a
non-qualified plan which targets benefits of 57% of applicable cash compensation
at age 61 with 30 years of service. Benefit accruals under the prior
non-qualified plans have been frozen.
A more detailed description of the plans that comprise the Corporation's
retirement program follows.
25
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
The Directors and Executives Deferred Compensation Plan applies to
Directors, officers, and other executives of the Corporation and of its
subsidiary companies. It permits the participants to elect to defer a percentage
of their compensation for services rendered to the Corporation and/or its
subsidiary companies. Under the Directors and Executives Deferred Compensation
Plan, compensation is defined to include (a) base salary, (b) certain bonuses
and performance shares, and (c) Directors' fees for services rendered as a
member of the Board of Directors and any Committee of the Board. The Corporation
can make discretionary contributions to the Directors and Executives Deferred
Compensation Plan. Compensation deferred in accordance with the Directors and
Executives Deferred Compensation Plan is paid to Directors and officers
(adjusted to reflect investment earnings and losses) at the time the Director or
officer ceases being a member of the Board of Directors or an officer of the
Corporation or its subsidiary companies, or prior to such time under certain
circumstances, either in a lump sum or over a period of time depending on the
circumstances of cessation and/or distribution elections.
CENTRAL HUDSON RETIREMENT INCOME PLAN
The Retirement Plan is a "defined benefit" plan which is intended to meet
the qualification requirements of the Tax Code and generally covers all
employees of Central Hudson and those subsidiary companies that have adopted the
Retirement Plan, including the named executive officers.
There are several components to the benefit provided under the Retirement
Plan. First, the Retirement Plan provides retirement benefits generally related
to a participant's annual compensation (base salary and, for periods on and
after January 1, 2005, base salary and bonuses) for each year of eligible
employment. These benefits depend upon length of service, age at retirement, and
eligible earnings during years of participation in the Retirement Plan and any
predecessor plans. This portion of a participant's benefit is determined based
on the accumulation over that participant's career of a percentage of each
year's eligible earnings. For periods on and after October 1, 1989, the
percentage is 2% of eligible earnings, except that for years in which the
participant is over 50 years of age, the percentage is increased to 2.5%.
Second, the Retirement Plan 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 service while a member of the Retirement Plan prior to October 1,
2003, all subject to certain limitations. Finally, a cash balance account
benefit is also available upon retirement under the Retirement Plan, and
provides for a credit to those participants in the Retirement Plan on January 1,
1987, of 10% of their base salary on that date, a credit to those participants
in the Retirement Plan on September 30, 1991, of 5% of their base salary as of
that date, a credit to those participants in the Retirement Plan on September
30, 1997, of 5% of their base salary as of that date and a further credit to
those participants in the Retirement Plan on September 30, 1999, of 5% of their
base salary as of that date with, in all four cases, annual interest earned
thereon.
While the amount of the accrual with respect to a specified person is not
and cannot readily be separately or individually calculated by the actuaries for
the Retirement Plan, estimated annual benefits under the Retirement Plan upon
retirement at age 65 for the named executive officers, assuming continuation of
current annual salary levels and giving effect to applicable benefit limitations
in the Tax Code, are as follows: Mr. Lant - $175,000; Mr. Capone - $131,102; Mr.
DeVirgilio - $175,000; Mr. Meyer - $174,183; and Mr. Upright - $157,180.
CENTRAL HUDSON RETIREMENT BENEFIT RESTORATION PLAN
Until its amendment in December 2005, the Central Hudson Retirement Benefit
Restoration Plan ("RBRP") was an unfunded, unsecured pension benefit plan for a
select group of highly compensated employees. The RBRP provided an annual
retirement benefit to those participants in the Retirement Plan who hold the
following offices with the Corporation and Central Hudson: Chairman of the
Board, Chief Executive Officer, President, Chief Operating Officer, Vice
President (including all levels thereof), Corporate Secretary, Chief Financial
Officer, Treasurer, Controller, and Assistant Treasurer. This benefit was equal
to the difference between (i) that received
26
under the Retirement Plan (including the retirement account benefit), giving
effect to applicable salary and benefit limitations under the Tax Code, and (ii)
that which would have been received under the Retirement Plan (including the
retirement account benefit), without giving effect to the limitations under the
Tax Code. Enhanced benefits were payable under certain circumstances following a
Change of Control. The named executive officers have a current salary level
which, if continued to retirement at age 65, would provide a benefit under the
RBRP.
On December 21, 2005, the Board of Directors of Central Hudson amended the
RBRP to: (i) freeze all benefit accruals under the plan as of the close of
business on December 31, 2005, (ii) provide that such benefit accruals will be
calculated as if the participants separated from service on such date, (iii)
terminate the plan with respect to all participants who, as of December 31,
2005, would not be entitled to benefits thereunder if they separated from
service on such date, and (iv) provide that no employee may commence or
recommence participation in the plan after December 31, 2005. The estimated
annual benefits under the RBRP upon retirement at age 65 for the Corporation's
named executive officers as of December 31, 2005, are as follows: Mr. Lant -
$33,501; Mr. Capone - $230; Mr. DeVirgilio - $2,014; Mr. Meyer - $42,149; and
Mr. Upright - $925.
SUPPLEMENTARY RETIREMENT PLAN
Until its amendment in December 2005, the Corporation's Supplementary
Retirement Plan ("SRP") covered the same select group of highly compensated
employees as the group described above with respect to the RBRP as an incentive
for them to remain with the Corporation or its subsidiary companies. Under the
SRP, an annual benefit was payable 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 annual base compensation at retirement: age 60 to
63 - 10%; age 63 to 65 - 15%; age 65 or over - 20%. As of December 31, 2005,
only Mr. Upright is fully vested in the SRP. Enhanced benefits were payable
under certain circumstances following a Change of Control.
On December 16, 2005, the Board amended the Supplementary Retirement Plan
to (i) terminate the plan with respect to all participants who, as of December
31, 2005, would not be entitled to benefits thereunder if they separated from
service on such date, and (ii) provide that no employee may commence or
recommence participation in the plan after December 31, 2005. Estimated annual
benefits under the SRP upon retirement at age 65 for the Corporation's eligible
named executive officers, assuming continuation of current annual salary levels,
is as follows: Mr. Upright - $32,257. (The remaining named executive officers
are no longer eligible for benefits under the SRP.)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
On December 16, 2005, the Board of Directors of the Corporation adopted the
CH Energy Group, Inc. Supplemental Executive Retirement Plan (the "SERP"),
effective as of January 1, 2006. The SERP provides retirement benefits to
designated executives who satisfy certain eligibility requirements. It is
anticipated that only officers of the Corporation and Central Hudson will
participate in the SERP.
A participant's annual benefit under the SERP equals 57% of his or her
highest consecutive 3-year average of salary and bonus during the ten-year
period that precedes the participant's termination of employment. If a
participant has fewer than 30 years of benefit service under the Retirement
Plan, then the annual SERP benefit (prior to reduction as described below)
equals the product of (i) the annual SERP benefit, as described above,
multiplied by (ii) a fraction, the numerator of which is the participant's years
of benefit service under the Retirement Plan and the denominator of which is 30.
Finally, the SERP benefit is reduced by the participant's annual benefit, if
any, under the Retirement Plan, the RBRP, and the SRP.
A participant's SERP benefit becomes vested if, while employed by the
Corporation or its affiliates, he or she attains age 61 or attains age 55 with
10 years or more of vesting service. Payment generally commences seven months
following termination of employment in the form of a life annuity selected by
the participant, subject to a reduction of 4% for each year that payment begins
prior to age 61. 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.
27
The estimated annual benefits under the SERP upon retirement at age 61 for
the named executive officers as of December 31, 2005, are as follows: Mr. Lant -
$175,906; Mr. Capone - $7,292; Mr. DeVirgilio - $8,533; Mr. Meyer - $0; and Mr.
Upright - $0.
COMPLIANCE UNDER SECTION 409A OF THE TAX CODE
In the Fall of 2004, Section 409A was added to the Tax Code. This tax
provision imposes new restrictions on a wide variety of nonqualified deferred
compensation arrangements. As a result, the Corporation will be required to make
changes to most of its director and executive compensation plans. In September
2005, the Internal Revenue Service and Treasury Department issued proposed
regulations that interpret many of the restrictions under Section 409A of the
Tax Code. These proposed regulations are expected to be finalized sometime in
2006. Under transition rules, the Corporation has until the end of 2006 to amend
its plans to comply with the new restrictions. Until such amendments are
adopted, the Corporation must administer its plans in "good faith" compliance
with the rules. In response to these new restrictions, the Corporation is
administering its affected director and executive compensation plans in good
faith compliance with Section 409A of the Tax Code and intends to adopt the
required amendments to those plans by the end of 2006.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Corporation has an Employment Agreement ("Agreement") with certain of
its executive officers, including its named executive officers. On May 27, 2005,
the Corporation adopted amendments to these Agreements to, among other things,
(i) reduce the term of the Agreements for certain executives, (ii) reduce the
severance benefits payable to certain executives, (iii) remove the golden
parachute excise tax "gross-up" for all executives other than the Chief
Executive Officer, (v) prohibit executives from soliciting employees of the
acquiring or successor entity for a one-year period following a Change of
Control (as defined in the Agreements), and (iv) require the executives to sign
a release of all claims against the Corporation and certain other entities and
individuals prior to receiving severance benefits. A more detailed summary of
the changes is included in the Corporation's Form 8-K filed on June 2, 2005.
Following is a brief summary of the Agreements, as amended.
The Agreements generally become effective only upon a Change of Control of
the Corporation and provide certain benefits and protections to the covered
executives during the two-year period (the three-year period for Messrs. Lant,
Meyer, DeVirgilio, and Capone) following a Change of Control. For example, the
Agreements generally provide that an executive's terms and conditions of
employment (including authority, duties, location, base salary, bonus, and
benefits) would not be adversely changed during the applicable two-year or
three-year period following a Change of Control. Moreover, the Agreements
provide that the executive would be entitled to certain severance benefits if,
during the applicable two or three-year period following a Change of Control,
the Corporation or its affiliates terminate the executive's employment without
Cause (as defined in the Agreements) or the executive terminates his employment
with the Corporation or its affiliates for Good Reason (as defined in the
Agreements).
