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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
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OR,
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12859
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CTG Resources, Inc.
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(Exact name of registrant as specified in its charter)
Connecticut 06-1466463
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Columbus Blvd.
P.O. Box 1500
Hartford, Connecticut 06144-1500
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (860) 727-3010
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock - No Par New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
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State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. (The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing.)
The aggregate market value of the voting stock held by nonaffiliates
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of the Registrant on November 2, 1998 was $204,386,631.
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (applicable only
to corporate registrants).
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Number of shares of Common Stock outstanding as of the close of business
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on November 30, 1998 was 8,652,171.
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the<PAGE>
Part of the Form 10-K into which the document is incorporated: (1) Any
annual report to security holders; (2) Any proxy or information statement;
and (3) Any prospectus filed pursuant to rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly described
for identification purposes.
Definitive Proxy Statement for the Company's February 1999 Annual
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Meeting (Part III)
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<PAGE>
PART I
ITEM 1. BUSINESS
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General
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CTG Resources, Inc. ("the Company" or "CTG") is a Connecticut corporation
organized as a holding company with two wholly-owned subsidiaries:
Connecticut Natural Gas Corporation ("CNG") and The Energy Network, Inc.
("TEN"). CNG is an energy provider engaged in the regulated distribution,
sale and transportation of natural gas. TEN holds and operates, through
divisions or wholly-owned subsidiaries, CTG's unregulated, diversified
businesses which are primarily engaged in district heating and cooling
("DHC") and also include the Company's equity investments in two
partnerships, one of which is the Iroquois Gas Transmission System Limited
Partnership ("Iroquois").
CTG's headquarters are in Hartford, Connecticut. At September 30, 1998,
the Company employed 555 people. The Company's common stock is traded on
the New York Stock Exchange, under the symbol CTG. Preferred stock of CNG
is traded on the over-the-counter market.
CTG's principal business is the distribution, transportation and sale of
natural gas through CNG. This business is subject to extensive
regulation. CTG's diversified businesses are unregulated and provide
energy-related products and services, primarily district heating and
cooling. The activities of Iroquois are regulated at the Federal level.
Segment information for all relevant periods is included in the Notes to
the Financial Statements filed in Part II, Item 8 of this report.
Seasonality
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The Company's operations are seasonal. Most of the Company's gas revenues
and related operating expenses occur during the winter heating season,
November to March. Natural gas usage in the Company's service area is
greater for heating purposes in winter and less for cooling in summer.
Natural gas usage for nonheating purposes remains steady throughout the
year. Accordingly, earnings are highest during the first and second
quarters of the fiscal year, which begins October 1, and the third and
fourth quarters frequently show a net loss. The impact of seasonality on
cash flows is discussed in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
The Company's unregulated district heating and cooling businesses
experience peak loads during both the winter heating and summer cooling
seasons.
<PAGE>
Competition
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In recent years, the natural gas industry has undergone structural changes
in response to Federal regulatory policy intended to increase competition.
In 1992, the Federal Energy Regulatory Commission ("FERC") issued Order
636, which required all interstate gas pipelines to provide "unbundled,"
or separate, gas transportation and storage services and to discontinue
their bundled merchant sales operations, which included the gas
acquisition function. Similarly, the Company has offered firm
transportation rate tariffs to nonresidential customers since April 1,
1996. The impact of the FERC Order 636 and the resulting deregulation of
the gas industry has continued to heighten competition and has changed the
nature of the Company's business.
The Company has historically distributed and sold natural gas to its
customers without substantial competition from other gas utilities,
cooperatives or other providers of natural gas. At the local level, as a
result of FERC Order 636 and Connecticut deregulation, the Company faces
increasing competitive pressures as other providers of gas seek
opportunities to make gas sales to the Company's commercial and industrial
customers. Similarly, the Company has offered firm transportation rate
tariffs to nonresidential customers, since April of 1996. The Company's
transportation tariffs are designed to recover a margin on each
transaction that is comparable to the margin that the Company would have
received if it were making an on-system sale of natural gas.
The Company also competes with suppliers of oil, electricity and propane
for cooking, heating, air conditioning and other purposes. Competition is
greatest among the large commercial and industrial customers who have the
capability of using alternative fuels. The volatile effect of this price-
sensitive load is somewhat overcome through the use of flexible rate
schedules which allow gas pricing to meet alternative-fuel competition.
The diversified businesses own and operate DHC systems which distribute
and sell steam, hot water and chilled water to office complexes and other
large buildings in the City of Hartford. The extent of competition to the
DHC business from alternate fuels is diminished after a customer has made
its commitment to DHC because of the cost of the equipment necessary to
utilize an alternative energy source.
Regulatory Jurisdiction
-----------------------
CNG's principal business is the distribution of natural gas, and this
business is subject to regulation by the Connecticut Department of Public
Utility Control ("DPUC") as a public service company. The scope of this
regulation encompasses rates, standards of service, issuance of certain
securities, safety practices and other matters. Retail sales of gas by
the Company and deliveries of gas owned by others are made pursuant to
rate schedules and contracts filed with and subject to DPUC approval. In
general, the firm rate schedules provide for some reductions in the unit <PAGE>
price of gas as greater quantities are used. The rate schedules contain
purchased gas adjustment provisions as described in Note 1 to the
Financial Statements (included in Part II, Item 8 herein).
Businesses operated by TEN are not public service companies under state
law, and hence they are not subject to regulation by the DPUC. However,
intercompany transactions between CNG and its affiliates are subject to
review and/or approval by the DPUC.
The regulation of interstate sales of natural gas is under the
jurisdiction of the FERC. The Company is subject to the direct
jurisdiction of the FERC for any off-system sales the Company makes in
interstate commerce. The FERC regulates the Company's pipeline gas
suppliers and transporters, and the Company closely follows and
participates in numerous proceedings before FERC. Through an unregulated
subsidiary, of TEN, TEN Transmission Company ("TEN Transmission"), the
Company is an equity partner in Iroquois which is subject to regulation by
FERC.
Natural Gas Business (Regulated)
-------------------------------
CNG is a Connecticut corporation organized in 1848 and headquartered in
Hartford, Connecticut. CNG is engaged in the distribution, transportation
and sale of natural gas in Hartford and 21 other cities and towns in
central Connecticut and in Greenwich, Connecticut. This business is
subject to extensive regulation. Many aspects of this traditional
business have changed or are expected to change as deregulation of the
industry occurs. Later sections of this document address these changes
(See, for example, the sections entitled "Regulatory Matters" and
"Competition.").
Consolidated gas operating revenues were $262,446,000 for the fiscal year
ended September 30, 1998 and were derived approximately 50% from
residential customers, 20% from commercial firm customers, 1% from
industrial firm customers, 16% from interruptible customers, 11% from off-
system sales and 2% from the aggregate of transportation of customer-owned
gas and other gas-related revenues. There were $2,299,000 of revenues
from sales to affiliated companies. The gas distribution business
contributed 93% of consolidated revenues over the three fiscal years
ending 1998. During the fiscal year ended September 30, 1998, the peak-
day sendout of gas was 248,659 thousands of cubic feet ("mcf") which
occurred on December 31, 1997.
CNG has one wholly-owned subsidiary, CNG Realty Corp. ("CNGR"), which was
formed in 1977. CNGR is a single purpose corporation which owns the
Company's Operating and Administrative Center located on a 7-acre site in
downtown Hartford, Connecticut. This facility is leased to CNG. CNGR
engages in no other business activity.
<PAGE>
Gas Supply -
The Company's current gas supply contract portfolio reflects the results
of a continuing supply diversification strategy. The purpose of such a
strategy is to hold a secure, flexible, best-cost gas supply portfolio,
which allows the Company to respond quickly and appropriately as customer
needs change.
The Company purchases natural gas on a long-term and seasonal basis from
producers and, when economics dictate, on a short-term basis in the spot
market. Pipeline services purchased include firm and interruptible
transportation service. Gas storage service in the northeast and in the
southeast production area is purchased from both pipelines and storage
contractors.
The Company's principal and most economical source of gas is pipeline-
delivered natural gas. Because of limited transportation capacity,
pipelines may be unable to meet all of the Company's needs during the
coldest periods of the year. Therefore, the Company also utilizes
liquefied natural gas ("LNG") and, to a much lesser extent, propane mixed
with air ("LP-Air"). LNG and LP-Air are usually more expensive than
natural gas. Therefore, they are used primarily during the winter months
for peak shaving when the demand for gas is greatest and exceeds
deliverable supplies of natural gas through the pipelines.
The Company currently holds pipeline transportation contracts with
Algonquin Gas Transmission Company ("AGT"), CNG Transmission Corporation
("CNGT"), Iroquois Gas Transmission System ("IGTS"), National Fuel Gas
Supply Corporation ("NFGS"), Tennessee Gas Pipeline Company ("TGP"), Texas
Eastern Gas Transmission Corporation ("TETCO"), and Transcontinental Gas
Pipeline Corporation ("TRANSCO"). The various agreements expire at
different times through 2012 and provide for the delivery of a total
maximum daily quantity of approximately 170,596 mcf and maximum annual
quantity of approximately 48,708,730 mcf. The Company also has signed
supply contracts directly with producers to provide the natural gas for
these transportation arrangements.
The Company has contracted for storage service in various locations and
with diverse expiration dates through 2012. Under these arrangements, gas
available during the warmer months of the year is stored underground in
locations that, although out-of-state, are accessible for use during the
colder winter months of the year and for balancing throughout the year.
The gas supply which feeds into the Company's firm transportation rights
on the interstate pipelines has been contracted for directly with
producers of natural gas ("Direct Producer Contracts"). The Direct
Producer Contracts are diverse in terms of expiration date, supply
location, price, flexibility, etc. as part of the Company's gas supply
diversification strategy.
The Company continues to be very active in the area of purchasing gas
directly from producers both in the spot market and under long-term
arrangements. Currently, the Company purchases all of its gas under such
arrangements. Spot market volumes are those purchased under short-term <PAGE>
arrangements from producers and gas withdrawn from storage which had been
purchased directly from producers for injection to that storage. Spot
market purchases are set by negotiation with the supplier.
Under FERC Order 636, a pipeline may not terminate service to a long-term
firm transportation customer if that customer elects to exercise a "right
of first refusal" following the initial contract term expiration. This
requires the customer to match the price and length terms of another offer
made to the pipeline to continue to purchase such service. The price for
such continued firm transportation service would be capped at the maximum
price determined as a just and reasonable rate under FERC jurisdiction.
In addition to its pipeline gas supplies, the Company owns an LNG plant in
Rocky Hill, Connecticut. This plant has the design capacity to liquefy
approximately 6,000 MCF per day and store 1,206,000 MCF. The LNG plant is
not a source of additional gas supply, but it permits the Company to
liquefy and store gas supplies purchased during the summer and to deliver
this stored gas during the following winter. The plant has the design
capacity to vaporize 60,000 MCF per day.
LP-Air is a source of peak shaving supply to the Company. The Company has
approximately 720,000 gallons of on-site propane storage which can produce
the equivalent of approximately 8,208 MCF of natural gas per day.
Regulatory Matters -
In April 1997, the DPUC began an investigation into improving the existing
firm transportation programs in the state and expanding competition to all
residential customers. In August 1997, the DPUC initiated a generic
proceeding to investigate firm transportation and unbundling in
Connecticut. This proceeding was divided into two phases. The DPUC
issued a decision regarding the issues of Phase I in July 1998, addressing
the status of existing firm transportation service for commercial and
industrial customers, streamlining the Connecticut local gas distribution
companies' ("LDCs") administrative processes and thereby making firm
transportation more readily accessible to customers.
In Phase II, the DPUC is addressing the potential deregulation of the
residential natural gas sales market in Connecticut and the future role of
Connecticut's LDCs in natural gas commodity sales. This phase of the
review will explore the many important issues related to fully unbundled,
competitive gas service for all customers, including residential. These
issues will include recovery of potentially stranded costs, the LDCs'
obligation to serve customers who choose other suppliers, a marketer code
of conduct and consumer protection, use/role of fixed price hedging tools,
future decisions regarding pipeline capacity entitlements, and public
policy programs.
Concurrently, the Connecticut State Legislature has undertaken a task
force investigation related to residential deregulation. Although the
Company cannot predict the outcome of these proceedings, the Company <PAGE>
anticipates that the timing of any DPUC decision will be related to the
timing of the completion and announcement of the results of the
Connecticut State Legislature's activities.
In 1997 the DPUC informed CNG that it plans to initiate a second phase of
the management audit which it performed in 1995 and 1996. This second
phase will focus on several areas of CNG's operations in which
opportunities for improvements were identified by the initial audit. The
DPUC has not yet scheduled this second phase of its management audit.
Diversified Businesses (Unregulated)
-----------------------------------
At September 30, 1998, the diversified businesses of the Company included
TEN and its wholly-owned subsidiaries The Hartford Steam Company ("HSC"),
TEN Transmission, ENI Gas Services, Inc. ("ENI Gas"), TEN Gas Services,
Inc.("TEN Gas") and ENServe Incorporated ("ENServe").
TEN was incorporated in 1982 and is engaged in the operations described in
the following paragraphs. TEN and HSC provide DHC services to many
buildings and complexes in the south-end and downtown neighborhoods of
Hartford, Connecticut. TEN also holds a fifty percent interest in the
Downtown Cogeneration Associates partnership which owns and operates a
4.2-Megawatt cogeneration facility in downtown Hartford, Connecticut.
TEN's other operating division offers energy equipment rentals. ENI Gas
and TEN Gas together own 100% of KBC Energy Services ("KBC"), a gas
marketing business which is in the process of winding down its operations.
TEN Transmission owns the Company's share of its investment in the
Iroquois pipeline.
TEN Transmission, which was formed in 1986, owns the Company's 4.87% share
of Iroquois. Iroquois operates a natural gas pipeline which transports
Canadian natural gas into the states of New York, Massachusetts and
Connecticut. Although TEN Transmission is not regulated, Iroquois is
regulated by the FERC.
HSC, incorporated in Connecticut in 1961, owns and operates a central
production plant and distribution system for the processing and
distribution of steam for heating and chilled water for cooling to a
number of offices, stores and other large buildings in the southend and
downtown neighborhoods of Hartford, Connecticut.
In June 1998, HSC acquired the assets of cogeneration facility which is
located adjacent to and serves Hartford Hospital, providing both steam and
electricity. HSC will manage the facility and supply the hospital with
steam and electricity over a twenty-year contract period. HSC will also
sell electricity to the local electric utility. The facility is currently
off-line for repowering as a 7.5-Megawatt facility and is scheduled to be
back on line by January 1999 under HSC's management.<PAGE>
HSC chills its own water supply for district cooling and produces its own
steam from its existing boilers. HSC also purchases steam from the
Downtown Cogeneration Associates Limited Partnership ("DCA"), which sells
steam to HSC under a twenty-year contract. TEN is a 50% partner in the
DCA with two unrelated third parties. The DCA owns and operates a 4.2-
megawatt cogeneration facility on the roof of a downtown Hartford building
complex. Electricity generated from this unit is sold to The Connecticut
Light and Power Company under a twenty-year contract expiring in 2007.
During fiscal 1997, TEN provided cogeneration management and consulting
services to DCA.
The Capitol Area System ("CAS") is a district heating and cooling system
serving a section of the City of Hartford, Connecticut. TEN owns the
distribution system and purchases hot and chilled water from a third
party. TEN also provides marketing services to this third party.
TEN's energy equipment rentals division owns natural gas water heaters and
natural gas conversion burners which it leases to customers in the
residential market.
In fiscal 1998, TEN sold the physical assets and business of ENServe and
essentially completed the wind-down of its operations. ENServe previously
had offered energy system management services and energy conservation
services to residential, commercial and industrial customers throughout
Connecticut.
ENI Gas was formed to own the Company's interest in KBC, a New England
natural gas marketer. At September 30, 1997 TEN had a 50% ownership
interest in this partnership. During the second quarter of fiscal 1998
TEN Gas was formed to own a portion of KBC, and together ENI Gas and TEN
Gas assumed full control of KBC. The KBC operations were deemed not core
to TEN's strategic focus on asset-based businesses. Accordingly, ENI Gas
and TEN Gas began the sale of KBC's assets and the wind down of its
operations.
The Energy Network Alliance
In October 1998, TEN entered into a marketing alliance with Pratt &
Whitney Canada, Inc., Carrier Corporation and Oxford Technologies, Inc. to
provide energy for heating, cooling and electricity to large commercial,
industrial and institutional facilities by combining cogeneration and
district energy. As its role in this alliance, TEN will own and operate
the individual customers' on-site district energy plants which will be
equipped with state-of-the-art energy systems provided by the other
members of the alliance.<PAGE>
Environmental Considerations
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The Company has not experienced and does not anticipate any significant
problem in complying with laws and regulations pertinent to its business
concerned with protecting the environment. Additional information
regarding environmental considerations is included in the Management's
Discussion and Analysis of Financial Condition and Results of Operations,
filed in Part II, Item 7 of this report, and the Notes to the Financial
Statements, filed in Part II, Item 8 of this report.
Franchises
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CNG holds franchises, granted by the Legislature of the State of
Connecticut, and other consents which it considers to be valid and
adequate to enable it to carry on its operations, substantially as now
carried on, in each of the communities which it serves.
<PAGE>
ITEM 2. PROPERTIES
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At September 30, 1998, CNG owns gas distribution mains, a natural gas
liquefaction plant, propane gas storage tanks, metering stations, gas
service connections, meters, regulators and other equipment necessary for
the operation of a gas distribution system. Substantially all of the
Company's properties are subject to the lien of the Indenture of Mortgage
and Deed of Trust securing its first mortgage bonds. The properties, in
management's opinion, are maintained in good operating condition. The gas
mains are located principally under public streets, roads and highways.
TEN owns a distribution system located in the Capitol area of Hartford,
Connecticut for the distribution of hot water for heating and chilled
water for cooling. This property was financed with industrial revenue
bonds secured by a letter of credit with a bank.
HSC owns a cogeneration facility which is located on the campus of
Hartford Hospital and supplies steam for heating and electricity for power
to Hartford Hospital. This facility is currently off-line for repowering
as a 7.5-megawatt facility and is scheduled to be on line by January 1999
under HSC management. The purchase and repowering of this property were
financed with a long-term secured term note.
The equipment rentals division of TEN owns water heaters and conversion
burners which it leases to its customers in the residential market.
HSC owns a central production plant and distribution system, which
includes a chilled water storage tank, in downtown Hartford, Connecticut
for the processing and distribution of steam for heating and chilled water
for cooling.
CNGR owns the Operating and Administrative Center in Hartford which is
leased by CNG. The center is subject to the lien of the Mortgage Deed
under which the CNGR's first mortgage notes are issued.
Adriaen's Landing
The Company has been approached by local businesses and government
agencies regarding the development of a stadium and convention center
along with hotel, retail, recreational and housing facilities. The
development, known as Adriaen's Landing, would be built in the area of the
Company's headquarters, operating center and steam/chilled water
production facilities. The Company, in order to accommodate the
development as it is currently planned, would be required to relocate its
facilities. Discussions are now underway with the participants in order
to accomplish this at no cost to the Company or its customers. The area
of development, which includes Company property, may contain hazardous
materials that the project participants will be required to address.<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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In November 1995, certain Connecticut plumbers and HVAC contractors filed
several class action suits against CNG and the State's two other LDCs,
claiming that the LDCs engaged in unfair trade practices and similar
allegations, all relating to customer service work. The action alleged
that the LDCs unfairly competed with licensed plumbers and contractors by
performing customer service work using customer service employees who did
not possess State trade licenses. Previously, the LDCs claimed that the
work was performed under a statutory exemption enacted in 1965 and amended
in 1967. In 1996, the Connecticut Court of Appeals upheld an
administrative ruling against the LDCs' position.
In January 1998, the court granted CNG's motion to strike all but one
count of the complaint: the antitrust conspiracy claim. The plumbers and
contractors subsequently filed two additional lawsuits against CNG and the
other LDCs alleging violations arising from the same business activities
as in the first lawsuit. In 1998, all of these cases were assigned to the
Connecticut Superior Court Complex Litigation docket, and CNG successfully
resisted the plumbers' and contractors' efforts to consolidate all of
these cases. A trial date for one of the suits tentatively is expected in
the fourth quarter of calendar year 1999.
The plumbers and contractors are currently asserting claims for profits
which they allege were lost during certain specific periods. There has
not been any settlement demand or any formal statement of alleged damages.
As a result, management cannot estimate CNG's potential exposure related
to these claims. CNG is vigorously defending this matter.
On July 28, 1997, CNG filed suit in state court against another
Connecticut local gas distribution company seeking to enjoin that company
from serving retail customers in a town in which CNG currently serves
customers. In its decision issued in October 1998, the court upheld the
Company's franchise rights in the disputed area.
The Company is not a party to any other litigation other than ordinary
routine litigation incident to the operations of the Company or its
subsidiaries. In the opinion of management, the resolution of such
litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
There were no matters submitted to a vote of security holders during the
last quarter of the fiscal year ending September 30, 1998.
<PAGE>
Executive Officers of the Registrant
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All executive officers' terms of office are one year.
Arthur C. Marquardt Age - 51
President and Chief Operating Officer
Business experience:
1998 - Present President and Chief Executive Officer
1997 - 1998 President and Chief Operating Officer
1996 - 1997 President and Chief Operating Officer, Connecticut
Natural Gas Corporation
1992 - 1996 Senior Vice President - Gas Business Unit, Long Island
Lighting Company
James P. Bolduc Age - 49
Executive Vice President and Chief Financial Officer
Business experience:
1997 - Present Executive Vice President and Chief Financial Officer
1996 - 1997 Executive Vice President and Chief Financial Officer,
Connecticut Natural Gas Corporation
1993 - 1996 Senior Vice President - Financial Services and Chief
Financial Officer, Connecticut Natural Gas
Corporation
Anthony C. Mirabella, Age - 58
Senior Vice President - District Heating and Cooling, The Energy Network, Inc.
Business experience:
1998 - Present Senior Vice President - District Heating and Cooling,
The Energy Network, Inc.
1997 - 1998 Senior Vice President - Operations and Chief Engineer,
Connecticut Natural Gas Corporation
1993 - 1997 Vice President - Operations and Chief Engineer,
Connecticut Natural Gas Corporation
Reginald L. Babcock Age - 47
Vice President, General Counsel and Secretary
Business experience:
1997 - Present Vice President, General Counsel and Secretary
1996 - 1997 Vice President - Administrative Services and General
Counsel and Secretary, Connecticut Natural Gas
Corporation
1993 - 1996 Vice President - Corporate Services and General Counsel
and Secretary, Connecticut Natural Gas Corporation
<PAGE>
Executive Officers of the Registrant (Concluded)
-----------------------------------------------
Andrew H. Johnson Age - 50
Treasurer and Chief Accounting Officer
Business experience:
1997 - Present Treasurer and Chief Accounting Officer
1993 - 1997 Treasurer and Chief Accounting Officer, Connecticut
Natural Gas Corporation
1986 - 1993 Treasurer, Connecticut Natural Gas Corporation
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
-------------------------------------------------------------
SECURITY HOLDER MATTERS
-----------------------
The Company's common stock is listed on the New York Stock Exchange. The
high and low sales prices for each quarterly period during the years ended
September 30, 1998 and 1997 were as presented in the table below. These
prices are based on the New York Stock Exchange NYSENet stock quotation
service.
<TABLE>
<CAPTION>
QUARTERLY COMMON STOCK PRICES
-----------------------------
1998 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Fiscal Year High Low High Low
--------------- ------ ------ ------ ------
First Quarter 26 1/2 22 3/4 25 1/2 22 5/8
Second Quarter 26 3/4 23 3/8 25 3/8 21 3/8
Third Quarter 25 15/16 21 15/16 22 1/4 20 3/4
Fourth Quarter 24 1/2 22 3/8 23 13/16 21 5/8
</TABLE>
There were 7,384 record holders of the Company's common stock at November
2, 1998
Cash dividends are declared on the Company's common stock on a quarterly
basis out of funds legally available therefor. The total amount of
dividends declared was $1.00 per share in 1998 and $1.52 per share in
1997. Funds utilized by the Company for the payment of dividends are
typically received as dividends from its subsidiaries, CNG and TEN. Under
the most restrictive terms of the open-end indenture securing CNG's first
mortgage bonds, as amended, retained earnings of $25,174,000 were
available for CNG to pay dividends at September 30, 1998. There are also
certain restrictions relating to CNG's classes of preferred stock as to
which dividends and sinking fund obligations must be paid prior to the
payment of common stock dividends.
Under a provision of a Forward Equity Purchase Agreement between CTG and
TEN, dated October 1, 1997, the Company is restricted from declaring or
paying any dividends or distributions to holders of its common stock if
any amounts due and payable under this agreement are in arrears (See Note
7 to the Financial Statements in Part II, Item 8). There are no other
restrictions on the Company's present or future ability to pay such
dividends. The Company expects that future cash for dividends will be
available.<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS
(Thousands of Dollars)
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Operating revenues $282,748 $305,295 $315,103 $274,935 $290,420
Net income applicable
to common stock $ 15,135 $ 17,013 $ 18,932 $ 16,957 $ 17,637
Earnings per share (1) $ 1.71 $ 1.60 $ 1.87 $ 1.71 $ 1.85
Total assets $459,181 $444,373 $443,574 $437,372 $437,622
Long-term obligations $215,852 $126,787 $136,432 $150,390 $154,193
Cash dividends declared
per common share $ 1.00 $ 1.52 $ 1.50 $ 1.48 $ 1.48
Dividend payout ratio 58.5% 95.0% 80.2% 86.6% 80.0%
P/E ratio 14 14 13 13 13
Market price as a %
of book value -
year-end 170.2% 145.9% 152.9% 146.8% 162.0%
</TABLE>
(Certain amounts for 1997 and prior years have been reclassified to conform
with 1998 classifications.)
[FN]
(1) Earnings per share for 1998 reflect the impact of the October, 1997
stock repurchase and the related assumption of additional debt (See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and Item 8. Financial Statements and Supplementary Date, Notes
to the Financial Statements, herein).<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998
-----------------------------------------
(Thousands of Dollars Except for Per Share Data)
CTG Resources, Inc. ("the Company" or "CTG")is a holding company and
parent of the Connecticut Natural Gas Corporation ("CNG") and The Energy
Network, Inc. ("TEN"). CNG is an energy provider engaged in the
regulated distribution, sale and transportation of natural gas. TEN
holds and operates, through divisions or wholly-owned subsidiaries,
CTG's unregulated, diversified businesses which are primarily engaged in
district heating and cooling ("DHC") and also include the Company's
equity investments in two partnerships, one of which is the Iroquois Gas
Transmission System ("Iroquois").
In October 1997, TEN repurchased approximately 2.0 million shares of CTG
common stock for approximately $53,000. TEN financed the purchase with
a combination of revolving bank debt and the issuance of Senior
Subordinated Notes. The shares repurchased by TEN were transferred by
the depositary directly to CTG. In connection with the repurchase, CTG
reduced its quarterly dividend on common stock from $0.38 ($1.52
annually) to $0.25 ($1.00 annually) per share, effective with the first
quarter of fiscal 1998. Higher fiscal 1998 earnings per share are
primarily related to this common stock buy-back. In the long-term, the
lower dividend will enable CTG to retain more of its earnings to fund
the future growth of the Company.
RESULTS OF OPERATIONS
---------------------
Net income applicable to common stock and earnings per share for the
fiscal years ended September 30, 1998, 1997 and 1996 were $15,135
($1.71), $17,013 ($1.60) and $18,932 ($1.87), respectively. As a result
of a first quarter fiscal 1998 stock repurchase, earnings per share have
been impacted by both the benefit of lower weighted average shares
outstanding and the cost of the debt which financed the transaction.
Together these factors provided net benefits to earnings per share of
approximately $.11 for the twelve months ended September 1998 and have
offset the lower earnings per share impact of a second consecutive
warmer winter as compared to the prior year.
Lower fiscal 1997 earnings are the result of the warmer weather
experienced in the Company's natural gas service area during the winter
heating season. Earnings for 1996 include a nonrecurring item: the
proceeds from the sale of a building by TEN, equivalent to $.05 per<PAGE>
share.
Gas Operating Margin
Gas operating margin is equal to gas revenues less the cost of gas and
Connecticut Gross Earnings Tax which is applied to revenues. The <PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
following table presents consolidated gas revenues, gas operating
margin, heating degree days (a measure of weather) and gas deliveries
for fiscal 1998, 1997 and 1996, respectively:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Gas Revenues $262,446 $283,324 $292,852
======== ======== ========
Gas Operating Margin $109,241 $112,446 $116,104
======== ======== ========
Heating Degree Days (30-Year Normal -
6,107) 5,543 6,056 6,410
===== ===== =====
Commodity and Transportation
Volumes (mmcf)
Firm Gas Sales 20,577 22,354 23,911
Interruptible Gas Sales 9,079 9,573 8,614
Off-System Gas Sales 11,459 10,164 12,435
Transportation Services 4,376 4,131 4,336
------- ------- -------
Total 45,491 46,222 49,296
======= ======= =======
</TABLE>
The Company's customers' greatest use of energy during the year is in
the winter, mostly for the purpose of heating their homes or businesses.
Changes in weather patterns from year to year impact the contribution to
operating margin by the different customer classes, the proportionate
amount of sales among the various customer classes and the different
per-unit margin contributed by each customer class. Firm sales
contribute the highest per-unit operating margin of all customer
classes. Warmer winters historically mean lower firm sales and a higher
proportion of overall sales to other classes.
During the fiscal 1998 heating season, the Company's service area has
experienced warmer winter weather, as compared to the prior year, for
the second consecutive fiscal year. This warmer weather resulted in
lower use per customer and reduced sales and operating margin,
especially from the firm class of customers.
The Company's regulated gas business continues to add customers from
year to year and to realize additional firm gas sales from customers who<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
add gas heating to their existing cooking and hot water service. The
full potential benefit to earnings from the addition of firm heating
customers since fiscal 1996 has been more than offset by the effects of
the warmer winter weather.
When the Company's firm customers' need less gas in warmer winters, more
of the Company's gas supplies are available for sale to interruptible
customers. Thus, in warmer winters, the Company's interruptible sales
tend to be higher. However, interruptible sales were lower in fiscal
1998 because of lower usage in this even still warmer winter. The
Company did record higher interruptible sales in fiscal 1997.
Interruptible per-unit margins were higher in fiscal 1998 but lower in
fiscal 1997 because of changes in the cost of gas associated with those
sales. A percentage of interruptible sales margin earned above a target
level prescribed by the Connecticut Department of Public Utility Control
("DPUC") is refunded to firm ratepayers.
Off-system sales permit the Company to make short-term gas sales and
sales of transportation services by contract with customers nationwide.
These sales contribute the smallest per-unit operating margin. The
significance of the off-system sales program is that the Company acts as
an independent marketer of natural gas and transportation, enabling the
Company to generate operating margin from a source not restricted by the
capacity of the Company's own distribution system or curtailment
limitations driven by system demand. A significant portion of margin
earned on off-system sales is refunded to firm ratepayers, as directed
by the DPUC.
Off-system sales were higher in fiscal 1998, reflecting the Company's
marketing efforts, the signing of favorably priced off-system sales
contracts prior to the start of the heating season, and the availability
of natural gas in the warmer winter. Off-system sales were lower in
fiscal 1997, as compared to 1996, because of the absence of production
area sales that were made in prior years.
Transportation services are sold under per-unit operating margins
comparable to those earned on similar gas sales. Therefore the Company
is financially indifferent as to whether it transports gas or sells gas
and transportation together.
Weather Stabilization Program<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
In September 1998, CNG purchased an insurance program for the winter
heating season (November through March). The program is designed to
reduce the effects of abnormal winter weather on its earnings. This
program will help to offset lost margins and thus provide CNG with
additional earnings in the event of significantly abnormal warm winter
weather in return for an insurance premium which increases in the event
of significantly abnormal cold winter weather. CNG management expects
that this program will reduce significant winter weather-related
earnings fluctuations.
Operating and Maintenance Expenses
Consolidated operations and maintenance ("O&M") expenses are lower in
fiscal 1998 as compared to fiscal 1997. A significant factor is the
absence in fiscal 1998 of expenses related to TEN's HVAC operations.
Those assets were sold in the first quarter of 1998 (See "Earnings from
Diversified Operations", below.). The Company has also recorded many
other variations in O&M expenses between all comparable periods which
tend to offset each other. Lower costs have been incurred for labor,
employee benefits, regulatory expenses, outside purchased services,
workers' compensation insurance and corporate insurance reserves.
Higher expenses have been recorded for pension related costs, bad debts
and computer-related services.
Medical insurance costs declined because of lower actual and projected
claims realized as a result of the Company's aggressive management of
claims. Pension costs reflect a reduction in payments because of fewer
claims, offset by higher costs related to changes in actuarial
assumptions in the plans. Employee benefits expenses reflect an
increase in medical claims. Offsetting some of this increase are
reduced costs resulting from changes in benefit programs.
In July 1998, the Company determined that the size of its Greenwich,
Connecticut regulated gas operations could be reduced while still
maintaining the level and quality of service. Many of the activities
previously handled in Greenwich have been integrated into the Hartford,
Connecticut operations. In conjunction with this decision, eleven
positions have been eliminated from the Greenwich division. The net
fiscal 1998 savings from this realignment is approximately $10. Future
annual savings in payroll costs are estimated at approximately $292.
Lower operating and maintenance expenses recorded in fiscal 1997 also<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
represent the net effect of variations in many different costs. Lower
costs were incurred for labor, reflecting the savings from early
retirements and reduced overtime costs as a result of the warmer winter
and fewer weather related expenses. A reduction in pension costs
reflects the absence of the expenses related to the early retirement
program offered in fiscal 1996 and reduced costs because of those
retirements. Bad debt accruals are lower mainly because of the lower
natural gas bills experienced as a result of the warmer winter heating
season. Costs related to workers compensation insurance were lower
because of lower actual and projected claims (used to set the Company's
premiums) as a result of the Company's aggressive monitoring of claims.