Specifically, the executive would be entitled to receive a payment equal to
the sum of (a) the executive's base salary through the date of termination to
the extent not previously paid, (b) a proportionate bonus based on the average
of the executive's last three pre-Change of Control annual bonuses ("Average
Annual Bonus"), (c) two times (or three times for Messrs. Lant, Meyer,
DeVirgilio, and Capone) the sum of the executive's base salary and Average
Annual Bonus (paid in 12 equal monthly installments), (d) accrued vacation, (e)
outplacement services, and (f) continued welfare benefits for a period of two
years (three years for Messrs. Lant, Meyer, DeVirgilio, and Capone) following
termination (subject to mitigation upon receiving similar benefits from another
employer). The years of severance and continued welfare benefits described above
are reduced at the rate of one year for each whole year that the executive
remains employed with the acquiring or surviving entity following the Change of
Control (in no event, however, would an executive receive less than one year of
severance or welfare benefits). In the event any payments or benefits provided
to Mr. Lant, whether under his Agreement or otherwise, would be subject to the
excise
28
tax on certain "excess parachute payments," then Mr. Lant generally would be
entitled to be made whole on an after-tax basis (I.E., "grossed-up") for the
payment of such taxes.
Terminated executives are prohibited from soliciting employees of the
acquiring or successor entity for a one-year period following a Change of
Control and are subject to 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 Agreements.
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 Securities and Exchange Commission. These Reporting Persons
are required by Securities and Exchange Commission 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, Mr. Tranen filed
one late Form 4 (reporting a grant of 253.55 deferred fee phantom stock units).
This Form 4 filing has since been made.
29
PERFORMANCE GRAPH
The line graph set forth below provides a comparison of the Corporation's
cumulative total shareholder return on its Common Stock with the Standard &
Poor's 500 Index ("S&P 500") and as a Corporation-determined peer comparison
with the EEI Index. Shareholder return is the sum of the dividends paid and the
change in the market price of stock.
COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN
[THE FOLLOWING DATA POINTS REPRESENT A LINE CHART IN THE PRINTED DOCUMENT.]
CH Energy Group, Inc. S&P 500 Index EEI Index
--------------------- ------------- ---------
12/31/00 $100.00 $100.00 $100.00
12/31/01 $102.22 $ 88.11 $ 91.21
12/31/02 $114.52 $ 68.64 $ 77.77
12/31/03 $121.07 $ 88.33 $ 96.04
12/31/04 $130.07 $ 97.94 $117.97
12/31/05 $130.15 $102.75 $136.91
TOTAL RETURN TO SHAREHOLDERS
(INCLUDES REINVESTMENT OF DIVIDENDS)
--------------------------------------------------------------------------------
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY/INDEX DEC 01 DEC 02 DEC 03 DEC 04 DEC 05
--------------------------------------------------------------------------------
CH Energy Group Inc 2.22 12.04 5.72 7.43 0.06
S&P 500 (11.89) (22.10) 28.68 10.88 4.91
EEI Index (8.79) (14.73) 23.48 22.84 16.05
--------------------------------------------------------------------------------
30
--------------------------------------------------------------------------------
INDEXED RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY/INDEX DEC 00 DEC 01 DEC 02 DEC 03 DEC 04 DEC 05
--------------------------------------------------------------------------------
CH Energy Group Inc $100 $102.22 $114.52 $121.07 $130.07 $130.15
S&P 500 $100 $ 88.11 $ 68.64 $ 88.33 $ 97.94 $102.75
EEI Index $100 $ 91.21 $ 77.77 $ 96.04 $117.97 $136.91
--------------------------------------------------------------------------------
31
PROPOSAL NO. 2 - APPROVAL OF
THE ADOPTION OF THE CORPORATION'S
LONG-TERM EQUITY INCENTIVE PLAN
On December 16, 2005, the Board of Directors adopted the CH Energy Group,
Inc. Long-Term Equity Incentive Plan (the "2006 Plan"), subject to the approval
of the Corporation's shareholders at the 2006 Annual Meeting. The 2006 Plan is
intended to replace the Corporation's Long-Term Performance-Based Incentive
Plan, as amended (the "2000 Plan"). Upon shareholder approval of the 2006 Plan,
the 2000 Plan will terminate and no new awards will be granted under such plan,
although outstanding awards granted under the 2000 Plan will continue in
accordance with their terms and the provisions of the 2000 Plan.
The following is a summary of the 2006 Plan and is qualified in its
entirety by reference to the full text of the 2006 Plan, a copy of which is
attached as APPENDIX A to this proxy statement.
HISTORY AND PURPOSE
The Board of Directors considers stock-based incentive compensation an
essential tool to attract, retain, and motivate the Corporation's officers, key
employees and Directors and to align their interests with the interests of the
Corporation's shareholders. Consistent with this view, in April 2000 the Board
of Directors proposed and shareholders approved the 2000 Plan. The 2000 Plan
permits the Corporation to grant several different types of awards to the
Corporation's officers and key employees, including incentive stock options,
nonqualified stock options, tandem stock appreciation rights, restricted shares,
and performance shares and performance units, and permits, upon authorization of
the Compensation Committee, an annual grant to the Corporation's non-employee
Directors of nonqualified stock options covering 1,000 shares. Under the 2000
Plan, 500,000 shares of the Corporation's Common Stock were originally reserved
and available for transfer under awards.
The 2000 Plan was designed to comply with the requirements under Section
162(m) of the Tax Code. Section 162(m) of the Tax Code generally prevents a
publicly held corporation from claiming federal income tax deductions for
compensation in excess of $1 million paid to certain of its senior executives.
Compensation is exempt from this limitation, however, if it qualifies as
"performance-based compensation." In general, stock options granted under the
2000 Plan qualify as performance-based compensation. In order for performance
shares, performance units and restricted shares subject to performance-based
vesting to qualify as performance-based compensation, the Corporation's
shareholders must approve the applicable performance goals under the 2000 Plan
every five years, and certain other requirements must be satisfied. In order to
maintain the Corporation's ability to qualify these awards as performance-based
compensation, the 2000 Plan would need to be re-approved by the Corporation's
shareholders at the 2006 Annual Meeting.
Since the 2000 Plan would need to be submitted to shareholders in order to
comply with Section 162(m) of the Tax Code, the Board of Directors decided to
take the opportunity to review the 2000 Plan and determine what, if any, changes
should be made to the plan in order to maximize the Board's flexibility in
structuring and evaluating its executive compensation program. Based on this
review, the Board of Directors decided to adopt the 2006 Plan. The 2006 Plan is
an updated equity compensation plan that is designed to reflect recent changes
to the rules of the New York Stock Exchange, changes in the tax laws applicable
to certain deferred compensation arrangements, changes in financial accounting
rules that govern equity compensation, and other developments in executive
compensation practices.
Under the 2006 Plan, the Corporation will retain the authority to grant
awards of incentive stock options, nonqualified stock options, tandem stock
appreciation rights, restricted shares, performance shares, and performance
units. However, the Corporation will also have the authority to grant a broader
variety of awards, including restricted stock units, free-standing stock
appreciation rights, and other share-based awards to officers and other key
employees of the Corporation and its subsidiaries. In addition, the 2006 Plan
will remove the annual grant of awards to non-employee Directors and will expand
the types of awards available for grant to these Directors to include
non-qualified stock options, restricted shares, restricted stock units, and
other share-based awards. The 2006 Plan
32
will also add provisions to ensure compliance with recent tax law changes,
conform the change in control definition to the Corporation's Employment
Agreements, and adopt certain other best practices described below. As with the
2000 Plan, the 2006 Plan is designed so that the Corporation has the ability to
grant equity awards that qualify as performance-based compensation under Section
162(m) of the Tax Code.
Our shareholders are asked to approve the 2006 Plan to qualify stock
options for treatment as incentive stock options for purposes of Section 422 of
the Tax Code, to qualify certain compensation under the 2006 Plan as
performance-based compensation for purposes of Section 162(m) of the Tax Code,
and to satisfy New York Stock Exchange guidelines relating to equity
compensation. No performance shares granted to the Corporation's officers in
2006 will be paid unless the shareholders approve the 2006 Plan.
PLAN LIMITS
The maximum number of shares of the Corporation's Common Stock that may be
issued or transferred with respect to awards under the 2006 Plan is 300,000
(which is less than 2% of the Corporation's shares currently outstanding), which
may include authorized but unissued shares, treasury shares, or a combination
thereof. Shares covered by an award granted under the 2006 Plan shall not be
counted as used unless and until they are actually issued and delivered to a
participant. Shares covering awards that expire, are forfeited, or are cancelled
will again be available for issuance under the 2006 Plan, and upon payment in
cash of the benefit provided by any award granted under the 2006 Plan, any
shares that were covered by that award will be available for issue or transfer
under the 2006 Plan. Importantly, however, the following shares of Common Stock
will not be added back to the aggregate plan limit described above: (1) shares
tendered in payment of the option price of a stock option granted under the 2006
Plan; (2) shares withheld by the Corporation to satisfy the tax withholding
obligation; and (3) shares that are repurchased by the Corporation in connection
with the exercise of a stock option granted under the 2006 Plan. Moreover, all
shares of Common Stock covered by a stock appreciation right, to the extent that
it is exercised and settled in shares, and whether or not shares are actually
issued to the participant upon exercise of the right, shall be considered issued
or transferred pursuant to the 2006 Plan.
In addition to the aggregate limit on awards described above, the 2006 Plan
imposes various sub-limits on the number of shares of Common Stock that may be
issued or transferred under the 2006 Plan. In order to comply with the rules
applicable to incentive stock options, the 2006 Plan provides that the aggregate
number of shares of Common Stock actually issued or transferred by the
Corporation upon the exercise of incentive stock options may not exceed 300,000
shares of Common Stock. In order to comply with the exemption from Section
162(m) of the Tax Code relating to performance-based compensation, the 2006 Plan
imposes the following additional sub-limits: (i) no participant may be granted
option rights and stock appreciation rights, in the aggregate, for more than
15,000 shares of Common Stock during any calendar year, (ii) no participant may
be granted performance shares and restricted shares specifying management
objectives (described below), in the aggregate, for more than 20,000 shares of
Common Stock during any calendar year, and (iii) no participant may be granted
performance units having an aggregate maximum value as of their date of grant in
excess of $1 million during any calendar year. Finally, the 2006 Plan provides
that the number of shares of Common Stock issued as stock appreciation rights,
restricted shares, and restricted stock units (after taking forfeitures into
account) shall not exceed, in the aggregate, 100,000 shares of Common Stock.