Lower costs were also recorded for outside purchased services. Higher
margins generated by service contract work also helped to offset
increases in other expense categories.
Year to year increases in depreciation result from annual additions to
depreciable plant and reflect the Company's continued growth.
Income Taxes
Lower taxable income and the benefits of reductions to the Company's
income tax reserves are the principal reasons for lower income taxes in
fiscal 1998. Other contributing factors include a lower State of
Connecticut corporate income tax rate and the Connecticut Fixed Capital
Asset Tax Credit.
The on-going turn around of flow-through tax depreciation differences on
older plant and the absence, in fiscal 1997, of cost of removal
deductions related to prior periods that were recorded during fiscal
1996, have resulted in an overall higher effective income tax rate in
fiscal 1997. Higher taxable income and an increase to the Company's
income tax reserve also added to the increase in income taxes in fiscal
1997.
Other Income/(Deductions)
Changes in the Company's equity in partnership earnings are discussed in
"Earnings from Diversified Businesses."
Other income adds to earnings while other deductions reduce earnings.
The other income/(deductions) amount reported for fiscal 1998 includes<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
$1,012 of after-tax costs incurred by TEN related to the wind down of
certain operations, as described below in the section "Earnings from
Diversified Businesses." Absent the impact of these costs, other income
would have been higher in fiscal 1998. This results from the net effect
of lower income from investments of available cash being more than
offset by the benefits of lower promotional and advertising expenses,
lower life insurance premiums and the absence of fiscal 1997 costs
associated with the termination of the Company's regulated propane
service program.
Other deductions were recorded in fiscal 1997 because of lower interest
income from overnight cash investments, higher promotional and
advertising expenses and higher premiums related to insurance. These
additional costs and reduced income were somewhat offset by the absence
of the 1996 costs associated with converting the Company's regulated
propane service program to natural gas.
Nonrecurring income of $892 in fiscal 1996 relates to TEN's sale of land
and a building in August 1996. The net after tax gain was $515,
equivalent to $.05 per share.
Interest and Debt Expense
Higher interest and debt expense has been recorded in fiscal 1998
primarily because of the additional long-term debt issued during the
first quarter in conjunction with the stock repurchase program.
Interest related to long-term debt declined in fiscal 1997 as the amount
of principal outstanding was reduced by scheduled sinking fund payments
and early repurchases of issues that were near maturity.
Other interest relates primarily to interest on short-term borrowings
and interest associated with pipeline refunds and deferred gas costs.
Short-term interest fluctuates as a result of changes in interest rates,
short-term cash requirements and conversions to long-term debt.
In addition to seasonal working capital requirements, short-term
borrowings in fiscal 1998 were used to temporarily finance a portion of
the stock repurchase and the acquisition of a cogeneration facility (See
"Investing Activities", below).
Short-term borrowings were needed in both 1997 and 1996 to supplement
the seasonal changes in available cash from operations. In fiscal 1997,<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
because of the warmer winter, the Company did not need to borrow as much
cash on a short-term basis to support working capital requirements. The
Company also recorded lower interest related to natural gas pipeline
refunds and deferred gas costs. Short-term borrowings in fiscal 1997
and 1996 for the diversified businesses were minimal as they were able
to meet their working capital needs from cash generated by day to day
operations.
Earnings from Diversified Businesses
The Company's diversified businesses are all unregulated and include TEN
and TEN's wholly-owned subsidiaries: The Hartford Steam Company
("HSC"), ENI Gas Services, TEN Gas Services, ENServe Corporation
("ENServe"), and TEN Transmission Company ("TEN Transmission"). TEN and
HSC provide DHC services to many buildings and complexes in the south-
end and downtown neighborhoods of Hartford, Connecticut. TEN also holds
a fifty percent interest in the Downtown Cogeneration Associates
partnership which owns and operates a 4.2-Megawatt cogeneration facility
in downtown Hartford, Connecticut. ENI Gas Services and TEN Gas
Services together own 100% of KBC Energy Services ("KBC"), a small gas
marketer which is in the process of winding down its operations. TEN
Transmission owns the Company's share of its investment in the Iroquois
pipeline. Although TEN Transmission is not regulated, Iroquois is
regulated by the Federal Energy Regulatory Commission ("FERC"). Refer
to Note 1 to the Financial Statements for additional information
regarding these investments.
Earnings contributed by the Company's diversified, unregulated
businesses were $.08 per share in fiscal 1998, compared to earnings per
share of $.25, and $.30 in 1997 and 1996. Each fiscal year has been
impacted by special items, each of which is discussed in detail below.
When the effects of these items are set aside, earnings from ongoing
diversified operations are $.34 per share for fiscal 1998, $.32 for
fiscal 1997 and $.25 for fiscal 1996.
The fiscal 1998 benefit to earnings per share resulting from the lower
weighted average shares outstanding is approximately $.01 for the twelve
months ended September 30, 1998. This is offset by the cost of the
added debt issued to finance the repurchase, equivalent to $(.19) per
share, for a net earnings impact from the stock repurchase of $(.18).
Fiscal 1998 earnings from ongoing operations for TEN include the benefit<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
of lower energy and production costs for district heating and cooling,
which have been realized as a result of lower energy prices, and higher
chilled water sales for cooling because of the warmer summer weather.
These benefits were partially offset by the effects of lower steam and
hot water sales during the warmer winter.
Earnings from the diversified businesses in fiscal 1998 also reflect the
measures that have been taken in the last few years to position this
area of the Company for future growth and development. Several
significant factors impacting TEN's earnings have occurred in fiscal
1998. In the first quarter, the assets of TEN's wholly-owned HVAC
subsidiary, ENServe, were sold. The subsequent winding down of this
operation is complete. TEN's fiscal 1998 earnings have benefited $.07
per share from the absence of losses that had been recorded by ENServe
in fiscal 1997. During the second quarter of fiscal 1998, TEN assumed
the full ownership of KBC and began the wind down of its operations.
The Company's share of KBC's operating losses for fiscal 1998 was
approximately $(.11). Management does not anticipate any significant
future impact to earnings related to the closing of these businesses.
In fiscal 1996, the property management business sold its land and
building, realizing a gain of $.05 per share, and ceased operations.
The wind down of KBC and the sale of the assets of ENServe will enable
the Company to focus its investments on operating assets in capital
intensive businesses in keeping with its strategic plan. As a part of
this plan, in June 1998 the diversified operations purchased a
cogeneration facility which supplies a major local hospital with steam
and electricity and sells electricity to the local electric utility.
(See "Investing Activities," below.)
The reduction in TEN's earnings in fiscal 1997, as compared to 1996, is
primarily the result of losses incurred by ENServe. Earnings from
ongoing operations partially offset these losses. During fiscal 1997,
the DHC business implemented cost-containment measures and upgraded
and/or modified the equipment which produces steam for heating, reducing
the cost of company-produced steam from 1996 levels. Lower interest
expense was incurred throughout fiscal 1997 because ongoing cash from
operations eliminated the need for short-term borrowings for working
capital. DHC earnings in fiscal 1997 were also impacted by changes in
weather: Warmer winter weather and cooler summer weather resulted in
lower sales volumes for both heating and cooling.
TEN continues to record higher earnings from its equity interest in two<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
partnerships. The majority of these earnings are from Iroquois. In
August 1998 Iroquois' rates allowed by the FERC were reduced. Thus the
Company anticipates that these earnings may be somewhat lower in fiscal
1999.
New legislation, restructuring the electric utility industry, passed in
Connecticut in April, 1998, is expected to result in reduced costs for
electricity for TEN in the future. Purchased power agreements currently
in effect between TEN and the local electric utility will not be
affected by this legislation.
Year 2000 Compliance
CTG's State of Readiness
CTG has been preparing for Year 2000 ("Y2k") issues for a number of
years. In 1989, CTG started the implementation of a Long-Range
Information Systems Plan that addressed the replacement or redevelopment
of all key CTG applications. All systems replaced or redeveloped since
1989 have been required to be Y2k compliant. In January 1998, a task
force was organized to address all Y2k issues throughout CTG operations.
The task force, headed up by a Y2k compliance officer, is comprised of
individuals from every business unit within CTG and charged with
assembling an inventory of date-impacted systems, identifying critical
vendors and customers for compliance, prioritizing non-compliant
systems, identifying critical dates for compliance, developing test
plans for all high priority systems, developing remediation plans for
noncompliant vendors or systems, and certifying that all systems and
critical vendors are compliant. A subcommittee was also formed to
communicate with the Board of Directors, customers, stockholders, the
DPUC, vendors and employees of CTG regarding the status of CTG's
activities. All of the above-noted activities of the task force, with
the exception of the certification phase, are scheduled for completion
during December 1998. The certification of systems and critical vendors
will be completed during the first six months of 1999.
During December 1998 and the first half of 1999, all internal
application programs and embedded technology will be tested. Test plans
have been developed for each system. The purpose of these tests will be
to verify that the date-sensitive features of these systems will perform
properly in the year 2000. CTG has four systems that are not compliant
at this time: Payroll/HR, Computer Aided Gas Dispatch, and TEN's<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
financial system. Through the normal replacement schedule, these systems
will be brought into compliance by mid 1999.
In April 1998, a letter and survey were sent to CTG's vendors requesting
a status of their Y2k efforts. In September 1998, a second letter and
survey were sent to vendors who did not respond. For all critical
vendors who are not Y2k compliant by the critical dates identified, CTG
will make arrangements for alternate suppliers and service providers.
This process will take place throughout the remaining months of 1998 and
the first six months of 1999. Parts and materials purchased from non-
compliant vendors which are critical to CTG's operations, will be
acquired in adequate quantities and inventoried prior to the end of
1999.
Although not all vendors have returned surveys, no third parties with
whom CTG has significant business relationships have disclosed problems
which would indicate the potential for business interruptions. <PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
Costs to Address CTG's Year 2000 Issues
CTG has not incurred significant incremental costs, nor does it expect
to incur significant outside consulting costs relating to the Y2k issue.
In accordance with the aforementioned Long-Range Systems Plan, CTG has
been replacing or redeveloping its major computer applications during
the past decade and the timetable called for by this plan was not
accelerated as a result of the advent of the Y2k issue.
Risks of CTG's Year 2000 Issues
Although the Company has not received responses from all of its vendors,
CTG has not identified any known Y2k-related event, trend, demand,
commitment, or uncertainty which would likely have a material effect on
CTG's business, results of operations, liquidity, capital resources or
financial condition. CTG has canvassed its critical vendors and no such
vendor has indicated it will not be Y2k compliant. CTG has assigned
critical dates throughout 1999 for these vendors to show compliance. If
a vendor does not show compliance by a specific date, CTG will either
find a replacement vendor or develop a work-around for such
noncompliance.
CTG's Contingency Plans
CTG's contingency plan includes selecting alternate vendors that are Y2k
compliant, using back-up systems which do not rely on computers, and
obtaining critical parts and materials. Critical dates for compliance
have been established for systems and vendors utilized throughout CTG.
These critical dates have been established in order to allow sufficient
time for CTG to either remediate any date-sensitive features in existing
computer software and applications critical to CTG's business or to
acquire services and products from alternate providers who are Y2k
compliant.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Natural gas sales in New England are seasonal, and the Company's cash
flows vary accordingly because regulated natural gas operations are the
principal segment of the Company's business. The Company manages its<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
changes in cash requirements, primarily to fund gas purchases,
construction expenditures and customer accounts receivable, by using
cash flows generated from operations supplemented by short-term
financing from lines of credit.
The diversified operations' cash resources and requirements are also
seasonal. Cash requirements have generally been satisfied with cash
flows from operations together with short-term financing from lines of
credit.
Long-term debt issued in fiscal 1998 was used to finance a stock
repurchase and to refinance existing long-term and short-term debt.
Cash Flows from Operating Activities
The levels of construction expenditures, dividends, the cost of gas and
volumes of gas sold are the principal factors which influence cash flows
from operations from year to year. The price of natural gas impacts the
amount of purchased gas costs subject to refund or recovery through the
Purchased Gas Adjustment provisions ("PGA") of the Company's tariffs.
The volumes of gas sold magnify the impact of changing prices.
In fiscal 1998, the Company relied on cash from operations and its
available lines of credit to satisfy cash requirements for working
capital, dividends, asset acquisitions and construction expenditures.
Cash from operations is lower from year to year, following the trend of
warmer winter weather and the resulting reduction in operating margin.
During fiscal 1997, a combination of the cash on hand at year-end 1996,
short-term borrowings and cash received from ongoing operations paid for
the expenses related to ongoing operations and for construction,
dividends and principal payments that were due on long-term debt.
Investing Activities
Construction expenditures in 1998, 1997 and 1996 were $26,060, $24,593
and $24,281 respectively. Capital spending for the fiscal year ending
September 30, 1999 is estimated to be $26,100 for the regulated
operations. The diversified businesses are projecting to expend $14,000
in fiscal 1999 primarily to fund the expansion of the DHC system. CTG's
construction program is subject to continuous review and modification,<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
and actual expenditures may vary from these estimates. The Company
plans to fund capital expenditures and other commitments through a
combination of sources.
Ten continues to investigate other DHC systems and other investment
opportunities which are alligned with its overall capital asset
investment strategy. Additional borrowings and/or funds may be required
to realize such transations. The Company has been working with its
banks and other sources in order to be prepared if such an opportunity
arises.
In June 1998, TEN acquired the assets of a 16-Megawatt capacity
cogeneration facility which supplies Hartford Hospital with steam and
electricity. The purchase price of approximately $16,969 was financed
through existing lines of credit. The assets acquired in the
transaction include $1,588 of current assets, $1,744 of plant and
equipment and a note receivable of $13,637 of which $4,889 is current
and classified in accounts and notes receivable in the consolidated
balance sheet. The note receivable relates to an existing termination
agreement with the local electric utility which is now assigned to HSC.
Pursuant to this agreement, the utility will make payments to HSC
through December 2000.
HSC will now supply the hospital with steam and electricity over a
twenty-year contract period. The facility is currently off-line for
repowering as a 7.5-Megawatt facility and is scheduled to be back on
line by January 1999 under HSC's management. Thus, revenues are
expected to be realized from this facility beginning in the second
quarter of fiscal 1999. This investment is directly linked with the
diversified operations' growth strategy of focusing on the ownership and
operation of energy facility assets.
In May 1997, the Company invested $100 for a 2.15% interest in the AGA
Gas Finance Company ("GasFinCo"). In July 1998, GasFinCo ceased
operations and the Company wrote off its investment.
In June 1997, the Company and Koch Gas Services Company acquired the
partnership interest of Bay State Energy Enterprises in KBC. As a
result of this transaction the Company's interest in KBC had increased
from one third to one half. During the second quarter of fiscal 1998,
two of TEN's subsidiaries together assumed the full ownership and
control of KBC and began the sale of its assets and the wind down of its
operations.<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
Cash flows from investing activities in fiscal 1996 include the proceeds
from the diversified businesses' sale of a building and land and the
receipt of the balance of the settlement amount due from the termination
of a steam supply contract.
Adriaen's Landing
The Company has been approached by local businesses and government
agencies regarding the development of a stadium and convention center
along with hotel, retail, recreational and housing facilities. The
development, known as Adriaen's Landing, would be built in the area of
the Company's headquarters, operating center and steam/chilled water
production facilities. The Company, in order to accommodate the
development as it is currently planned, would be required to relocate
its facilities. Discussions are now underway with the participants in
order to accomplish this at no cost to the Company or its customers.
The area of development, which includes Company property, may contain
hazardous materials that the project participants will be required to
address. This project is in line with the Company's vision and
direction for growth.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
Financing Activities
The Company uses short-term debt to finance working capital
requirements. Capital expenditures are also temporarily funded with
short-term debt. The Company raises short-term funds through the use of
available bank lines of credit and revolving credit agreements (See Note
9 to the Financial Statements). Long-term debt and equity issues are
used to reduce outstanding short-term debt and to permanently finance
completed construction. In October 1998 the Company refinanced $30,800
of short-term borrowings with long-term debt (see "Subsequent Events",
below).
The Company's 9.16%, Series AA First Mortgage Bonds are subject to
redemption by sinking fund scheduled at $2,500 per year. The Company
exercised its option to increase the principal payment amount due on
October 1, 1998, by an additional $2,500, for a total of $5,000. This
increased the Company's current portion of long-term debt by $2,500 at
September 30, 1998.
In August 1998, the Company refinanced its outstanding $10,600 1986 and
1988 series of tax exempt, seven-day put, Industrial Revenue Variable
Rate Demand Bonds ("IRBs") issued by the Connecticut Development
Authority. The 1998 series of IRBs mature in 2025 and have no sinking
fund requirements. The original IRBs financed TEN's Capitol Area
district heating and cooling facilities in Hartford, Connecticut. At
the same time, the Company replaced the letter of credit which supports
these IRBs. The IRBs have been assigned the rating of A+/A-1 by
Standard & Poor's.
In October 1997, TEN issued Senior Secured Notes for $45,000, due in
2009, at 6.99%. The principal will be retired through semi-annual
payments of $2,500 beginning in 2001. The proceeds were used to
repurchase approximately 2.0 million shares of CTG common stock.
In October 1997, the Company issued a total of $19,000 of Medium Term
Notes ("MTNs") due 2007. These MTNs are unsecured and have no call
provisions or sinking fund requirements. The proceeds were used to
refinance existing short-term debt. The face values and interest rates
of these MTNs are:
Face Value Interest Rate
---------- -------------
$ 1,000 6.62% <PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
$ 1,000 6.65%
$17,000 6.69%
The MTNs are rated at A3 by Moody's and A- by Standard and Poor's.
In March 1998, the Company renewed its $20,000 revolving credit
agreement to 2001 with two subsequent one-year renewal options.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
In February 1998, the Company replaced its expiring $9,000 bank line of
credit with a seasonally adjusted $10,000 to $15,000 line of credit
through February of 1999.
In October 1997, TEN entered into a 364-day secured revolving credit
agreement for $10,000 with a bank. This agreement matured on September
29, 1998 and was extended for sixty days at that time. The Company
expects to renew this agreement for one year beginning December 1998.
In October 1997, TEN entered into a three-year revolving credit
agreement for $10,000 with a bank. The maximum borrowing amount is
reduced by $500 on each fiscal quarter, beginning January 1, 1998.
In August 1997, the Company repurchased $10,000 of existing 8.8% long-
term mortgage debt, due in 2001, with available working capital.
Common Stock and Dividend Matters
On October 30, 1997, through a tender offer made by TEN, the Company
repurchased approximately 2.0 million shares of CTG common stock for
approximately $53,000. TEN financed the purchase with a combination of
revolving bank debt and the issuance of Senior Secured Notes. The
shares repurchased by TEN were transferred by the depositary directly to
CTG. In connection with the repurchase, effective with the first
quarter of fiscal 1998, CTG reduced its quarterly dividend on common
stock from $0.38 ($1.52 annually) to $0.25 ($1.00 annually) per share.
The lower shares outstanding help to increase overall earnings per
share. In the long-term, the lower dividend will enable CTG to retain
more of its earnings to fund the future growth of the Company.
During fiscal 1997, 29,145 original issue shares of the Company's no par
common stock were issued through various Company-sponsored plans.
Under the most restrictive terms of the indenture securing the Company's
First Mortgage Bonds, retained earnings of $25,174 are available for CNG
to pay dividends at September 30, 1998. CTG's ability to pay dividends
is not restricted by these terms. Dividends paid on common and
preferred stock in fiscal 1998 were $8,657. The preferred stock on the
balance sheet is issued by CNG. CNG is prohibited from, among other
things, paying dividends on common stock and purchasing, redeeming or
retiring common stock, if dividends on preferred stock are in arrears.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
Forward Equity Purchase Agreement
In a Forward Equity Purchase Agreement dated October 1, 1997, and
amended October 14, 1998, CTG has committed to fund from $7,500 to
$16,100 per year into TEN from 1998 through 2009 for an aggregate
additional cash infusion into TEN of $122,600. In exchange, TEN caused
all shares of CTG common stock purchased through the October 1997 tender
offer to be transferred directly to CTG by the depositary. As a
provision of this agreement, CTG is restricted from declaring or paying
any dividends or distributions to its holders of common stock if any
amounts due and payable under this agreement are in arrears.
Deferred Income Taxes
In fiscal 1998, the Company performed a detailed study of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109") concerning deferred income tax liabilities. As a
result of the study, the Company identified that cost of removal costs
were not being normalized in its deferred tax calculation. Effective
March 31, 1998, the Company normalized cost of removal costs in its
calculation of deferred taxes. The normalization of the cost of removal
costs for deferred tax requirements reduced the amounts of unrecovered
future taxes from rate payers and unfunded deferred income taxes on the
balance sheet. These amounts are reflected on the September 30, 1998
balance sheet and have been reclassified for prior periods to conform
with the current period presentation.
The treatment of cost of removal costs as a normalized item is in
accordance with SFAS No. 109. Although current rates and tax expenses
have been set utilizing flow-through treatment for these costs, the
Company anticipates that, in future rate proceedings, the application of
this method will reduce future income tax expense and corresponding rate
payer revenue requirements.
Other Tax Matters
The Company is subject to audit by State of Connecticut and Federal
authorities as it relates to income, sales, use and property tax returns
filed. In addition, the Company has several ongoing issues related to
the taxability of off-system gas sales by state taxing authorities. In<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
the opinion of management, the ultimate resolution of these issues will
not have a material impact on the Company's results of operations.
Competitive Environment
In recent years, the natural gas industry has undergone structural
changes in response to Federal regulatory policy intended to increase
competition. In 1992, the FERC issued Order 636, which required all
interstate gas pipelines to provide "unbundled," or separate, gas
transportation and storage services and to discontinue their bundled
merchant sales operations, which included the gas acquisition function.
The impact of the FERC Order 636 and the resulting deregulation of the
gas industry has continued to heighten competition and has changed the
nature of the Company's business.
The Company has historically distributed and sold natural gas to
customers within its franchise area without substantial competition
from other providers of natural gas. At the local level, as a result of
FERC Order 636 and Connecticut deregulation, the Company faces
increasing competitive pressures as providers of gas seek to make sales
to the Company's commercial and industrial customers. Similarly, the
Company has offered firm transportation rate tariffs to nonresidential
customers, since April of 1996. The Company's transportation tariffs
are designed to recover a margin on each transaction that is comparable
to the margin that the Company would have received if it were making a
system sale of natural gas.
The Company also competes with suppliers of oil, electricity and propane
for cooking, heating, air conditioning and other purposes. Competition
is greatest for the Company's large commercial and industrial customers
who have the capability of using alternative fuels. The volatile effect
of this price-sensitive load is somewhat overcome through the use of
flexible rate schedules which allow gas pricing to meet alternative-fuel
competition.
The diversified businesses own and operate district heating and cooling
systems, collectively referred to as DHC, which distribute and sell
steam, hot and chilled water to office complexes and other large
buildings in the city of Hartford. The risk of competition to the DHC
business from alternate energy types is diminished after a customer has
made its commitment to DHC, because of the cost of the equipment
necessary to utilize an alternative energy source. New legislation,<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
restructuring the electric utility industry, passed in Connecticut in
April, 1998, and may result in an increase DHC's competition for
customers if this alternative energy source becomes more affordable.
Effects of Regulation
The Company's natural gas distribution business is subject to cost-of-
service regulation by the DPUC. Based on current regulation and recent
DPUC decisions, the Company believes that its use of regulatory
accounting is appropriate and in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS No. 71") (See Note 1
to the Financial Statements).
Regulatory Proceedings
In a second phase of a regulatory review of natural gas deregulation
which began in 1996, the DPUC is addressing the potential deregulation
of the residential natural gas sales market in Connecticut and the
future role of Connecticut's local gas distribution companies in natural
gas commodity sales. Concurrently, the Connecticut State Legislature
has undertaken a task force investigation related to residential
deregulation. Although the Company cannot predict the outcome of these
proceedings, the Company anticipates that the timing of any DPUC <PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
decision will be related to the timing of the completion and
announcement of the results of the Connecticut State Legislature's
activities.
Connecticut local gas distribution companies ("LDCs") pass on to firm
customers any increases or decreases in gas costs from those reflected
in tariff charges under PGA provisions. During fiscal 1996, the DPUC
initiated
a review of the need to continue or modify PGA accounting for all
Connecticut LDCs. The review was prompted by the offering of unbundled
services by LDCs that began in fiscal 1996. In April 1997, the DPUC
issued a decision affirming the need to continue the PGA.
Environmental Matters
In the ordinary course of business, the Company may incur costs to clean
up environmental contaminants related to natural gas activity. In those
instances the Company expects that the remediation costs will be
recoverable in rates. In August 1998, the Company received a notice of
violation from the Connecticut Department of Environmental Protection
("DEP") regarding a number of areas on noncompliance. The Company
submitted the required compliance report in September 1998. The DEP has
advised the Company that a Consent Order and a penalty or supplemental
environmental project ("SEP") will be required to address the areas of
noncompliance, but the DEP has not given the Company any indication of
the amount of any penalty and/or SEP that may be required. The Company
is working with the DEP to resolve this issue. In the opinion of
management, any existing environmental issues will not be significant to
the future financial condition or results of operations of the Company.
Legal Proceedings
In November 1995, certain Connecticut plumbers and HVAC contractors
filed a class action suit against the CNG and the State's two other
LDCs, claiming that the LDCs engaged in unfair trade practices relating
to customer service work. The plumbers and contractors are currently
asserting claims for profits which they allege were lost during prior
years. In January 1998, the court granted CNG's motion to strike all
but one count of the complaint: the antitrust conspiracy claim. The
plumbers and contractors subsequently filed two additional lawsuits
against CNG and the other LDCs alleging violations arising from the same<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
business activities as in the first lawsuit. All of the cases were
assigned to the State's complex litigation docket. There has not been
any settlement demand or any formal statement of alleged damages. As a
result, management cannot estimate the Company's potential exposure
related to these claims. The Company is vigorously defending this
matter.
In July 1997, the Company filed suit in State court against another
Connecticut LDC seeking to enjoin that company from serving retail
customers in a town in which the Company currently serves customers. In
its decision issued in October 1998, the court upheld the Company's
franchise rights in the disputed area.
The Company is not a party to any other litigation other than ordinary
routine litigation incident to the operations of the Company or its
subsidiaries. In the opinion of management, the resolution of such
litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
SUBSEQUENT EVENTS
Long-term Debt
In October 1998, TEN issued $15,000 of Senior Secured Notes, due in
2010, at 6.9%. The full amount of the principal is due at maturity.
The proceeds were used to repay short-term debt that was used to finance
the purchase and repowering of the Hartford Hospital cogeneration
facility (See "Investing Activities", above). The September 30, 1998,
financial statements reflect the classification of the debt that was
retired as a result of this refinancing as long-term debt.
In October 1998, the Company issued a total of $20,000 of MTNs at 6.04%,
due 2008. These MTNs are unsecured and have no call provisions or
sinking fund requirements. The proceeds were used primarily to
refinance $15,800 of short-term debt that was outstanding at fiscal
year-end 1998. The long-term debt amounts shown on the balance sheet
and statement of capitalization at September 30, 1998, include $15,800
of these MTNs.<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
The Energy Network Alliance
In October 1998, TEN entered into a marketing alliance with Pratt &
Whitney Canada, Inc., Carrier Corporation and Oxford Technologies, Inc.
to provide energy for heating, cooling and electricity to large
commercial, industrial and institutional facilities by combining
cogeneration and district energy. As its role in this alliance, TEN
will own and operate the individual customers' on-site district energy
plants which will be equipped with state-of-the-art energy systems
provided by the other members of the alliance. TEN's participation in
this alliance is in keeping with TEN's strategic plan to focus its
investments in fixed assets in capital intensive businesses.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). This statement establishes
standards for reporting and display of comprehensive income and its
components in the financial statements. Adoption of SFAS No. 130
disclosure is required in fiscal 1999 and will have no impact on the
Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131") This
statement requires that public business enterprises report certain
additional information about operating segments. Adoption of SFAS No.
131 is required in fiscal 1999. The adoption of SFAS No. 131 will have
no impact on the Company's financial condition or results of operations.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132").
This statement standardizes employers' disclosures requirements about
pension and other postretirement benefit plans. Adoption of SFAS No.
132 is required in fiscal 1999. The adoption of SFAS No. 132 will have
no impact on the Company's financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Adoption of SFAS No. 133 is
required beginning with the first quarter of fiscal 2000. The Company
is aware of certain provisions which may impact the natural gas industry
but has not yet reviewed these provisions in detail against its existing
accounting practices and disclosures. At this time the Company cannot
predict what impact, if any, the adoption of SFAS No. 133 will have on
its financial condition or results of operations.
INFLATION AND CHANGING PRICES
Inflation impacts the prices the Company must pay for operating and
maintenance expenses and construction costs. The Company's rate
schedules for natural gas and DHC sales include provisions that permit
changes in gas costs and service costs, respectively, to be passed on to<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
customers. The Company attempts to minimize the effects of inflation on
other costs through cost control, productivity improvements and
regulatory actions where appropriate.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (concluded)
----------------------------------------------------
FORWARD LOOKING INFORMATION
This report and other Company reports, including filings with the
Securities and Exchange Commission, press releases and oral statements,
contain forward looking statements. Such statements include but are not
limited to disclosures about Year 2000 Compliance, Adriaen's Landing,
the Weather Stabilization Program, changes in operating and maintenance
expenses, impacts to earnings from the wind down of certain diversified
operations, earnings from equity interests in partnerships, the
restructuring of the electric industry, future construction
expenditures, diversified operations growth strategy, anticipated
earnings from a newly acquired cogeneration facility, a Forward Equity
Purchase Agreement, state and Federal tax audits, the Company's
competitive environment, regulatory proceedings regarding further state
deregulation of the natural gas industry, environmental matters, legal
proceedings, the Energy Network Alliance, and New Accounting Standards.