The maximum number of shares of Common Stock which may be awarded under the
2006 Plan, the various sub-limits described above, and the number of shares and
price per share applicable to any outstanding award, are subject to adjustment
in the event of stock dividends, stock splits, combinations of shares,
recapitalizations, mergers, consolidations, or other reorganizations of the
Corporation.
ADMINISTRATION
The 2006 Plan will be administered by the Board of Directors, which may
delegate all or any part of its authority within this 2006 Plan to a Committee
of the Board. The Committee will have complete and absolute authority
33
to make any and all decisions regarding the administration of the 2006 Plan,
including the authority to construe and interpret the plan and awards granted
thereunder.
ELIGIBILITY
The officers and other key employees of the Corporation and its
subsidiaries are eligible to participate in the 2006 Plan as selected by the
Committee in its discretion. In addition, non-employee Directors of the
Corporation are eligible to participate in the 2006 Plan as selected by the
Committee in its discretion. Accordingly, approximately 14 officers, and 8
non-employee Directors may be eligible for awards under the 2006 Plan. At this
time, however, the Committee anticipates that only the Corporation's officers
will receive awards under the 2006 Plan.
Officers and other key employees may be granted each type of award
available under the 2006 Plan. Non-employee Directors may be granted
nonqualified stock options, stock appreciation rights, restricted shares,
restricted stock units, and other share-based awards, but are not eligible for
grants of incentive stock options, performance shares, or performance units.
OPTION RIGHTS
The Committee may, in its discretion, award option rights to officers and
other key employees of the Corporation and its subsidiaries. Option rights
granted to employees under the 2006 Plan may be option rights that are intended
to qualify as incentive stock options or option rights that are not intended to
so qualify (I.E., non-qualified stock options), or combinations thereof.
Option rights provide the right to purchase shares of the Corporation's
Common Stock at a price not less than their fair market value on the date of
grant (which date may not be earlier than the date that the Committee takes
action with respect thereto). The fair market value of the Corporation's Common
Stock as reported on the New York Stock Exchange on March 1, 2006 was $49.26 per
share. No option rights may be exercised more than ten years from the date of
grant. Each grant must specify the period of continuous employment that is
necessary before the option rights become exercisable, and may provide for the
earlier exercise of such option rights in the event of a change in control of
the Corporation, retirement, death or disability of the optionee, or other
similar transaction or event approved by the Committee.
The option price is payable at the time of exercise (i) in cash, (ii) by
the transfer to the Corporation of nonforfeitable, unrestricted shares of the
Corporation's Common Stock that are already owned by the option holder and have
a value at the time of exercise equal to the option price, (iii) with any other
legal consideration that the Committee may deem appropriate, or (iv) by any
combination of the foregoing methods of payment. Any grant of option rights may
provide for deferred payment of the option price from the proceeds of sale
through a broker on the date of exercise of some or all of the shares of Common
Stock to which the exercise relates, or the payment of the option price in
installments (although, in the case of executive officers and Directors, these
payment methods may be affected by the restrictions on personal loans to
executive officers provided by the Sarbanes-Oxley Act of 2002).
Any grant of option rights may specify management objectives (as described
below) that must be achieved as a condition to exercise such rights. The
Committee may, at or after the date of grant of any option rights (other than
the grant of an incentive stock option), provide for the payment of dividend
equivalents to the optionee on a current, deferred, or contingent basis or may
provide that such equivalents be credited against the option price. Successive
grants may be made to the same option holder regardless of whether option rights
previously granted to him or her remain unexercised.
STOCK APPRECIATION RIGHTS
The Committee may, in its discretion, award stock appreciation rights to
officers and other key employees of the Corporation and its subsidiaries. Stock
appreciation rights represent the right to receive from the Corporation
34
an amount, determined by the Committee and expressed as a percentage not
exceeding 100%, of the difference between the base price established for such
stock appreciation rights (not less than the fair market value per share of the
Corporation's Common Stock on the date of grant) and the market value of the
Common Stock on the date the stock appreciation rights are exercised.
Stock appreciation rights can be tandem (granted with option rights to
provide an alternative to exercise of the option rights) or free-standing.
Tandem stock appreciation rights may only be exercised at a time when the
related option right is exercisable and the spread is positive, and require that
the related option right be surrendered for cancellation. Free-standing stock
appreciation rights must have a base price per appreciation right (not less than
the fair market value of a share on the date of grant) and may not be
exercisable more than ten years from the date of grant.
Any grant of stock appreciation rights may specify that the amount payable
by the Corporation on exercise of the appreciation right may be paid in cash, in
Common Stock or in any combination thereof, and may either grant to the
recipient or retain in the Committee the right to elect among those
alternatives. Any grant of stock appreciation rights may provide for the payment
of dividend equivalents in the form of cash or Common Stock paid on a current,
deferred, or contingent basis. Each grant must specify the period of continuous
employment that is necessary before the stock appreciation rights become
exercisable, and may provide for the earlier exercise of such stock appreciation
rights in the event of a change in control of the Corporation, retirement,
death, or disability of the employee, or other similar transaction or event
approved by the Committee. Any grant of stock appreciation rights may specify
management objectives (as described below) that must be achieved as a condition
to exercise such rights.
PERFORMANCE SHARES AND PERFORMANCE UNITS
The Committee may, in its discretion, award performance shares and/or
performance units to officers and other key employees of the Corporation and its
subsidiaries. A performance share is the equivalent of one share of Common Stock
and a performance unit is the equivalent of $1.00.
The participant will be given one or more management objectives (as
described below) to meet within a specified period (the "performance period"). A
minimum level of acceptable achievement will also be established by the
Committee. If by the end of the performance period, the participant has achieved
the specified management objectives, the participant will be deemed to have
fully earned the performance shares or performance units. If the participant has
not achieved the management objectives, but has attained or exceeded a
predetermined minimum level of acceptable achievement, the participant will be
deemed to have partly earned the performance shares or performance units in
accordance with a predetermined formula. To the extent earned, the performance
shares or performance units will be paid to the participant at the time and in
the manner determined by the Committee in cash, Common Stock, or any combination
thereof. The grant may provide for the payment of dividend equivalents thereon
in cash or in Common Stock on a current, deferred, or contingent basis. The
grant may also provide for the earlier termination of the performance period in
the event of a change in control of the Corporation, retirement, death, or
disability of the participant, or other similar transaction or event approved by
the Committee.
RESTRICTED SHARES
The Committee may, in its discretion, award restricted shares to officers
and other key employees of the Corporation and its subsidiaries. Restricted
shares constitute an immediate transfer of ownership of a specified number of
shares of Common Stock to the recipient in consideration of the performance of
services. The participant is entitled immediately to voting, dividend, and other
ownership rights in shares of Common Stock. The transfer may be made without
additional consideration or in consideration of a payment by such participant
that is less than the fair market value per share of Common Stock on the date of
grant.
Restricted shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Tax Code for a period to be determined
by the Committee on the date of the grant, and may provide for the ear-
35
lier termination of the forfeiture provisions in the event of a change in
control of the Corporation, retirement, death, or disability of the participant,
or other similar transaction or event approved by the Committee. In order to
enforce these forfeiture provisions, the transferability of restricted shares
will be prohibited or restricted in the manner prescribed by the Committee on
the date of grant for the period during which such forfeiture provisions are to
continue.
Any grant of restricted shares may specify management objectives which, if
achieved, will result in termination or early termination of the restrictions
applicable to such shares. Any such grant may also specify in respect of such
specified management objectives, a minimum acceptable level of achievement, and
must set forth a formula for determining the number of restricted shares on
which restrictions will terminate if performance is at or above the minimum
level but below full achievement of the specified management objectives.
RESTRICTED STOCK UNITS
The Committee may, in its discretion, award restricted stock units to
officers and other key employees of the Corporation and its subsidiaries.
Restricted stock units constitute an agreement to deliver shares of Common Stock
to the recipient in the future in consideration of the performance of services
over a specified period, but subject to the fulfillment of such conditions as
the Committee may specify.
During the restriction period the participant has no right to transfer any
rights under his or her award and no right to vote or receive dividends on the
shares of Common Stock covered by the restricted stock units, but the Committee
may authorize the payment of dividend equivalents with respect to the restricted
stock units, in cash or shares of Common Stock, on a current, deferred, or
contingent basis. The Committee must fix a restriction period at the time of
grant, and may provide for the earlier termination of the restriction period in
the event of a change in control of the Corporation, retirement, death, or
disability of the employee, or other similar transaction or event approved by
the Committee. Awards of restricted stock units may be made without additional
consideration or in consideration of a payment by such participant that is less
than the fair market value per share of Common Stock on the date of grant.
OTHER AWARDS
The Committee may, in its discretion and subject to limitations under
applicable law, grant to officers and other key employees of the Corporation and
its subsidiaries other awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, shares of
Common Stock or factors that may influence the value of such shares (including,
without limitation, convertible or exchangeable debt securities or other
securities, purchase rights for shares of Common Stock, or awards with value and
payment contingent upon performance of the Corporation or its subsidiaries or
other factors determined by the Committee). The Committee will determine the
terms and conditions of these awards. Shares of Common Stock delivered pursuant
to these types of awards will be purchased for such consideration, by such
methods, and in such forms as the Committee determines. Cash awards, as an
element of or supplement to any other award granted under the 2006 Plan, may
also be granted. The Committee may also grant shares of Common Stock as a bonus,
or may grant other awards in lieu of obligations of the Corporation or a
subsidiary to pay cash or deliver other property under the 2006 Plan or under
other plans or compensatory arrangements, subject to such terms as are
determined by the Committee.
NON-EMPLOYEE DIRECTORS
The Committee may, from time to time and upon such terms and conditions as
it may determine, authorize the granting to non-employee Directors of option
rights (that are not intended to qualify as incentive stock options), stock
appreciation rights, restricted shares, restricted stock units, or any
combination of the foregoing. Each such grant shall be upon terms and conditions
consistent with the above description of such awards.
36
MANAGEMENT OBJECTIVES
The 2006 Plan requires that the Committee establish "management objectives"
for purposes of performance shares and performance units. When so determined by
the Committee, option rights, stock appreciation rights, and restricted shares
may also specify management objectives.