Forward looking statements are made based upon management's expectations
and beliefs concerning future developments and their potential effect
upon the Company. The Company cautions that, while it believes such
statements to be reasonable and makes them in good faith, they almost
always vary from actual results, and the differences between assumed
facts or basis and actual results can be material, depending upon the
circumstances. Investors should be aware of important factors that
could have a material impact on future results. These factors include,
but are not limited to, weather, the regulatory environment, legislative
and judicial developments which affect the Company or significant groups
of its customers, economic conditions in the Company's service
territory, fluctuations in energy-related commodity prices, customer
conservation efforts, financial market conditions, interest rate
fluctuations, customers' preferences, unforeseen competition, and other
uncertainties, all of which are difficult to predict and beyond the
control of the Company. <PAGE>
This Page Intentionally Left Blank<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and The Board of Directors
of CTG Resources, Inc.:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of CTG Resources, Inc. (a
Connecticut Corporation) and subsidiaries as of September 30, 1998 and
1997, and the related consolidated statements of income, common stock
equity and cash flows for each of the three years in the period ended
September 30, 1998. These financial statements and the schedule referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CTG
Resources, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the schedule
index is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
S/ Arthur Andersen LLP
-------------------------------
(ARTHUR ANDERSEN LLP)
Hartford, Connecticut
October 27, 1998
<PAGE>
This Page Intentionally Left Blank <PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
September 30, 1998 and 1997
(Thousands of Dollars)
<S> <C> <C>
Assets 1998 1997
---- ----
Plant and Equipment:
Plant in service $ 510,542 $ 484,250
Construction work in progress 3,647 7,703
--------- ---------
514,189 491,953
Less-Allowance for depreciation 176,173 160,313
--------- ---------
338,016 331,640
--------- ---------
Investments, at equity 11,821 11,530
--------- ---------
Current Assets:
Cash and cash equivalents 1,264 4,458
Accounts and notes receivable (less
allowance for doubtful accounts of
$3,283 in 1998 and $3,439 in 1997) 31,513 25,287
Accrued utility revenue 3,789 4,624
Inventories 17,852 17,584
Prepaid expenses 11,707 8,903
--------- ---------
Total Current Assets 66,125 60,856
--------- ---------
Other Assets:
Unrecovered future taxes 10,734 17,263
Other assets 32,485 23,084
--------- ---------
Total Other Assets 43,219 40,347
--------- ---------
$ 459,181 $ 444,373
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets (Concluded)
September 30, 1998 and 1997
(Thousands of Dollars)
<S> <C> <C>
Capitalization and Liabilities 1998 1997
---- ----
Capitalization (see accompanying statements):
Common stock equity $ 123,397 $ 169,299
Preferred stock, not subject to
mandatory redemption 879 884
Long-term debt 215,852 126,787
--------- ---------
340,128 296,970
--------- ---------
Current Liabilities:
Current portion of long-term debt 5,733 1,487
Notes payable 2,000 27,500
Accounts payable and accrued expenses 30,813 36,968
Refundable purchased gas costs 1,640 4,714
Accrued taxes 707 484
Accrued interest 4,317 4,047
--------- ---------
Total Current Liabilities 45,210 75,200
--------- ---------
Deferred Credits:
Deferred income taxes 50,175 44,302
Unfunded deferred income taxes 10,734 17,263
Investment tax credits 2,761 2,982
Refundable taxes 4,252 3,491
Other 5,921 4,165
--------- ---------
Total Deferred Credits 73,843 72,203
--------- ---------
Commitments and Contingencies
--------- ---------
$ 459,181 $ 444,373
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars Except for Per Share Data)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Operating Revenues $ 282,748 $ 305,295 $ 315,103
Less: Cost of energy 150,685 166,785 175,175
State gross revenues tax 9,660 11,107 11,710
--------- --------- ---------
Operating Margin 122,403 127,403 128,218
--------- --------- ---------
Operating Expenses:
Operations 45,623 48,241 49,640
Maintenance 8,361 8,682 8,615
Depreciation and amortization 19,305 18,184 17,765
Income taxes 12,210 16,959 14,364
Local property taxes 5,216 5,323 5,277
Other taxes 2,233 2,400 2,313
--------- --------- ---------
92,948 99,789 97,974
--------- --------- ---------
Operating Income 29,455 27,614 30,244
--------- --------- ---------
Other Income/(Deductions),
net of income taxes:
Allowance for equity funds used
during construction 61 125 144
Equity in partnership earnings 3,271 2,910 2,037
Other income/(deductions) (811) (68) 508
Nonrecurring items - - 892
Income taxes (856) (665) (1,115)
--------- --------- ---------
1,665 2,302 2,466
--------- --------- ---------
Income Before Interest Charges 31,120 29,916 32,710
--------- --------- ---------
Interest and Debt Expense, net:
Interest on long-term debt 14,029 11,345 11,825
Other interest 1,463 1,200 1,585
Allowance for borrowed funds used
during construction (41) (84) (96)
Amortization of debt expense 473 380 401
--------- --------- ---------
15,924 12,841 13,715
--------- --------- ---------
Net Income 15,196 17,075 18,995
Less-Dividends on Preferred Stock 61 62 63
--------- --------- ---------
Net Income Applicable to Common Stock $ 15,135 $ 17,013 $ 18,932
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income (Concluded)
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars Except for Per Share Data)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Net Income Applicable to Common Stock $ 15,135 $ 17,013 $ 18,932
========= ========= =========
Average Common Shares Outstanding
During the Period:
Basic 8,871,349 10,632,001 10,146,932
========== ========== ==========
Fully diluted 8,922,965 10,683,759 10,175,544
========== ========== ==========
Income Per Average Share of
Common Stock:
Basic $ 1.71 $ 1.60 $ 1.87
========= ========= =========
Fully diluted $ 1.70 $ 1.59 $ 1.86
========= ========= =========
Dividend Per Share of Common Stock $ 1.00 $ 1.52 $ 1.50
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Cash Flows from Operations: $ 27,091 $ 29,554 $ 37,114
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures (22,435) (24,593) (24,281)
Purchase of Cogeneration Assets (17,067) - -
Cash distributions received from
investments 2,442 1,761 2,061
Other investing activities, net 901 54 (1,338)
-------- -------- --------
Net cash used in investing activities (36,159) (22,778) (23,558)
-------- -------- --------
Cash Flows from Financing Activities:
Dividends paid (8,657) (16,177) (15,491)
Issuance (repurchase) of common stock (53,277) 622 15,557
Other stock activity, net (3) (652) (38)
Issuance of long-term debt 74,600 - -
Principal retired on long-term debt (12,089) (22,126) (3,911)
Short-term debt 5,300 27,500 (4,200)
-------- -------- --------
Net cash provided (used) by
financing activities 5,874 (10,833) (8,083)
-------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents (3,194) (4,057) 5,473
Cash and Cash Equivalents at
Beginning of Year 4,458 8,515 3,042
-------- -------- --------
Cash and Cash Equivalents at
End of Year $ 1,264 $ 4,458 $ 8,515
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (Concluded)
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars)
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Net Income $ 15,196 $ 17,075 $ 18,995
-------- -------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 20,628 18,098 17,909
Provision for uncollectible
accounts 5,044 3,855 4,600
Deferred income taxes, net 6,414 4,115 1,886
Equity in partnership earnings (3,271) (2,910) (2,037)
Changes in assets and liabilities:
Accounts receivable (5,410) (3,873) (1,640)
Accrued utility revenue 835 (444) 913
Inventories (268) (1,616) (1,457)
Purchased gas costs (3,074) (1,298) 3,712
Prepaid expenses (2,804) 2,017 (4,825)
Accounts payable and accrued expenses (4,823) (1,682) (5,902)
Other assets/liabilities (1,376) (3,783) 4,960
-------- -------- --------
Total adjustments 11,895 12,479 18,119
-------- -------- --------
Net cash provided by
operations $ 27,091 $ 29,554 $ 37,114
======== ======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for:
Interest $ 14,222 $ 13,058 $ 12,193
======== ======== ========
Income taxes $ 8,042 $ 8,261 $ 17,633
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Capitalization
September 30, 1998 and 1997
(Thousands of Dollars)
<S> <C> <C>
1998 1997
---- ----
Common Stock Equity:
Common stock, no par, authorized 20,000,000
shares, issued and outstanding 8,652,171
shares in 1998 and 10,652,169 shares in 1997 $ 67,448 $120,409
Retained earnings 56,447 49,924
-------- --------
123,895 170,333
-------- --------
Less: Unearned compensation - restricted
stock awards (498) (1,034)
-------- --------
123,397 169,299
-------- --------
Preferred Stock, Not Subject to Mandatory
Redemption:
$3.125 par value, 8%, noncallable, authorized
909,898 shares in 1998 and 1997, issued and
outstanding 134,426 shares in 1998 and 1997,
entitled to preference on liquidation at
$6.25 per share 420 420
$100 par value, callable, authorized 9,999,557
shares in 1998 and 9,999,602 shares in 1997
6% Series B, issued and outstanding 4,593
shares in 1998 and 4,638 shares in 1997 459 464
-------- --------
879 884
-------- --------
Long-Term Debt:
First Mortgage Bonds -
9.16%, due 2004 18,000 18,000
Industrial Revenue Demand Bonds -
1986 and 1988 series,
weighted average interest rate of
3.492% in 1998 and 3.66% in 1997, due 2006 - 11,400
1998 series, weighted average interest rate
of 3.36% in 1998, due 2025 10,600 -
First Mortgage Note -
10.5%, due 2010 925 963
Senior Secured Notes -
6.99%, due 2009 45,000 -
6.90%, due 2010 15,000 -
Secured Notes -
9.32%, due 1999 - 6
6.89%, due 2010 12,260 12,905
Unsecured Medium Term Notes -
7.61%, due 2002 10,000 10,000
7.82%, due 2004 10,000 10,000
6.62%, due 2007 1,000 -
6.65%, due 2007 1,000 -
6.69%, due 2007 17,000 -
6.04%, due 2008 15,800 -
8.05%, due 2012 5,000 5,000
6.85%, due 2013 20,000 20,000
8.12%, due 2014 5,000 5,000
9.10%, due 2016 10,000 10,000
8.96%, due 2017 20,000 20,000 <PAGE>
8.49%, due 2024 5,000 5,000
Less - Current Maturities (5,733) (1,487)
-------- --------
215,852 126,787
-------- --------
$340,128 $296,970
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Common Stock Equity
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars Except for Share Data)
<S> <C> <C> <C> <C>
Common Stock
------------------------ Unearned Retained
Shares Amount Compensation Earnings
---------- ---------- ------------ ---------
Balance at September 30, 1995 9,931,279 $ 104,960 $ (371) $ 45,522
Public offering 700,000 15,557 - -
Net income after
preferred dividends - - - 18,932
Purchase of restricted
stock awards - - (33) -
Amortization and
adjustment of
restricted shares (10,840) (349) 92 -
Dividends - - - (15,428)
---------- -------- ------ --------
Balance at September 30, 1996 10,620,439 120,168 (312) 49,026
Net income after
preferred dividends - - - 17,013
Purchase of restricted
stock awards 16,078 501 (1,131) -
Issues to dividend
reinvestment and
employee benefit plans 29,145 622 - -
Establish holding company - (508) - -
Amortization and
adjustment of
restricted shares (13,493) (374) 409 -
Dividends - - - (16,115)
---------- -------- ------ --------
Balance at September 30, 1997 10,652,169 120,409 (1,034) 49,924
Repurchase Common Stock (1,999,998) (52,891) - -
Net income after
preferred dividends - - - 15,135
Issues to dividend
reinvestment and
employee benefit plans - 63 - -
Amortization and
adjustment of
restricted shares - (133) 536 (16)
Dividends - - - (8,596)
---------- -------- ------ --------
Balance at September 30, 1998 8,652,171 $67,448 $ (498) $ 56,447
========== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
September 30, 1998
1. Summary of Significant Accounting Policies:
Organization-
CTG Resources, Inc. ("the Company" or "CTG") is a holding company and
parent of the Connecticut Natural Gas Corporation ("CNG") and The Energy
Network, Inc. ("TEN"). TEN holds and operates, through divisions or
wholly-owned subsidiaries, CTG's unregulated, diversified businesses which
also include the Company's equity investments in two partnerships, one of
which is the Iroquois Gas Transmission System ("Iroquois").
Nature of the business-
CTG's principal business is the distribution, transportation and sale of
natural gas through CNG. This business is subject to extensive regulation.
CTG is also engaged in unregulated diversified businesses through TEN and
its subsidiaries. These business activities are primarily focused on
district heating and cooling ("DHC") and also include other energy-related
products and services and new business development. The activities of
Iroquois are regulated by the Federal Energy Regulatory Commission.
Principles of consolidation-
CTG owns all of the capital stock of its subsidiaries, CNG and TEN. The
consolidated financial statements represent the accounts of the Company
after the elimination of intercompany transactions. Certain prior year
amounts have been reclassified to conform with current year presentations.
Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenues-<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Revenues are recorded based on deliveries to customers through the end of
the accounting period. Regulated gas operations revenues are based on
rates authorized by the Connecticut Department of Public Utility Control
("DPUC").
The Company is required to provide natural gas service to residential
customers within its defined service territory and is precluded by <PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Connecticut State law from discontinuing service to hardship residential
customers during a winter moratorium period (November - April).
In compliance with Connecticut law, the Company has an accounts receivable
forgiveness program for qualified hardship natural gas customers. The
total payments made by these customers and the energy assistance funds
received on their behalf are matched by the Company. The DPUC allows the
Company to defer this matched amount and to recover it from ratepayers in a
future period. At September 30, 1998 and 1997, deferred balances of
approximately $5,400 and $4,100, respectively, are included in other assets
pending future amortization and recovery from ratepayers.
Purchased gas costs-
The Company passes on to its firm customers changes in gas costs from those
reflected in its tariff charges. In accordance with this procedure, any
current under or over-recoveries of gas costs are charged or credited to
the cost of gas and included in current assets or liabilities. Such
amounts are collected or refunded in subsequent periods under purchased gas
adjustment provisions ("PGA").
Allowance for funds used during construction-
In the ordinary course of business an allowance for funds used during
construction ("AFUDC") is calculated on the construction of physical assets
which exceed a minimum cost threshold and are constructed over an extended
period of time.
AFUDC for the regulated operations is computed based on the weighted
average cost of capital used to determine the rates charged to customers,
as allowed by the DPUC. It is computed at current borrowing rates for the
diversified businesses.
Plant-
Plant is stated at original cost, which includes an apportionment of
general and administrative costs, and, for certain long-term construction
projects, AFUDC.
Substantially all of the plant of the regulated operations is subject to<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
the lien of the Indenture of Mortgage and Deed of Trust securing its First
Mortgage Bonds. The Capitol Area DHC properties owned by TEN are also
subject to the liens associated with TEN's Industrial Revenue Variable Rate
Demand Bonds and related letter of credit (See Notes 8 and 9).
During the fourth quarter of fiscal 1996, TEN sold land and a building
situated thereon. This resulted in a nonrecurring net gain of $515 or $.05
per share.
Depreciation-
CTG and its subsidiaries, except CNG's wholly-owned subsidiary, CNG Realty
Corp. ("CNGR"), provide depreciation on a straight-line basis. The
composite rate applied by the regulated operations was 4.1% in 1998, 1997
and 1996, as approved by the DPUC. The operating and administrative
center, owned by CNGR, is being depreciated under a DPUC approved sinking
fund method through 2010.
The average depreciation rates for diversified businesses' depreciable
plant were 3.6% in 1998 and 1997 and 3.8% in 1996.
Cash and cash equivalents-
Cash in excess of daily requirements is invested in short-term interest
bearing securities with maturities of three months or less.
Investments-
The Company has investments of $11,821 at September 30, 1998. These
include $10,937 for a 4.87% investment in Iroquois and $884 for a 50%
investment in the Downtown Cogeneration Associates Limited Partnership
("DCA"). These investments are accounted for on the equity method of
accounting.
Iroquois owns and operates a natural gas pipeline which transports Canadian
natural gas into New York State, Massachusetts and Connecticut. DCA owns
and operates a 4.2-Megawatt cogeneration facility in Hartford, Connecticut.
During the second quarter of fiscal 1998, TEN assumed control of KBC Energy
Services ("KBC"), a New England natural gas marketer, and began the sale of<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
its assets and the wind down of its operations. At September 30, 1997 TEN
had a 50% ownership interest in this partnership. The fiscal 1998 charge
to earnings related to the wind down of KBC was $1,012, net of income
taxes. Management does not anticipate any significant future activity
related to KBC.
Inventories-
Gas inventories are stated at their weighted average cost. Other
inventories are accounted for using the first-in, first-out or average cost
method.
Accounting for the effects of regulation-
CNG's natural gas distribution business is subject to regulation by the
DPUC. CNG prepares its financial statements in accordance with the
provisions of SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation" ("SFAS No. 71"). SFAS No. 71 requires a cost-based, rate-
regulated enterprise such as CNG to reflect the impact of regulatory
decisions in its financial statements. In certain circumstances, SFAS No.
71 requires that certain costs and/or obligations (such as incurred costs
not currently recovered through rates, but expected to be so recovered in
the future) be reflected in a deferred account in the balance sheet and not
be reflected in the statement of income until matching revenues and/or
expenses are recognized. CNG records regulatory assets and liabilities
based on prior rate orders issued by the DPUC, which provide a mechanism
for recovery in regulated rates, or on historical rate treatment, which
provides evidence as to the probability of future rate recovery.
In the application of SFAS No. 71, the Company follows accounting policies
that reflect the impact of the rate treatment of certain events or
transactions that are permitted to differ from generally accepted
accounting principles. Specifically, the DPUC permits recovery of
depreciation on the operating and administrative center, owned by CNGR,
under a sinking fund method through 2010. The overall impact of annual
depreciation expense under this method, versus straight line depreciation
recovery, is not material to the overall financial statements.
It is the Company's policy to continually assess the recoverability of
costs recognized as regulatory assets and the Company's ability to continue
to account for its regulated activities in accordance with SFAS No. 71,<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
based on each regulatory action and the criteria set forth in SFAS No. 71.
Based on current regulation and recent DPUC decisions, the Company believes
that its use of regulatory accounting is appropriate and in accordance with
the provisions of SFAS No. 71.
The Company's consolidated balance sheets at September 30, 1998 and 1997
contain the following amounts as a result of the application of SFAS No.
71:
<TABLE>
<S> <C> <C>
Assets/(Liabilities) 1998 1997
-------------------- ---- ----
Unrecovered Future Taxes $ 10,734 $ 17,263
Hardship Arrearage Forgiveness 5,388 4,138
Other Postretirement Benefits 2,974 2,973
Deferred Income Taxes 1,797 3,141
Other Deferred Charges 1,280 1,626
Recoverable Transition Costs - 839
Pipeline Refunds, Surcharges and Interest (535) (5,265)
Deferred Gas Costs (1,496) (4,694)
Revenue Sharing Mechanisms (3,329) (2,481)
Refundable Taxes (4,252) (3,491)
-------- --------
$ 12,561 $ 14,049
======== ======== <PAGE>
</TABLE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
New accounting standards-
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). This statement
establishes standards for reporting and display of comprehensive income and
its components in the financial statements. Adoption of SFAS No. 130
disclosure is required in fiscal 1999 and will have no impact on the
Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). This statement
requires that public business enterprises report certain additional
information about operating segments. Adoption of SFAS No. 131 is required
in fiscal 1999. The adoption of SFAS No. 131 will have no impact on the
Company's financial condition or results of operations.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). This
statement standardizes employers' disclosures requirements about pension
and other postretirement benefit plans. Adoption of SFAS No. 132 is
required in fiscal 1999. The adoption of SFAS No. 132 will have no impact
on the Company's financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative instruments
and for hedging activities. Adoption of SFAS No. 133 is required beginning
with the first quarter of fiscal 2000. The Company is aware of certain
provisions which may impact the the natural gas industry but has not yet
reviewed these provisions in detail against existing accounting practices
and disclosures. At this time the Company cannot predict what impact, if
any, the adoption of SFAS No. 133 will have on its financial condition or
results of operations.
2. Regulatory Matters:
In a second phase of a regulatory review of natural gas deregulation which
began in 1996, the DPUC is addressing the potential deregulation of the
residential natural gas sales market in Connecticut and the future role of
Connecticut's local gas distribution companies in natural gas commodity
sales. Concurrently, the Connecticut State Legislature has undertaken a
task force investigation related to residential deregulation. Although the<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Company cannot predict the outcome of these proceedings, the Company
anticipates that the timing of any DPUC decision will be related to the
timing of the completion and announcement of the results of the Connecticut
State Legislature's activities.
Connecticut local gas distribution companies ("LDCs") pass on to firm
customers any increases or decreases in gas costs from those reflected in
tariff charges under PGA provisions. During fiscal 1996, the DPUC
initiated a review of the need to continue or modify PGA accounting for all
Connecticut LDCs. The review was prompted by the offering of unbundled
services by LDCs that began in fiscal 1996. In April 1997, the DPUC issued
a decision affirming the need to continue the PGA.
3. Purchase of Cogeneration Facility:
In June 1998, TEN acquired the assets of a 16-Megawatt capacity
cogeneration facility which supplies Hartford Hospital with steam and
electricity. The purchase price of approximately $17,000 was financed
through existing lines of credit. The assets acquired in the transaction
include $1,619 of current assets, $1,744 of plant and equipment and a note
receivable of $13,637, of which $4,889 is current and classified in
accounts and notes receivable in the consolidated balance sheet. The note
receivable relates to an existing termination agreement with the local
electric utility which is now assigned to The Hartford Steam Company
("HSC"), a wholly-owned subsidiary of TEN. Pursuant to this agreement, the
utility will make payments to HSC through December 2000.
HSC will now supply the hospital with steam and electricity over a twenty-
year contract period. The facility is currently off-line for repowering as
an 7.5-Megawatt facility and is scheduled to be back on line by January
1999 under HSC's management.
4. Pension and Employee Benefit Plans:
The Company has noncontributory retirement plans ("Plans") covering
substantially all employees. Pension benefits are based on years of
credited service and employees' average annual earnings, as defined in the
Plans. The Company's funding policy is to contribute, annually, an amount
at least equal to that which will satisfy the minimum funding requirements
of the Employee Retirement Income Security Act.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The assumptions used in determining the pension obligations were:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Weighted Average Discount Rate ......... 7.50% 7.50% 8.25%
Rate of Increase in Future Compensation Levels
.............................. 4.00% 4.00% 4.40%
Expected Long-term Rate of Return on Assets
.............................. 9.00% 9.00% 8.75%
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The following table represents the Plans' funded status and amounts
included in the balance sheets at September 30, 1998 and 1997:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $84,328 in 1998 and of $76,545 in
1997 $ 87,222 $ 78,882
======== ========
Projected benefit obligation for service rendered
to date $101,853 $ 93,472
Assets at fair value, primarily publicly traded stocks
and bonds 123,611 113,331
-------- --------
Value of assets over the projected benefit obligation
21,758 19,859
Unrecognized net gain from past experience different
from that assumed (19,997) (18,294)
Prior service cost not yet recognized in net periodic
pension cost 303 874
Unrecognized net asset at January 1, 1986 being
recognized over 15 years (776) (1,087)
-------- --------
Accrued pension liability $ 1,288 $ 1,352
======== ========
</TABLE>
Net pension costs included in the statements of income for the years ending
September 30, include the following components:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Service cost $ 2,377 $ 2,113 $ 2,095
Interest cost 6,856 6,373 6,183
Return on plan assets (14,897) (18,616) (11,503)
Net amortization and deferral 5,728 10,139 3,653
-------- -------- --------
Net cost $ 64 $ 9 $ 428
======== ======== ========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The Company also provides its officers with a supplemental retirement plan.
The actuarially determined accumulated benefit obligation was approximately
$4,360 at September 30, 1998 and $4,454 at September 30, 1997. The cost of
this plan is being accrued over the service lives of the individual
officers. Net expense related to this plan was $634 for 1998, $548 for
1997 and $540 for 1996. The Company contributes to a trust to fund the
liability for these supplemental retirement plan benefits. The trust
balance included in other assets at September 30, 1998 and 1997, was $5,805
and $4,953, respectively.
The Company may provide certain health care, life insurance or income
benefits to former or inactive employees after employment but before
retirement. The Company accounts for these costs on the accrual basis
under Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits".
5. Postretirement Benefits Other Than Pensions:
The Company provides certain health care and life insurance benefits to
retirees through a benefit plan. These benefits are available for
employees leaving the Company who are otherwise eligible to retire and have
met specific service requirements. The Company accounts for these costs
under SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106") on a prospective basis. SFAS No. 106
requires the expected cost of postretirement benefits, primarily health
care and life insurance benefits, to be charged to expense during the years
that eligible employees render service.
In fiscal 1994, the Company adopted SFAS No. 106 and began amortizing its
postretirement accumulated benefit obligation over a twenty-year period.
Total health care and life insurance costs under SFAS No. 106 were $2,748
in 1998, $3,074 in 1997 and $3,293 in 1996. Actual costs charged to
expense were $2,813 in 1998 and $2,755 in 1997 and 1996. In 1995, the DPUC
approved a five-year phase-in of SFAS No. 106 expenses with an allowed
annual recovery of $2,755 and deferral of additional SFAS No. 106 expenses
for future recovery. At September 30, 1998 and 1997, $2,975 and $2,973,
respectively, were deferred pending future amortization and recovery.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The following table represents the plan's funded status reconciled to the
consolidated balance sheets at September 30, 1998 and 1997:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Accumulated postretirement benefit obligation of:
Retirees $ 18,143 $ 19,120
Active employees fully eligible
to retire 2,960 3,015
Active employees not eligible to retire 8,152 6,325
-------- --------
Total accumulated postretirement benefit obligation
29,255 28,460
Less: Market value of plan assets 11,037 8,504
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets 18,218 19,956
Unrecognized transition amount (13,519) (15,693)
Unrecognized net loss (1,870) (1,746)
-------- --------
Accrued postretirement benefit
obligation $ 2,829 $ 2,517
======== ========
</TABLE>
The components of SFAS No. 106 health care and life insurance costs for the
fiscal years ended September 30, 1998, 1997 and 1996 were:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Service cost $ 456 $ 425 $ 435
Interest cost 2,045 2,131 2,164
Return on plan assets (1,505) (1,436) (578)
Net amortization 1,752 1,954 1,272
-------- -------- --------
Net health care and life insurance costs $ 2,748 $ 3,074 $ 3,293
======== ======== ========
</TABLE>
For measurement purposes annual rates of increase of 8% and 7% are assumed
for nonmedicare and medicare eligible retirees, respectively, in the per
capita cost of covered health care benefits. The rate is assumed to
decrease to 4.5% for both groups in 2004. The effect of increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
September 30, 1998 and 1997 by $1,701 and $1,402, respectively, and the
aggregate of the service and interest cost for the years ended September
30, 1998, 1997 and 1996 by $119, $134 and $133, respectively. The weighted
average discount rate used in determining the accumulated post retirement
benefit obligation was 7.50% in 1998 and 1997 and 8.25% in 1996 and was
determined by analyzing the interest rates, as of September 30, of each
year, of long-term, high quality corporate debt securities having a
duration comparable to the plan. The expected long-term rate of return on
plan assets was 8.00% in 1998 and 7.50% in 1997.
The Company has established two Employee Benefit Trusts ("VEBA") to pay
current retiree health care and life insurance benefits and to fund the
Company's retirement benefit liability. In fiscal 1998, 1997 and 1996 the
Company funded $2,493, $2,459 and $2,896, respectively, for SFAS No. 106
costs. The VEBA balances are primarily invested in life insurance policies
and commingled fixed income and equity mutual funds.
6. Taxes:
Income Taxes-
The following is an analysis of the provision for federal and state income
taxes:
<TABLE>
<CAPTION>
September 30,
------------------------
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Charged to operations:
Federal:
Current $ 4,742 $10,330 $ 9,842
Deferred 5,277 3,069 1,082
------- ------- -------
10,019 13,399 10,924
------- ------- -------
State:
Current 427 2,816 3,118
Deferred 1,985 965 543
------- ------- -------
2,412 3,781 3,661
------- ------- -------
Deferred investment tax credits (221) (221) (221)
------- ------- -------
Total charged to operations 12,210 16,959 14,364
------- ------- -------
Charged to other income/(deductions):
Federal:
Current 590 531 552
Deferred 62 (34) 232
------- ------- -------
652 497 784
------- ------- -------
State:
Current 183 179 245
Deferred 21 (11) 86
------- ------- -------
204 168 331
------- ------- -------
Total charged to other income/(deductions) 856 665 1,115
------- ------- -------
Total $13,066 $17,624 $15,479
======= ======= =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Depreciation for federal income tax purposes is computed using accelerated
cost recovery methods and different lives as permitted under the Internal
Revenue Code ("Code"). The DPUC has allowed the Company to normalize taxes
on accelerated depreciation, as required under the Code, for depreciable
property additions made by the regulated operations subsequent to 1980.
For certain other temporary differences, tax reductions are accounted for
as a reduction of federal income tax expense in accordance with the flow-
through method of accounting as required by the DPUC. Under the
established ratemaking practices followed by the DPUC, deferred income
taxes not previously provided for will be collected in customer rates when
such taxes become payable.
Deferred income taxes result from temporary differences between the
financial statement carrying amounts and the tax basis of existing assets
and liabilities. Deferred income taxes are primarily a result of normalized
plant items and temporary differences related to gas costs. For the
regulated operations, deferred investment tax credits are amortized to
income over the average life of the related property. The diversified
businesses provide deferred taxes on all temporary differences, including
depreciation.
The tax effects of the temporary differences which resulted in the deferred
income taxes on the balance sheets at September 30, 1998 and 1997 were:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Property, Plant and Equipment $ 53,297 $ 47,067
Other, net (3,122) (2,765)
-------- --------
Deferred Income Taxes $ 50,175 $ 44,302
======== ========
</TABLE>
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under the caption
"Refundable Taxes" the balance sheet reflects refundable taxes to
ratepayers for reductions in the statutory federal income tax rate on
normalized plant related temporary differences. The regulated operations
also recognize the cumulative deferred income taxes on temporary
differences which were previously flowed through to ratepayers. At
September 30, 1998 and 1997, the Company had $10,734 and $17,263,
respectively, on the balance sheets as an unfunded deferred income tax
liability, with a corresponding unrecovered receivable, for temporary
differences previously flowed through to ratepayers. These amounts have<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
been adjusted for the tax effect of future revenue requirements and will be
amortized over the life of the related depreciable assets concurrent with
their recovery in rates.
In fiscal 1998, the Company performed a detailed study of SFAS No. 109
concerning deferred income tax liabilities. As a result of the study, the
Company identified that cost of removal costs were not being normalized in
its deferred tax calculation. Effective March 31, 1998, the Company
normalized cost of removal costs in its calculation of deferred taxes. The
normalization of the cost of removal costs for deferred tax requirements
reduced the amounts of unrecovered future taxes from rate payers and
unfunded deferred income taxes on the balance sheet. Amounts shown on the
balance sheet for the unfunded deferred income tax liability, and the
corresponding unrecovered receivable related to SFAS No. 109 reflect this
adjustment.
The treatment of cost of removal costs as a normalized item is in
accordance with SFAS No. 109. Although current rates and tax expenses have
been set utilizing flow-through treatment for these costs, the Company
anticipates that, in future rate proceedings, the application of this
method will reduce future income tax expense and corresponding rate payer
revenue requirements.
A reconciliation of the consolidated federal income tax expense, at the
statutory tax rate of 35%, to the reported consolidated federal income tax
expense is as follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Consolidated statutory federal income tax expense $ 8,976 $10,762 $10,669
Change in consolidated federal income tax expense
resulting from:
Excess book over tax depreciation 2,654 2,253 1,724
Investment tax credits (221) (221) (221)
Bad debts 44 175 175
Tax reserves (866) 714 (500)
Computer software 175 175 175
Cost of removal (381) (324) (507)
Other 69 141 (28)
------- ------- -------
Consolidated reported federal income tax expense $10,450 $13,675 $11,487
======= ======= ======= <PAGE>
</TABLE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Outstanding tax issues-
The Company is subject to audit by State of Connecticut and Federal
authorities as it relates to income, sales, use and property tax returns
filed. In addition, the Company has several ongoing issues related to the
taxability of off-system gas sales by state taxing authorities. In the
opinion of management, the ultimate resolution of these issues will not
have a material impact on the Company's results of operations.
7. Capital Stock:
Common stock-
In March 1997, pursuant to the Agreement and Plan of Exchange approved by
shareholders, each outstanding share of common stock, $3.125 par value of
CNG was exchanged for one new share of common stock, without par value, of
CTG. Each outstanding share of CTG common stock held by CNG prior to this
exchange was cancelled. As a result, CTG became the sole common stock
shareholder of CNG, CNG became a subsidiary of CTG and all of the common
stock of CTG was owned by the former common stock shareholders of CNG.
Recapitalization plan-
On October 30, 1997, through a tender offer made by TEN, the Company
repurchased approximately 2.0 million shares of CTG common stock for
approximately $53,000. TEN financed the purchase with a combination of
revolving bank debt and the issuance of Senior Secured Notes. The shares
repurchased by TEN were transferred by the depositary directly to CTG. In
connection with the repurchase, effective with the first quarter of fiscal
1998, CTG reduced its quarterly dividend on common stock from $0.38 ($1.52
annually) to $0.25 ($1.00 annually) per share.
The following summary of pro forma financial information gives effect to
the repurchase of the shares as if the transaction had occurred at the
beginning of each year presented, in the case of income statement data, or
at year-end in the case of balance sheet data. This summary pro forma
financial information is for comparison purposes only and does not purport
to be indicative of the results that would actually have been obtained had
the repurchase of the shares been completed at the dates indicated.<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
<TABLE>
<CAPTION>
Year Ended
September Year Ended Year Ended
30, 1998 September 30, 1997 September 30, 1996
----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Pro Forma Pro Forma
As As Stock As Stock
Income Statement Data: Reported Reported Repurchase Reported Repurchase
------------------- -------- -------- --------- -------- ---------
Net Income Applicable to
Common Stock $ 15,135 $ 17,013 $ 14,855 $ 18,932 $ 16,780
======== ======== ======== ======== ========
Income Per Average Share
of Common Stock (1) $ 1.71 $ 1.60 $ 1.72 $ 1.87 $ 2.06
====== ====== ====== ====== ======
Average Common Shares
Outstanding During the
Period (2) 8,871,349 10,632,001 8,632,001 10,146,932 8,146,932
========= ========== ========= ========== =========
Dividends per Share of
Common Stock (3) $ 1.00 $ 1.52 $ 1.00 $ 1.50 $ 1.00
====== ====== ====== ====== ======
Balance Sheet Data:
------------------
Total Assets $459,181 $464,287 $464,287 $466,979 $466,979
======== ======== ======== ======== ========
Long-term Debt (Less
Current Maturities) (4) $185,052 $126,787 $179,678 $136,432 $189,323
======== ======== ======== ======== ========
Total Common Equity $123,397 $169,299 $116,408 $168,882 $115,991
======== ======== ======== ======== ========
</TABLE>
[FN]
---------------------------------------------------------------------------
(1) Represents earnings per share based on pro forma net income divided by
the pro forma shares outstanding. Lower pro forma earnings reflect
additional after tax interest due to the higher debt outstanding.
(2) Represents shares outstanding less the 1,999,998 shares purchased
pursuant to the tender offer.
(3) Pro Forma represents dividends at $0.25 per share per quarter.
(4) Represents long-term debt outstanding plus $45,000 of pro forma debt
from the Senior Subordinated Notes at 6.99% and $7,891 of pro forma
debt at a rate of 6.37% under the revolving credit facilities.
Forward equity purchase agreement-
In a Forward Equity Purchase Agreement dated October 1, 1997, and amended<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
October 14, 1998, CTG has committed to fund from $7,500 to $16,100 per year
into TEN from 1998 through 2009 for an aggregate additional cash infusion
into TEN of $122,600. In exchange, TEN caused all shares of CTG common
stock purchased through the October 1997 tender offer to be transferred
directly to CTG by the depositary. As a provision of this agreement, CTG
is restricted from declaring or paying any dividends or distributions to
its holders of common stock if any amounts due and payable under this
agreement are in arrears.
Dividend reinvestment plan and employee savings plans-
The Company maintains a Dividend Reinvestment Plan ("DRIP") which provides
the Company's holders of common stock and preferred stock the opportunity
to receive shares of the Company's common stock in lieu of some or all of
their cash dividends. In addition, the Company has Employee Savings Plans
("ESP"), which are designed to encourage and assist employees to save and
invest for long-term financial security. The Company's common stock is one
of the investment options offered to employees under the ESP. At September
30, 1998, there were 315,542 shares of the Company's common stock reserved
for issuance under the DRIP and ESP. In the fiscal years ended September
30, 1998, 1997 and 1996, the Company's contribution to the ESP on behalf of
employees was $1,032, $960 and $965, respectively.
Restricted stock plan-
In 1990, the Company adopted a restricted stock performance plan. The plan
terminates in the year 2000 and is authorized to issue up to 200,000
shares. On October 1, 1990, October 1, 1993 and October 1, 1996, key
employees were granted 22,146, 24,040 and 41,800, respectively, of
restricted shares of the Company's common stock under this plan.
Restrictions lapse and the shares vest over a one to five year period
beginning October 1, 1990, 1993 and 1996, respectively, as certain
performance goals are achieved. In October 1995, 5,770 of the restricted
shares became fully vested and were awarded to qualifying employees.