Management objectives may be described in terms of either Corporation-wide
objectives or objectives that are related to the performance of the individual
participant or subsidiary, division, department, region, or function within the
Corporation or a subsidiary in which the participant is employed. Management
objectives applicable to any award to a participant who is, or is determined by
the Committee likely to become, a "covered employee" within the meaning of
Section 162(m)(3) of the Tax Code (and that is intended to qualify for the
performance-based compensation exception to Section 162(m) of the Tax Code) will
be limited to specified levels of or growth in one or more of the following
criteria: earnings per share from continuing operations, operating income,
revenues, return on assets, return on equity, return on invested capital,
shareholder value, economic value added, shareholder return (measured in terms
of stock price appreciation) and/or total shareholder return (measured in terms
of stock price appreciation and/or dividend growth), achievement of cost
controls, delivery cost per kilowatt hour or delivery cost per millions of cubic
feet of natural gas, customer satisfaction ratings, frequency or duration of
electric or natural gas service interruptions, number of or severity of gas
leaks, avoidance of environmental, public, or employee safety problems,
realization of the regulated return on equity, or the price of the shares of the
Corporation's Common Stock.
Except in the case of a covered employee where such modification would
result in the loss of an otherwise available exemption under Section 162(m) of
the Tax Code, if the Committee determines that a change in the business,
operations, corporate structure, or capital structure of the Corporation, or the
manner in which the Corporation conducts its business, or other events or
circumstances render the management objectives unsuitable, the Committee may
modify such management objectives, in whole or in part, as the Committee deems
appropriate and equitable.
CHANGE IN CONTROL
A definition of "change in control" is included in the 2006 Plan, which is
attached hereto as APPENDIX A.
TRANSFERABILITY
Except as otherwise determined by the Committee, option rights, stock
appreciation rights, and other derivative security granted under the 2006 Plan
will not be transferable by a participant other than by will or the laws of
descent and distribution. Except as otherwise determined by the Committee,
option rights and stock appreciation rights are exercisable during a
participant's lifetime only by him or her or by his or her guardian or legal
representative. Any award made under the 2006 Plan may provide that any shares
of Common Stock issued or transferred as a result of the award will be subject
to further restrictions upon transfer.
ADJUSTMENTS
The Committee may make or provide for such adjustments in the numbers of
shares of Common Stock covered by outstanding option rights, stock appreciation
rights, performance shares, restricted stock units, and other share-based
awards, in the option price and base price provided in outstanding option and
stock appreciation rights, and in the kind of shares covered thereby, as the
Committee in its sole discretion may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of
participants that would otherwise result from (a) any stock dividend, stock
split, combination of shares, recapitalization, or other change in the capital
structure of the Corporation, (b) any merger, consolidation, spinoff, spin-out,
split-off, split-up, reorganization, partial or complete liquidation, or other
distribution of assets, issuance of rights or warrants to purchase securities,
or (c) any other corporate transaction or event having an effect similar to any
of the foregoing. In the event of any such transaction or event, the Committee
may provide in substitution for any or all of the outstanding awards under
37
the 2006 Plan such alternative consideration (or no consideration) as it may in
good faith determine to be equitable in the circumstances and may require in
connection therewith the surrender of all awards so replaced.
AMENDMENTS AND MISCELLANEOUS
The 2006 Plan may be amended by the Board of Directors, but any amendment
that must be approved by the Corporation's shareholders in order to comply with
applicable law or rules will not be effective unless and until such approval has
been obtained. However, the Board of Directors may amend the 2006 Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws and regulations, or in the interpretation of such laws and
regulations.
Where the Committee has established conditions to the exercisability or
retention of certain awards, the 2006 Plan allows the Committee to take action
in its sole discretion at or after the date of grant to adjust such conditions
in certain circumstances, including in the case of the death, disability, or
retirement of a participant.
The Committee may not, without the further approval of the Corporation's
shareholders, authorize the amendment of any outstanding option right or
appreciation right to reduce the option price or base price. No option right or
appreciation right may be cancelled and replaced with awards having a lower
option price or base price, respectively, without further approval of the
Corporation's shareholders.
The Committee may permit participants to elect to defer the issuance of
Common Stock or the settlement of awards in cash under the 2006 Plan pursuant to
such rules, procedures, or programs as it may establish for purposes of the 2006
Plan. The Committee also may provide that deferred issuances and settlements
include the payment or crediting of dividend equivalents or interest on the
deferral amounts.
The Committee may condition the grant of any award or combination of awards
authorized under the 2006 Plan on the deferral by the participant of his or her
right to receive a cash bonus or other compensation otherwise payable by the
Corporation or a subsidiary to the participant.
The Committee may provide for special terms for awards to participants who
are foreign nationals or who are employed by the Corporation or any of its
subsidiaries outside of the United States of America as the Committee may
consider necessary or appropriate to accommodate differences in local law, tax
policy, or custom.
COMPLIANCE WITH SECTION 409A OF THE TAX CODE
The American Jobs Creation Act of 2004, enacted on October 22, 2004,
revised the federal income tax law applicable to certain types of awards that
may be granted under the 2006 Plan. To the extent applicable, it is intended
that the 2006 Plan and any grants made under the 2006 Plan comply with the
provisions of Section 409A of the Tax Code. The 2006 Plan and any grants made
under the 2006 Plan will be administered in a manner consistent with this
intent, and any provision of the 2006 Plan that would cause the plan or any
grant made under the plan to fail to satisfy Section 409A of the Tax Code shall
have no force and effect until amended to comply with such Tax Code Section
(which amendment may be retroactive to the extent permitted by Section 409A of
the Tax Code and may be made by the Corporation without the consent of the
participants). Any reference to Section 409A of the Tax Code will also include
any proposed, temporary or final regulations, or any other guidance promulgated
with respect to such Tax Code Section by the U.S. Department of the Treasury or
the Internal Revenue Service.
TERMINATION
No grant will be made under the 2006 Plan more than ten years after the
date on which the 2006 Plan is first approved by the Board of Directors, but all
grants made on or prior to such date will continue in effect thereafter subject
to the terms thereof and of the 2006 Plan.
38
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the 2006 Plan. This summary is not
intended to be complete and does not describe state, local, foreign, or other
tax consequences.
TAX CONSEQUENCES TO PARTICIPANTS
NONQUALIFIED STOCK OPTIONS. In general, (a) no income will be recognized by
an optionee at the time a nonqualified option right is granted; (b) at the time
of exercise of the nonqualified option right ordinary income will be recognized
by the optionee in an amount equal to the difference between the option price
paid for the shares of Common Stock and the fair market value of the shares, if
unrestricted, on the date of exercise; and (c) at the time of sale of shares of
Common Stock acquired pursuant to the exercise of the nonqualified option right,
appreciation (or depreciation) in value of the shares after the date of exercise
will be treated as either short-term or long-term capital gain (or loss)
depending on how long the shares have been held.
INCENTIVE STOCK OPTIONS. No income will be recognized by an optionee upon
the grant of an incentive stock option. In general, no income will be recognized
upon the exercise of an incentive stock option. However, the difference between
the option price paid and the fair market value of the shares at exercise may
constitute a preference item for the alternative minimum tax. If shares of
Common Stock are issued to the optionee pursuant to the exercise of an incentive
stock option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of the grant or within one year after
the transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the timely exercise of an incentive
stock option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or exchange) over the option price
paid for such shares. Any further gain (or loss) realized by the participant
generally will be taxed as short-term or long-term capital gain (or loss)
depending on the holding period.
STOCK APPRECIATION RIGHTS. No income will be recognized by a participant in
connection with the grant of a tandem appreciation right or a free-standing
appreciation right. When the appreciation right is exercised, the participant
normally will be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash received and the fair market
value of any unrestricted shares of Common Stock received on the exercise.
PERFORMANCE SHARES AND PERFORMANCE UNITS. No income generally will be
recognized upon the grant of performance shares or performance units. Upon
payment in respect of the earn-out of performance shares or performance units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Common Stock received.
RESTRICTED SHARES. The recipient of restricted shares generally will not be
subject to tax until the shares are no longer subject to forfeiture or
restrictions on transfer for purposes of Section 83 of the Tax Code
("restrictions"). At such time the recipient will be subject to tax at ordinary
income rates on the fair market value of the restricted shares (reduced by any
amount paid by the participant for such restricted shares). However, a recipient
who so elects under Section 83(b) of the Tax Code within 30 days of the date of
transfer of the shares will have taxable ordinary income on the date of transfer
of the shares equal to the excess of the fair market value of such shares
(determined without regard to the restrictions) over the purchase price, if any,
of such restricted shares. Any appreciation (or depreciation) realized upon a
later disposition of such shares will be treated as long-term or short-term
capital gain (or loss) depending upon how long the shares have been held. If a
Section 83(b) election has not been made, any
39
dividends received with respect to restricted shares that are subject to the
restrictions generally will be treated as compensation that is taxable as
ordinary income to the participant.
RESTRICTED STOCK UNITS. Generally, no income will be recognized upon the
award of restricted stock units. The recipient of a restricted stock unit award
generally will be subject to tax at ordinary income rates on the fair market
value of unrestricted shares of Common Stock on the date that such shares are
transferred to the participant under the award (reduced by any amount paid by
the participant for such restricted stock units) and the capital gains/loss
holding period for such shares also will commence on such date.
OTHER SHARE-BASED AWARDS. The recipient of a share-based award other than
an award described above generally will be subject to tax at ordinary income
rates on the fair market value of shares of Common Stock on the date of grant of
the share-based award and the capital gains/loss holding period for such shares
also will commence on such date.
DIVIDEND EQUIVALENTS. Any dividend equivalents awarded with respect to
awards granted under the 2006 Plan and paid in cash or unrestricted shares of
the Corporation's Common Stock will be taxed to the participant at ordinary
income rates when received by the participant.
Because the tax consequences to a participant may vary depending on his or
her individual circumstances, each participant should consult his or her
personal tax advisor regarding the federal and any state, local, foreign, or
other consequences to him or her.
TAX CONSEQUENCES TO THE CORPORATION
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Corporation or the subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, (a) the income meets the test of
reasonableness, (b) is an ordinary and necessary business expense, (c) is not an
"excess parachute payment" within the meaning of Section 280G of the Tax Code,
and (d) is not disallowed by the $1 million limitation on certain executive
compensation.
REGISTRATION WITH THE SEC
The Corporation intends to file a Registration Statement on Form S-8
relating to the issuance of common shares under the 2006 Plan with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, as soon as is practicable after approval of the 2006 Plan by the
Corporation's shareholders.
NEW PLAN BENEFITS
It cannot be determined at this time what benefits or amounts, if any, will
be received by or allocated to any persons or group of persons under the 2006
Plan if the 2006 Plan is approved by shareholders. Such determinations are
subject to the discretion of the Compensation Committee and the extent to which
certain performance goals are achieved. However, certain awards authorized for
2006 by the Compensation Committee are described below.