The market value of the shares awarded under this plan has been recorded as
unearned compensation and is a separate component of common equity. The
unearned compensation is being charged to expense over the vesting period
based on achievement of the performance criteria.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Earnings per share-
The income statement discloses both basic and fully diluted earnings per
share. The decrease in basic earnings per share is the result of the
dilutive effect of each year's weighted average of shares related to the
restricted stock plan. For the fiscal years ended September 30, the basic
weighted average shares were reduced by 51,616 in 1998, 51,758 in 1997 and
28,612 in 1996.
Preferred stock-
The preferred stock on the balance sheet was issued by CNG. CNG is
prohibited from, among other things, paying dividends on common stock and
purchasing, redeeming or retiring common stock, if dividends on preferred
stock are in arrears.
The following table sets forth the changes in the number of shares
outstanding for each class of the Company's preferred stock not subject to
mandatory redemption, for the years ended September 30, 1998, 1997 and
1996:
<TABLE>
<C> <C> <C> <C>
1998 1997 1996
---- ---- ----
$3.125 par value - (3,934) (1,372)
======= ======= =======
$100 par value (45) (29) (3)
======= ======= =======
</TABLE>
8. Long-term Debt:
The Company has various issues of first mortgage bonds and first mortgage
notes outstanding with maturities from 2004 to 2010, secured notes with
maturities from 1999 to 2010, industrial revenue variable rate demand bonds
which mature in 2025 and unsecured medium term notes with maturities from
2002 to 2024. Under the most restrictive terms of the indenture securing
the bonds, retained earnings of $25,174 are available for CNG to pay
dividends at September 30, 1998. CTG's ability to pay dividends is not
restricted by these terms. Dividends paid on common and preferred stock in
fiscal 1998 were $8,657. Sinking fund requirements for outstanding bonds
were paid in cash.<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The Company's 9.16%, Series AA First Mortgage Bonds are subject to
redemption by sinking fund scheduled at $2,500 per year. The Company
exercised its option to increase the principal payment amount due on
October 1, 1998, by an additional $2,500, for a total of $5,000. This
increased the Company's current portion of long-term debt by $2,500 at
September 30, 1998.
In August 1998, the Company refinanced its outstanding $10,600 1986 and
1988 series of tax exempt, seven-day put, Industrial Revenue Variable Rate
Demand Bonds ("IRBs") issued by the Connecticut Development Authority. The
1998 series of IRBs mature in 2025 and have no sinking fund requirements.
The original IRBs financed TEN's capitol area district heating and cooling
facilities in Hartford, Connecticut. At the same time, the Company
replaced the letter of credit which supports these IRBs.
In October 1997, TEN issued Senior Secured Notes for $45,000, due in 2009,
at 6.99%. The principal will be retired through semi-annual payments of
$2,500 beginning in 2001. The proceeds were used to repurchase
approximately 2.0 million shares of CTG common stock.
In October 1997, the Company issued a total of $19,000 of Medium Term Notes
("MTNs") due 2007. These MTNs are unsecured and have no call provisions or
sinking fund requirements. The proceeds were used to refinance existing
short-term debt. The face values and interest rates of these MTNs are:
Face Value Interest Rate
---------- -------------
$ 1,000 6.62%
$ 1,000 6.65%
$17,000 6.69%
Long-term debt amounts which are due during each of the five years ending
September 30, 1999 through 2003, are as follows:
Sinking Fund Requirements and Maturities
----------------------------------------
Year Total
---- -------
1999 $ 5,733
2000 3,283
2001 5,843
2002 18,404
2003 8,465
-------
$41,728
=======
<PAGE>
9. Short-term Borrowings and Lines of Credit:
The Company maintains a line of credit under a revolving credit agreement
with a bank. Under this agreement the Company can borrow up to $20,000 at
a Eurodollar or Base Rate of interest plus a variable margin. In March of
1998, the Company renewed this agreement to 2001 with two subsequent one-
year renewal options. There is a variable .15% to .5% commitment fee. At
September 30, 1998 there were $10,000 outstanding under this agreement.
The Company also maintained a one-year line of credit with a bank for
$9,000 through February 1998. The Company paid a 1/5 of 1% commitment fee
on this line of credit. The interest rate varied according to market
conditions. In February 1998, the Company replaced this line of credit
with a seasonally variable $10,000 to $15,000 line of credit through
February of 1999. The Company pays a 1/5 of 1% commitment fee on this line
of credit. The interest rate varies according to market conditions. At
September 30, 1998 there were $5,800 outstanding under this line of credit.
TEN had a $5,000 unsecured revolving credit facility that expired on
December 15, 1997. There was a 1/5 of 1% annual facility fee. The
interest rate was based upon the Certificate of Deposit, Eurodollar or Cost
of Funds rate plus a variable margin and is determined at the time of each
borrowing. This credit facility was not renewed.
In October 1997, TEN entered into a 364-day secured revolving credit
agreement for $10,000 with a bank. This agreement matured on September 29,
1998 and was extended for sixty days at that time. The Company expects to
renew this agreement for one year beginning December 1998. Interest is
based on a Bank Rate or a LIBOR rate plus a variable margin. It is
determined at the time of each borrowing. There is a one-time $5
commitment fee and a .375% facility fee upon renewal. At September 30,
1998 there were $9,000 outstanding under this line of credit.
In October 1997, TEN entered into a three-year revolving credit agreement
for $10,000 with a bank. The maximum borrowing amount is reduced by $500
on each fiscal quarter, beginning January 1, 1998. Interest is based on a
Bank Rate or a LIBOR rate plus a variable margin and is determined at the<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
time of each borrowing. There is a one-time $5 commitment fee and an on-
going .45% to .6% facility fee. At September 30, 1998 there were $8,000
outstanding under this line of credit.
In October 1998, the $10,000 outstanding at September 30, 1998, under the
$20,000 revolving credit agreement and the $5,800 outstanding at September
30, 1998, under the $10,000 to $15,000 line of credit were refinanced with
MTNs. A secured note for $15,000 was also issued to refinance $15,000 of
TEN's outstanding short-term borrowings at fiscal year-end 1998 (see Note
13, "Subsequent Events").
The weighted average interest rate on short-term borrowings outstanding was
5.98% at September 30, 1998 and 6.26% at September 30, 1997.
10. Fair Value of Financial Instruments:
The fair value amounts disclosed below have been reported to meet the
disclosure requirements of SFAS No. 107, "Disclosures About Fair Values of
Financial Instruments" and are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
The carrying amount of cash and cash equivalents; accounts receivable;
notes payable and commercial paper; accounts payable and accrued expenses;
and unrecovered or refundable purchased gas costs approximates fair value.
At September 30, 1998 and 1997, the fair value of the Company's long-term
debt, including current maturities, is estimated to be $209,121 and
$139,810, respectively. The fair value at year-end 1998 and 1997, of
$180,185 and $116,875 of fixed-rate long-term debt, based on the market
value of similar instruments, is estimated at $198,521 in 1998 and $128,410
in 1997. The carrying amount of the variable-rate long-term debt of
$10,600 in 1998 and $11,400 in 1997 approximates fair value.
The Company has committed to support 4.87% of a letter of credit for
Iroquois, equivalent to approximately $1,487 at September 30, 1998, which
approximates fair value. The letter of credit is used to satisfy Iroquois'
cash retention requirements with respect to agreements between Iroquois and
its lenders.
11. Commitments and Contingencies:
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Construction expenditures-
Construction expenditures for the fiscal year ending September 30, 1999 are
estimated at $26,100 for the regulated operations and $14,000 for the
diversified businesses.
Adriaen's landing-
The Company has been approached by local businesses and government agencies
regarding the development of a stadium and convention center along with
hotel, retail, recreational and housing facilities. The development, known
as Adriaen's Landing, would be built in the area of the Company's
headquarters, operating center and steam/chilled water production
facilities. The Company, in order to accommodate the development as it is
currently planned, would be required to relocate its facilities.
Discussions are now underway with the developers in order to accomplish
this at no cost to the Company or its customers. The area of development,
which includes Company property, may contain hazardous materials that the
project participants will be required to address. This project is in line
with the Company's vision and direction for growth.
Gas supply-
The Company is party to short-term and long-term contracts for the purchase
of natural gas and transportation and storage services.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Steam supply-
Along with generating steam from their own internal boilers, the DHC
operations are party to long-term contracts for the purchase of steam.
Letters of credit-
The Company has outstanding letters of credit amounting to $1,500 for
workers' compensation claims and $500 for a purchasing credit line. As a
condition of its ownership in the DCA, TEN is contingently liable under two
letters of credit amounting to $8,800. As a condition to its variable rate
long-term debt, TEN holds a long-term letter of credit amounting to $10,757
at September 30, 1998 and $11,400 at September 30, 1997.
Environmental matters-
In the ordinary course of business, the Company may incur costs to clean up
environmental contaminants related to natural gas activity. In those
instances the Company expects that the remediation costs will be
recoverable in rates. In August 1998, the Company received a notice of
violation from the Connecticut Department of Environmental Protection
("DEP") regarding a number of areas on noncompliance. The Company
submitted the required compliance report in September 1998. The DEP has
advised the Company that a Consent Order and a penalty or supplemental
environmental project ("SEP") will be required to address the areas of
noncompliance, but the DEP has not given the Company any indication of the
amount of any penalty and/or SEP that may be required. The Company is
working with the DEP to resolve this issue. In the opinion of management,
any existing environmental issues will not be significant to the future
financial condition or results of operations of the Company.
Leases-
The Company has entered into operating lease agreements for the use of
computer and office equipment, facilities and motor vehicles. For fiscal
1998, 1997 and 1996, these lease payments were $2,058, $1,378 and $1,092,
respectively.
Lease payment amounts projected for each of the five years ending September
30, 1999 through 2003, are as follows:
Projected Lease Payments
----------------------------------
Year Total
---- -------
1999 $ 1,700
2000 1,600
2001 1,600
2002 1,600
2003 1,600
-------
$ 8,100
=======
Legal proceedings-
In November 1995, certain Connecticut plumbers and HVAC contractors filed a
class action suit against CNG and the State's two other LDCs, claiming that
the LDCs engaged in unfair trade practices relating to customer service
work. The plumbers and contractors are currently asserting claims for
profits which they allege were lost during prior years. In January 1998,
the court granted CNG's motion to strike all but one count of the
complaint: the antitrust conspiracy claim. The plumbers and contractors
subsequently filed two additional lawsuits against CNG and the other LDCs
alleging violations arising from the same business activities as in the
first lawsuit. All of the cases were assigned to the State's complex
litigation docket. A trial date of August 1999 has been set in one of the
cases against CNG. There has not been any settlement demand or any formal
statement of alleged damages. As a result, management cannot estimate the
Company's potential exposure related to these claims. The Company is
vigorously defending this matter.
In July 1997, the Company filed suit in State court against another
Connecticut LDC seeking to enjoin that company from serving retail
customers in a town in which the Company currently serves customers. In
its decision issued in October 1998, the court upheld the Company's
franchise rights in the disputed area.
The Company is not a party to any other litigation other than ordinary
routine litigation incident to the operations of the Company or its
subsidiaries. In the opinion of management, the resolution of such
litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
12. Segment Information:
The Company operates in two segments: regulated gas related activities and
unregulated diversified businesses. Gas related activities consist<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
primarily of natural gas distribution to residential, commercial and
industrial customers. Diversified businesses consist primarily of district
heating and cooling services.
Intersegment sales are priced in accordance with terms of existing tariffs
and contracts. Information about the Company's operations, by business
segment, is presented below:
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
-------- -------- --------
Revenues:
Gas related activities $266,418 $287,401 $297,016
Diversified businesses 21,049 22,636 23,368
Intersegment revenues (4,719) (4,742) (5,281)
-------- -------- --------
Total $282,748 $305,295 $315,103
======== ======== ========
Pre-Tax Operating Income:
Gas related activities $ 39,342 $ 42,839 $ 41,130
Diversified businesses 2,323 1,734 3,479
-------- -------- --------
Total 41,665 44,573 44,609
Income taxes 12,210 16,959 14,365
-------- -------- --------
Consolidated Operating Income $ 29,455 $ 27,614 $ 30,244
======== ======== ========
Depreciation and Amortization:
Gas related activities $ 17,087 $ 16,019 $ 15,399
Diversified businesses 2,218 2,165 2,366
-------- -------- --------
Total $ 19,305 $ 18,184 $ 17,765
======== ======== ========
Property Additions:
Gas related activities $ 21,189 $ 23,726 $ 23,894
Diversified businesses 1,246 867 387
-------- -------- --------
Total $ 22,435 $ 24,593 $ 24,281
======== ======== ========
Identifiable Assets:
Gas related activities $382,669 $382,289 $380,805
Diversified businesses 76,512 62,084 62,769
-------- -------- --------
Consolidated Identifiable Assets $459,181 $444,373 $443,574
======== ======== ========
</TABLE>
13. Subsequent Events:
Long-term Debt
In October 1998, TEN issued $15,000 of Senior Secured Notes, due in 2010,
at 6.9%. The full amount of the principal is due at maturity. The
proceeds were used to repay short-term debt that was used to finance the
purchase and repowering of the Hartford Hospital cogeneration facility.
The September 30, 1998, financial statements reflect the classification of
the debt that was retired as a result of this refinancing as long-term
debt.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Concluded)
(In thousands of dollars, except per share amounts)
September 30, 1998
In October 1998, the Company issued a total of $20,000 of MTNs at 6.04%,
due 2008. These MTNs are unsecured and have no call provisions or sinking
fund requirements. The proceeds were used primarily to refinance $15,800
of short-term debt that was outstanding at fiscal year-end 1998. The long-
term debt amounts shown on the balance sheet and statement of
capitalization at September 30, 1998, include $15,800 of these MTNs.
14. Quarterly Results (Unaudited):
The following table sets forth information with respect to the consolidated
quarterly results of operations for the fiscal years 1998 and 1997. The
amounts are unaudited but, in the opinion of management, present fairly the
results of operations.
The quarterly results of operations reflect the seasonal nature of the
Company's operations. The results of any one quarter during the year are
not indicative of the results of future quarters or the results of the
Company's fiscal year.
<TABLE>
Consolidated Results of Operations
----------------------------------
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, March 31, June 30, September 30,
Quarter Ended 1997 1998 1998 1998
-----------------------------------------------------------------------------
Operating Revenues $ 92,396 $105,416 $ 48,370 $ 36,566
Operating Income (Loss) $ 11,472 $ 14,169 $ 3,775 $ 39
Net Income (Loss) $ 8,123 $ 9,727 $ 179 $ (2,833)
Net Income (Loss) Per
Common Share* $ .85 $ 1.12 $ .02 $ (.33)
-----------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
Quarter Ended 1996 1997 1997 1997
-----------------------------------------------------------------------------
Operating Revenues $ 89,269 $124,681 $ 53,234 $ 38,111
Operating Income (Loss) $ 9,421 $ 16,050 $ 3,342 $ (1,199)
Net Income (Loss) $ 6,716 $ 12,689 $ 658 $ (2,988)
Net Income (Loss) Per
Common Share* $ .63 $ 1.19 $ .06 $ (.28)
* The sum of quarterly earnings per share does not equal annual earnings
per share as reported on the statements of income because of quarterly
changes in weighted average shares outstanding.
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------------------------
There have been no disagreements required to be disclosed under this item.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
The information required by this item regarding directors of the
registrant and the disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is contained in the section entitled "Biographical
Information" in the Company's proxy statement for its February 1999
Annual Meeting, which the Company files with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934. This information is hereby incorporated by reference. The
information required by this item regarding executive officers of the
registrant is included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The information required by this item is contained in the sections
entitled "Compensation of Directors","Compensation Committee Report on
Executive Compensation", "Compensation Committee Interlocks and Insider
Participation", "Summary Executive Compensation", "Change of Control",
"Long Term Incentive Plan", "Retirement Plans" and "Corporate
Performance Graph" in the Company's proxy statement for its February
1999 Annual Meeting, which the Company files with the Securities and
Exchange Commission pursuant to Regulation 14A. This information is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
The information required by this item is contained in the section
entitled "Ownership of Company Stock" in the Company's proxy statement
for its February 1999 Annual Meeting, which the Company files with the
Securities and Exchange Commission pursuant to Regulation 14A. This
information is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
The information required by this item is contained in the section
entitled "Certain Relationships and Related Transactions" in the
Company's proxy statement for its February 1999 Annual Meeting, which<PAGE>
the Company files with the Securities and Exchange Commission pursuant
to Regulation 14A. This information is hereby incorporated by
reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a) 1. Financial Statements:
--------------------
The consolidated balance sheets, statements of income, statements of
cash flows, statements of capitalization and statements of common
stock equity, together with the notes to the financial statements
and report thereon of Arthur Andersen LLP dated October 27, 1998,
are included in Part II, Item 8 herein.
2. Financial Statement Schedules:
-----------------------------
The following financial statement schedules included herein under
Item 14(d) are filed as part of this report.
II Valuation and Qualifying Accounts and Reserves for the fiscal
years ended September 30, 1998, 1997 and 1996
Schedules I, III, IV, and V are not submitted because they are not
applicable or the information required to be included therein is
contained in the financial statements and footnotes.
3. Exhibits
--------
Exhibit
Number
------------
3 Articles of Incorporation and By-Laws
(1) Amended and Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-4, Amendment No. 1, filed with the
Commission on December 27, 1996 (Commission File No. 333-
16297)
(2) Amended and Restated By-Laws of the Company, filed as Exhibit
No. 3.4 to the Company's Registration Statement on Form S-4,
Amendment No. 1, filed with the Commission on December 27,
1996 (Commission File No. 333-16297)
<PAGE>
4 Instruments Defining Rights of Security Holders, Including Indentures
(1) Indenture of Mortgage and Deed of Trust between The Hartford
Gas Company and The First National Bank of Hartford, Trustee
dated February 1, 1947, filed as Exhibit No. 2.2 to the
Connecticut Natural Gas Corporation's Registration Statement
on Form S-7 filed with the Commission on December 8, 1970
(Commission File No. 2-38993)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
4 (2) In addition to the Indenture of Mortgage and Deed of Trust
referred to in 4(1) above, there have been sixteen
supplemental indentures thereto, all of which have been filed
with the Commission as follows:
(a) Supplemental indentures 1-9 filed as Exhibit No. 2.2 to
the Connecticut Natural Gas Corporation's Registration
Statement on Form S-7 filed with the Commission on
December 8, 1970 (Commission File No. 2-38993)
(b) Tenth Supplemental Indenture filed as Exhibit No. 2.3 to
the Connecticut Natural Gas Corporation's Registration
Statement on Form S-7 filed with the Commission on March
3, 1972 (Commission File No. 2-43286)
(c) Eleventh Supplemental Indenture filed as Exhibit No. V
to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended December
31, 1974, filed with the Commission in March, 1975
(Commission File No. 1-7727)
(d) Twelfth Supplemental Indenture filed as Exhibit No. 4(h)
to the Connecticut Natural Gas Corporation's
Registration Statement on Form S-7 filed with the
Commission on December 23, 1981 (Commission File No. 2-
75457)
(e) Thirteenth Supplemental Indenture filed as Exhibit No. 4
to the Connecticut Natural Gas Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1982,
filed with the Commission in August, 1982 (Commission
File No. 1-7727)
(f) Fourteenth Supplemental Indenture filed as Exhibit No.
4(iii) to the Connecticut Natural Gas Corporation's
Current Report on Form 8-K, dated August 28, 1986, filed
with the Commission in September, 1986 (Commission File
No. 1-7727)
(g) Fifteenth Supplemental Indenture filed as Exhibit No.
4(iii) to the Connecticut Natural Gas Corporation's<PAGE>
Current Report on Form 8-K, dated December 8, 1987,
filed with the Commission in December, 1987 (Commission
File No. 1-7727)
(h) Sixteenth Supplemental Indenture filed as Exhibit No.
4(ii)(h) to the Connecticut Natural Gas Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1989, filed with the Commission in
November, 1989 (Commission File No. 1-7727)<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
4 (3) Rights Agreement (including a Form of Certificate of Adoption
of Amendment to the Amended and Restated Articles of
Incorporation of the Company as Exhibit A thereto, a Form of
Right Certificate as Exhibit B thereto and a Summary of
Rights to Purchase Preferred Stock as Exhibit C thereto),
filed as Exhibit 4.1 to the CTG Resources, Inc.'s
Registration Statement on Form 8-A, filed with the Commission
on December 1, 1998 (Commission File No.1-12859)
9 Voting Trust Agreement
Not applicable
10 Material Contracts
Natural Gas Supply, Storage and Transportation
----------------------------------------------
(1) Canadian gas transportation contract (rate schedule CGT-NE)
between the Connecticut Natural Gas Corporation and
Tennessee, dated December 1, 1987, filed as Exhibit No.
10(xxiii) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987, filed with the Commission on March 29, 1988 (Commission
File No. 1-7727)
(2) Gas purchase contract between the Connecticut Natural Gas
Corporation and TransCanada Pipelines Limited, dated
September 14, 1987, filed as Exhibit No. 10(xxiv) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, filed with
the Commission on March 29, 1988 (Commission File No. 1-7727)
(3) Gas sales agreement between the Connecticut Natural Gas
Corporation and Boundary Gas, Inc., dated September 14, 1987,
filed as Exhibit No. 10(xxv) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, filed with the Commission on March
29, 1988 (Commission File No. 1-7727)
(4) Precedent Agreement to First Amendment, dated September 14,<PAGE>
1988, to the Gas Sales Agreement between the Connecticut
Natural Gas Corporation and Boundary Gas, Inc., dated
September 14, 1987, filed as Exhibit No. 10(xxxi) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, filed with
the Commission March 28, 1990 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (5) First Amendment, dated January 1, 1990, to the Gas Sales
Agreement between the Connecticut Natural Gas Corporation and
Boundary Gas, Inc., dated September 14, 1987, filed as
Exhibit 10(xxxii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, filed with the Commission on March
28, 1990 (Commission File No. 1-7727)
(6) Amendment to Phase 2 Gas Sales Agreement, dated August 20,
1997, between the Connecticut Natural Gas Corporation and
Boundary Gas, Inc., filed as Exhibit No. 10(108) to the CTG
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, filed with the Commission on
December 19, 1997 (Commission File No. 1-12859)
(7) Gas Transportation Contract for Firm Reserved Service, dated
February 7, 1991, between the Connecticut Natural Gas
Corporation and the Iroquois Gas Transmission System, L.P.,
filed as Exhibit No. 10(xxxvii) to the Connecticut Natural
Gas Corporation's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992, filed with the Commission on
December 23, 1992, (Commission File No. 1-7727)
(8) Gas Sales Agreement No. 1, dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xxxviii) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1992, filed with
the Commission on December 23, 1992, (Commission File No. 1-
7727)
(9) Amendment to ANE Gas Sales Agreement No. 1, dated August 19,
1997, between the Connecticut Natural Gas Corporation and
Alberta Northeast Gas Limited, filed as Exhibit No. 10(106)
to the CTG Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997 (Commission File No. 1-12859)
(10) Gas Sales Agreement No. 2, dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xxxix) to the<PAGE>
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1992, filed with
the Commission on December 23, 1992, (Commission File No. 1-
7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (11) Amendment to ANE Gas Sales Agreement No. 2, dated August 19,
1997, between the Connecticut Natural Gas Corporation and
Alberta Northeast Gas Limited, filed as Exhibit No. 10(107)
to the CTG Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997 (Commission File No. 1-12859)
(12) Gas Sales Agreement (ProGas), dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xl) to the Connecticut
Natural Gas Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, filed with the
Commission on December 23, 1992, (Commission File No. 1-7727)
(13) Gas Sales Agreement (ATCOR), dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Limited, filed as Exhibit No. 10(xli) to the Connecticut
Natural Gas Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, filed with the
Commission on December 23, 1992, (Commission File No. 1-7727)
(14) Gas Sales Agreement (AEC), dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xlii) to the Connecticut
Natural Gas Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, filed with the
Commission on December 23, 1992, (Commission File No. 1-7727)
(15) Gas Transportation Contract for Firm Reserved Service, dated
October 20, 1992, between the Connecticut Natural Gas
Corporation and the Iroquois Gas Transmission System, L.P.,
filed as Exhibit No. 10(xlvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992, filed with the Commission on
December 23, 1992, (Commission File No. 1-7727)
(16) Service Agreement #89102 (Rate Schedule AFT-1), dated June 1,
1993, between the Connecticut Natural Gas Corporation and
Algonquin Gas Transmission Company, filed as Exhibit No.
10(xxxviii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,<PAGE>
1993 (Commission File No. 1-7727)
(17) Service Agreement #93205 (Rate Schedule AFT-1), dated June 1,
1993, between the Connecticut Natural Gas Corporation and
Algonquin Gas Transmission Company, filed as Exhibit No.
10(xl) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993, filed with the Commission December 28, 1993 (Commission
File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (18) Service Agreement #.6426, dated June 1, 1993, between the
Connecticut Natural Gas Corporation and Transcontinental Gas
Pipe Line Corporation, filed as Exhibit No. 10(xlv) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1993, filed with
the Commission December 28, 1993 (Commission File No. 1-7727)
(19) Service Agreement (Rate Schedule FTNN), dated October 1,
1993, between the Connecticut Natural Gas Corporation and CNG
Transmission Corporation, filed as Exhibit No. 10(liii) to
the Connecticut Natural Gas Corporation's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed
with the Commission December 28, 1993 (Commission File No. 1-
7727)
(20) Service Agreement (Rate Schedule GSS), dated November 1,
1993, between the Connecticut Natural Gas Corporation and CNG
Transmission Corporation, filed as Exhibit No. 10(liv) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1993, filed with
the Commission December 28, 1993 (Commission File No. 1-7727)
(21) Gas Storage Contract, dated February 16, 1990, between the
Connecticut Natural Gas Corporation and ENDEVCO Industrial
Gas Sales Company, filed as Exhibit No. 10(lxix) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1994, filed with
the Commission December 27, 1994 (Commission File No. 1-7727)
(22) Service Agreement #86006 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxi) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(23) Service Agreement #93005 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxii) to the Connecticut Natural Gas<PAGE>
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (24) Service Agreement #9B103 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxiii) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(25) Service Agreement #9W005 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxiv) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(26) Gas Storage Agreement No. 1626 (Rate Schedule FS), dated
September 1, 1993, by and between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(lxix) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(27) Gas Transportation Agreement No. 2498 (Rate Schedule FT-A),
dated September 1, 1993, by and between the Connecticut
Natural Gas Corporation and Tennessee Gas Pipeline Company,
filed as Exhibit No. 10(lxx) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(28) Gas Transportation Agreement No. 3900 (Rate Schedule FT-A),
dated October 1, 1993, by and between the Connecticut Natural
Gas Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(lxxi) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(29) Gas Transportation Agreement No. 3901 (Rate Schedule FT-A),<PAGE>
dated October 1, 1993, by and between the Connecticut Natural
Gas Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(lxxii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (30) Gas Transportation Agreement No. 2075 (Rate Schedule FT-A),
dated September 1, 1993, by and between the Connecticut
Natural Gas Corporation and Tennessee Gas Pipeline Company,
filed as Exhibit No. 10(lxxiii) to the Connecticut Natural
Gas Corporation's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995, filed with the Commission
December 18, 1995 (Commission File No. 1-7727)
(31) Gas Transportation Agreement (FT-A Rate Schedule, Service
Package No. 86) dated September 1, 1993, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(lxxxviii) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(32) Gas Transportation Agreement (FT-A Rate Schedule, Service
Package No. 1625) dated September 1, 1993, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(lxxxix) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(33) Gas Transportation Agreement (FT-A Rate Schedule, Service
Package No. 2655) dated September 1, 1993, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(xc) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(34) Gas Storage Contract (Rate Schedule FS, Service Package No.
1626) dated December 1, 1994, between the Connecticut Natural
Gas Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(xciii) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed with the Commission July 29, 1996
(Commission File No. 1-7727)
(35) Amendment No.1-A to Gas Storage Contract (Rate Schedule FS,
Service Package No. 1626) dated July 1, 1995 between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(xciv) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (36) Service Agreement (#N01719, FST Service) dated March 28, 1996
between the Connecticut Natural Gas Corporation and National
Fuel Gas Supply Corporation, filed as Exhibit No. 10(xcv) to
the Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(37) Amendment No. 1 to Service Agreement (#N01719, FST Service)
dated April 1, 1996, between the Connecticut Natural Gas
Corporation and National Fuel Gas Supply Corporation, filed
as Exhibit No. 10(xcvi) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed with the Commission July 29, 1996
(Commission File No. 1-7727)
(38) Service Agreement (#O01718, FSS Service) dated March 28, 1996
between the Connecticut Natural Gas Corporation and National
Fuel Gas Supply Corporation, filed as Exhibit No. 10(xcvii)
to the Connecticut Natural Gas Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996, filed with
the Commission July 29, 1996 (Commission File No. 1-7727)
(39) Amendment No. 1 to Service Agreement (#O01718, FSS Service)
dated April 1, 1996, between the Connecticut Natural Gas
Corporation and National Fuel Gas Supply Corporation, filed
as Exhibit No. 10(xcviii) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed with the Commission July 29, 1996
(Commission File No. 1-7727)
(40) Service Agreement (#400507, Rate Schedule FSS-1), dated
November 15,1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed
as Exhibit No. 10(civ) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(41) Service Agreement (#800424, Rate Schedule CDS), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed<PAGE>
as Exhibit No. 10(cvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (42) Storage Service Agreement (#300094, Rate Schedule GSS), dated
April 1, 1997, between the Connecticut Natural Gas
Corporation and CNG Transmission Corporation, filed as
Exhibit No. 10(109) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(43) Seasonal Transportation Service Agreement (#200106, Rate
Schedule FT), dated April 1, 1997, between the Connecticut
Natural Gas Corporation and CNG Transmission Corporation,
filed as Exhibit No. 10(110) to the CTG Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, filed with the Commission on December 19,
1997 (Commission File No. 1-12859)
(44) Storage Service Agreement (#1623, Rate Schedule SS-NE), dated
September 1, 1993, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(111) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(45) Transportation Service Agreement (#1627, Rate Schedule FT-A),
dated September 1, 1993, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(112) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(46) Transportation Service Agreement (#10781, Rate Schedule FT-
A), dated June 1, 1995, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(113) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(47) Amended Transportation Service Agreement (#10781, Rate<PAGE>
Schedule FT-A), dated November 21, 1996, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(114) to the CTG
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, filed with the Commission on
December 19, 1997 (Commission File No. 1-12859)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (48) Service Agreement (#830035, Rate Schedule FT-1), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed
as Exhibit No. 10(116) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(49) Service Agreement (#400223, Rate Schedule SS-1), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed
as Exhibit No. 10(117) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(50) Service Agreement (#800294R, Rate Schedule FT-1), dated May
20, 1998, between Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(128) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(51) Service Agreement (#800295R, Rate Schedule FT-1), dated May
20, 1998, between Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(129) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(52) Service Agreement (#830047, Rate Schedule FT-1), dated May
20, 1998, between Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(130) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)<PAGE>
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
District Heating and Cooling
----------------------------
10 (53) Steam Supply Agreement between The Hartford Steam Company and
Independent Energy Operations, Inc., dated December 3, 1987,
filed as Exhibit No. 10(xxv) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, filed with the Commission on March
28, 1990 (Commission File No. 1-7727)
(54) Steam and Chilled Water Supply Agreement, dated May 28, 1986,
between Capitol District Energy Center Cogeneration
Associates and Energy Networks, Incorporated, filed as
Exhibit No. 10(xxxvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993, filed with the Commission December
28, 1993 (Commission File No. 1-7727)
(55)* Asset Purchase Agreement, dated June 26, 1998, by and among
The Hartford Steam Company, CCF-1, Inc. and Kenetech
Facilities Management, Inc.