40
2006 AWARDS UNDER THE 2006 PLAN. The Compensation Committee, on February
10, 2006, granted Performance Shares to the executive officers listed below,
covering the number of shares of Common Stock indicated, all subject to
shareholder approval of the 2006 Plan:
NAME AND POSITION DOLLAR VALUE ($)* NUMBER OF PERFORMANCE SHARES
----------------- ----------------- ----------------------------
STEVEN V. LANT, Chairman, -- 6,940
President and Chief Executive
Officer of the Corporation,
Chairman and Chief Executive
Officer of Central Hudson,
Chairman, President and Chief
Executive Officer of CHEC
CARL E. MEYER, Executive -- 2,210
Vice President of the
Corporation and President
and Chief Operating Officer
of Central Hudson
JOSEPH J. DEVIRGILIO, JR., -- 1,900
Executive Vice President -
Corporate Services and
Administration of the
Corporation and of Central
Hudson; Executive Vice
President of CHEC
ARTHUR R. UPRIGHT, Senior -- 1,250
Vice President of the
Corporation; Senior Vice
President - Regulatory
Affairs of Central Hudson
CHRISTOPHER M. CAPONE, -- 1,820
Chief Financial Officer and
Treasurer of the Corporation,
of Central Hudson and of CHEC
EXECUTIVE GROUP -- 14,120
NON-EXECUTIVE DIRECTOR GROUP -- 0
NON-EXECUTIVE OFFICER EMPLOYEE GROUP -- 6,590
-------------------------------
* The dollar values of these performance share awards are not determinable at
this time. The number of shares of Common Stock earned and paid will range,
according to the extent to which certain performance goals are achieved,
from 0% to 150% of the performance shares granted.
41
CURRENT EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about the Corporation's equity
compensation plans (including individual compensation arrangements) under which
equity securities of Energy Group are authorized for issuance as of December 31,
2005:
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING PLANS (EXCLUDING
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND SECURITIES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS [a] RIGHTS [b] IN COLUMN [a]) [c]
---------------------- -------------------------- ------------------------- -----------------------
Equity compensation
plans not approved by
security holders 73,300(1) $46.18 286,968(2)
Equity compensation
plans approved by
security holders --(3) -- --
------ ------ ---------
Total 73,300 $46.18 286,968
====== ====== =========
----------------------
(1) This includes only stock options granted under the Long-Term
Performance-Based Incentive Plan.
(2) This excludes 67,100 performance shares granted, 18,832 performance shares
awarded, 2,400 performance shares forfeited, and 51,400 stock options
exercised through 2005 under the Long-Term Performance-Based Incentive
Plan.
(3) The Corporation also has an equity compensation plan described under the
caption "Stock Plan for Outside Directors" on page 14 hereof. No options,
warrants, or rights are granted under this plan.
VOTE REQUIRED FOR APPROVAL OF THE ADOPTION OF THE CORPORATION'S LONG-TERM EQUITY
INCENTIVE PLAN
Approval of this Proposal No. 2 requires the affirmative vote of a majority
of the votes cast in person or by proxy. 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" PROPOSAL NO. 2.
42
PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as the Corporation's independent
public accountants for 2006. Although shareholder approval of the Audit
Committee's appointment is not required by law, the Board of Directors believes
that it is good corporate governance to give shareholders an opportunity to
ratify this selection. If this proposal is not approved at the Annual Meeting,
the Audit Committee may reconsider its selection.
Even if the appointment is ratified, the Audit Committee may, in its
discretion, change the appointment at any time during the year if it determines
that such a change would be in the best interests of the Corporation and its
shareholders.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so. They will be available to respond to appropriate questions.
Additional information regarding fees paid to PricewaterhouseCoopers LLP
can be found in the "Report of the Audit Committee" beginning on page 17.
VOTE REQUIRED FOR RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Shareholder approval is not required for the appointment of
PricewaterhouseCoopers LLP, as the Audit Committee of the Board of Directors has
the sole responsibility for selecting auditors. However, the appointment is
being submitted for ratification at the Annual Meeting. Ratification of this
Proposal No. 3 requires the affirmative of a majority of the votes cast in
person or by proxy. 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" PROPOSAL NO. 3
43
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 10, 2006
44
APPENDIX A
CH ENERGY GROUP, INC.
LONG-TERM EQUITY INCENTIVE PLAN
PURPOSE OF THE PLAN.
The purpose of this Plan is to attract, retain and motivate directors,
officers and other key employees of CH Energy Group, Inc. (the "Company") and
its Subsidiaries and to provide to such persons incentives and rewards for
superior performance and contribution. Prior to the Effective Date of the Plan,
the Company maintained the Long-Term Performance-Based Incentive Plan, as
amended, which was originally effective as of January 1, 2000 (the "2000 Plan").
Upon shareholder approval of the Plan, the 2000 Plan will terminate and no new
awards will be granted under such plan, although outstanding awards granted
under the 2000 Plan will continue in accordance with their terms and the
provisions of the 2000 Plan.
DEFINITIONS.
Capitalized terms used herein shall have the meanings assigned to such
terms in this Section 2.
"Applicable Laws" means the requirements relating to the administration of
equity-based compensation plans under U.S. state corporate laws, U.S. federal
and state securities laws, the Code, any stock exchange or quotation system on
which the Common Shares are listed or quoted and the applicable laws of any
other country or jurisdiction where awards are granted under this Plan.
"Appreciation Right" means a right granted pursuant to Section 5 or Section
9 of this Plan, and shall include both Tandem Appreciation Rights and
Free-Standing Appreciation Rights.
"Base Price" means the price to be used as the basis for determining the
Spread upon the exercise of a Free-Standing Appreciation Right and a Tandem
Appreciation Right.
"Board" means the Board of Directors of the Company.
"Change in Control" means:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (x) the then outstanding shares of common stock of the
Company (the "Outstanding Common Shares") or (y) the combined
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors
(the "Outstanding Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions
shall not constitute a Change in Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or its affiliated
companies or (iv) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to
45
the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of
the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all
of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Common Shares and Outstanding
Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more of its affiliated companies) in substantially
the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Common Shares and
Outstanding Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
such Business combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means shares of common stock, par value $0.10, of the
Company or any security into which such Common Shares may be changed by reason
of any transaction or event of the type referred to in Section 12 of this Plan.
"Company" has the meaning given such term in Section 1 of this Plan.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant of
Option Rights, Appreciation Rights, Performance Units or Performance Shares or a
grant or sale of Restricted Shares or Restricted Stock Units, or awards granted
under Section 10 of this Plan shall become effective (which date will not be
earlier than the date on which the Board takes action with respect thereto).
"Director" means a member of the Board.
"Effective Date" means the date that the Plan is first adopted by the
Board.
"Evidence of Award" means an agreement, certificate, resolution or other
type or form of writing or other evidence approved by the Board which sets forth
the terms and conditions of the Option Rights, Appreciation Rights, Performance
Units, Performance Shares, Restricted Shares, Restricted Stock Units, or awards
granted under Section 10 of this Plan. An Evidence of Award may be in an
electronic medium, may be limited to a notation on the books and records of the
Company and, with the approval of the Board, need not be signed by a
representative of the Company or a Participant.
46
"Exchange Act" means the Securities Exchange Act of 1934 and the rules and
regulations thereunder, as such law, rules and regulations may be amended from
time to time.
"Free-Standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 or Section 9 of this Plan that is not granted in tandem
with an Option Right.
"Incentive Stock Options" means Option Rights that are intended to qualify
as "incentive stock options" under Section 422 of the Code or any successor
provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Units or Performance Shares or, when so determined by the
Board, Option Rights, Appreciation Rights and Restricted Shares pursuant to this
Plan. Management Objectives may be described in terms of Company-wide objectives
or objectives that are related to the performance of the individual Participant
or of the Subsidiary, division, department, region or function within the
Company or Subsidiary in which the Participant is employed. The Management
Objectives may be made relative to the performance of other corporations. The
Management Objectives applicable to any award to a Covered Employee that is
intended to qualify for the performance-based compensation exception to Section
162(m) of the Code shall be based on specified levels of or growth in one or
more of the following criteria: earnings per share from continuing operations,
operating income, revenues, return on assets, return on equity, return on
invested capital, shareholder value, economic value added, shareholder return
(measured in terms of stock price appreciation) and/or total shareholder return
(measured in terms of stock price appreciation and/or dividend growth),
achievement of cost controls, delivery cost per kilowatt hour or delivery cost
per millions of cubic feet of natural gas, customer satisfaction ratings,
frequency or duration of electric or gas service interruptions, number of or
severity of gas leaks, avoidance of environmental, public or employee safety
problems, realization of the regulated return on equity, or the price of the
Common Shares. Management Objectives may be stated as a combination of the
listed factors. If the Board determines that a change in the business,
operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or other events or circumstances
(including those events and circumstances described in Section 12 of this Plan)
render the Management Objectives unsuitable, the Board may in its discretion
modify such Management Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Board deems appropriate and equitable,
except in the case of a Covered Employee to the extent that such action would
result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Code.
"Market Value per Share" means, as of any particular date, (i) the closing
sale price per Common Share as reported on the principal exchange on which
Common Shares are then trading, or if there are no sales on such day, on the
next preceding trading day during which a sale occurred, or (ii) if clause (i)
does not apply, the fair market value of a Common Share as determined by the
Board.
"Non-Employee Director" means a Director who is not an employee of the
Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an Option
Right.
"Option Right" means the right to purchase Common Shares upon exercise of
an option granted pursuant to Section 4 or Section 9 of this Plan.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time an officer or other key employee
of the Company or any of its Subsidiaries, or who has agreed to commence serving
in any such capacities within 90 days of the Date of Grant, and shall also
include each Non-Employee Director who receives an award of Option Rights,
Appreciation Rights, Restricted Shares, Restricted Stock Units or any awards
under Section 10 of this Plan.
"Performance Period" means, in respect of a Performance Unit or Performance
Share, a period of time established pursuant to Section 6 of this Plan within
which the Management Objectives relating to such Performance Share or
Performance Unit are to be achieved.
47
"Performance Share" means a bookkeeping entry that records the equivalent
of one Common Share awarded pursuant to Section 6 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit equivalent
to $1.00 awarded pursuant to Section 6 of this Plan.