(56)* Assignment and Consent, dated June 26, 1998, by and among The
Hartford Steam Company, CCF-1, Inc. and The Connecticut Light
and Power Company<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
Financing
---------
10 (57) Capital Contribution Support Agreement, dated April 15, 1993,
among Connecticut Natural Gas Corporation, ENI Transmission
Company and Bank of Montreal, filed as Exhibit No. 10(l) to
the Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, filed with the
Commission on August 3, 1993 (Commission File No. 1-7727)
(58) Secured Note Purchase Agreement, dated July 15, 1993, between
the CNG Realty Corp. and the Aid Association for Lutherans,
filed as Exhibit No. 10(xlix) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, filed with the Commission on August 3,
1993 (Commission File No. 1-7727)
(59) Three-year Revolving Credit Agreement between TEN and Fleet
National Bank, filed as Exhibit No. 99(B)(2) to the CTG
Resources, Inc.'s Issuer Tender Offer Statement on Schedule
13E-4, filed with the Commission on October 2, 1997
(Commission File No. 5-51659)
(60) 364-Day Revolving Credit Agreement between and TEN and Fleet
National Bank, filed as Exhibit No. 99(B)(3) to the CTG
Resources, Inc.'s Issuer Tender Offer Statement on Schedule
13E-4, filed with the Commission on October 2, 1997
(Commission File No. 5-51659)
(61)* Reimbursement Agreement (Including Irrevocable Letter of
Credit), dated August 1, 1998, between The Energy Network,
Inc. and Fleet National Bank
(62) Note Purchase Agreement among TEN, Metropolitan Life
Insurance Company and Texas Life Insurance Company, filed as
Exhibit No. 99(B)(4) to the CTG Resources, Inc.'s Issuer
Tender Offer Statement on Schedule 13E-4, filed with the
Commission on October 2, 1997 (Commission File No. 5-51659)
(63)* Note Purchase Agreement, dated October 14, 1998, between The
Energy Network, Inc. and Metropolitan Life Insurance Company<PAGE>
(64) Revolving Credit Agreement, dated March 30, 1993, between the
Connecticut Natural Gas Corporation and The First National
Bank of Boston, filed as Exhibit No. 10(xlviii) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993, filed with
the Commission on May 3, 1993 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (65) First Amendment to Credit Agreement, dated March 30, 1998,
among Connecticut Natural Gas Corporation and BankBoston,
N.A., filed as Exhibit No. 10(124) to the CTG Resources,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, filed with the Commission on August 14, 1998
(Commission File No. 1-12859)
(66) Medium Term Notes, Series A, Placement Agency Agreement among
Connecticut Natural Gas Corporation, PaineWebber Incorporated
and Smith Barney, Harris Upham & Co. Incorporated, dated
November 1, 1991, filed as Exhibit No. 10(xxxix) to the
Connecticut Natural Gas Corporation's Transition Report on
Form 10-K for the period October 1, 1990 to September 30,
1991, filed with the Commission on December 23, 1991,
(Commission File No. 1-7727)
(67) Issuing and Paying Agency Agreement between The Connecticut
National Bank and Connecticut Natural Gas Corporation, for
the Medium Term Notes, Series A, dated November 1, 1991,
filed as Exhibit No. 10(xl) to the Connecticut Natural Gas
Corporation's Transition Report on Form 10-K for the period
October 1, 1990 to September 30, 1991, filed with the
Commission on December 23, 1991, (Commission File No. 1-7727)
(68) Medium Term Notes, Series B, Placement Agency Agreement among
Connecticut Natural Gas Corporation, Smith Barney Inc., and
A.G. Edwards & Sons, Inc., dated June 14, 1994, filed as
Exhibit No. 10(lxvi) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
(69) Medium Term Notes, Series B, Amended and Restated Placement
Agency Agreement among Connecticut Natural Gas Corporation,
PaineWebber Incorporated, and A.G. Edwards & Sons, Inc.,
dated August 13, 1997, filed as Exhibit No. 10(119) to the
CTG Resources, Inc.'s Annual Report on Form 10-K for the
fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997 (Commission File No. 1-12859)
(70) Issuing and Paying Agency Agreement between Shawmut Bank<PAGE>
Connecticut, National Association, and Connecticut Natural
Gas Corporation, for Medium Term Notes, Series B, dated June
14, 1994, filed as Exhibit No. 10(lxvii) to the Connecticut
Natural Gas Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, filed with the
Commission December 27, 1994 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (71) First Amendment to Issuing and Paying Agency Agreement, dated
August 13, 1997, filed as Exhibit No. 10(118) to the CTG
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, filed with the Commission on
December 19, 1997 (Commission File No. 1-12859)
(72) Forward Equity Purchase Agreement, dated October 1, 1997,
between CTG and TEN, filed as Exhibit No. 99(C) to the CTG
Resources, Inc.'s Issuer Tender Offer Statement on Schedule
13E-4, filed with the Commission on October 2, 1997
(Commission File No. 5-51659)
(73)* First Amendment to the Forward Equity Purchase Agreement,
dated October 14, 1998, between CTG Resources, Inc. and The
Energy Network, Inc.<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
Employment, Compensation and Benefits
-------------------------------------
10 (74) Connecticut Natural Gas Corporation Executive Restricted
Stock Plan, filed as Exhibit A to the Connecticut Natural Gas
Corporation's definitive proxy statement dated March 26,
1991, filed with the Commission on March 26, 1991 (Commission
File No. 1-7727)
(75) First Amendment to Connecticut Natural Gas Corporation
Executive Restricted Stock Plan, dated March 25, 1997, filed
as Exhibit No. 10(cxiv) to the CTG Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the Commission on August 14, 1997
(Commission File No. 1-12859)
(76) Second Amendment to Restricted Stock Agreement (Under the
Connecticut Natural Gas Corporation Executive Restricted
Stock plan), dated June 27, 1995, filed as Exhibit No.
10(lxxxii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(77) Third Amendment to Restricted Stock Agreement (Under the
Connecticut Natural Gas Corporation Executive Restricted
Stock plan), dated June 27, 1995, filed as Exhibit No.
10(lxxxiii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(78) Amended and Restated CNG Officers' Retirement Plan, dated
June 28, 1994, filed as Exhibit No. 10(liii) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1994, filed with
the Commission December 27, 1994 (Commission File No. 1-7727)
(79) Amendment to Connecticut Natural Gas Corporation Officers'
Retirement Plan, dated June 27, 1995, filed as Exhibit No.
10(lxxix) to the Connecticut Natural Gas Corporation's Annual<PAGE>
Report on Form 10-K for the fiscal year ended September 30,
1995, filed with the Commission December 18, 1995 (Commission
File No. 1-7727)
(80) Amendment to Connecticut Natural Gas Corporation Officers'
Retirement Plan, dated March 25, 1997, filed as Exhibit No.
10(cxii) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (81) Amendment to Connecticut Natural Gas Corporation Officer's
Retirement Plan, dated January 27, 1998, filed as Exhibit No.
10(127) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(82) The Connecticut Natural Gas Corporation Officers' Retirement
Plan Trust Agreement, dated January 9, 1989, filed as Exhibit
No. 10(liv) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1994, filed with the Commission December 27,
1994 (Commission File No. 1-7727)
(83) First Amendment to the Connecticut Natural Gas Corporation
Officers' Retirement Plan and Deferred Compensation Plan
Trust Agreement, dated August 5, 1993, filed as Exhibit No.
10(lv) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994, filed with the Commission December 27, 1994 (Commission
File No. 1-7727)
(84) Third Amendment to The Connecticut Natural Gas Corporation
Officers' Retirement Plan and Deferred Compensation Plan
Trust Agreement, dated September 12, 1995, filed as Exhibit
No. 10(lxxxi) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(85) Fourth Amendment to The Connecticut Natural Gas Corporation
Officers Retirement Plan and Deferred Compensation Plan Trust
Agreement, dated March 25, 1997, filed as Exhibit No.
10(cxvi) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)
(86) The Connecticut Natural Gas Corporation Deferred Compensation
Plan, as amended, dated January 1, 1993, filed as Exhibit No.
10(lvi) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994, filed with the Commission December 27, 1994 (Commission<PAGE>
File No. 1-7727)
(87) First Amendment to the Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated December 2, 1993, filed as
Exhibit No. 10(lvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (88) Second Amendment to the Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated June 28, 1994, filed as
Exhibit No. 10(lviii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
(89) Third Amendment to Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated June 27, 1995, filed as
Exhibit No. 10(lxxx) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(90) Fourth Amendment to Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated March 25, 1997, filed as
Exhibit No. 10(cxiii) to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997,
filed with the Commission on August 14, 1997 (Commission File
No. 1-12859)
(91) Agreement and Declaration of Trust, Connecticut Natural Gas
Corporation Employee Benefit Trust, dated December 28, 1987,
filed as Exhibit No. 10(lix) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
(92) First Amendment to Agreement and Declaration of Trust,
Connecticut Natural Gas Corporation Employee Benefit Trust,
Dated December 2, 1993, filed as Exhibit No. 10(lx) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1994, filed with
the Commission December 27, 1994 (Commission File No. 1-7727)
(93) Second Amendment to Agreement and Declaration of Trust,
Connecticut Natural Gas Corporation Employee Benefit Trust,
dated March 25, 1997, filed as Exhibit No. 10(cxvii) to the
CTG Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed with the Commission on
August 14, 1997 (Commission File No. 1-12859)<PAGE>
(94) Agreement and Declaration of Trust, Connecticut Natural Gas
Corporation Union Employee Benefit Trust, dated December 2,
1993, filed as Exhibit No. 10(lxi) to the Connecticut Natural
Gas Corporation's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994, filed with the Commission
December 27, 1994 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (95) First Amendment to Agreement and Declaration of Trust,
Connecticut Natural Gas Corporation Union Employee Benefit
Trust, dated January 24, 1995, between the Connecticut
Natural Gas Corporation and Fleet Bank, N.A., filed as
Exhibit No. 10(xcii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)10
(96) CNG Annual Incentive Plan, 1994, filed as Exhibit No.
10(lxii) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994, filed with the Commission December 27, 1994 (Commission
File No. 1-7727)
(97) Second Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated June 27, 1995, filed as Exhibit
No. 10(lxxvi) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(98) Third Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated October 31, 1995, filed as
Exhibit No. 10(xcvi) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(99) Fourth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated December 19, 1995, filed as
Exhibit No. 10(xcvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(100) Fifth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated February 27, 1996, filed as
Exhibit No. 10(xcviii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on<PAGE>
December 19, 1996 (Commission File No. 1-7727)
(101) Sixth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan (As Amended and Restated, Effective as
of January 1, 1989), dated May 2, 1997, filed as Exhibit No.
10(cxviii) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (102) Seventh Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated January 27, 1998, filed as
Exhibit No. 10.120 to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on May 4, 1998 (Commission File No.
1-12859)
(103) Eighth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated May 1, 1998, filed as Exhibit
No. 10.121 to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, filed with
the Commission on May 4, 1998 (Commission File No. 1-12859)
(104) Ninth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated June 9, 1998, filed as Exhibit
No. 10(125) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(105) Connecticut Natural Gas Corporation Employee Savings Plan
Trust Agreement, including amendments thereto, filed as
exhibit 4(ii) to the Connecticut Natural Gas Corporation
Employee Savings Plan Registration Statement on Form S-8,
filed with the Commission on July 20, 1994 (Commission File
No. 33-54643)
(106) First Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan Trust Agreement, dated March 25, 1997,
filed as Exhibit No. 10(cx) to the CTG Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the Commission on August 14, 1997
(Commission File No. 1-12859)
(107) Second Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated January 24, 1995, filed as
Exhibit No. 10(lxxvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(108) Third Amendment to Connecticut Natural Gas Corporation Union<PAGE>
Employee Savings Plan, dated June 27, 1995, filed as Exhibit
No. 10(lxxviii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (109) Fourth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated October 31, 1995, filed as
Exhibit No. 10(xcix) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(110) Fifth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated December 19, 1995, filed as
Exhibit No. 10(c) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(111) Sixth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated February 27, 1996, filed as
Exhibit No. 10(ci) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(112) Seventh Amendment to Connecticut Natural Gas Corporation
Union Employee Savings Plan (As Amended and Restated,
Effective as of January 1, 1989), dated May 2, 1997, filed as
Exhibit No. 10(cxix) to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997,
filed with the Commission on August 14, 1997 (Commission File
No. 1-12859)
(113) Eighth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated January 27, 1998, filed as
Exhibit No. 10.122 to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on May 4, 1998 (Commission File No.
1-12859)
(114) Ninth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated June 9, 1998, filed as Exhibit
No. 10(126) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)<PAGE>
(115) Connecticut Natural Gas Corporation Union Employee Savings
Plan Trust Agreement, including amendments thereto, filed as
exhibit 4(ii) to the Connecticut Natural Gas Corporation
Union Employee Savings Plan Registration Statement on Form S-
8, filed with the Commission on July 20, 1994 (Commission
File No. 33-54653)<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (116) First Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan Trust Agreement, dated March 25, 1997,
filed as Exhibit No. 10(cxi) to the CTG Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the Commission on August 14, 1997
(Commission File No. 1-12859)
(117) Amended and Restated CNG Nonemployee Directors' Fee Plan,
dated September 29, 1995, filed as Exhibit No. 10(lxxxiv) to
the Connecticut Natural Gas Corporation's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995, filed
with the Commission December 18, 1995 (Commission File No. 1-
7727)
(118) CNG Nonemployee Directors' Fee Plan, dated October 1, 1996,
filed as Exhibit No. 10(xciii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(119) First Amendment to CNG Nonemployee Directors' Fee Plan, dated
May 2, 1997, filed as Exhibit No. 10(cxxx) to the CTG
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed with the Commission on
August 14, 1997 (Commission File No. 1-12859)
(120) Second Amendment to CNG Nonemployee Directors' Fee Plan,
dated March 24, 1998, filed as Exhibit No. 10.123 to the CTG
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, filed with the Commission on
May 4, 1998 (Commission File No. 1-12859)
(121) CNG Nonemployee Directors' Fee Plan Trust Agreement, by and
between the Connecticut Natural Gas Corporation and Fleet
Bank, N.A., dated September 28, 1995, filed as Exhibit No.
10(lxxxv) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1995, filed with the Commission December 18, 1995 (Commission
File No. 1-7727)
(122) First Amendment to CNG Nonemployee Directors' Fee Plan Trust<PAGE>
Agreement, dated October 1, 1996, between the Connecticut
Natural Gas Corporation and Putnam Fiduciary Trust Company,
filed as Exhibit No. 10(xciv) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)<PAGE>
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (123) Second Amendment to CNG Nonemployee Directors' Fee Plan Trust
Agreement, dated October 1, 1996, between the Connecticut
Natural Gas Corporation and Putnam Fiduciary Trust Company,
filed as Exhibit No. 10(xcv) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(124) Third Amendment to CNG Nonemployee Directors' Fee Plan Trust
Agreement, dated March 25, 1997, filed as Exhibit No. 10(cxv)
to the CTG Resources, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)
(125) Settlement Agreement and Release of All Claims between
Connecticut Natural Gas Corporation and Harry Kraiza, Jr.,
dated September 25, 1996, filed as Exhibit No. 10(cii) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1996, filed with
the Commission on December 19, 1996 (Commission File No. 1-
7727)
11* Computation of Consolidated Primary and Fully Diluted Earnings Per
Share
12 Computation of Ratios
Not applicable
13 Annual Report to Stockholders for the Fiscal Year Ended September 30,
1998
Not applicable
16 Letter Regarding Change in Certifying Accountant
Not applicable
18 Letter Regarding Change in Accounting Principles
Not applicable
21* Subsidiaries of the Registrant
22 Published Report Regarding Matters Submitted to Vote of Security
Holders<PAGE>
None
23* Consent of Independent Public Accountants
24* Power of Attorney
27* Financial Data Schedule
<PAGE>
(a) 3. Exhibits (concluded)
--------
Exhibit
Number
------------
28 Information from Reports Furnished to State Insurance Regulatory
Authorities
Not applicable
99 Additional Exhibits
(1)* Exhibit Index
99 (2) Information required by Form 11-K with respect to the
Connecticut Natural Gas Corporation Employee Savings Plan for
the fiscal year ending December 31, 1997, filed as Exhibit
99(2) to the CTG Resources, Inc.'s Annual Report on Form 10-K
for the fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997, as amended by Form 10-K
Amendment No. 1, filed with the Commission on June 29, 1998
(Commission File No. 1-12859)
(3) Information required by Form 11-K with respect to the
Connecticut Natural Gas Corporation Union Employee Savings
Plan for the fiscal year ending December 31, 1997, filed as
Exhibit 99(3) to the CTG Resources, Inc.'s Annual Report on
Form 10-K for the fiscal year ended September 30, 1997, filed
with the Commission on December 19, 1997, as amended by Form
10-K Amendment No. 1, filed with the Commission on June 29,
1998 (Commission File No. 1-12859)
* All exhibits listed above which have an asterisk (*) next to the
exhibit number are filed herewith. All other exhibits listed above which
have previously been filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933 and the Securities Exchange Act of
1934, and which were designated as noted above and have not been amended,
are hereby incorporated by reference.
(b) Reports on Form 8-K
-------------------
There were no current reports filed on Form 8-K during the last quarter
of fiscal 1998.
<PAGE>
This Page Intentionally Left Blank<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CTG RESOURCES, INC.
-----------------------------------
(Registrant)
S/ Arthur C. Marquardt
------------------------------------
(Arthur C. Marquardt)
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<S> <C> <C>
S/ Arthur C. Marquardt President, Chief December 2, 1998
------------------------------- Executive Officer and
(Arthur C. Marquardt) Director
S/ James P. Bolduc Executive Vice President December 2, 1998
------------------------------- and Chief Financial
(James P. Bolduc) Officer
S/ Andrew H. Johnson Treasurer and Chief December 2, 1998
------------------------------- Accounting Officer
(Andrew H. Johnson)
S/ R. L. Babcock December 2, 1998
-------------------------------
(R. L. Babcock)
as Attorney-in-fact for:
</TABLE>
Victor H. Frauenhofer Chairman of the Board of
Directors
Bessye W. Bennett, Esq. Director
Herman J. Fonteyne Director
Beverly L. Hamilton Director
Harvey S. Levenson Director
Denis F. Mullane Director
Richard J. Shima Director
Laurence A. Tanner Director
Michael W. Tomasso Director
<PAGE>
This Page Intentionally Left Blank<PAGE>
CTG RESOURCES, INC.
Annual Report on Form 10-K
Schedule Index
Fiscal Year Ended September 30, 1998
Item Description
---------- -----------
II Financial Statement Schedule II; Valuation and
Qualifying Accounts and Reserves for the fiscal years
ended September 30, 1998, 1997 and 1996
<PAGE>
<TABLE>
<CAPTION>
(d) Financial Statement Schedules
----------------------------- Page 1 of 1
CTG RESOURCES, INC. AND SUBSIDIARIES
-------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
--------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
-----------------------------------------------------
(THOUSANDS OF DOLLARS)
Column A Column B Column C Column D Column E
Additions
------------------------
<S> <C> <C> <C> <C> <C>
Balance At Charged Charged Deductions Balance
Beginning To Costs To Other From At End
Description of Period And Expenses Accounts Reserves (1) of Period
----------- ---------- ------------ -------- ----------- ---------
YEAR ENDED SEPTEMBER 30, 1998
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 2,966 $ 4,463 $ - $ 4,896 $ 2,533
Other (2) 473 93 650 466 750
-------- -------- -------- -------- --------
$ 3,439 $ 4,556 $ 650 $ 5,362 $ 3,283
======== ======== ======== ======== ========
YEAR ENDED SEPTEMBER 30, 1997
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 4,425 $ 3,689 $ - $ 5,148 $ 2,966
Other 394 166 - 87 473
-------- -------- -------- -------- --------
$ 4,819 $ 3,855 $ - $ 5,235 $ 3,439
======== ======== ======== ======== ========
YEAR ENDED SEPTEMBER 30, 1996
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 4,066 $ 4,959 $ - $ 4,600 $ 4,425
Other 524 82 - 212 394
-------- -------- -------- -------- --------
$ 4,590 $ 5,041 $ - $ 4,812 $ 4,819
======== ======== ======== ======== ========
</TABLE>
[FN]
Note: (1) Deductions From Reserves include the write-off of uncollectible
accounts, net of recoveries of accounts previously written off.
(2) $650 Charged to Other Accounts represents the receivables of KBC
Energy Services, Inc. (See Part I, "Diversified Businesses").
<PAGE>
Exhibit 99(1)
Page 1 of 1
CTG RESOURCES, INC.
Annual Report on Form 10-K
Exhibit Index
Fiscal Year Ended September 30, 1998
Document
Item Description Description
------------ ----------- ------------
99(1) Exhibit Index Ex-99.1
10(55) Asset Purchase Agreement by and among The Ex-10.55
Hartford Steam Company, CCF-1, Inc. and
Kenetech Facilities Management, Inc.
10(56) Assignment and Consent by and among The Ex-10.56
Hartford Steam Company, CCF-1, Inc. and
The Connecticut Light and Power Company
10(61) Reimbursement Agreement (Including Ex-10.61
Irrevocable Letter of Credit) between The
Energy Network, Inc. and Fleet National
Bank
10(63) Note Purchase Agreement between The Energy Ex-10.63
Network, Inc. and Metropolitan Life
Insurance Company
10(73) First Amendment to the Forward Equity Ex-10.73
Purchase Agreement between CTG Resources,
Inc. and The Energy Network, Inc.
11 Computation of Consolidated Primary and Ex-11
Fully Diluted Earnings Per Share
21 Subsidiaries of the Registrant Ex-21
23 Consent of Independent Public Accountants Ex-23
24 Power of Attorney Ex-24
27 Financial Data Schedule Ex-27
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
the 26th day of June, 1998, by and among CCF-1, INC. ("Seller"), a
Connecticut corporation, KENETECH FACILITIES MANAGEMENT, INC.("KFM"), a
Delaware corporation, and THE HARTFORD STEAM COMPANY ("Purchaser"), a
Connecticut corporation, with reference to the following RECITALS:
RECITALS
--------
A. Seller owns a cogeneration facility (the "Facility") located at 19
Jefferson Street, Hartford, Connecticut (the "Site"), for the generation of
steam and electricity for sale to Hartford Hospital (the "Hospital");
B. KFM is an affiliate of Seller that operates the Facility pursuant
to an Operation and Maintenance Agreement for Gas Turbine Cogeneration
Facility, dated April 10, 1987, between Plant Facilities Management, Inc.
(the former name of KFM) and Seller, as amended January 15, 1998, by an
amendment between KFM and Seller (collectively, the "Operating Agreement");
C. Purchaser is an indirect subsidiary of CTG Resources, Inc. and is
engaged in district heating and cooling services; and
D. Seller and KFM desire to sell and transfer to Purchaser and
Purchaser desires to purchase certain of the assets comprising the Facility
and assume certain obligations of Seller under certain contracts related
thereto, all as more fully described in this Agreement;
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
<PAGE>
ARTICLE I - PURCHASE AND SALE
-----------------------------
1.1 AGREEMENTS TO SELL AND ASSIGN. At the Closing hereunder (as
defined in Section 2.1 hereof), Seller and KFM shall grant, sell, convey,
assign, transfer and deliver to Purchaser, upon and subject to the terms and
conditions of this Agreement, all right, title and interest of Seller and
KFM in and to the following assets of Seller or KFM, as the case may be, as
the same shall exist on the Closing Date (collectively, the "Purchased
Assets"), free and clear of all mortgages, liens, security interests, and
encumbrances, except for Permitted Liens (as defined in Section 3.1.6
below):
(a) The following equipment, supplies and other tangible assets of
Seller or KFM, as the case may be (collectively, the "Tangible Assets"):
all machinery, equipment, piping, fixtures, parts, tools, furniture,
furnishings, leasehold improvements, goods, inventory, raw materials,
office and other supplies, computers (and related software) and other
tangible personal property used in the operation of the Facility and
located at the Site, including without limitation all personal property
listed on SCHEDULE 1.1(a), but excluding the Excluded Assets set forth
in Section 1.2 hereof;
(b) the following leases, contracts and other agreements
(collectively, the "Purchased Agreements"):
(i) the Project Development Agreement, dated as of April 10, 1987,
between the Hospital and CNF Industries, Inc. ("CNF"), a predecessor-
in-interest to Seller, as amended by an Agreement Amending Ground Lease
and Project Development Agreement (the "GL and PDA Amendment"), dated
as of December 21, 1988, between the Hospital, CNF and Seller, and an
Amendment No. 1 to Project Development Agreement, dated as of February
28, 1998, between the Hospital and Seller (as amended, the "Project
Development Agreement"), and a Ground Lease, dated as of April 10,
1987, between the Hospital and CNF, as amended by the GL and PDA
Amendment, and as assigned to Seller by CNF (as amended and assigned,
the "Ground Lease") (collectively, the "Hospital Agreements");
(ii) the Purchase Agreement between Solar Turbines, Incorporated
("Solar") and Seller, dated January 26, 1998, as amended by
Clarifications, dated January 28, 1998, a Telefax from B. Carlin to J.
McKenty, concerning "Revised Contract Price," dated May 21, 1998, and a
memorandum response from C. Diez to B. Carlin, concerning "Final
Invoice for Solar Gas Turbine," dated June 9, 1998, and a memorandum
from B. Carlin to C. Diez, concerning "Final Invoice Arrangements,"
dated June 11, 1998 and an amendment dated June 25, 1998 (as amended,
the "Solar Purchase Agreement");
(iii) Seller's Purchase Order No. IP200194, dated March 30, 1998,
with Cleaver Brooks Co., a Division of Aqua-Chem, Inc. ("Cleaver
Brooks") and Seller's Purchase Order No. IP200193, dated March 30,
1998, with Blake Equipment Company, Inc. ("Blake"), as amended by
2
<PAGE>
letters dated May 1, 1998 and May 4, 1998 (together with the Solar
Purchase Agreement, collectively referred to as the "Equipment Purchase
Agreements");
(iv) the Termination and Release Agreement, dated December 15,
1997, by and between Seller and The Connecticut Light and Power Company
("CL&P"), as amended by the Amendment to the Termination and Release
Agreement, made as of February 28, 1998, by and between Seller and CL&P
(as amended, the "Termination and Release Agreement") and a CL&P
Document Termination Agreement, dated as of December 17, 1997, amended
and restated as of February 28, 1998 (as amended and restated, the
"Document Termination Agreement") (collectively, the "CL&P
Agreements"), including the right to all post-Closing payments required
to be made by CL&P under Section 2.03 of the Termination and Release
Agreement and of the Document Termination Agreement and the obligation
to indemnify CL&P and certain other parties as set forth in those
documents;
(v) National Airmotive Corporation's ("NAC") Purchase Order
43718, dated May 29, 1998 (the "Turbine Sales Agreement"), by which NAC
will purchase the Allison HH 571-KA Engine S/N 506 and related spare
parts; provided, however, that to the extent Seller or KFM shall have
received proceeds of such purchase prior to the Closing Date, Seller
shall deposit such proceeds with the Trustee (as defined in Section 1.1
(e) below);
(vi) the Extended Service Agreement, dated January 26, 1998,
between KFM and Solar (the "Extended Service Agreement"); and
(vii) the Firm Transportation Service Agreement, dated February
5, 1992 (the "CNG Agreement"), between Seller and Connecticut Natural
Gas Corporation ("CNG");
(viii) any additional agreements set forth on SCHEDULE 1.1(b)
(viii) (collectively, the "Other Agreements");
(c) all documentation concerning the Purchased Assets currently in the
possession of Seller or KFM, including all maps, plans, specifications,
manuals, maintenance and repair records, engineering drawings and reports,
warranty information, purchase agreements, and copies of all other
documentation concerning the operations of the Facility, including operating
records, environmental reports and compliance documentation, and supplier
and customer information (the "Documentation");
(d) all existing licenses, permits and governmental approvals and
authorizations used in the operation of the Facility (the "Existing
Permits");
(e) all cash, bank deposits and cash equivalents of Seller ("Seller's
Funds"), including all funds held by Connecticut General Life Insurance
Company ("CIGNA") or the State Street Bank and Trust Company, acting in its
capacity as trustee (the "Trustee"), in the trust accounts (the "Trustee
Funds") provided for in the Mortgage (as hereinafter defined), the CIGNA
Note Agreement (as hereinafter defined) or a Depository Agreement among
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CIGNA, Seller and the predecessor of Trustee, executed on or about December
10, 1987; and
(f) the building and improvements owned by Seller at 19 Jefferson
Street, Hartford, Connecticut (collectively, the "Building").
1.2 EXCLUDED ASSETS. Notwithstanding the foregoing, the Purchased
Assets shall not include any of the following:
(a) the corporate seals, certificates of incorporation, minute books,
stock books, tax returns, books of account or other records having to do
with the corporate organization of Seller or KFM;
(b) that certain Chevrolet S-10 truck owned by KFM; and
(c) all trash, non-functional or excess pipe, valves, fittings, etc.
removed as waste by Seller or KFM during Seller s on-going efforts to
replace the Facility s existing turbines and to repower the Facility (the
"Repowering").
1.3 AGREEMENT TO PURCHASE AND ASSUME. At the Closing hereunder,
Purchaser shall:
(a) purchase from Seller and KFM the Purchased Assets, subject to the
terms and conditions of this Agreement and in reliance on the
representations, warranties and covenants of Seller and KFM contained
herein, in exchange for the Purchase Price, as defined in Section 1.4
hereof;
(b) assume and agree to pay, discharge, guarantee or perform, as
appropriate, all of the obligations of Seller and KFM to be performed or
discharged on or after the Closing Date under the Purchased Agreements;
provided, however, that Purchaser shall not assume or agree to pay, perform
or discharge any liability or obligations arising out of any breach by
Seller or KFM of any provision of any such Purchased Agreements prior to
the Closing Date ("Excluded Liabilities").
1.4 THE PURCHASE PRICE.
1.4.1 PURCHASE PRICE. The purchase price shall be the sum of
(i) $6,200,000.00 and (ii) $10,744,499.10, which amount equals the balance,
including both principal and interest, without prepayment penalty, of
Seller s indebtedness as of the Closing Date (the "Mortgage Debt") under a
certain Note Agreement, dated as of April 10, 1987, between Seller and
CIGNA, as amended by a letter agreement, dated December 31, 1998, by a
Second Amendment to Note Agreement, dated as of January 15, 1998, and a
Third Amendment to Note Agreement, dated as of February 28, 1998, (as
amended, the "CIGNA Note Agreement"), and a Leasehold Mortgage and Security
Agreement between Seller and Shawmut Bank, N.A., as Trustee dated as of
December 30, 1987 and recorded in the Hartford Land Records in Volume 2714
at Page 8, as amended by modifications or amendments dated December 22, 1988
and recorded in Volume 2873, Page 72; January 15, 1998 and recorded in
Volume 3911, Page 224; and February 28, 1998 and recorded in Volume 3955,
Page 208, now held by Trustee (the "Mortgage"),subject to any adjustments
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pursuant to Section 1.4.2 hereof (as adjusted, the "Purchase Price"). In
the event any Trustee Funds are not credited to reduce the amounts payable
under the CIGNA Note Agreement or the Mortgage, such Trustee Funds shall be
the property of Purchaser at Closing and Seller shall, by written notice,
direct any party holding such Trustee Funds to pay them directly to
Purchaser (the "Payment Notice").
1.4.2 ADJUSTMENT OF PURCHASE PRICE. The Purchase Price shall
be adjusted at Closing as follows:
(a) In the event that prior to the Closing Date, Seller
receives any insurance proceeds from its pending claim against Hartford
Steam Boiler Company for business interruption insurance and Seller either
deposits such proceeds with the Trustee or utilizes such proceeds in
connection with the Repowering of the Facility, the Purchase Price shall be
increased by the amount so deposited or used;
(b) In the event that the amount of Mortgage Debt
outstanding as of April 30, 1998, proves to have been greater or less than
$9,188,671, the Purchase Price shall be reduced or increased, as
appropriate, by the amount of the difference.
1.4.3 PAYMENT OF PURCHASE PRICE AND PAYMENT OF MORTGAGE DEBT.
On the Closing Date, Purchaser shall pay the Mortgage Debt to CIGNA; shall
pay the balance of the Purchase Price to Seller and KFM by wire transfers of
immediately available funds in the amounts provided for in Section 2.2(b)
below.
1.4.4 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall
be allocated to the Purchased Assets and the liabilities assumed by
Purchaser hereunder (together, the "Total Consideration") as set forth on
SCHEDULE 1.4.4. The Seller and Purchaser agree to cooperate with each other
in meeting the requirements of Section 1060 of the Internal Revenue Code of
1986, as amended, and each agrees to file Internal Revenue Service Form 8594
in accordance with the allocations set forth on SCHEDULE 1.4.4.
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ARTICLE II CLOSING; ITEMS TO BE DELIVERED
-------------------------------------------
2.1 CLOSING AND CLOSING DATE. The closing (the "Closing") of the sale
and purchase of the Purchased Assets shall take place at 10:00 A.M., local
time, on or before June 30, 1998 at the offices of Murtha, Cullina, Richter
and Pinney LLP, CityPlace I, 185 Asylum Street, Hartford, Connecticut 06103-
3469. The date of the Closing is sometimes herein referred to as the
"Closing Date." The Closing shall be deemed effective upon the delivery of
the Purchased Assets and payment of the Purchase Price.
2.2 ITEMS TO BE DELIVERED AT CLOSING. At the Closing and subject to
the terms and conditions herein contained:
(a) Seller and KFM shall deliver to Purchaser the following:
(i) such bills of sale with covenants of warranty,
assignments, endorsements, deeds (including a warranty deed from Seller
and a quitclaim deed from CNF Industries, Inc. ("CNF") or a warranty
deed from Seller in which CNF joins with quitclaim covenants only as to
CNF), conveyance tax forms, assignment of Ground Lease and Project
Development Agreement, and other good and sufficient instruments and
documents of conveyance and transfer, in form satisfactory to Purchaser
and Seller and their respective counsel; and
(ii) the payment of Seller's Funds, to the extent not applied
to the Mortgage Debt, and the Payment Notice as to any Trustee Funds
not so applied, and
(iii) appropriate incumbency certificates, corporate
resolutions, certificates of good standing or legal existence, title
affidavits concerning parties in possession and mechanics liens (or
lien waivers) to allow title coverage without exception therefor, such
releases as are required to deliver clear title, certificate of
occupancy, original copies of the Ground Lease and the Project
Development Agreement, and all required consents and releases,
and simultaneously with such delivery, all such steps will be taken as may
be required to put Purchaser in actual possession and operating control of
the Purchased Assets.
(b) Purchaser shall deliver the following:
(i) to KFM, $250,000;
(ii) to CIGNA, the Mortgage Debt; and
(iii) to Seller, the balance of the Purchase Price not
delivered to KFM and CIGNA; and
(iv) an undertaking whereby Purchaser will assume and agree
to pay, discharge or perform, as appropriate, Seller's liabilities
and obligations to the extent and as provided in Section 1.3(b)
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hereof, in form satisfactory to Seller and its counsel.
(c) At or prior to the Closing, the parties hereto shall also
deliver to each other the agreements, consents, approvals, assignments,
opinions, certificates and other documents and instruments referred to in
Article IV hereof.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
--------------------------------------------
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND KFM. Seller and KFM
hereby represent and warrant to Purchaser that:
3.1.1 CORPORATE EXISTENCE. Each of KFM and Seller is a
corporation duly organized, validly existing and (as to KFM only) in good
standing under the laws of the jurisdiction of its incorporation, and KFM is
duly qualified to do business as a foreign corporation in the State of
Connecticut.
3.1.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each of KFM and Seller has the corporate power, authority and legal right to
execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by KFM and Seller have been duly authorized by
all necessary corporate action. This Agreement has been, and the other
agreements, documents and instruments required to be delivered by Seller or
KFM in accordance with the provisions hereof (the "Seller's Documents") will
be, duly executed and delivered on behalf of KFM and Seller by duly
authorized officers of KFM and Seller, and this Agreement constitutes, and
the Seller's Documents when executed and delivered will constitute, the
legal, valid and binding obligations of such of KFM and Seller as is a party
thereto, enforceable against such party in accordance with their respective
terms, except to the extent such enforceability is subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or other
law affecting or relating to creditors' rights generally and general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.1.3 CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement, including without limitation the assignment
of the Purchased Agreements, by Seller and KFM do not require any consents
or approvals by any contract party other than such consents and approvals
identified in Section 4.3 which have been secured.
3.1.4 ABSENCE OF UNDISCLOSED LIABILITIES. To the actual
knowledge of Seller and KFM, neither Seller nor KFM has any material
liabilities, commitments or obligations, and neither has pending or
threatened claims or litigation against it in connection with the Purchased
Assets or the Facility, in each case or in the aggregate the effect of which
would have a material adverse effect on the Purchased Assets or the
Facility, except as disclosed in SCHEDULE 3.1.4.
3.1.5 ABSENCE OF VIOLATIONS OF LAW OR EXISTING PERMITS. To
the actual knowledge of the officers of Seller and KFM, except as disclosed
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on SCHEDULE 3.1.5, neither Seller nor KFM is in material default or
violation under any law, regulation (including, but not limited to,
environmental regulations), or Existing Permit applicable to the Purchased
Assets or the Facility, in each case or in the aggregate the effect of which
would have a material adverse effect on the Purchased Assets or the
Facility.
3.1.6 TITLE TO PROPERTIES; DISCLAIMER CONCERNING TANGIBLE
ASSETS. Seller and KFM have good, valid and marketable title to all of the
Tangible Assets, free and clear of all mortgages, liens, pledges, security
interests, charges, claims, restrictions and other encumbrances and defects
of title of any nature whatsoever, except for (i) liens, restrictions and
encumbrances listed on SCHEDULE 3.1.6(a) hereof, (ii) remaining payment
obligations with respect to certain Purchased Assets as disclosed on
SCHEDULE 3.1.6(b), and (iii) liens that are immaterial in character, amount,
and extent and that do not detract from the value or interfere with the
present or proposed use of the Facility including, without limitation, any
liens of carriers, warehousemen, mechanics, materialmen and other similar
liens imposed by law ("Permitted Liens").
3.1.7 PURCHASED AGREEMENTS. To the actual knowledge of the
officers of Seller and KFM, each of the Purchased Agreements is in full
force and effect and has not been assigned, modified, supplemented or
amended except as specified herein, and neither Seller, nor KFM nor any
other party to any of the Purchased Agreements is in material default under
any such Purchased Agreement, and no circumstances or state of facts
presently exists which, with the giving of notice or passage of time, or
both, would permit any such party to terminate a Purchased Agreement.
3.1.8 ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 3.1.8(a), to the actual
knowledge of its officers, Seller knows of no material violation of any laws
relating to pollution or protection of the environment arising out of
Seller's past or present ownership, use or operations of the Facility and
the Site on which it is located, in each case the effect of which would have
a material adverse effect on the Purchased Assets or the Facility.
(b) Except as set forth in SCHEDULE 3.1.8(b), to the actual
knowledge of its officers, Seller knows of no pending or threatened lawsuits
or administrative proceedings against Seller that may affect Seller
regarding environmental compliance, control or liability relating to the
Facility, in which case the effect of which would have a material adverse
effect on the Purchased Assets or the Facility.
3.1.9 TAXES. Except as provided in Section 7.2, Seller and
KFM have paid or properly accrued all required federal, state and local
taxes, including without limitation income tax, unemployment compensation,
social security, payroll, sales and use, gross receipt and property, and
have filed all required tax returns related thereto.
3.1.10 ABSENCE OF EMPLOYEES. Since January 1, 1998, Seller has
not provided compensation to any employees.
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3.1.11 REPRESENTATIONS AS TO CL&P AGREEMENTS. Seller
represents with the respect to the CL&P Agreements:
(a) The payments due Purchaser from CL&P under the CL&P
Agreements (the "Payments") are as set forth in SCHEDULE 3.1.11 hereto;
(b) Seller is the sole owner of the rights to such
Payments and has full right, power and authority to assign them to
Purchaser;
(c) Except for those of the Trustee and CIGNA, no other
person or entity has any claim upon or lien against or interest in the
Payments, and the Payments are free and clear of all encumbrances
whatsoever;
(d) CL&P has no right of offset or other right or
reason not to make the Payments as and when due, except as set forth in the
second to last sentence of Section 2.03(i) of the Termination and Release
Agreement and the last sentence of Section 2.03 of the Document Termination
Agreement; and
(e) Seller is not in default under the CL&P Agreements
or any other document or instrument of any nature which would give any other
person or entity a claim, lien or other encumbrance upon the Payments or
which would give CL&P any right not to make the Payments or to claim an
offset against the Payments.
3.1.12 LIMITATIONS ON SELLER'S AND KFM's REPRESENTATIONS AND
WARRANTIES. Except as otherwise set forth in this Agreement (including its
schedules) or in any documents executed by Seller and KFM at or in
contemplation of the Closing, Seller and KFM are selling to Purchaser, and
Purchaser is buying from Seller and KFM, the Purchased Assets on an "AS IS,
WHERE IS" and "WITH ALL FAULTS" basis. Purchaser hereby acknowledges that,
except as otherwise set forth in this Agreement (including its schedules) or
any documents executed by Seller and KFM at or in contemplation of the
Closing, SELLER AND KFM HAVE NOT MADE, DO NOT MAKE, AND HEREBY DISCLAIM ANY
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO
SUCH PURCHASED ASSETS INCLUDING, BUT NOT LIMITED TO, THE DESIGN, CAPACITY,
CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR
PURPOSE, OF ANY PORTION OF SUCH PURCHASED ASSETS.
3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to Seller and KFM as follows:
3.2.1. CORPORATE EXISTENCE. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Connecticut.
3.2.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Purchaser has the corporate power, authority and legal right to execute,
deliver and perform this Agreement. The execution, delivery and performance
of this Agreement by Purchaser have been duly authorized by all necessary
corporate action. This Agreement has been, and the other agreements,
documents and instruments required to be delivered by Purchaser in
accordance with the provisions hereof (the "Purchaser s Documents") will be,
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duly executed and delivered on behalf of Purchaser by duly authorized
officers of Purchaser, and this Agreement constitutes, and the Purchaser s
Documents when executed and delivered will constitute, the legal, valid and
binding obligations of Purchaser, enforceable in accordance with their
respective terms, except to the extent such enforceability is subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or other law affecting or relating to creditors' rights generally and
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.2.3 CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by Purchaser do not require any consents or
approvals by any contract party or federal, state or local regulatory agency
other than such consents and approvals identified in Section 4.3, which have
been secured.
3.2.4 INVESTMENT COMPANY. Purchaser is not an "investment
company" nor a person "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
ARTICLE IV - CONDITIONS PRECEDENT TO THE CLOSING
------------------------------------------------
4.1 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. All obligations
of Purchaser under this Agreement are subject to the fulfillment or
satisfaction, prior to or at the Closing, of each of the following
conditions precedent:
4.1.1 REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING
DATE. The representations and warranties of Seller and KFM contained in
this Agreement (including its schedules) or in any document executed by
Seller or KFM at or in contemplation of the Closing and delivered by Seller
or KFM to Purchaser pursuant to the provisions hereof shall be true on the
Closing Date with the same effect as though such representations and
warranties were made as of such date.
4.1.2 COMPLIANCE WITH THIS AGREEMENT. Seller and KFM shall
have performed and complied with all agreements and conditions required by
this Agreement to be performed or complied with by them prior to or at the
Closing.
4.1.3 CLOSING CERTIFICATE. Purchaser shall have received a
certificate from Seller and KFM dated the Closing Date certifying in such
detail as Purchaser may reasonably request (i) that the conditions specified
in Sections 4.1.1 and 4.1.2 hereof have been fulfilled, (ii) that Seller and
KFM have obtained all consents and approvals required by Section 4.3 hereof,
and (iii) that the following statements are, to the actual knowledge of the
officers of Seller and KFM, true and accurate with respect to the period
beginning on May 15, 1998 and ending on the Closing Date (the "Interim
Period"):
(a) CL&P PAYMENTS. All payments due Seller from CL&P
under the CL&P Agreement were made when due and were deposited in their
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entirety in the Trustee Funds, and the payment due July 1, 1998, was not
received by Seller prior to the Closing.
(b) APPROVAL OF PURCHASE ORDERS; FAILURE TO APPROVE.
Seller did not enter into any new contract or purchase order with respect to
the Facility that has a value of more than $10,000 (a "Large Contract")
without the approval of Purchaser. In addition, Seller did not enter into
new contracts or purchase orders with individual values of $10,000 or less
(a "Small Contract") that aggregate more than $100,000, without the approval
of Purchaser.
(c) COMPLIANCE WITH BUDGET; RETENTION OF CASH AND CASH
EQUIVALENTS. Seller made no expenditures or commitment to make future
expenditures except as provided for in and permitted under the Budget. In
addition, during the Interim Period, except as contemplated by Section
4.1.3(f), Seller did not distribute any of Seller's Funds or any of the
Trustee Funds to any of its parents or affiliates.
(d) COMPLIANCE WITH LAWS, ETC. Seller did comply with
all laws, ordinances, rules, regulations and orders applicable to the
Purchased Assets and the operation of the Facility, the noncompliance with
which might materially affect the Facility or the Purchased Assets.
(e) PRE-CLOSING SALE OF TURBINE. Seller deposited with
the Trustee any payments received by Seller during the Interim Period
pursuant to the Turbine Sales Agreement as defined in Subsection 1.1(b)(v)
above.
(f) PAYMENTS TO KFM UNDER THE OPERATING AGREEMENT. The
fee paid to KFM under the Operation and Maintenance Agreement, as referenced
in Section B of the Recitals hereof, was $35,000 for the month of June,
1998.
4.1.4 OPINIONS OF COUNSEL FOR SELLER. Bingham Dana LLP,
counsel for Seller and KFM, shall have delivered to Purchaser a written
opinion, dated the Closing Date, in the form of EXHIBIT A hereto with only
such changes as shall be in form and substance reasonably satisfactory to
the Purchaser and its counsel.
4.1.5 NO THREATENED OR PENDING LITIGATION. On the Closing
Date, no suit, action or other proceeding, or injunction or final judgment
relating thereto, shall be threatened or be pending before any court or
governmental or regulatory official, body or authority in which it is sought
to restrain or prohibit or to obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated
hereby, and no investigation that might result in any such suit, action or
proceeding shall be pending or threatened.
4.1.6 MATERIAL ADVERSE CHANGES. The Purchased Assets shall
not have been and shall not be threatened to be materially adversely
affected in any way as a result of any event or occurrence.
4.1.7 CORPORATE APPROVALS. Seller shall have received any and
all approvals of its board of directors and/or shareholders required to
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effect the transactions provided for under the Agreement.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. All obligations
of Seller under this Agreement are subject to the fulfillment or
satisfaction, prior to or at the Closing, of each of the following
conditions precedent:
4.2.1 REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING
DATE. The representations and warranties of Purchaser contained in this
Agreement (including its schedules) and any document executed by Purchaser
at or in contemplation of the Closing and delivered by Purchaser to Seller
pursuant to the provisions hereof shall be true on the Closing Date with the
same effect as though such representations and warranties were made as of
such date.
4.2.2 COMPLIANCE WITH THIS AGREEMENT. Purchaser shall have
performed and complied with all agreements and any conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
4.2.3 CLOSING CERTIFICATES. Seller shall have received a
certificate from Purchaser dated the Closing Date certifying in such detail
as Seller may reasonably request that the conditions specified in sections
4.2.1 and 4.2.2 hereof have been fulfilled.
4.2.4 OPINION OF COUNSEL FOR PURCHASER. Murtha, Cullina,
Richter and Pinney LLP, counsel to Purchaser, shall have delivered to Seller
a written opinion, dated the Closing Date, in the form of EXHIBIT B hereto
with only such changes as shall be in form and substance reasonably
satisfactory to Seller and its counsel.
4.2.5 NO THREATENED OR PENDING LITIGATION. On the Closing
Date, no suit, action or other proceeding, or injunction or final judgment
relating thereto, shall be threatened or be pending before any court or
governmental or regulatory official, body or authority in which it is sought
to restrain or prohibit or to obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated
hereby, and no investigation that might result in any such suit, action or
proceeding shall be pending or threatened.
4.2.6 CORPORATE APPROVALS. Purchaser shall have received any and
all approvals of its board of directors required to effect the transactions
provided for under the Agreement.
4.3 CONSENTS AND APPROVALS; RELEASES; OTHER AGREEMENTS. Except as
otherwise agreed in writing by each of the parties hereto or as otherwise
qualified herein, the Closing of this Agreement is subject to the receipt of
each of the following consents and approvals, releases and agreements,
containing such representations, releases of liability, and other conditions
as are agreed upon by the parties hereto:
(a) The consent of the Hospital to the assignment to Purchaser of
the Hospital Agreements;
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(b) The consent of CNG to the assignment to Purchaser of the CNG
Agreement;
(c) The consent of Solar to the assignment to Purchaser of the
Solar Purchase Agreement and the Extended Service Agreement;
(d) The consent of Blake to the assignment to Purchaser of
Seller s Purchase Order No. IP200193;
(e) The consent of CL&P to the assignment to Purchaser of the
CL&P Agreement; and
(f) The execution by all required parties of those assignments,
bills of sale and other agreements that are required to be executed at the
Closing under the terms of this Agreement.
ARTICLE V - INDEMNIFICATION
----------------------------
5.1 GENERAL INDEMNIFICATION OBLIGATION OF SELLER. Seller hereby agrees
to reimburse, indemnify and hold harmless Purchaser, its officers directors,
and affiliates and its successors and assigns (an "Indemnified Purchaser
Party") against and in respect of any and all material damages, losses,
deficiencies, liabilities, costs and expenses (including reasonable
attorneys fees) incurred or suffered by any Indemnified Purchaser Party, up
to a maximum amount equal to $6,200,000, that result from, relate to or
arise out of (i) any material misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part of Seller or KFM
under or pursuant to this Agreement; or (ii) from any material
misrepresentation in or material omission from any certificate, schedule,
statement, document or instrument furnished to Purchaser pursuant hereto or
in connection with the negotiation, execution or performance of this
Agreement or the transactions contemplated by this Agreement (collectively,
a "Breach"); provided, however, that such indemnification shall be effective
only as to a Breach as to which Purchaser notifies Seller in writing within
90 days of the Closing Date and provided further that except in connection
with a material misrepresentation in or material omission in Sections
3.1.8(a) and (b) and Schedules 3.1.8(a) and (b), Seller shall have no
indemnification obligation to Purchaser in connection with any environmental
contamination at the Facility or the Site. This Section 5.1 contains
Purchaser's exclusive remedy with respect to this Agreement, the
certificates, schedules, bills of sale, deeds, assignments, statements,
documents or instruments executed, delivered or made in connection herewith
and the transactions contemplated thereby.
5.2 GENERAL INDEMNIFICATION OBLIGATION OF PURCHASER. Purchaser hereby
agrees to reimburse, indemnify and hold harmless Seller and KFM, their
officers, directors and affiliates and their successors and assigns (an
"Indemnified Seller Party") against and in respect of any and all material
damages, losses, deficiencies, liabilities, costs and expenses (including
reasonable attorneys fees) incurred or suffered by any Indemnified Seller
Party, up to a maximum amount equal to the Purchase Price, that result from,
relate to or arise out of (i) any obligation assumed by Purchaser under or
pursuant to this Agreement, (ii) any material misrepresentation, breach of
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warranty or nonfulfillment of any agreement or covenant on the part of
Purchaser under or pursuant to this Agreement, or (iii) any material
misrepresentation in or material omission from any certificate, schedule,
statement, document or instrument furnished to Seller pursuant hereto or in
connection with the negotiation, execution or performance of this Agreement
or the transactions contemplated by this Agreement. This Section 5.2
contains Purchaser's exclusive remedy with respect to this Agreement, the
certificates, schedules, bills of sale, deeds, assignments, statements,
documents or instruments executed, delivered or made in connection herewith
and the transactions contemplated thereby.
ARTICLE VI - POST-CLOSING MATTERS
---------------------------------
6.1 FURTHER ASSURANCES. Seller and KFM will, from time to time after
the Closing, at Purchaser's request, execute, acknowledge and deliver to
Purchaser such other instruments of conveyance and transfer and will take
such other actions and execute and deliver such other documents,
certifications and further assurances as Purchaser may reasonably require in
order to vest more effectively in Purchaser, or to put Purchaser more fully
in possession of, any of the Purchased Assets, to better enable Purchaser to
complete, perform or discharge any of the liabilities or obligations assumed
by Purchaser at the Closing pursuant to Section 1.3 hereof, and to pass
through to Purchaser any and all warranties and guarantees with respect to
any of the Purchased Assets. In addition, each of the parties hereto will
cooperate with the other and execute and deliver to the other parties hereto
such other instruments and documents and take such other actions as may be
reasonably requested from time to time by any other party hereto as
necessary to carry out, evidence and confirm the intended purposes of this
Agreement.
6.2 PAYMENTS RECEIVED. Seller and Purchaser each agree that after the
Closing Date they will hold and will promptly transfer and deliver to the
other, from time to time as and when received by them, any cash, checks with
appropriate endorsements (using their best efforts not to convert such
checks into cash), or other property that they may receive on or after the
Closing Date which properly belongs to the other party, including without
limitation the payment in the amount of $166,666.67 that would otherwise be
made to Seller on July 1, 1998, by CL&P under the CL&P Agreement and any
payments received pursuant to the Hospital Agreements, and will account to
the other for all such receipts. From and after the Closing Date, Purchaser
shall have the right and authority to endorse without recourse the name of
Seller on any check or any other evidences of indebtedness received by
Purchaser on account of the Purchased Assets transferred to Purchaser
hereunder, except for any payments received in connection with Seller s
pending claims against Hartford Steam Boiler Company as described in Section
1.4.2(a) hereof and Allison for breach of contract. .
14
<PAGE>
ARTICLE VII - MISCELLANEOUS
---------------------------
7.1 BROKERS' AND FINDERS' FEES.
(a) Seller and KFM represent and warrant to Purchaser that all
negotiations relative to this Agreement have been carried on by them
directly without the intervention of any person, who may be entitled to any
brokerage or finder's fee or other commission in respect of this Agreement
or the consummation of the transactions contemplated hereby, and Seller and
KFM agree to indemnify and hold harmless Purchaser against any and all
claims, losses, liabilities and expenses which may be asserted against or
incurred by it as a result of Seller's or KFM s dealings, arrangements or
agreements with any such person.
(b) Purchaser represents and warrants that all negotiations
relative to this Agreement have been carried on by it directly without the
intervention of any person who may be entitled to any brokerage or finder's
fee or other commission in respect of this Agreement or the consummation of
the transactions contemplated hereby, and Purchaser agrees to indemnify and
hold harmless Seller and KFM against any and all claims, losses, liabilities
and expenses which may be asserted against or incurred by them as a result
of Purchaser's dealings, arrangements or agreements with or any such person.
7.2 TAXES AND TRANSFER TAXES.
(a) Except as set forth in Section 7.2(b) below, Seller and KFM
shall be liable for and shall pay all taxes (whether assessed or unassessed)
applicable to the operations of the Facility or the Purchased Assets
attributable to periods (or portions thereof) through the Closing Date.
Purchaser shall be liable for and shall pay all taxes (whether assessed or
unassessed) applicable to the operation of the Facility or the Purchased
Assets attributable to periods (or portions thereof) after the Closing Date.
(b) Notwithstanding Subsection (a) hereof, Purchaser shall: (i)
pay all state and local sales, documentary and other transfer taxes, if any,
due as a result of the purchase, sale or transfer of the Purchased Assets in
accordance herewith, whether imposed by law on Purchaser, Seller or KFM;
(ii) pay any and all costs and fees incurred in connection with the transfer
of the Existing Permits (as defined in Subsection 1.1(d) above); and (iii)
any and all installments of state or local real or personal property taxes
with respect to the Purchased Assets that are due and payable after the
Closing Date whether attributable to periods before the Closing Date or
after.
7.3 MUTUAL ASSISTANCE. On and after the Closing Date, Seller will
assist Purchaser in effecting the transfer of Existing Permits, subject to
reimbursement for Seller s out-of-pocket costs, if any, and for its
employees time at the rate of $100 per hour; and Purchaser will assist
Seller in pursuing any business interruption insurance claims relating to
the performance of the Facility prior to the Closing Date, subject to
reimbursement for Purchaser s out-of-pocket costs, if any, and for its
employees time at the rate of $100 per hour.
15
<PAGE>
7.4 EXPENSES. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses incidental to the preparation of
this Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby.
7.5 CONTENTS OF AGREEMENT; AMENDMENTS. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. It shall not be amended or modified except by written
instrument duly executed by each of the parties hereto. Any and all
previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded
by this Agreement.
7.6 WAIVER. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
7.7 NOTICES. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given, delivered and received (a) when
delivered, if delivered personally by a commercial messenger delivery
service with verification of delivery, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, (c) one business day after delivery to a private courier service,
when delivered to a private courier service providing documented overnight
service, (d) on the date of delivery if delivered by facsimile and
electronically confirmed before 5:00 p.m. (local time) on any business day,
or (e) on the next business day if delivered by facsimile and electronically
confirmed either after 5:00 p.m. (local time) or on a non-business day, in
each case addressed as follows::
If to Purchaser, to:
The Hartford Steam Company
60 Columbus Boulevard
P.O. Box 150401
Hartford, CT 06115
Attention: Mr. James Laurito
With a required copy to:
Murtha, Cullina, Richter and Pinney LLP
CityPlace I, 185 Asylum Street
Hartford, CT 06103-3469
Attention: Dwight A. Johnson, Esq.
If to Seller or KFM, to:
CCF-1, Inc.
355 Research Parkway
Meriden, CT 06450
Attention: Mr. Scott Taylor
16
<PAGE>
KENETECH Corporation
500 Sansome Street
San Francisco, CA 94111
Attention: Mr. Michael Alvarez
With a required copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: Martin J. Pasqualini, Esq.
or to such other address as the addressee may have specified in a notice
duly given to the sender as provided herein.
7.8 CONNECTICUT LAW TO GOVERN. This Agreement shall be governed by
and interpreted and enforced in accordance with the laws of the State of
Connecticut.
7.9 NO BENEFIT TO OTHERS. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their heirs, executors, administrators, legal
representatives, successors and assigns, and they shall not be construed as
conferring any rights on any other persons.
7.10 HEADINGS, GENDER AND "PERSON." All section headings contained in
this Agreement are for convenience of reference only, do not form a part of
this Agreement and shall not affect in any way the meaning or interpretation
of this Agreement. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context requires. Any reference to a "person" herein shall
include an individual, firm, corporation, partnership, trust, governmental
authority or body, association, unincorporated organization or any other
entity.
7.11 SCHEDULES AND EXHIBITS. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
7.12 SEVERABILITY. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17
<PAGE>
7.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered by the
parties. It shall not be necessary in making proof of this Agreement or any
or counterpart hereof to produce or account for any of the other
counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first written.
WITNESSED BY: THE HARTFORD STEAM COMPANY
S/ Barbara Sarrantonio S/ Anthony C. Mirabella
By
Barbara Sarrantonio As its Senior Vice President
Anthony C. Mirabella
CCF-1, INC.
Christopher H. Diez S/ Scott J. Taylor
By
Christopher H. Diez As its Vice President
Scott J. Taylor
KENETECH FACILITIES MANAGEMENT, INC.
Scott J. Taylor Christopher H. Diez
By
Scott J. Taylor As its Vice President
Christopher H. Diez
18
<PAGE>
ASSIGNMENT AND CONSENT
----------------------
THIS ASSIGNMENT AND CONSENT is entered into as of June 26, 1998 by and
among CCF-1, INC., a Connecticut corporation with a place of business at 355
Research Parkway, Meriden, Connecticut 06450-1007 ("CCF-1"), THE HARTFORD
STEAM COMPANY, a Connecticut corporation with a principal place of business
at 100 Columbus Boulevard, Hartford, Connecticut 06144-1500 ("HSC"), and THE
CONNECTICUT LIGHT AND POWER COMPANY, a specially chartered Connecticut
corporation and a public service company with a principal place of business
at 107 Selden Street, Berlin, Connecticut 06037 ("CL&P"), and, as to matters
covered by their signature thereto, the CCF-1 Affiliates identified on
Schedule 1 (the "CCF-1 Affiliates").
WHEREAS, CCF-1 and CL&P entered into a Termination and Release
Agreement dated as of December 15, 1997, which was amended by an Amendment
to the Termination and Release Agreement entered into by CCF-1 and CL&P made
as of February 28, 1998 (as so amended, the "Agreement"), which provided,
INTER ALIA, for certain payments to be made by CL&P to CCF-1 and for CCF-1
to fulfill certain obligations to CL&P; and
WHEREAS, CL&P, CCF-1, certain affiliates of CCF-1 and State Street Bank
& Trust Company, as trustee, entered into a CL&P Document Termination
Agreement dated as of December 17, 1997, which was amended and restated as
of February 28, 1998 (as so amended and restated, the "Termination
Agreement"), which also, INTER ALIA, provided for CL&P to make certain
payments to CCF-1 and for CCF-1 to fulfill certain obligations to CL&P; and
WHEREAS, CCF-1 and CL&P entered into a letter agreement dated February<PAGE>
28, 1998 regarding the amount of the payments and certain O&M charges
payable by CCF-1, a copy of which is attached is Exhibit A (the "Letter
Agreement"); and
WHEREAS, in connection with the sale and transfer of certain assets of
the Facility (as defined in Appendix A to the Agreement and the Termination
Agreement) by CCF-1 to HSC, CCF-1 desires to assign its rights to payment
under the Agreement, the Termination Agreement and the Letter Agreement
(collectively, the "Agreements") to HSC; and
WHEREAS, under the Agreements, CCF-1 has certain continuing obligations
to CL&P for Indemnified Claims, contingent royalties, and O&M payments,
which CCF-1 is required to impose on any transferee of the assets of CCF-1,
as a condition precedent to transfer; and
WHEREAS, HSC desires that CL&P consent to such assignment and has
agreed to assume the aforesaid CCF-1 obligations to CL&P, provided each
party gives certain assurances to HSC upon which HSC can rely in purchasing
the Facility from CCF-1. In addition, CCF-1 desires that CL&P release CCF-1
and the CCF-1 Affiliates from the obligations being assumed by HSC;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and assurances set forth herein and in reliance thereon, and for
$1.00 and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. ASSIGNMENT. Subject to Section 11 hereof, CCF-1 does hereby
sell, assign, transfer, convey, set over and deliver to HSC, its successors
and assigns, all payments and all rights in connection therewith provided to
be made by CL&P to CCF-1 under the Agreements (and particularly as set forth
-2-<PAGE>
in Section 2.03 of the Agreement and Section 2.03 of the Termination
Agreement) due and payable after the Closing of the sale of certain assets
of the Facility by CCF-1 to HSC, such payments being herein called the
"Payments."
2. ASSUMPTION BY HSC. In consideration of the assignment of
CCF-1's rights under the Agreements, as set forth in Section 1, HSC, in the
place and stead of CCF-1, hereby assumes and agrees to perform and discharge
all continuing obligations of CCF-1 to CL&P under the Agreements, as
particularly set forth in (a) paragraphs (ii) and (iii) of Section 2.03 and
Section 5.07 of the Agreement, (b) Sections 3.01 and 3.02 of the Termination
Agreement, and (c) the annual O&M charges referred to in the second
paragraph of the Letter Agreement. This assumption of CCF-1's obligations
by HSC is herein called the "HSC Assumption."
3. CONSENT BY CL&P. Subject to the payment in full to the
Connecticut General Life Insurance Company ("CIGNA") of all of CCF-1's
indebtedness pursuant to the terms of a letter of this date from CIGNA to
CCF-1 concerning "Payment of Senior Secured Notes," CL&P hereby consents to
the assignment provided herein, agrees to make the Payments to HSC in
accordance with the terms of the Agreements instead of to CCF-1, and
acknowledges that the amounts of the Payments, as of the date hereof, are as
set forth on SCHEDULE 2 attached hereto.
4. MUTUAL ASSURANCES OF CCF-1, CL&P AND HSC. CCF-1, CL&P and
HSC agree as follows:
(a) To the knowledge of the officers of CCF-1 and subject to
the limitations set forth in Section 5.1 of the Asset Purchase Agreement of
-3-<PAGE>
this date between CCF-1, HSC and KENETECH Facilities Management, Inc., CCF-
1, by its signature to Schedule 1 to this Assignment and Consent, warrants
to HSC all of the representations and covenants made to CL&P set forth in
the Agreement, regarding the obtaining of all necessary authorizations and
consents to effect all transactions contemplated by the Agreement.
(b) To the knowledge of the officers of CCF-1 and subject to
the limitations set forth in Section 5.1 of the Asset Purchase Agreement of
this date between CCF-1, HSC and KENETECH Facilities Management, Inc., CCF-
1, by its signature to Schedule 1 to this Assignment and Consent, represents
to HSC that the only potential parties having claims which could give rise
to Indemnified Claims, as defined in the Agreements, are parties contracting
with CCF-1, CNF Industries, Inc., or Flagg Energy Development Corporation
with respect to the Facility, and that (i) to its knowledge, the only such
claims presently existing are being settled or discharged this date and (ii)
it is aware of no present conditions or events that are likely to give rise
to Indemnified Claims in the future.
(c) CL&P represents that the only written notice it has
received of any assignment of, or claim to, the Payments, is the notice of
the security interest of CIGNA, and direction to pay State Street Bank and
Trust Company, as Trustee for CIGNA, and that, to the best of its knowledge,
it has not been advised orally by any potential claimant of any other actual
or potential claim to the Payments.
(d) HSC acknowledges that CL&P has accepted, without
independent verification or inquiry, the representations of CCF-1 and the
CCH-1 Affiliates set forth in paragraphs (a) and (b) above.
(e) Except for claims covered by the HSC Assumption, CL&P
hereby (i) waives any and all claims it may have against CCF-1 which could
-4-<PAGE>
give rise to a right of offset by CL&P against the Payments (but CL&P does
not waive any failure by HSC to meet its obligations under the HSC
Assumption), and (ii) waives any defenses CL&P may have to its making of the
Payments arising out of (x) any representations, act, or failure to act on
the part of CCF-1 in connection with any CL&P Documents terminated by the
Agreements, (y) the ability of CCF-1 to repower and resume operations of the
Facility on a timely basis so as to avoid a claim of breach by CL&P under
the CL&P Documents, or (z) the operation of the Facility prior to the
Termination Date.
5. CL&P ACCEPTANCE OF HSC AND RELEASE OF CCF-1 AND CCF-1
AFFILIATES. CL&P, for itself and on behalf of its successors and assigns,
hereby agrees to accept performance by HSC of CCF-1's continuing obligations
under the Agreements pursuant to the HSC Assumption and therefore waives,
releases and forever discharges each of CCF-1, CNF, Flagg Energy Development
Corporation, a Delaware corporation ("FEDCO"), KENETECH Corporation, a
Delaware corporation ("KENETECH"), KENETECH Energy Systems, Inc., a Delaware
corporation ("KESI") and KENETECH Facilities Management, Inc., a Delaware
corporation ("KFM" and, together with CCF-1, CNF, FEDCO,, KENETECH and KESI,
the "CCF-1 Entities"), and each of their respective shareholders, directors,
officers, employees, agents and attorneys, and all and each of their
respective successors and assigns from any and all claims, mature or
otherwise, which it may have now or in the future for damages, losses, costs
or expenses, liabilities or payments due which arise under or in connection
with the Agreement, the Termination Agreement, the Letter Agreement or the
Facility.
-5-<PAGE>
6. CONSENT TO RELEASE BY HSC. HSC hereby acknowledges that CL&P
has released CCF-1 and the CCF-1 Affiliates, and consents to such action by
CL&P. HSC hereby agrees that CL&P's reliance on the representations of CCF-
1, and the release of CCF-1 and CCF-1 Affiliates, does not, and shall not,
in any way impair, diminish or affect the CCF-1 obligations assumed by HSC
under the HSC Assumption.
7. FURTHER DOCUMENTS. CCF-1 agrees to provide to HSC all such
further assignments, transfers, conveyances and other documents and
instruments as may be necessary or appropriate to transfer and vest fully in
HSC all rights to all payments now or hereafter coming due to CCF-1 and to
HSC under the Agreements.
8. BENEFIT AND BURDEN. This Assignment and Consent shall be
binding upon and shall inure to the benefit of each of the parties hereto
and their respective successors and assigns, and shall be governed by the
laws of the State of Connecticut.
9. AMENDMENTS. This Assignment and Consent may not be amended,
supplemented or otherwise modified except by an instrument in writing signed
by each of the parties hereto.
10. COUNTERPARTS. This Assignment and Consent may be executed in
any number of counterparts, all of which taken together shall constitute one
and the same instrument.
-6-<PAGE>
11. EFFECTIVE DATE. This Assignment and Consent shall become
effective if and when, and only if and when, the closing of the sale of
certain assets of the Facility by CCF-1 to HSC occurs. If such closing does
not occur by July 31, 1998, this Assignment and Consent shall be null and
void and of no force or effect whatsoever.
IN WITNESS WHEREOF, this Assignment and Consent has been executed on
behalf of each party by its duly authorized officer.