"Plan" means this CH Energy Group, Inc. Long-Term Equity Incentive Plan, as
amended from time to time.
"Restricted Shares" means Common Shares granted or sold pursuant to Section
7 or Section 9 of this Plan as to which neither the substantial risk of
forfeiture nor the prohibition on transfers referred to in such Section 7 has
expired.
"Restricted Stock Units" means an award of the right to receive Common
Shares at the end of a specified Restriction Period made pursuant to Section 8
or Section 9 of this Plan.
"Restriction Period" means the period of time during which Restricted Stock
Units are subject to deferral limitations under Section 8 of this Plan.
"Spread" means the excess of the Market Value per Share on the date when an
Appreciation Right is exercised, or on the date when Option Rights are
surrendered in payment of the Option Price of other Option Rights, over the per
share Option Price or per share Base Price provided for in the related Option
Right or Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity which is
designated by the Board and in which the Company has a direct or indirect
ownership or other equity interest, provided, however, that for purposes of
determining whether any person may be a Participant for purposes of any grant of
Incentive Stock Options, the term "Subsidiary" has the meaning given to such
term in Section 424 of the Code, as interpreted by the regulations thereunder
and applicable law.
"Tandem Appreciation Right" means an Appreciation Right granted pursuant to
Section 5 or Section 9 of this Plan that is granted in tandem with an Option
Right.
"2000 Plan" has the meaning given such term in Section 1 of this Plan.
SHARES AVAILABLE UNDER THE PLAN.
Subject to adjustment as provided in Section 12 of this Plan, the number of
Common Shares that may be issued or transferred (i) upon the exercise of Option
Rights or Appreciation Rights, (ii) as Restricted Shares, (iii) in payment of
Restricted Stock Units, (iv) in payment of Performance Units or Performance
Shares that have been earned, (v) as awards to Non-Employee Directors, (vi) in
payment of awards granted under Section 10 of this Plan or (vii) in payment of
dividend equivalents paid with respect to awards made under the Plan shall not
exceed in the aggregate 300,000 Common Shares, plus any shares relating to
awards that expire or are forfeited or are cancelled. Common Shares covered by
an award granted under the Plan shall not be counted as used unless and until
they are actually issued and delivered to a Participant. Without limiting the
generality of the foregoing, upon payment in cash of the benefit provided by any
award granted under the Plan, any Common Shares that were covered by that award
will be available for issue or transfer hereunder. Notwithstanding anything to
the contrary contained herein: (A) Common Shares tendered in payment of the
Option Price of an Option Right shall not be added to the aggregate Plan limit
described above; (B) Common Shares withheld by the Company to satisfy the tax
withholding obligation shall not be added to the aggregate Plan limit described
above; (C) Common Shares that are repurchased by the Company with Option Right
proceeds shall not be added to the aggregate Plan limit described above; and (D)
all Common Shares covered by an Appreciation Right, to the extent that it is
exercised and settled in Common Shares, and whether or not Common Shares are
actually issued to the Participant upon exercise of the right, shall be
considered issued or transferred pursuant to the Plan. Such Common Shares may be
shares of original issuance or treasury shares or a combination of the
foregoing.
48
If, under this Plan, a Participant has elected to give up the right to
receive compensation in exchange for Common Shares based on fair market value,
such Common Shares will not count against the number of shares available in
Section 3(a) above.
Notwithstanding anything in this Section 3, or elsewhere in this Plan, to
the contrary and subject to adjustment as provided in Section 12 of this Plan,
(i) the aggregate number of Common Shares actually issued or transferred by the
Company upon the exercise of Incentive Stock Options shall not exceed 300,000
Common Shares; (ii) no Participant shall be granted Option Rights and
Appreciation Rights, in the aggregate, for more than 15,000 Common Shares during
any calendar year; and (iii) the number of shares issued as Appreciation Rights,
Restricted Shares and Restricted Stock Units (after taking forfeitures into
account) shall not exceed, in the aggregate, 100,000 Common Shares.
Notwithstanding any other provision of this Plan to the contrary, in no
event shall any Participant in any calendar year receive an award of (i)
Performance Shares or Restricted Shares that specify Management Objectives, in
the aggregate, for more than 20,000 Common Shares or (ii) Performance Units
having an aggregate maximum value as of their respective Dates of Grant in
excess of $1,000,000.
OPTION RIGHTS.
The Board may, from time to time and upon such terms and conditions as it
may determine, authorize the granting to Participants of Option Rights. Each
such grant may utilize any or all of the authorizations, and shall be subject to
all of the limitations, contained in the following provisions:
Each grant shall specify the number of Common Shares to which it pertains.
Each grant shall specify an Option Price per share, which may not be less
than the Market Value per Share on the Date of Grant.
Each grant shall specify whether the Option Price shall be payable (i) in
cash or by check acceptable to the Company, (ii) by the actual or constructive
transfer to the Company of nonforfeitable, unrestricted Common Shares owned by
the Optionee having a value at the time of exercise equal to the total Option
Price, on such basis as the Board may determine, (iii) in any other legal
consideration that the Board may deem appropriate, on such basis as the Board
may determine, or (iv) by a combination of such methods of payment.
To the extent permitted by law, any grant may provide for (i) deferred
payment of the Option Price from the proceeds of sale through a bank or broker
on a date satisfactory to the Company of some or all of the shares to which such
exercise relates; (ii) payment of the Option Price, at the election of the
Optionee, in installments, with or without interest, upon terms determined by
the Board; or (iii) any combination of such methods.
Successive grants may be made to the same Participant whether or not any
Option Rights previously granted to such Participant remain unexercised.
Each grant shall specify the period or periods of continuous service by the
Optionee with the Company or any Subsidiary that is necessary before the Option
Rights or installments thereof will become exercisable and may provide for the
earlier exercise of such Option Rights in the event of a Change in Control,
retirement, death or disability of the Optionee or other similar transaction or
event as approved by the Board.
Any grant of Option Rights may specify Management Objectives that must be
achieved as a condition to the exercise of such rights.
Option Rights granted under this Plan may be (i) options, including,
without limitation, Incentive Stock Options, that are intended to qualify under
particular provisions of the Code, (ii) "nonqualified stock options" that are
not intended so to qualify, or (iii) combinations of the foregoing. Incentive
Stock Options may only be granted to Participants who meet the definition of
"employees" under Section 3401(c) of the Code on the Date of Grant.
49
The exercise of an Option Right shall result in the cancellation on a
share-for-share basis of any Tandem Appreciation Right authorized under Section
5 of this Plan.
No Option Right shall be exercisable more than 10 years from the Date of
Grant.
Each grant of Option Rights shall be evidenced by an Evidence of Award
which shall contain such terms and provisions, consistent with this Plan and
applicable sections of the Code, as the Board may approve.
The Board may, at or after the Date of Grant of any Option Rights (other
than Incentive Stock Options), provide for the payment of dividend equivalents
to the Optionee on either a current or deferred or contingent basis or may
provide that such equivalents shall be credited against the Option Price.
APPRECIATION RIGHTS.
The Board may authorize the granting (i) to any Optionee, of Tandem
Appreciation Rights in respect of Option Rights granted hereunder, and (ii) to
any Participant, of Free-Standing Appreciation Rights. A Tandem Appreciation
Right shall be a right of the Optionee, exercisable by surrender of the related
Option Right, to receive from the Company an amount determined by the Board,
which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise. Tandem Appreciation Rights may be granted at
any time prior to the exercise or termination of the related Option Rights;
provided, however, that a Tandem Appreciation Right awarded in relation to an
Incentive Stock Option must be granted concurrently with such Incentive Stock
Option. A Free-Standing Appreciation Right shall be a right of the Participant
to receive from the Company an amount determined by the Board, which shall be
expressed as a percentage of the Spread (not exceeding 100 percent) at the time
of exercise.
Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in cash, in Common Shares or in
any combination thereof and may either grant to the Participant or retain in the
Board the right to elect among those alternatives.
Any grant may specify that the amount payable on exercise of an
Appreciation Right may not exceed a maximum specified by the Board at the Date
of Grant.
Each grant shall specify the period or periods of continuous service by the
Participant with the Company or any Subsidiary that is necessary before the
Appreciation Right or installments thereof will become exercisable and may
provide for the earlier exercise of such Appreciation Rights in the event of a
Change in Control, retirement, death or disability of the Participant or other
similar transaction or event as approved by the Board.
Each grant of an Appreciation Right shall be evidenced by an Evidence of
Award, which shall describe such Appreciation Right, identify any related Option
Right, state that such Appreciation Right is subject to all the terms and
conditions of this Plan, and contain such other terms and provisions, consistent
with this Plan and applicable sections of the Code, as the Board may approve.
Any grant may provide for the payment to the Participant of dividend
equivalents thereon in cash or Common Shares on a current, deferred or
contingent basis.
Any grant of Tandem Appreciation Rights shall provide that such Rights may
be exercised only at a time when the related Option Right is also exercisable
and at a time when the Spread is positive, and by surrender of the related
Option Right for cancellation.
Regarding Free-Standing Appreciation Rights only:
Each grant shall specify in respect of each Free-Standing Appreciation
Right a Base Price, which shall not be less than the Market Value per
Share on the Date of Grant;
50
Successive grants may be made to the same Participant regardless of
whether any Free-Standing Appreciation Rights previously granted to
the Participant remain unexercised; and
No Free-Standing Appreciation Right granted under this Plan may be
exercised more than 10 years from the Date of Grant.
Any grant of Appreciation Rights may specify Management Objectives
that must be achieved as a condition to exercise such rights.
PERFORMANCE UNITS AND PERFORMANCE SHARES.
The Board may also authorize the granting to Participants of Performance
Units and Performance Shares that will become payable (or payable early) to a
Participant upon achievement of specified Management Objectives. Each such grant
may utilize any or all of the authorizations, and shall be subject to all of the
limitations, contained in the following provisions:
Each grant shall specify the number of Performance Units or Performance
Shares to which it pertains, which number may be subject to adjustment to
reflect changes in compensation or other factors; provided, however, that no
such adjustment shall be made in the case of a Covered Employee where such
action would result in the loss of the otherwise available exemption of the
award under Section 162(m) of the Code.