THE CONNECTICUT LIGHT AND POWER CCF-1, INC.
COMPANY
By: S/ James L. Ward By: S/ Scott J. Taylor
------------------------------ ----------------------------
Name: James L. Ward Name: Scott J. Taylor
Its Manager, Cogeneration Its Vice President
Administration
Duly Authorized Duly Authorized
THE HARTFORD STEAM COMPANY
By: S/ Anthony C. Mirabella
------------------------------
Name: Anthony C. Mirabella
Its Sr. Vice President
Duly Authorized
-7-<PAGE>
SCHEDULE 1
Each of the undersigned hereby for itself consents to the foregoing
assignment, confirms the assurances set forth in Section 4(a) and 4(b), and
acknowledges that it has no claim or right to the Payments described
therein.
CNF INDUSTRIES, INC., a Delaware corporation with a principal place of
business at 355 Research Parkway, Meriden, Connecticut 06450-1007
By: S/ Scott J. Taylor
-------------------------
Scott J. Taylor
Its Vice President
FLAGG ENERGY DEVELOPMENT CORPORATION, a Delaware corporation with a
principal place of business at 355 Research Parkway, Meriden, Connecticut
06450-1007
By: S/ Scott J. Taylor
-------------------------
Scott J. Taylor
Its Vice President
KENETECH CORPORATION, a Delaware corporation, with a principal place of
business at 500 Sansome Street, Suite 300, San Francisco, California 94111
By: S/ Mark Lerdal
-------------------------
Mark Lerdal
Its Chief Executive Officer
KENETECH ENERGY SYSTEMS, INC., a Delaware corporation, with a principal
place of business at 355 Research Parkway, Meriden, Connecticut 06450
By: S/ Scott J. Taylor
-------------------------
Scott J. Taylor
Its Vice President
KENETECH FACILITIES MANAGEMENT, INC., a Delaware corporation, with a
principal place of business at 355 Research Parkway, Meriden, Connecticut
06450-1007
By: S/ Christopher H. Diez
----------------------------
Christopher H. Diez
Its Vice President
-8-<PAGE>
SCHEDULE 2
1) Monthly payments during 1998
a) first payment due May 5: $333,335*
b) second payment due June 1: $166,666*
c) subsequent monthly payments of $166,666 due the first business
day each calendar month
2) Monthly payments during 1999 and 2000:
$605,000 due the first business day of each month in each such year
* Already paid to CIGNA for account CCF-1.
-9-<PAGE>
REIMBURSEMENT AGREEMENT
between
THE ENERGY NETWORK, INC.
and
FLEET NATIONAL BANK
dated as of
August 1, 1998<PAGE>
TABLE OF CONTENTS
SECTION l. Definitions . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Reimbursement and Other Payments . . . . . . . . . . 6
SECTION 3. Issuance; Conditions Precedent; Extension . . . . . 9
SECTION 4. Reduction of Letter of Credit Amount . . . . . . . . 12
SECTION 5. Obligations Absolute . . . . . . . . . . . . . . . . 12
SECTION 6. Representations and Warranties of the Borrower . . . 13
SECTION 7. Affirmative Covenants Other Than Reporting Requirements16
SECTION 8. Negative Covenants . . . . . . . . . . . . . . . . . 20
SECTION 9. [Intentionally Left Blank] . . . . . . . . . . . . . 23
SECTION 10. Events of Default . . . . . . . . . . . . . . . . . 23
SECTION 11. Right to Cure . . . . . . . . . . . . . . . . . . . 26
SECTION 12. Amendments and Waivers . . . . . . . . . . . . . . . 26
SECTION 13. Notices . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 14. No Waiver; Remedies . . . . . . . . . . . . . . . . 27
SECTION 15. Indemnification . . . . . . . . . . . . . . . . . . 27
SECTION 16. Continuing Obligation; Survival . . . . . . . . . . 27
SECTION 17. Transfer of the Letter of Credit . . . . . . . . . . 28
SECTION 18. Limited Liability of the Bank . . . . . . . . . . . 28
SECTION 19. Costs, Expenses and Taxes . . . . . . . . . . . . . 29
SECTION 20. Severability . . . . . . . . . . . . . . . . . . . . 29
SECTION 21. Governing Law . . . . . . . . . . . . . . . . . . . 30
SECTION 22. Consent to Jurisdiction; JURY TRIAL WAIVER . . . . . 30
SECTION 23. Table of Contents; Headings . . . . . . . . . . . . 31<PAGE>
Exhibit A - Project Description
Exhibit B - Irrevocable Letter of Credit
Exhibit C - Form of Request for Termination Date Extension
Exhibit D - List of Subsidiaries
Exhibit E - Litigation
Exhibit F - Financial Statement Certificate
Exhibit G - Existing Indebtedness and Liens<PAGE>
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT dated as of August 1, 1998 between THE ENERGY
NETWORK, INC., a corporation duly organized and validly existing under the
laws of the State of Connecticut (the Borrower ) and FLEET NATIONAL BANK
(together with any successor thereto, the Bank ).
WHEREAS, the Connecticut Development Authority (the "Issuer"), is
issuing its $10,600,000 aggregate principal amount Industrial Revenue
Variable Rate Demand Bonds (Capitol District Energy Center Project - 1998
Refunding Series) (the Bonds ) pursuant to an Indenture of Trust dated as
of August 1, 1998 (the Indenture ) between the Issuer and State Street Bank
and Trust Company, as trustee, and the Issuer wishes to lend the proceeds of
the Bonds to the Borrower to finance the project described in EXHIBIT A
hereto and to pay certain costs of issuance of the Bonds (collectively, the
Project ); and
WHEREAS, pursuant to a Loan Agreement dated as of August 1, 1998 (the
Loan Agreement ) between the Issuer and the Borrower, the Issuer proposes
to lend to the Borrower the amount of $10,600,000 (the Loan ) in order to
finance the Project; and
WHEREAS, in order to enhance the marketability of the Bonds and thus
achieve savings on interest costs, the Borrower has requested the Bank to
issue, for the account of the Borrower and for the benefit of the Trustee
under the Indenture, an irrevocable letter of credit substantially in the
form of EXHIBIT B hereto (the Letter of Credit ) in the maximum stated
amount of $10,756,822 (as the same may be reduced from time to time as
provided therein, the Letter of Credit Amount ); and
WHEREAS, the Letter of Credit will secure the payment of the principal
amount of the Bonds and up to 45 days' interest thereon;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Bank to issue the Letter of Credit, the Borrower and the Bank hereby act
and agree as follows:
SECTION 1. DEFINITIONS.
(a) DEFINITIONS. The following terms, as used herein, shall have the
following respective meanings:
"AGREEMENT" means this Reimbursement Agreement, as same may be from
time to time amended.
"AVAILABLE AMOUNT", as in effect at any time, means the maximum amount
available to be drawn at such time under the Letter of Credit, the
determination of such maximum amount to assume compliance with all
conditions for drawing and no reduction (i) for any amount drawn by an
Interest Drawing (unless such amount is not to be reinstated under the
Letter of Credit), or (ii) or any amount drawn by a Tender Drawing, or (iii)
for any amount not available to be drawn because Bonds are held by or for
the account of the Borrower.
1<PAGE>
"BANK OBLIGATIONS" means all obligations (now existing or hereafter
arising, matured or unmatured, fixed or contingent) of the Borrower to the
Bank arising under this Agreement and/or under any of the Related Documents.
"BONDS" has the meaning assigned to it in the introductory clauses to
this Agreement.
"BUSINESS DAY" means any day (i) that is not a Saturday, Sunday or
legal holiday, (ii) that is a day on which banks are not required or
authorized to close in Hartford, Connecticut or New York, New York, (iii)
that is a day on which banking institutions in all of the cities in which
the principal corporate trust office of the Trustee, the principal office of
the Remarketing Agent and the principal office of the Bank are located are
not required or authorized pursuant to law to remain closed and (iv) that is
a day on which the New York Stock Exchange is not closed.
"CHARTER" means the Articles of Organization or other organizational
documents of a corporation referred to herein, all as amended to date.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
"CODE" shall mean the Internal Revenue Code of 1986, a amended from
time to time.
"COLLATERAL" shall mean any and all assets, rights and interests in or
to property of Borrower or any other Person pledged or mortgaged to Bank, or
in which a security interest is granted to Bank, from time to time, as
security pursuant to the Security Documents, whether now owned or hereafter
acquired.
"COMMONLY CONTROLLED ENTITY" shall have the meaning specified in
Section 6(i) of this Agreement.
"CREDIT FACILITIES means that certain 3-Year Revolving Credit
Agreement dated as of October 1, 1997 between the Borrower and the Bank, as
well as that certain 364 Day Revolving Credit Agreement dated as of October
1, 1997, both as amended from time to time.
"DATE OF ISSUANCE" means the date on which the Letter of Credit is
issued upon request of the Borrower pursuant to Subsection 3(a) hereof.
"EMPLOYEE BENEFIT PLAN" shall have the meaning specified in Section
6(i) of this Agreement.
"ENVIRONMENTAL EVENT" means (i) the unlawful generation, storage,
disposal, removal, transportation or treatment of Hazardous Substances on
any of the properties used or owned by the Borrower or any of its
Subsidiaries or in the vicinity of such properties, if, through soil or
groundwater migration, such Hazardous Substances could have come to be
located at any of such properties); (ii) the receipt by the Borrower of any
notice or claim of any violation of any Environmental Law or of any action
based upon nuisance, negligence or other tort theory alleging liability on
the basis of improper generation, storage, disposal, removal, transportation
2<PAGE>
or treatment of Hazardous Substances on any properties used or owned by the
Borrower or any of its Subsidiaries; or (iii) the presence or release of
Hazardous Substances at or upon any of properties used or owned by the
Borrower or any of its Subsidiaries that has resulted in contamination or
deterioration of any portion of such properties resulting in a level of
contamination greater than the levels permitted or established by any
governmental agency having jurisdiction over the Borrower or any of such
properties.
"ENVIRONMENTAL LAWS" means any and all federal, state and local
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, licenses or other governmental restrictions relating to the
environment or the release of any materials into the environment, including,
without limitation, CERCLA and the Resource Conservation and Recovery Act
of 1976, 42 U.S.C. Sections 6901-6987.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT" means any of the events specified in Section 10
hereof.
"FEPA ASSIGNMENT AGREEMENT" means that certain Pledge and Assignment
Agreement dated as of October 1, 1997 from the Borrower to State Street Bank
and Trust Company, as Collateral Agent, as amended by that certain Amendment
to Pledge and Assignment Agreement dated the date hereof, and as further
amended from time to time, and relating to the Forward Equity Purchase
Agreement.
"FINAL DRAWING" has the meaning assigned to that term in the Letter of
Credit.
"FORWARD EQUITY PURCHASE AGREEMENT" means that certain Forward Equity
Purchase Agreement dated as of August 1, 1997 between CTG Resources, Inc.
and the Borrower.
"GUARANTOR" shall mean, jointly, severally and collectively, TEN
Transmission Company, The Hartford Steam Company, and ENI Gas Services, Inc.
"GUARANTY" shall mean those certain unconditional and continuing
guaranties of each Guarantor of even date herewith in favor of Bank, as the
same may be supplemented or amended from time to time.
"GOVERNMENTAL AUTHORITIES" means all agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures and offices of
any nature whatsoever for any government unit or political subdivision,
whether foreign, federal, state, county, district, municipal or otherwise,
and whether now or hereafter in existence.
"HAZARDOUS SUBSTANCES" means hazardous substances as defined in
CERCLA or any similar definitions in any of the Environmental Laws, as well
as asbestos and materials containing asbestos.
3<PAGE>
"INDENTURE" has the meaning assigned to it in the introductory clauses
to this Agreement.
"INTEREST DRAWING" has the meaning assigned to that term in the Letter
of Credit.
"LEGAL REQUIREMENTS" means all statutes, ordinances, by-laws, codes,
rules, rulings, regulations, restrictions, orders, judgments, decrees,
writs, judicial or administrative interpretations and injunctions
(including, without limitation, all applicable building, health code,
zoning, subdivision and other land use statutes, ordinances, by-laws, codes,
rules and regulations), whether now or hereafter enacted, promulgated or
issued by any Governmental Authority materially affecting the Borrower, any
of its properties or the ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or operation of any of the
foregoing or the operation of any programs or services by the Borrower,
including, without limitation, any of the foregoing which may (i) require
repairs, modifications or alterations in or to any of its properties, (ii)
in any way materially affect (adversely or otherwise) the use and enjoyment
of any of its properties or (iii) require the assessment, monitoring, clean-
up, containment or removal of any oil or hazardous substances on, under or
from any of its properties.
"LETTER OF CREDIT" has the meaning given to it in the introductory
clauses to this Agreement.
"LETTER OF CREDIT AMOUNT" has the meaning given to it in the
introductory clauses to this Agreement.
"LOAN" has the meaning specified in the introductory clauses to this
Agreement.
"MATERIAL ADVERSE CHANGE shall mean a material adverse change in (i)
the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower or (ii) the
Collateral, in each case as determined by Bank in its sole discretion.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"PARTIAL REDEMPTION DRAWING" has the meaning assigned to that term in
the Letter of Credit.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PERMITS" means all licenses, approvals, qualifications, variances,
permissive uses, certificates of need, franchises, accreditations,
certificates, certifications, consents, permits and other authorizations
(including, without limitation, building permits, subdivision approvals and
subdivision plans) benefiting, relating to or affecting the Borrower or any
of its properties and the ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or operation thereof or the
operation of any programs or services by the Borrower and all renewals,
4<PAGE>
replacements and substitutions therefor, now or hereafter issued by or
entered into with any Governmental Authority or maintained or used by the
Borrower or entered into by the Borrower with any other Person.
"PERSON" means an individual, corporation, company, partnership, joint
venture, trust or unincorporated organization or a government or any agency
or political subdivision thereof.
"PLEDGE AGREEMENT" means that certain Pledge Agreement of even date
herewith between the Borrower and the Bank.
"PREVAILING LOCAL TIME" means the prevailing local time in effect in
Hartford, Connecticut.
"PRIME RATE" means a fluctuating rate of interest per annum equal to
that rate per annum announced by Fleet National Bank or any successor
thereto, from time to time, as being its prime rate of interest or base rate
of interest, with a change in the Prime Rate to take effect simultaneously
with each change in such announced rate. It is understood that such
announced prime rate or base rate is merely a reference rate, not
necessarily the lowest, which serves as the basis upon which effective rates
of interest are calculated for obligations making reference thereto.
"PROJECT" has the meaning assigned thereto in the introductory clauses
of this Agreement.
"RELATED DOCUMENTS" means the Letter of Credit, the Indenture, the Loan
Agreement, the Bonds, the Pledge Agreement, the Mortgage, the Security
Documents, and any other agreement or instrument guaranteeing, securing or
otherwise relating to any of the foregoing.
"REMARKETING AGENT" means A.G. Edwards & Sons, Inc. or any successor
thereto as remarketing agent under the Indenture.
"REMARKETING AGREEMENT" means that certain Remarketing Agreement of
even date herewith between the Remarketing Agent and the Borrower, and any
modification thereof or substitution therefor.
"SECURITY DOCUMENTS" means the FEPA Assignment Agreement and the
Guaranty as the same may be amended from time to time.
"TENDER ADVANCE" has the meaning assigned to that term in Subsection
2(d) of this Agreement.
"TENDER DRAWING" has the meaning assigned to that term in the Letter of
Credit.
"TERMINATION DATE" means the earliest of: (i) August __, 2000 (unless
extended as provided in Subsection 3(e) below), (ii) the date of payment of
a Final Drawing drawn under the Letter of Credit, or (iii) the earlier
termination of the Letter of Credit pursuant to the terms thereof.
"TRUSTEE" means State Street Bank and Trust Company, as trustee under
the Indenture, or any successor as such trustee.
5<PAGE>
"UNRESTRICTED INVESTMENTS" means at any time cash and cash-equivalents
and other readily marketable securities of the Borrower as are unrestricted
and are identified as such in financial statements provided by the Borrower
to the Bank from time to time under this Agreement.
(b) ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles as in effect from
time to time and consistently applied.
(c) USE OF DEFINED TERMS. Any defined term used in the plural
preceded by the definite article shall be taken to encompass all members of
the relevant class. Any defined term used in the singular preceded by any
shall be taken to indicate any number of the members of the relevant class.
SECTION 2. REIMBURSEMENT AND OTHER PAYMENTS.
(a) CERTAIN FEES AND CHARGES. The Borrower agrees to pay to the Bank
(i) upon each transfer of the Letter of Credit by the Trustee, a transfer
fee equal to the Bank's then customary charge therefor; (ii) on the same
Business Day as any drawing under the Letter of Credit, a drawing fee in the
amount of $150; (iii) upon notice from the Bank, any and all out-of-pocket
charges and expenses which the Bank may pay or incur relative to drawings
under the Letter of Credit; (iv) interest on any and all amounts unpaid by
the Borrower when due under this Agreement (except as otherwise expressly
provided in Subsection 2(e) below) from the date such amounts become due
until payment in full, payable on demand, at a fluctuating interest rate per
annum (computed on the basis of a year of 360 days for the actual number of
days elapsed) which shall at times be equal to the sum of (x) 4.00% per
annum plus (y) the Prime Rate as in effect from time to time (but such
fluctuating interest rate shall in no event be higher than the maximum rate
permitted by then applicable law); (v) a late fee of 5.00% on any and all
amounts unpaid by the Borrower within ten days after the same are due under
this Agreement, payable on demand; and (vi) any and all costs and expenses
(including, without limitation, reasonable attorneys' fees) reasonably
incurred by the Bank in exercising or enforcing any rights or performing any
obligations under this Agreement.
(b)COMMITMENT AND CLOSING FEES. The Borrower also agrees that it will
pay to the Bank commitment fees with respect to the Letter of Credit
computed (on the basis of a year of 360 days for the actual number of days
elapsed) at the rate of 0.65% per annum. Such fees shall be payable in
advance, on the Date of Issuance and thereafter quarterly in advance on the
first day of each February, May, August and November, and shall be
calculated on the Available Amount outstanding on the date of payment. All
commitment fees paid hereunder shall be non-refundable once paid. The
Borrower acknowledges that it will be solely responsible for any
confirmation or other credit enhancement which may now or hereafter be
needed (or reasonably desired by the Borrower and/or the Remarketing Agent)
with respect to the Bonds. The Bank makes no representation that it has or
6<PAGE>
will maintain any particular rating with respect to the Letter of Credit or
its obligations generally and will not be liable to the Borrower for any
decline in any such rating.
(c) REIMBURSEMENT FOR DRAWINGS. The Borrower hereby agrees to pay to
the Bank immediately after (and on the same Business Day as) any amount is
drawn under the Letter of Credit pursuant to any Interest Drawing, Partial
Redemption Drawing or Final Drawing or pursuant to any Tender Drawing (but
as to a Tender Drawing, except as otherwise provided below, only to the
extent that such drawing represents accrued interest on the Bonds), a sum
equal to the amount so drawn. The Borrower also agrees to pay to the Bank,
with respect to any Tender Drawing as to which the conditions contained in
Subsection 3(d) are not fulfilled, any amount drawn under the Letter of
Credit pursuant to such Tender Drawing, such amount to be paid to the Bank
immediately after and on the same Business Day as such drawing. All amounts
payable under this Subsection 2(c) shall bear interest from the date on
which any such amount became payable until paid in full, at the rate
provided in clause (iv) of Subsection 2(a), payable on demand.
(d) TENDER ADVANCES. If the Bank shall make any payment of that
portion of the purchase price corresponding to principal of the Bonds drawn
under the Letter of Credit pursuant to a Tender Drawing and the conditions
set forth in Subsection 3(d) shall have been fulfilled, each such payment
shall constitute a Tender Advance made by the Bank to the Borrower on the
date and in the amount of such payment. The Borrower shall repay the unpaid
principal amount of each Tender Advance on the earliest of: (i) any demand
for payment following the occurrence of an Event of Default hereunder, (ii)
such date as is provided for in Paragraph 2(f)(ii) hereof, (iii) that date
which is designated as the required payment date in a written notice sent by
the Bank to the Borrower (provided that (a) such required payment date with
respect to any Tender Advance shall be not sooner than 120 days after the
date on which such Tender Advance was made, and (b) the required payment
date shall be not sooner than 30 days after such notice is given) or (iv)
the Termination Date of the Letter of Credit. The Borrower may prepay such
amount on an earlier date as provided in Paragraph 2(f)(i) hereof.
(e) INTEREST ON TENDER ADVANCES. The Borrower shall pay interest on
the unpaid amount of each Tender Advance from the date of such Tender
Advance until such amount is paid in full, such interest to be payable
monthly, in arrears, on the first day of each month during the term of each
Tender Advance and on the date such amount is paid in full, at a fluctuating
interest rate per annum which shall at all times be equal to the sum of (x)
2.00% per annum plus (y) the Prime Rate.
(f) PREPAYMENTS; REINSTATEMENT OF LETTER OF CREDIT AMOUNT.
(i) The Borrower, upon same-day prior notice to the Bank (stating
the amount to be prepaid), may prepay the outstanding amount of any Tender
Advance in whole or in part, together with accrued interest to the date of
such prepayment on the amount prepaid.
(ii) Prior to or simultaneously with the resale of Bonds acquired
with the proceeds of one or more draws under the Letter of Credit by one or
more Tender Drawings, the Borrower shall prepay the then outstanding Tender
7<PAGE>
Advances (in the order in which they were made) by paying to the Bank an
amount equal to the sum of (x) the portion of the purchase price
corresponding to the aggregate principal amount of the Bonds being resold or
to be resold, PLUS (y) the portion of the purchase price corresponding to
the aggregate amount of accrued and unpaid interest on such Bonds, PLUS (z)
the aggregate amount of accrued and unpaid interest on such Tender Advances,
less the amount paid pursuant to the immediately preceding clause. Such
payment shall be applied by the Bank in reimbursement of such drawings (and
as prepayment of Tender Advances resulting from such drawings in the manner
described above), and, when such payment with respect to clause (x) and (y)
of the immediately preceding sentence is accompanied by a certificate
completed and signed by the Trustee in the form of Annex F to the Letter of
Credit, the Borrower irrevocably authorizes the Bank to rely on such
certificate and to reinstate the Letter of Credit in accordance therewith.
(iii) Pursuant to the Pledge Agreement, the Borrower has
agreed that Bonds purchased with proceeds of any Tender Drawing shall be
delivered to the Bank or its designee to be held by the Bank or its designee
in pledge as collateral securing the Borrower's payment obligations to the
Bank hereunder. Bonds so delivered to the Bank or its designee shall be
registered in the name of the Bank, or its designee, as pledgee, as provided
for in Section 3 of the Pledge Agreement.
(iv) Outstanding Tender Advances may be prepaid at any time by or
on behalf of the Borrower on notice from the Borrower directing the Bank to
deliver Bonds held by the Bank or its designee pursuant to the Pledge
Agreement for sale pursuant to the Indenture and specifying the principal
amount of Bonds to be so sold, which notice may be given by telephone
(promptly confirmed in writing) but which shall not be effective unless
received by the Bank prior to 10:00 A.M. (New York time) on the day of the
proposed prepayment referred to above; PROVIDED that the Bank shall not
deliver any such Bonds for sale or otherwise until the Letter of Credit has
been reinstated pursuant to the terms of this Agreement and the Letter of
Credit.
(g) INCREASED COSTS. If any law, regulation or change in any law or
regulation or in the interpretation thereof or any ruling, decree, judgment,
guideline, directive or recommendation (whether or not having the force of
law) by any regulatory body, court, central bank or any administrative or
governmental authority having or claiming jurisdiction (including, without
limitation, a request or requirement that affects the manner in which the
Bank or any participant in the Letter of Credit or any confirming bank with
respect to the Letter of Credit allocates capital resources to its
commitments including its obligations hereunder), shall either (i) impose
upon, modify, require, make or deem applicable to the Bank or any
participant in the Letter of Credit or to any confirming bank with respect
to the Letter of Credit any reserve requirement, special deposit requirement
or the like against or affecting the Letter of Credit or such participation
or any confirmation thereof, or (ii) subject the Bank or any such
participant to any tax, charge, fee, deduction or withholding of any kind
whatsoever in connection with the Letter of Credit or any participation or
any confirmation thereof or change the basis of taxation of the Bank or of
any such participant or any such confirming bank (other than a change in the
rate of tax based on the overall net income of the Bank or of any such
8<PAGE>
participant or any such confirming bank), or (iii) impose any condition upon
or cause in any manner the addition of any supplement to or increase of any
kind to the Bank s or such participant's or confirming bank's capital or
cost base for issuing the Letter of Credit or participating therein or
confirming thereof, or (iv) impose upon, modify, require, make or deem
applicable to the Bank or any such participant or such confirming bank any
capital requirement, increased capital requirement or similar requirement,
including, without limitation, a request or requirement that affects the
manner in which the Bank or any such participant allocates capital resources
to its commitments including its obligations hereunder and/or under the
Letter of Credit or any such participation or confirmation, and the result
of any of the events referred to in (i), (ii), (iii) or (iv) above shall be
to increase the costs in any way to the Bank or any such participant or any
such confirming bank of issuing or maintaining the Letter of Credit or
participating therein or confirming thereof or to reduce the amounts payable
by the Borrower hereunder or to reduce the rate of return on the Bank s
capital, as a consequence of issuing or maintaining the Letter of Credit or
participating therein or confirming thereof, to a level below that which the
Bank or any such participant or any such confirming bank could have achieved
but for any such events; then and in any such event the Borrower shall,
promptly upon receipt of written notice by the Bank of such increased costs
and/or decreased benefits stating the reason therefor, pay to the Bank all
such additional amounts that, in the Bank's sole good faith calculation, as
allocated to the Letter of Credit or any such participation or confirmation,
shall be sufficient to compensate the Bank or any such participant or any
such confirming bank for all such increased costs and/or decreased benefits,
all as certified by the Bank in said written notice to the Borrower. Such
certification shall be conclusive and binding on the parties hereto, absent
manifest error. In determining such amount, the Bank may use any reasonable
averaging or attribution methods.
(h) PAYMENTS. All payments by the Borrower to the Bank hereunder
shall be made in lawful currency of the United States and in immediately
available funds at the offices of the Bank at One Federal Street, Boston,
Massachusetts 02110, or such other place as the Bank may designate.
Whenever any payment hereunder shall be due on a day which is not a Business
Day, the date for payment thereof shall be extended to the next succeeding
Business Day, and any interest payable thereon shall be payable for such
extended time at the specified rate. Any payments received after 12:00 noon
on any day will be deemed received on the next succeeding Business Day.
SECTION 3. ISSUANCE; CONDITIONS PRECEDENT; EXTENSION.
(a) Subject to satisfaction of the conditions precedent set forth in
subsections (b) and (c) of this Section, the Bank shall issue the Letter of
Credit in the Letter of Credit Amount, effective on the Date of Issuance and
expiring on the Termination Date.
(b) As conditions precedent to the issuance of the Letter of Credit,
the Bank shall have received on or before the Date of Issuance the
following, each in form and substance satisfactory to the Bank:
(i) A copy of the Borrower's Charter and all amendments thereto,
certified by the Secretary of State of the State of Connecticut.
9<PAGE>
(ii) A long-form Certificate of Legal Existence for the
Borrower, issued by the Secretary of State of the State of Connecticut.
(iii) The by-laws of the Borrower, certified by its Secretary.
(iv) True and correct copies of the resolutions of the board
of directors of the Borrower (and, if needed, the members of the
Borrower) approving this Agreement and each of the Related Documents.
Such resolutions shall be certified as to the accuracy, due adoption
and continuing force and effect thereof by the Secretary of the
Borrower.
(v) A certificate executed by the Secretary of the Borrower
certifying the names and true signatures of the officers of the
Borrower authorized to execute on behalf of the Borrower this Agreement
and the Related Documents and any and all certificates, notices and
reports referred to in this Agreement; each such certificate shall
state that the Bank may conclusively rely on the statements made
therein until the Bank shall receive a further certificate of such
Secretary canceling or amending the prior certificate and submitting
signatures of the officers named in such further certificate.
(vi) The Security Documents.
(vii) Evidence in such form as the Bank may reasonably require that
the Borrower has obtained all types of casualty, liability and other
insurance required hereunder or under any of the Related Documents.
(viii) Certified copies of all approvals, authorizations, or
consents of, or notices to, or registrations with, any governmental
body or agency required for the Borrower to enter into this Agreement
and the Related Documents and to carry out the transactions
contemplated hereby and thereby.
(ix) Executed copies of the Related Documents (or duplicate
originals thereof), and all other such documents relating to the
Related Documents or this Agreement as the Bank shall reasonably
request, each of which shall be in form and substance satisfactory to
the Bank, together with evidence of the execution and delivery thereof
by a person duly authorized to do so and appropriate evidence of such
authorization.
(x) An opinion or opinions of counsel to the Borrower as to legal
existence and authority of the Borrower, corporate capacity of the
Borrower, due authorization of transactions, enforceability of
documents, no conflict with law, no conflict with other agreements, no
litigation, perfection of security interests, and other matters
reasonably requested by the Bank, such opinion or opinions to be
satisfactory in form and substance to the Bank.
(xi) Financial statements of the Borrower as at September 30,
1997, and for the fiscal year then ended, certified by the Borrower s
independent certified public accountants.
10<PAGE>
(xii) Interim financial statements of the Borrower, certified by
its chief financial officer, for the fiscal quarter ended June 30,
1998.
(xiii) Evidence of the Issuer's approval of the Bonds.
(xiv) All such other documents, instruments, approvals and opinions
as the Bank may reasonably request.
(c) The following statements shall be true and correct on the Date of
Issuance and the Bank shall have received a certificate signed by an
authorized officer of the Borrower, dated the Date of Issuance, stating
that:
(i) the representations and warranties contained in Section 6
hereof are correct on and as of the Date of Issuance as though made on
and as of such date; and
(ii) no Event of Default hereunder (or event or circumstance
which, with the passage of time or the giving of notice, or both, could
become an Event of Default) has occurred and is continuing or could
result from the issuance of the Letter of Credit.
(d) Each payment made by the Bank under the Letter of Credit pursuant
to a Tender Drawing shall constitute a Tender Advance hereunder ONLY IF on
the date of such payment the following statements shall be true:
(i) The representations and warranties contained in Section 6 of
this Agreement, Section 5 of the Pledge Agreement and the other Related
Documents are correct on and as of the date of such Tender Advance as
though made on and as of such date; and
(ii) No event has occurred and is continuing, or would result from
such Tender Advance, that constitutes an Event of Default or could,
with the passage of time or the giving of notice or both, constitute an
Event of Default.
On the date of each payment by the Bank of a Tender Drawing, the
Borrower shall give the Bank a certificate, signed by an authorized officer
of the Borrower, stating that on the date of such payment the above
statements are true and correct.
(e) Upon the written request of the Borrower received by the Bank no
later than 225 days prior to the Termination Date then in effect under
subsection (i) of the definition thereof (or such later date to which the
Bank may consent in writing), the Bank shall within 45 days of such request
notify the Borrower, the Issuer, the Trustee and the Remarketing Agent
whether or not it will extend the scheduled Termination Date for a period of
one year (or such other period as the Bank may agree in its sole
discretion); PROVIDED, HOWEVER, that the Borrower shall not make its first
request that Bank so extend the scheduled Termination Date earlier than the
one year anniversary of this Agreement. If the Bank notifies the Borrower,
the Issuer, the Trustee and the Remarketing Agent that the scheduled
Termination Date shall be so extended, the Bank shall within 30 days of such
11<PAGE>
notification, deliver to the Trustee and the Borrower a written
acknowledgment of such extension. If the Bank fails to notify the Borrower
of its decision within such 30-day period, the Bank shall be deemed to have
rejected such request. Any such request by the Borrower for an extension of
the Termination Date shall be substantially in the form of EXHIBIT C hereto
(or in such other form to which the Bank may consent in writing) and, unless
the Bank shall otherwise consent, shall include (i) a statement of the
outstanding principal amount of the Bonds, (ii) a reasonably detailed
description of any and all Events of Default and all conditions, events and
acts which with notice or lapse of time or both would become an Event of
Default and (iii) any other pertinent information requested by the Bank.
Nothing contained in this Agreement or elsewhere shall be deemed an
agreement by the Bank to extend the Termination Date whether on the terms
contained herein or on any other terms.
SECTION 4. REDUCTION OF LETTER OF CREDIT AMOUNT. The Letter of
Credit Amount shall be reduced from time to time as specified in the fourth
grammatical paragraph of the Letter of Credit; provided that voluntary
prepayments of the Loan will be made not more frequently than quarterly.
SECTION 5. OBLIGATIONS ABSOLUTE. The obligations of the Borrower
under this Agreement shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement,
under all circumstances whatsoever, including, without limitation, the
following circumstances:
(a) any lack of validity or enforceability of the Letter of
Credit or any of the other Related Documents;
(b) any amendment or waiver of or any consent to departure from
the terms of all or any of the Related Documents;
(c) any exchange, acceptance, release or non-perfection as to any
collateral or release or addition of any other Persons primarily or
secondarily liable;
(d) the existence of any claim, setoff, defense or other rights
which the Borrower may have at any time against the Bank, the Issuer,
the Trustee or any beneficiary or any transferee of the Letter of
Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), whether in connection with this Agreement,
the transactions contemplated hereby or any unrelated transaction;
(e) any statement or any other document presented under the
Letter of Credit shall prove to be forged, fraudulent, invalid or
insufficient in any material respect or any statement therein is untrue
or inaccurate in any material respect;
(f) payment in good faith by the Bank under the Letter of Credit
against presentation of a statement or draft which does not comply with
the terms of the Letter of Credit; or
(g) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
12<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. As an
inducement to the Bank to execute this Agreement and to issue the Letter of
Credit, the Borrower hereby represents and warrants to the Bank that:
(a) The Borrower is a corporation duly organized, legally existing and
in good standing under the laws of the State of Connecticut and has the
legal power and authority to enter into and perform this Agreement and each
of the Related Documents in which it is named as a party, to grant the
security interests and liens described in the Security Agreement and the
related collateral assignments, to fulfill its obligations set forth herein
and therein and to carry out the transactions contemplated hereby and
thereby. The Borrower has all requisite corporate power to own and operate
its properties and to carry on its business as now conducted and as proposed
to be conducted and is duly qualified and in good standing in each
jurisdiction where the failure so to be qualified could have a material
adverse effect on the Borrower and/or its operations. At the date of this
Agreement, the Borrower has only Subsidiaries listed on Exhibit D. The
Borrower is not a member of any partnership or joint venture, other than
Downtown Cogeneration Associates Limited Partnership.