The Performance Period with respect to each Performance Unit or Performance
Share shall be such period of time commencing with the Date of Grant as shall be
determined by the Board at the time of grant. Each grant may provide for the
earlier lapse or other modification of such Performance Period in the event of a
Change in Control, retirement, or death or disability of the Participant or
other similar transaction or event as approved by the Board
Any grant of Performance Units or Performance Shares shall specify
Management Objectives which, if achieved, will result in payment or early
payment of the award, and each grant may specify in respect of such specified
Management Objectives a minimum acceptable level of achievement and shall set
forth a formula for determining the number of Performance Units or Performance
Shares that will be earned if performance is at or above the minimum level, but
falls short of full achievement of the specified Management Objectives. The
grant of Performance Units or Performance Shares shall specify that, before the
Performance Shares or Performance Units shall be earned and paid, the Board must
determine that the Management Objectives have been satisfied.
Each grant shall specify the time and manner of payment of Performance
Units or Performance Shares that have been earned. Any grant may specify that
the amount payable with respect thereto may be paid by the Company to the
Participant in cash, in Common Shares or in any combination thereof, and may
either grant to the Participant or retain in the Board the right to elect among
those alternatives.
Any grant of Performance Units may specify that the amount payable or the
number of Common Shares issued with respect thereto may not exceed maximums
specified by the Board at the Date of Grant. Any grant of Performance Shares may
specify that the amount payable with respect thereto may not exceed a maximum
specified by the Board at the Date of Grant.
Each grant of Performance Units or Performance Shares shall be evidenced by
an Evidence of Award, which shall contain such terms and provisions, consistent
with this Plan and applicable sections of the Code, as the Board may approve.
The Board may, at or after the Date of Grant of Performance Shares, provide
for the payment of dividend equivalents to the holder thereof on either a
current or deferred or contingent basis, either in cash or in additional Common
Shares.
51
RESTRICTED SHARES.
The Board may also authorize the grant or sale of Restricted Shares to
Participants. Each such grant or sale may utilize any or all of the
authorizations, and shall be subject to all of the limitations, contained in the
following provisions:
Each such grant or sale shall constitute an immediate transfer of the
ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
Each such grant or sale may be made without additional consideration or in
consideration of a payment by such Participant that is less than Market Value
per Share at the Date of Grant.
Each such grant or sale shall provide that the Restricted Shares covered by
such grant or sale shall be subject to a "substantial risk of forfeiture" within
the meaning of Section 83 of the Code for a period to be determined by the Board
at the Date of Grant and may provide for the earlier lapse of such substantial
risk of forfeiture in the event of a Change in Control, retirement, or death or
disability of the Participant or other similar transaction or event as approved
by the Board.
Each such grant or sale shall provide that during the period for which such
substantial risk of forfeiture is to continue, the transferability of the
Restricted Shares shall be prohibited or restricted in the manner and to the
extent prescribed by the Board at the Date of Grant (which restrictions may
include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee).
Any grant of Restricted Shares may specify Management Objectives that, if
achieved, will result in termination or early termination of the restrictions
applicable to such shares. Each grant may specify in respect of such Management
Objectives a minimum acceptable level of achievement and may set forth a formula
for determining the number of Restricted Shares on which restrictions will
terminate if performance is at or above the minimum level, but falls short of
full achievement of the specified Management Objectives.
Any such grant or sale of Restricted Shares may require that any or all
dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional Restricted
Shares, which may be subject to the same restrictions as the underlying award.
Each grant or sale of Restricted Shares shall be evidenced by an Evidence
of Award, which shall contain such terms and provisions, consistent with this
Plan and applicable sections of the Code, as the Board may approve. Unless
otherwise directed by the Board, all certificates representing Restricted Shares
shall be held in custody by the Company until all restrictions thereon shall
have lapsed, together with a stock power or powers executed by the Participant
in whose name such certificates are registered, endorsed in blank and covering
such Shares.
RESTRICTED STOCK UNITS.
The Board may also authorize the grant or sale of Restricted Stock Units to
Participants. Each such grant or sale may utilize any or all of the
authorizations, and shall be subject to all of the requirements contained in the
following provisions:
Each such grant or sale shall constitute the agreement by the Company to
deliver Common Shares to the Participant in the future in consideration of the
performance of services, but subject to the fulfillment of such conditions
during the Restriction Period as the Board may specify.
Each such grant or sale may be made without additional consideration or in
consideration of a payment by such Participant that is less than the Market
Value per Share at the Date of Grant.
Each such grant or sale shall be subject to a Restriction Period as
determined by the Board at the Date of Grant, and may provide for the earlier
lapse or other modification of such Restriction Period in the event of a Change
in
52
Control, retirement, or death or disability of the Participant or other similar
transaction or event as approved by the Board.
During the Restriction Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of ownership
in the Restricted Stock Units and shall have no right to vote them, but the
Board may, at or after the Date of Grant, authorize the payment of dividend
equivalents on such Restricted Stock Units on either a current or deferred or
contingent basis, either in cash or in additional Common Shares.
Each grant or sale of Restricted Stock Units shall be evidenced by an
Evidence of Award, which shall contain such terms and provisions, consistent
with this Plan and applicable sections of the Code, as the Board may approve.
AWARDS TO NON-EMPLOYEE DIRECTORS.
The Board may, from time to time and upon such terms and conditions as it
may determine, authorize the granting to Non-Employee Directors of Option Rights
under Section 4 of this Plan or Appreciation Rights under Section 5 of this
Plan, and may also authorize the grant or sale of Restricted Shares under
Section 7 of this Plan, Restricted Stock Units under Section 8 of this Plan or
other awards under Section 10 of this Plan, or any combination of the foregoing.
OTHER AWARDS.
The Board is authorized, subject to limitations under applicable law, to
grant to any Participant such other awards that may be denominated or payable
in, valued in whole or in part by reference to, or otherwise based on, or
related to, Common Shares or factors that may influence the value of Common
Shares, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Common Shares,
purchase rights for Common Shares, awards with value and payment contingent upon
performance of the Company or business units thereof or any other factors
designated by the Board, and awards valued by reference to the book value of
Common Shares or the value of securities of, or the performance of specified
Subsidiaries or affiliates or other business units of, the Company. The Board
shall determine the terms and conditions of such awards. Common Shares delivered
pursuant to an award in the nature of a purchase right granted under this
Section 10 shall be purchased for such consideration, paid for at such times, by
such methods, and in such forms, including, without limitation, cash, Common
Shares, other awards, notes or other property, as the Board shall determine.
Cash awards, as an element of or supplement to any other award granted
under this Plan, may also be granted pursuant to this Section 10 of this Plan.
The Board is authorized to grant Common Shares as a bonus, or to grant
Common Shares or other awards in lieu of obligations of the Company or a
Subsidiary to pay cash or deliver other property under the Plan or under other
plans or compensatory arrangements, subject to such terms as shall be determined
by the Board.
TRANSFERABILITY.
Except as otherwise determined by the Board, no Option Right, Appreciation
Right or other derivative security granted under the Plan shall be transferable
by a Participant other than by will or the laws of descent and distribution.
Except as otherwise determined by the Board, Option Rights and Appreciation
Rights shall be exercisable during the Optionee's lifetime only by him or her or
by his or her guardian or legal representative.
The Board may specify at the Date of Grant that part or all of the Common
Shares that are (i) to be issued or transferred by the Company upon the exercise
of Option Rights or Appreciation Rights, upon the termination of the Restriction
Period applicable to Restricted Stock Units or upon payment under any grant of
Performance Units or Performance Shares or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 7 of this Plan, shall be subject to further restrictions on transfer.
53
ADJUSTMENTS.
The Board may make or provide for such adjustments in the numbers of Common
Shares covered by outstanding Option Rights, Appreciation Rights, Performance
Shares, Restricted Stock Units and share-based awards described in Section 10 of
this Plan granted hereunder, in the Option Price and Base Price provided in
outstanding Option Rights and Appreciation Rights, and in the kind of shares
covered thereby, as the Board, in its sole discretion, exercised in good faith,
may determine is equitably required to prevent dilution or enlargement of the
rights of Participants or Optionees that otherwise would result from (a) any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, or (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial
or complete liquidation or other distribution of assets (including, without
limitation, a special or large non-recurring dividend), issuance of rights or
warrants to purchase securities, or (c) any other corporate transaction or event
having an effect similar to any of the foregoing. Moreover, in the event of any
such transaction or event, the Board, in its discretion, may provide in
substitution for any or all outstanding awards under this Plan such alternative
consideration (including cash) as it, in good faith, may determine to be
equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of this Plan as the
Board in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in this Section 12;
provided, however, that any such adjustment to the number specified in Section
3(c)(i) shall be made only if and to the extent that such adjustment would not
cause any Option intended to qualify as an Incentive Stock Option to fail so to
qualify.
FRACTIONAL SHARES.
The Company shall not be required to issue any fractional Common Shares
pursuant to this Plan. The Board may provide for the elimination of fractions or
for the settlement of fractions in cash.
WITHHOLDING TAXES.
The Company shall have the right to deduct from any payment or benefit
realized under this Plan an amount equal to the federal, state, local, foreign
and other taxes which in the opinion of the Company are required to be withheld
by it with respect to such payment or benefit. To the extent that the amounts
available to the Company for such withholding are insufficient, it shall be a
condition to the receipt of such payment or the realization of such benefit that
the Participant or other recipient make arrangements satisfactory to the Company
for payment of the balance of such taxes required to be withheld. At the
discretion of the Board, such arrangements may include relinquishment of a
portion of such benefit pursuant to procedures adopted by the Board from time to
time. The Company and a Participant or such other recipient may also make
similar arrangements with respect to the payment of any taxes with respect to
which withholding is not required.
FOREIGN EMPLOYEES.
In order to facilitate the making of any grant or combination of grants
under this Plan, the Board may provide for such special terms for awards to
Participants who are foreign nationals or who are employed by the Company or any
Subsidiary outside of the United States of America as the Board may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. Moreover, the Board may approve such supplements to or amendments,
restatements or alternative versions of this Plan as it may consider necessary
or appropriate for such purposes, without thereby affecting the terms of this
Plan as in effect for any other purpose, and the Corporate Secretary or other
appropriate officer of the Company may certify any such document as having been
approved and adopted in the same manner as this Plan. No such special terms,
supplements, amendments or restatements, however, shall include any provisions
that are inconsistent with the terms of this Plan as then in effect unless this
Plan could have been amended to eliminate such inconsistency without further
approval by the shareholders of the Company.
54
ADMINISTRATION OF THE PLAN.
This Plan shall be administered by the Board, which may from time to time
delegate all or any part of its authority under this Plan to a committee of the
Board (or subcommittee thereof), consisting of not less than two Directors
appointed by the Board, each of whom shall be (i) a "non-employee director" as
defined in Rule 16b-3 of the Exchange Act and (ii) an "outside director" as
defined in the regulations under Section 162(m) of the Code. To the extent of
any such delegation, references in this Plan to the Board shall be deemed to be
references to any such committee or subcommittee. A majority of the committee
(or subcommittee) shall constitute a quorum, and the action of the members of
the committee (or subcommittee) present at any meeting at which a quorum is
present, or acts unanimously approved in writing, shall be the acts of the
committee (or subcommittee).
The interpretation and construction by the Board of any provision of this
Plan or of any Evidence of Award and any determination by the Board pursuant to
any provision of this Plan or of any such Evidence of Award shall be final and
conclusive. No member of the Board shall be liable for any such action or
determination made in good faith.
AMENDMENTS AND OTHER MATTERS.
The Board may at any time and from time to time amend the Plan in whole or
in part; provided, however, that any amendment which must be approved by the
shareholders of the Company in order to comply with applicable law or the rules
of the New York Stock Exchange or, if the Common Shares are not traded on the
New York Stock Exchange, the principal national securities exchange upon which
the Common Shares are traded or quoted, shall not be effective unless and until
such approval has been obtained. Presentation of this Plan or any amendment
thereof for shareholder approval shall not be construed to limit the Company's
authority to offer similar or dissimilar benefits under other plans or otherwise
with or without shareholder approval. Without limiting the generality of the
foregoing, the Board may amend this Plan to eliminate provisions which are no
longer necessary as a result in changes in tax or securities laws or
regulations, or in the interpretation thereof.
The Board shall not, without the further approval of the shareholders of
the Company, authorize the amendment of any outstanding Option Right or
Appreciation Right to reduce the Option Price or Base Price. Furthermore, no
Option Right or Appreciation Right shall be cancelled and replaced with awards
having a lower Option Price or Base Price, respectively, without further
approval of the shareholders of the Company. This Section 17(b) is intended to
prohibit the repricing of "underwater" Option Rights and Appreciation Rights and
shall not be construed to prohibit the adjustments provided for in Section 12 of
this Plan.
The Board also may permit Participants to elect to defer the issuance of
Common Shares or the settlement of awards in cash under the Plan pursuant to
such rules, procedures or programs as it may establish for purposes of this
Plan. The Board also may provide that deferred issuances and settlements include
the payment or crediting of dividend equivalents or interest on the deferral
amounts.
The Board may condition the grant of any award or combination of awards
authorized under this Plan on the deferral by the Participant of his or her
right to receive a cash bonus or other compensation otherwise payable by the
Company or a Subsidiary to the Participant.
If permitted by Section 409A of the Code, in case of termination of
employment by reason of death, disability or normal or early retirement, or in
the case of hardship or other special circumstances, of a Participant who holds
an Option Right or Appreciation Right not immediately exercisable in full, or
any Restricted Shares as to which the substantial risk of forfeiture or the
prohibition or restriction on transfer has not lapsed, or any Restricted Stock
Units as to which the Restriction Period has not been completed, or any
Performance Shares or Performance Units which have not been fully earned, or any
other awards made pursuant to Section 10 subject to any vesting schedule or
transfer restriction, or who holds Common Shares subject to any transfer
restriction imposed pursuant to Section 11(b) of this Plan, the Board may, in
its sole discretion, accelerate the time at which such Option Right,
Appreciation Right or other award may be exercised or the time at which such
substantial risk of forfeiture or prohibition or restric-
55
tion on transfer will lapse or the time when such Restriction Period will end or
the time at which such Performance Shares or Performance Units will be deemed to
have been fully earned or the time when such transfer restriction will terminate
or may waive any other limitation or requirement under any such award.
This Plan shall not confer upon any Participant any right with respect to
continuance of employment or other service with the Company or any Subsidiary,
nor shall it interfere in any way with any right the Company or any Subsidiary
would otherwise have to terminate such Participant's employment or other service
at any time.
To the extent that any provision of this Plan would prevent any Option
Right that was intended to qualify as an Incentive Stock Option from qualifying
as such, that provision shall be null and void with respect to such Option
Right. Such provision, however, shall remain in effect for other Option Rights
and there shall be no further effect on any provision of this Plan.
Subject to Section 20, this Plan shall continue in effect until the date on
which all Common Shares available for issuance or transfer under this Plan have
been issued or transferred and the Company has no further obligation hereunder.
Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right or title to any assets, funds or
property of the Company or any Subsidiary, including without limitation, any
specific funds, assets or other property which the Company or any Subsidiary may
set aside in anticipation of any liability under the Plan. A Participant shall
have only a contractual right to an award or the amounts, if any, payable under
the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing
contained in the Plan shall constitute a guarantee that the assets of the
Company or any Subsidiary shall be sufficient to pay any benefits to any person.
This Plan and each Evidence of Award shall be governed by the laws of the
State of New York, excluding any conflicts or choice of law rule or principle
that might otherwise refer construction or interpretation of the Plan to the
substantive law of another jurisdiction.
If any provision of the Plan is or becomes invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any award
under any law deemed applicable by the Board, such provision shall be construed
or deemed amended or limited in scope to conform to applicable laws or, in the
discretion of the Board, it shall be stricken and the remainder of the Plan
shall remain in full force and effect.
COMPLIANCE WITH SECTION 409A OF THE CODE.
To the extent applicable, it is intended that this Plan and any grants made
hereunder comply with the provisions of Section 409A of the Code. The Plan and
any grants made hereunder shall be administrated in a manner consistent with
this intent, and any provision that would cause the Plan or any grant made
hereunder to fail to satisfy Section 409A of the Code shall have no force and
effect until amended to comply with Section 409A of the Code (which amendment
may be retroactive to the extent permitted by Section 409A of the Code and may
be made by the Company without the consent of Participants). Any reference in
this Plan to Section 409A of the Code will also include any proposed, temporary
or final regulations, or any other guidance, promulgated with respect to such
Section by the U.S. Department of the Treasury or the Internal Revenue Service.
APPLICABLE LAWS.
The obligations of the Company with respect to awards under the Plan shall
be subject to all Applicable Laws and such approvals by any governmental
agencies as the Board determines may be required.
TERMINATION.
No grant shall be made under this Plan more than 10 years after the date on
which this Plan is first approved by the Board, but all grants effective on or
prior to such date shall continue in effect thereafter subject to the terms
thereof and of this Plan.
56
ROUTE TO CH ENERGY GROUP, INC.
[GRAPHIC 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
ANNUAL MEETING ADMISSION TICKET
[LOGO] CH ENERGY GROUP, INC.
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MR A SAMPLE
DESIGNATION (IF ANY)
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[GRAPHIC OMITTED]
2006 ANNUAL MEETING
OF
CH ENERGY GROUP, INC.
APRIL 25, 2006, 10:30
A.M., 284 SOUTH
AVENUE POUGHKEEPSIE, NY
PRESENT TO THE CH ENERGY GROUP, INC.
REPRESENTATIVE AT THE ENTRANCE
TO THE AUDITORIUM.
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD 123456 C0123456789 12345
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|_| Please mark this box with an X if your address
has changed and print the new address below.
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MR A SAMPLE (THIS AREA IS SET UP TO [GRAPHIC OMITTED] +
ACCOMMODATE 140 CHARACTERS) +
C 1234567890 J N T
|A| ELECTION OF DIRECTORS - THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
LISTED NOMINEES.
1. Election of Class III Directors 2009.
FOR WITHHOLD
01 - E. Michel Kruse |_| |_|
FOR WITHHOLD
02 - Manuel J. Iraola |_| |_|
FOR WITHHOLD
03 - Ernest R. Verebelyi |_| |_|
|B| ISSUES - THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING
PROPOSALS.
FOR AGAINST ABSTAIN
2. Approval of the adoption of the
Corporation~s Long-Term the Equity
Incentive Plan. |_| |_| |_|
3. Ratification of Appointment of
Independent Registered discontinue
Public Accounting Firm. |_| |_| |_|
4. In their discretion, upon such
other business as may properly come
before the annual meeting or any
adjournment or postponement
thereof. |_| |_| |_|
Please mark this box with an X if you plan to attend Annual
Meeting. |_|
Please mark this box with an X if you wish us to Annual
Report mailing for this account. |_|
Please mark this box with an X if you have made comments
below. |_|
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|C| AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
NOTE: Please sign exactly as name above. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
Signature 1 - Please keep signature within the box
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Signature 2 - Please keep signature within the box
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Date (mm/dd/yyyy)
--------------/-------------/---------------------
|_| 5 U P X C O Y +
001CD40003 00IEWE
ADMISSION TICKET
ANNUAL MEETING OF SHAREHOLDERS
April 25, 2006, 10:30 a.m.
CH ENERGY GROUP, INC.
284 South Avenue, Poughkeepsie, NY
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AGENDA
o Election of Directors
o Approval of the adoption of the Corporation's Long-Term Equity Incentive Plan
o Ratification of Appointment of Independent Registered Public Accounting Firm
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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.
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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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CH ENERGY GROUP, INC.
PROXY OF COMMON SHAREHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints STEVEN V. LANT, STEVEN M. FETTER, HEINZ K.
FRIDRICH, 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, 2006, 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 25, 2006, or any adjournment
thereof, upon all such matters as may properly come before the meeting,
including the following proposals described in the Proxy Statement, dated March
10, 2006, a copy of which has been received by the undersigned.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED WITH REGARD TO
PROPOSALS NO. 1, NO. 2 AND NO. 3. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL
BE VOTED ~FOR~ PROPOSALS NO. 1, NO. 2 AND NO. 3 .
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.econsent.com/chg.
TELEPHONE AND INTERNET VOTING INSTRUCTIONS
YOU CAN VOTE BY TELEPHONE OR INTERNET! 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.
[GRAPHIC OMITTED]
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TO VOTE USING THE TELEPHONE (WITHIN U.S. AND CANADA)
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o Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time
on a touch tone telephone. There is NO CHARGE to you for the call.
o Follow the simple instructions provided by the recorded message.
o Go to the following web site: www.computershare.com/expressvote
o Enter the information requested on your computer screen and follow the simple
instructions.
[GRAPHIC OMITTED]
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TO VOTE USING THE INTERNET
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IF YOU VOTE BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY
CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 12:01 A.M.,
CENTRAL TIME, ON APRIL 17, 2006
THANK YOU FOR VOTING