(b) The execution, delivery and performance by the Borrower of this
Agreement, the Security Documents and the other documents required to be
executed by the Borrower pursuant hereto have been duly authorized by all
necessary corporate action, will not require any consent of any third party
not obtained prior to the date hereof, and will not conflict with, violate
the provisions of, or cause a default or constitute an event which, with the
passage of time or the giving of notice or both, could constitute a default
on the part of the Borrower under any mortgage, indenture, judgment, decree,
rule, regulation, law or order, or any material contract or agreement
applicable to the Borrower or under any provision of the Charter or by-laws
of the Borrower, or result in the imposition of any lien or encumbrance on
any property or assets of the Borrower, except for the liens created by the
Security Agreement, the Mortgage and/or the related collateral assignments.
This Agreement, the Security Agreement, the Mortgage and any other documents
delivered to the Bank by the Borrower pursuant hereto are the valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms.
(c) There are no actions, suits, proceedings or investigations pending
or, to the knowledge of the Borrower, threatened, anticipated or
contemplated (nor, to the knowledge of the Borrower, is there any basis
therefor) against or affecting the Borrower before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, which could prevent or hinder the consummation of the
transactions contemplated hereby or call into question the validity of this
Agreement, any of the Related Documents or any other instrument provided for
or contemplated by this Agreement or any action taken or to be taken in
connection with the transactions contemplated hereby or thereby or which in
any single case or in the aggregate could reasonably be expected to result
in any material adverse change in the business, prospects, condition,
affairs or operations of the Borrower or any material impairment of the
right or ability of the Borrower to carry on its operations as now conducted
or as proposed to be conducted. Without conceding that any of same are
13<PAGE>
material, the Borrower represents that the only judicial or administrative
proceedings to which it is party are those set forth on EXHIBIT E hereto.
(d) The Borrower is not in violation of any term of its Charter or by-
laws as now in effect. The Borrower is not in violation of any material
term of any mortgage, indenture, judgment, decree or order, or any other
material instrument, contract or agreement applicable to it.
(e) The Borrower has filed proper and accurate federal, state and
local tax returns, reports and estimates for all years and periods for which
any such returns, reports or estimates were required to be filed and has
paid all taxes, assessments, impositions, fees and other governmental
charges required to be paid in respect of the periods covered by any such
returns, reports or estimates, except for taxes being contested in good
faith for which adequate provision and reserves for payment have been made
and for which no lien has been filed. The Borrower is not delinquent in the
payment of any tax, assessment or governmental charge, and no deficiencies
for any tax, assessment or governmental charge have been asserted or
assessed, and the Borrower knows of no material liability or basis therefor.
(f) The Borrower is in compliance in all material respects with all
requirements of law, federal, state and local, and all requirements of all
governmental bodies or agencies having jurisdiction over it, the conduct of
its business and the use of its properties and assets, as presently
conducted and used, and all premises occupied by it, all to the extent that
failure to comply with any of which could (singly or in the aggregate) have
a material adverse effect on the business, prospects or financial condition
of the Borrower.
(g) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of the Loan will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of purchasing
or carrying any margin stock or in any other manner which would involve a
violation of any of the regulations of the Board of Governors of the Federal
Reserve System. The Borrower is not an investment company within the
meaning of the Investment Company Act of 1940, as amended.
(h) The reviewed financial statements of the Borrower as at December
31, 1997, March 31, 1998 and June 30, 1998 heretofore delivered to the Bank,
are complete and accurate and fairly present the financial condition of the
Borrower as at the dates thereof and for the periods covered thereby, having
been prepared in accordance with generally accepted accounting principles
consistently applied. The Borrower has no liability, contingent or
otherwise, not disclosed in the aforesaid financial statements or in any
notes thereto that could materially affect the financial condition of the
Borrower. The following representations are true on the Date of Issuance;
since the date of the most recently delivered financial statements: (A)
there has been no material adverse change in the business, assets or
condition, financial or otherwise, of the Borrower; (B) neither the
business, condition, or operations of the Borrower nor any of its properties
or assets has been materially adversely affected as the result of any
legislative or regulatory change, any revocation or change in any franchise,
14<PAGE>
license or right to do business, or any other event or occurrence, whether
or not insured against; (C) the Borrower has not experienced any material
controversy or problem with its employees or with any labor organization;
and (D) the Borrower has not entered into any material transaction other
than in the ordinary course of business and other than the purchase by The
Hartford Steam Company of certain cogeneration facilities as disclosed in
writing to the Bank prior to the date hereof.
(i) PENSION PLANS, Etc.
(i) PLANS. Except as set forth in a separate letter to Bank of
even date herewith and acknowledged by Bank in writing, neither Borrower nor
any entity with which Borrower would be aggregated (a Commonly Controlled
Entity ) under Section 414(b), (c), (m), or (o) of the Code, maintains or
contributes to any pension, profit sharing, or similar plan providing for a
program of deferred compensation to any employee or former employee.
(ii) FUNDING OF EMPLOYEE BENEFIT PLANS. All contributions and
other payments required to be made by Borrower or any Commonly Controlled
Entity to all employee benefit plans, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ( ERISA ), which
either Borrower or any Commonly Controlled Entity maintains or maintained or
to which any of them contributes or has contributed (the Employee Benefit
Plans ) have been made or reserves adequate for such purposes has been set
aside and reflect on Borrower s financial statements. Except as provided in
the following sentence, no Employee Benefit Plan is a plan subject to
Section 412 of the Code or Section 302 of ERISA, nor is any Employee Benefit
Plan a multiemployer plan as defined in Section 4001(a)(3) of ERISA. The
three defined benefit plans maintained by the Borrower and its Commonly
Controlled Entities are subject to Section 412 of the Code and Section 302
of ERISA. Each other Employee Benefit Plan which is an employee pension
benefit plan, as defined in Section 3(2) of ERISA, has been determined to be
qualified under Section 401(a) or Section 403(a) of the Code and nothing has
occurred which would cause the loss of such qualification or the imposition
of any tax liability or penalty under the Code or ERISA on Borrower.
(iii) ADMINISTRATION, Etc. Each Employee Benefit Plan has been
and is administered in accordance with its terms and applicable law. To its
knowledge, Borrower has not breached any fiduciary duty imposed on it under
ERISA with respect to any Employee Benefit Plan, or engaged in any
prohibited transaction, as defined in Title I of ERISA or Section 4975 of
the Code, involving any Employee Benefit Plan for which no exemption is
available.
(iv) WELFARE PLANS. No Employee Benefit Plan which is an
employee welfare benefit plan, as defined in Section 3(1) of ERISA, if any,
provides for continuing benefits or coverage for any participant (or
beneficiary) after the termination of the participant s employment except as
may be required under Section 4980B of the Code or applicable state
statutory law, and except that medical insurance is provided in certain
instances.
(v) CLAIMS. There are no claims (other than routine claims for
benefits), actions or lawsuits asserted or instituted with respect to, and
15<PAGE>
Borrower has no knowledge of any threatened claims or litigation with
respect to, any Employee Benefit Plan or any fiduciary thereof.
(j) ENVIRONMENTAL MATTERS. Borrower:
(i) Except as disclosed in the Annual Report on Form 10-K of the
Connecticut Natural Gas Corporation for Borrower s 1997 fiscal year, has not
received any notice, citation, summons, directive, order or other
communication, written or oral, from, and Borrower has no knowledge, after
reasonable inquiry, of any notice, citation, summons, directive, order or
other communication by, any Governmental Authority or any other person
concerning the presence, generation, treatment, storage, transportation,
transfer, disposal, release or other handling of any Hazardous Substances
within, on, from, related to, or affecting any real property owned or
occupied by Borrower; and
(ii) Except as disclosed in the Annual Report on Form 10-K of the
Connecticut Natural Gas Corporation for Borrower s 1997 fiscal year, has no
knowledge, after reasonable inquiry, that any real property owned or
occupied by Borrower has ever been used either by Borrower, any tenant or
any predecessor in interest, to generate, treat, store, transport, transfer,
dispose of, release or otherwise handle any Hazardous Material, except in
material compliance with all Environmental Laws.
(k) The principal place of business and chief executive offices of the
Borrower are located at 100 Columbus Boulevard, Hartford, Connecticut 06103.
The Borrower maintains at said location the books and records relating to
the collateral described in the Security Agreement and/or the related
collateral assignments.
(l) There is no condemnation or similar proceeding pending with
respect to or affecting any of the Borrower's properties, and the Borrower
is not aware that any such proceeding is contemplated.
(m) After giving effect to the transactions contemplated hereby, the
Borrower (A) will be able to pay its debts as they become due, (B) will have
funds and capital sufficient to carry on its business as now conducted and
as intended to be conducted, (C) has total assets which exceed total
liabilities, and (D) is not insolvent and will not be rendered insolvent as
determined by applicable law.
(n) Neither this Agreement, nor the financial statements referred to
herein, nor any other agreement, document, certificate or written statement
furnished or to be furnished to the Bank by or on behalf of the Borrower in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. There is no fact within the special knowledge of any of the
officers of the Borrower which has not been disclosed herein or in writing
by them to the Bank and which materially adversely affects or in the future
in their opinion may, insofar as they can now reasonably foresee, materially
adversely affect the business, properties, assets or condition, financial or
other, of the Borrower.
(o) The representations and warranties of the Borrower contained in
16<PAGE>
the Related Documents are hereby incorporated herein by reference; such
representations and warranties are true and correct.
SECTION 7. AFFIRMATIVE COVENANTS OTHER THAN REPORTING REQUIREMENTS.
Without limiting any other covenants and provisions hereof or of any of the
Related Documents, the Borrower covenants and agrees that during the term of
this Agreement and for so long as (i) the Letter of Credit is outstanding
and/or (ii) any Indebtedness of the Borrower to the Bank under this
Agreement or any Related Document remains unpaid:
(a) PAYMENT. The Borrower will pay promptly when due any and all
amounts owing under the Bonds or other Related Documents or owing to the
Bank hereunder.
(b) PRESERVATION OF ASSETS; COMPLIANCE WITH LAW.
(i) Do or cause to be done all things reasonably necessary to
preserve, renew and keep in full force and effect its corporate existence,
rights, licenses, permits and franchises; at all times maintain, preserve
and protect all franchises and trade names and preserve all the remainder of
its property used or useful in the conduct of its business and keep the same
in good repair, working order and condition, and from time to time, make, or
cause to be made, all needful and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times; and
(ii) Comply with all applicable laws, rules, regulations and
orders, whether now in effect or hereafter enacted or promulgated by any
Governmental Authority.
(iii) TAXES, Etc. Pay and discharge or cause to be paid and
discharged, when due, all taxes, assessments and governmental charges or
levies imposed upon it or upon its respective income and profits or upon any
of its property, real, personal or mixed, or upon any part thereof, as well
as all lawful claims for labor, materials and supplies or otherwise, which,
if unpaid, might become a lien or charge upon such properties or any part
thereof, PROVIDED, HOWEVER, Borrower may contest in good faith any such
taxes, assessments and governmental charges or levies, and withhold payment
thereof, if Borrower properly commences and thereafter diligently pursues
the contest.
(d) NOTICE OF PROCEEDINGS. Give prompt written notice to the Bank of
any proceedings instituted against it by or in any Federal or state court or
before any commission or other regulatory body, whether Federal, state or
local.
(e) FINANCIAL REPORTING. Furnish to Bank:
(i) Within ninety (90) days of the end of each fiscal year,
consolidated and consolidating Financial Statements certified (without
qualification) by independent certified public accountants selected by
Borrower and approved by Bank, showing the financial condition at the close
of such fiscal year, the results of operations during such year and
17<PAGE>
containing a statement to the effect that its independent public accountants
have examined the provisions of this Agreement and that no Event of Default,
nor any event which with notice or lapse of time, or both, would constitute
such an Event of Default, has occurred;
(ii) Within sixty (60) days after the end of each quarter in each
such fiscal year, consolidated and consolidating Financial Statements for
such period and the fiscal year to that date, subject to changes resulting
from routine year-end audit adjustments, in form satisfactory to Bank,
prepared and certified by the chief financial officer of Borrower to the
best of his or her information and belief;
(iii) Simultaneously with the furnishing of each of the
Financial Statements to be delivered pursuant to subsections (a) and (b)
above, a certificate in the form of EXHIBIT F hereto and certified by the
President or chief financial officer of Borrower; and
(iv) Promptly, from time to time such other information regarding
its operations, assets, business, affairs and financial condition or the
operations, assets, business, affairs and financial condition of any of its
subsidiaries, as Bank may reasonably request.
(f) VISITATION AND INSPECTION RIGHTS. Permit agents or representatives
of Bank to inspect and to discuss the affairs, finances and accounts of
Borrower with its officers, at any time and from time to time during normal
business hours upon twenty-four hours notice to Borrower, at Borrower s
reasonable expense after an Event of Default (including, without limitation,
the reasonable fees and expenses of such agents or representatives), (i) the
Collateral, and (ii) Borrower s books and records and to make abstracts or
reproductions thereof and to duplicate, reduce to hard copy or otherwise use
any and all computer or electronically stored information or data.
(g) NOTICE OF EVENT OF DEFAULT. Immediately advise Bank of any
Material Adverse Change, or of the occurrence of any Event of Default, or of
the occurrence of any event which upon notice or lapse of time or both would
constitute such an Event of Default.
(h) ACCOUNTING SYSTEM. Maintain a standard system of accounting in
accordance with GAAP.
(i) FINANCIAL COVENANTS.
(i) For purposes of this Section, the following terms shall have
the following definitions and any undefined terms shall be defined in
accordance with GAAP:
(a) "DEBT SERVICE" shall mean for any relevant accounting
period the aggregate amount of principal and interest payments due from
Borrower with respect to its Total Debt.
(b) "DEBT SERVICE COVERAGE RATIO shall mean for any
relevant accounting period the ratio of (x) earnings before interest,
taxes , depreciation, amortization and dividends (EBITDA) plus amounts
received under the Forward Equity Purchase Agreement to (y) Debt
18<PAGE>
Service.
(c) "INTEREST COVERAGE RATIO" shall mean for any relevant
accounting period the ratio of (x) earnings before interest, taxes and
dividends (EBIT) plus amounts received under the Forward Equity
Purchase Agreement to (y) the aggregate amount of interest payments due
from Borrower with respect to its Total Debt.
(d) "SENIOR DEBT" shall mean the Loan, all debt secured PARI
PASSU with the Loan pursuant to the FEPA Assignment Agreement and any
other indebtedness of Borrower owed to Bank, including all debt related
to the Credit Facilities.
(e) "TANGIBLE NET WORTH" shall mean the excess of Borrower s
total assets over its total liabilities computed in accordance with
generally accepted accounting principles consistently applied, less all
intangible assets and deferred charges, including, without limitation,
goodwill, unamortized debt discount, organization expenses, trademarks
and trade names, patents, deferred product development costs, the
Borrower s interests under the Forward Equity Purchase Agreement, and
similar items.
(f) "TOTAL DEBT" shall mean Senior Debt, as well as any of
Borrower s other loan or lease obligations then outstanding.
(ii) At all times during the period the Letter of Credit is
outstanding, Borrower agrees to fulfill each of the following financial
covenants:
(a) Not permit the ratio of Total Debt to Tangible Net Worth
to exceed 2.25 to 1 on a consolidated basis, to be tested quarterly;
(b) Not permit its Tangible Net Worth to be less than
$30,000,000 on a consolidated basis, to be tested annually;
(c) Not permit its Debt Service Coverage Ratio to be less
than 1.25 to 1, as tested quarterly; and
(d) Not permit its Interest Coverage Ratio to be less than
2.5 to 1, as tested quarterly.
(j) BANK AS PRINCIPAL DEPOSITORY. Use Bank as the principal
depository of its funds.
(k) INSURANCE. Keep all of its insurable properties, now or hereafter
owned, adequately insured at all times against loss or damage by fire or
other casualty to the extent customary with respect to like properties of
companies conducting similar businesses; maintain public liability, business
interruption and worker s compensation insurance insuring Borrower to the
extent customary with respect to companies conducting similar businesses,
all by financially sound and reputable insurers.
(l) ENVIRONMENTAL INDEMNIFICATION. With respect to environmental
matters:
19<PAGE>
(i) comply strictly and in all material respects with all
Environmental Laws, and cause all tenants or other occupants of any real
property which Borrower owns or occupies to comply, in all material respects
with all Environmental Laws, and not generate, treat, store, handle,
process, transfer, transport, dispose of, release or otherwise use, and not
permit any tenant or other occupant of such property to generate, treat,
store, handle, process, transfer, transport, dispose of, release or
otherwise use, Hazardous Substances within, on, under or about such property
in a manner that could lead to the imposition on Borrower, Bank or any such
real property of any liability or lien of any nature whatsoever under any
Environmental Laws;
(ii) notify Bank promptly in the event of any Environmental Event,
promptly forward to Bank copies of any notices received by Borrower relating
to any Environmental Event and promptly pay when due any fine or assessment
against Borrower, Bank or any such real property relating to any
Environmental Event, PROVIDED, HOWEVER, Borrower may contest in good faith
any such fine or assessment, and withhold payment thereof, if Borrower
properly commences and thereafter diligently pursues the contest.; and
(iii) indemnify, defend, and hold Bank harmless from and
against any claim, cost, damage (including, without limitation,
consequential damages), expenses (including, without limitation, attorneys
fees and expenses), loss, liability, or judgment now or hereafter arising as
a result of any Environmental Event. Notwithstanding anything contained
herein to the contrary, the provisions of this subparagraph (C) shall
continue in effect and shall survive (among other events) any termination of
this Agreement, payment and satisfaction of the Note, and release of any
Collateral.
(m) The Borrower will use the proceeds of the Loan for the Project,
all as specified in the description of the Project contained in EXHIBIT A.
(n) So long as the Bonds are outstanding, the Borrower will comply
with all of its obligations and agreements under the Loan Agreement.
SECTION 8. NEGATIVE COVENANTS. Without limiting any other
covenants and provisions hereof or of any of the Related Documents, the
Borrower covenants and agrees that during the term of this Agreement and for
so long as (i) the Letter of Credit is outstanding and/or (ii) any
Indebtedness of the Borrower to the Bank under this Agreement or any Related
Document remains unpaid, then, unless the Bank shall have otherwise
consented in writing (which consent may be given or withheld in the Bank's
discretion):
(a) INDEBTEDNESS. Incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any indebtedness, obligation or
liability or permit any of its subsidiaries to incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any
indebtedness, obligation or liability, except for:
(i) indebtedness to Bank, including the debt outstanding under
the Credit Facilities;
20<PAGE>
(ii) indebtedness with respect to trade obligations and other
normal accruals in the ordinary course of business not yet due and payable,
or with respect to which it is contesting in good faith the amount or
validity thereof by appropriate proceedings, and then only to the extent it
has set aside on its books adequate reserves therefor;
(iii) indebtedness for which Borrower has received the prior
written consent of Bank, which consent shall not be unreasonably withheld;
(iv) liens created pursuant to the Security Agreement and the
indebtedness set forth on EXHIBIT G, Existing Indebtedness and Liens
attached hereto and made a part hereof; and
(v) other indebtedness for borrowed money not in excess of
$1,000,000 outstanding at any time; and
(vi) $45,000,000 in 6.99% Senior Secured Notes due 2009.
(b) LIENS. Create, incur, assume or otherwise permit to exist any
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever
on any of its assets, now or hereafter owned by Borrower, except for:
(i) liens securing the payment of taxes, either not yet due or
the validity of which is being contested in good faith by appropriate
proceedings, and as to which it shall have set aside on its books adequate
reserves;
(ii) deposits under worker s compensation, unemployment insurance
and social security laws, or to secure the performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, or to
secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(iii) liens imposed by law, such as carriers , warehousemen s or
mechanics liens, incurred by it in good faith in the ordinary course of
business, and liens arising out of a judgment or award against it with
respect to which it shall currently be prosecuting an appeal, a stay of
execution pending such appeal having been secured;
(iv) liens in favor of Bank;
(v) the liens set forth on the EXHIBIT G Existing Indebtedness
Liens attached hereto and made a part hereof; and
(vi) liens (including liens securing obligations in respect of
capital leases) to secure indebtedness incurred in connection with the
financing of all or part of the purchase price or cost of improvement of
property acquired or improved by the Company or any of its subsidiaries
after the date hereof, provided that the indebtedness secured by said liens
is permitted by Section 8(a) above.
(c) GUARANTEES. Without the consent of the Bank, which shall not be
unreasonably withheld, guarantee, endorse or otherwise in any way become or
be responsible for obligations of any other person, except endorsements of
21<PAGE>
negotiable instruments for collection in the ordinary course of business.
(d) DISPOSITION OF ASSETS. Sell, lease, transfer or otherwise dispose
of its material properties, assets, rights, licenses and franchises to any
person, except for sales of inventory in the ordinary course of its
business, or turn over the management of, or enter a management contract
with respect to, such material properties, assets, rights, licenses and
franchises.
(e) SALE AND LEASEBACKS. Enter into any arrangement, directly or
indirectly, with any person whereby it shall sell or transfer any property,
real, personal or mixed, used or useful in its business, whether now owned
or hereafter acquired, and thereafter rent or lease such property.
(f) INVESTMENTS. Purchase, invest in or otherwise acquire or hold
securities, including, without limitation, capital stock and evidences of
indebtedness of, or make loans or advances to, but excluding from such
prohibition commercial paper rated A/2 or P-2 or better and Euro-Time
deposits, or enter into any arrangement for the purpose of providing funds
or credit to, any other person, except:
(i) advances to employees for business expenses or for personal
needs not to exceed Five Thousand Dollars ($5,000) in the case of any one
(1) employee and not to exceed Fifty Thousand Dollars ($50,000) in the
aggregate to all such employees outstanding at one time; and
(ii) investments in certificates of deposit issued by Bank or in
short-term obligations of the United States.
(g) FUNDAMENTAL CHANGES. Dissolve, liquidate, merge, consolidate or
otherwise alter or modify Borrower s corporate name, mailing address,
principal place of business, structure, status or existence.
(h) DIVIDENDS. Pay any dividends, or make any distribution of cash or
property, or both, to holders of shares of its capital stock, or directly or
indirectly, redeem, purchase or otherwise acquire for a consideration, any
shares of its capital stock, of any class, unless such would not
significantly alter Borrower s financial capabilities or cause a default
under a covenant contained in this Agreement.
(i) ACCOUNTS RECEIVABLE. Sell, assign, pledge, discount or dispose in
any way of any accounts receivable, promissory notes or trade acceptances
held by Borrower, with or without recourse, except for collection (including
endorsements) in the ordinary course of business.
(j) TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or
assets or the rendering or accepting of any service with or to any
subsidiary or affiliate of Borrower except in the ordinary course of
business and pursuant to the reasonable requirements of Borrower s business
and upon terms not less favorable to Borrower than it could obtain in a
comparable arm s-length transaction with a third party other than such
subsidiary or affiliate.
22<PAGE>
(k) ERISA. (a) Fail, or permit any Commonly Controlled Entity to
fail, to comply with the requirements of ERISA with respect to any Employee
Benefit Plan; (b) permit any funded Employee Pension Plan to lose its
qualified status under Section 401(a) or 403(a) of the Code; (c) fail, or
permit any Commonly Controlled Entity to fail, to meet the minimum funding
standards of Section 302 of ERISA and Section 412 of the Code; (d) fail, or
permit any Commonly Controlled Entity to fail, to discharge any obligations
to the PBGC with respect to the termination of an Employee Pension Plan or
to any Multiemployer Plan on account of its withdrawal or partial withdrawal
therefrom or allow to exist any event or condition which presents a
substantial risk of Borrower incurring liability to the PBGC by reason of
the termination of any Employee Pension Plan; (e) create or adopt, or permit
any Commonly Controlled Entity to create or adopt, any new Employee Pension
Plan which would significantly alter Borrower s financial capabilities or
cause a default under a covenant contained in this Agreement without the
prior written consent of Bank; (f) modify, or permit any Commonly Controlled
Entity to modify, any existing Employee Pension Plan so as to increase its
obligations thereunder which would significantly alter Borrower s financial
capabilities or cause a default under a covenant contained in this
Agreement, except in the ordinary course of business consistent with past
practice or with the prior written consent of Bank; (g) create or adopt any
new Employee Welfare Plan or modify any existing Employee Welfare Plan, or
permit any Commonly Controlled Entity to create or adopt any new Employee
Welfare Plan or modify any existing Employee Welfare Plan, to provide
continuing benefits or coverage for any participant (or beneficiary) after
the termination of the participant s employment except as may be required by
COBRA, regulations thereunder or applicable state statutory law which would
significantly alter Borrower s financial capabilities or cause a default
under a covenant contained in this Agreement or with the prior written
consent of Bank; or (h) engage, or permit any Commonly Controlled Entity to
engage, in any transaction which would reasonably result in the assessment
of a direct or indirect liability to Borrower or any Commonly Controlled
Entity under Section 409 or 502 of ERISA or Section 4975 of the Code.
(l) NEGATIVE PLEDGE. Without Bank s consent, which shall not be
unreasonably withheld, (a) sell, transfer, pledge or assign any shares of
stock or other ownership interests in Borrower or any of its subsidiaries or
(b) execute or agree to any further negative pledges of such shares of stock
or other ownership interests in Borrower or any of its subsidiaries.
SECTION 9. Intentionally left blank.
SECTION 10. EVENTS OF DEFAULT. The occurrence of any one or more of
following shall be an Event of Default under this Agreement, unless waived
by the Bank pursuant to Section 12 hereof:
(a) The Borrower shall fail to pay when due any amount payable
hereunder; or
(b) The Borrower shall fail to observe, comply or perform any term,
covenant, condition or agreement contained in any of Sections 3, 7, or 8;
(c) The Borrower shall fail to observe or perform any term, covenant
or agreement contained in this Agreement (other than those referred to in
23<PAGE>
clauses (a) or (b) above) and such failure shall continue for 30 days after
written notice thereof has been given to the Borrower; or
(d) Any representation, warranty or certification made by the Borrower
in this Agreement or in any certificate, financial statement or other
document delivered in connection with or pursuant to this Agreement or any
of the Related Documents shall prove to have been incorrect in any material
respect when made; or
(e) the occurrence of a default or event of default with respect to
any evidence of indebtedness of Borrower (other than to Bank), in excess of
one million dollars ($1,000,000), if the effect of such default is to
accelerate the maturity of such indebtedness or to permit the holder thereof
to cause such indebtedness to become due prior to the stated maturity
thereof, or if any such indebtedness of Borrower is not paid when due and
payable, whether at the due date thereof or by acceleration or otherwise;
(f) the occurrence of an Event of Default as defined in any Security
Document or either of the Credit Facilities;
(g) Borrower shall (i) discontinue or abandon operation of its
business, (ii) apply for or consent to or suffer the appointment of a
receiver, trustee, custodian or liquidator of it or any of its property,
(iii) admit in writing its inability to pay its debts as they mature, (iv)
make a general assignment for the benefit of creditors, (v) file a petition
for relief under Title 11 of the United States Code or (vi) file a petition
in bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if
corporate action shall be taken for the purpose of effecting any of the
foregoing, (vi) become insolvent, (vii) fail to generally pay its debts as
they mature or (viii) have liabilities which exceed the fair value of its
assets;
(h) there shall be filed against Borrower an involuntary petition
seeking reorganization of Borrower or the appointment of a receiver,
trustee, custodian or liquidator of Borrower or any material part of its
assets, or an involuntary petition under any bankruptcy, reorganization or
insolvency law of any jurisdiction, whether now or hereafter in effect;
(i) any judgment or court order for the payment of money in excess of
an aggregate of one million dollars ($1,000,000) shall be rendered against
Borrower in any twelve (12) month period, and either the same shall remain
undischarged for a period of thirty (30) consecutive days, or execution
shall have issued in respect thereof;
(j) the occurrence of any attachment of any deposits or other property
of Borrower in the hands or possession of Bank, or the occurrence of any
attachment of any other property of Borrower in the aggregate amount
exceeding one million dollars ($1,000,000) in any twelve (12) month period
and either the same shall remain undischarged for a period of thirty (30)
consecutive days, or execution shall have issued in respect thereof;
24<PAGE>
(k) for any reason, any Security Document at any time shall not be in
full force and effect in all material respects or shall not be enforceable
in all material respects in accordance with its terms, or any material
security interest or lien granted pursuant thereto shall fail to be
perfected, or any person (other than Bank) shall contest the validity,
enforceability or perfection of any material lien granted pursuant thereto,
or any party thereto (other than Bank) shall seek to disaffirm, terminate,
limit or reduce its obligations under any Security Document; or
(l) Borrower suffers or sustains a Material Adverse Change or Bank in
good faith determines that the prospect of repayment of Borrower s
obligations hereunder is materially impaired; or
(m) for any reason, the ratio of (x) the total debt (the sum of all
short term debt, current maturities of long term indebtedness (CMLTD) and
long-term debt) of CTG Resources, Inc. (the parent of Borrower) to (y) the
capitalization of CTG Resources, Inc., exceeds 70% in any two consecutive
fiscal quarters;
(n) any operating subsidiary of CTG Resources, Inc. fails to maintain
a Standard and Poor s Corporation debt rating at least equal to BBB ;
(o) Any default on the part of the Borrower or any of its Subsidiaries
shall exist, and shall remain unwaived or uncured beyond the expiration of
any applicable notice and/or grace period, under any contract, agreement
(including, without limitation, the documentation for the Line of Credit) or
undertaking now existing or hereafter entered into with or for the benefit
of the Bank or any affiliate of the Bank in any capacity or capacities; or
(p) Any Event of Default (as defined in the Indenture) shall have
occurred or any failure or default shall have occurred under any of the
Related Documents and shall have continued beyond the expiration of any
applicable notice and/or grace period.
If an Event of Default occurs, the Bank may exercise any one or more of
the following rights and remedies (all of which shall be cumulative):
(i) Notify the Trustee of such Event of Default and direct the
Trustee in writing to accelerate the Bonds pursuant to the Indenture,
resulting in the Trustee declaring the principal of such Bonds then
outstanding and the interest accrued thereon immediately due and
payable under the Indenture and in the Trustee drawing under the Letter
of Credit by a Final Drawing, whereupon all amounts drawn under the
Letter of Credit, all Tender Advances, all interest thereon and all
other amounts payable hereunder or in respect hereof shall
automatically be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Borrower.
(ii) Enforce its rights and remedies under the Security Documents.
(iii) Enforce the provisions of this Agreement by legal
proceedings for the specific performance of any covenant or agreement
contained herein or for the enforcement of any other appropriate legal
25<PAGE>
or equitable remedy. The Bank may recover damages caused by any breach
by the Borrower of the provisions of this Agreement, including court
costs, reasonable attorneys' fees and other costs and expenses incurred
in the enforcement of the obligations of the Borrower hereunder.
(iv) Exercise all other rights and remedies which the Bank may
have under any agreement or under applicable law.
(v) Whether or not any acceleration occurs under the Indenture or
any other notice is given to the Trustee, the Bank may give the notice
described in the third grammatical paragraph of the Letter of Credit,
whereupon any Interest Component (as defined in the Letter of Credit)
theretofore drawn and not yet reinstated in accordance with the terms
of the Letter of Credit will not be so reinstated.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence of any
Event of Default, the Bank is hereby authorized at any time or from time to
time, without presentment, demand, protest or other notice of any kind to
the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of any Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank,
under this Agreement or otherwise, if then due and payable. ANY AND ALL
RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT
TO ANY OTHER COLLATERAL WHICH SECURES ANY OF THE BANK OBLIGATIONS PRIOR TO
THE EXERCISE BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
SECTION 11. RIGHT TO CURE. In the event that the Borrower shall fail
to purchase or maintain insurance required hereunder on any of the
collateral or to pay any tax, assessment, governmental charge or levy on any
of the collateral, except as the same may be otherwise permitted hereunder,
or in the event that any lien, encumbrance or security interest on any of
the collateral prohibited hereby shall not be paid in full or discharged, or
in the event that the Borrower shall fail to pay or comply with any other
liability or agreement hereunder, which liability or agreement relates to
any of the collateral or to the Loan or to any obligation of the Borrower to
the Trustee and/or the Issuer, the Bank may, but shall not be required to,
pay, satisfy, perform, discharge or bond the same for the account of the
Borrower, and all moneys so paid and expenses incurred by the Bank shall be
payable to the Bank by the Borrower on demand and shall bear interest from
the date of demand until paid at the lesser of (i) a fluctuating rate per
annum which shall at all times be equal to 4.00% plus the Prime Rate, or
(ii) the maximum rate permitted by then applicable law.
SECTION 12. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in
writing and signed by the party to be charged. Any such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given. The Borrower will not agree or consent to any
amendment to any of the Related Documents without prior written consent of
26<PAGE>
the Bank which shall not be unreasonably withheld. The Borrower will not
initiate or consent to any change in the Mode applicable to the Bonds under
the Indenture to provide for any Mode other than a Weekly Mode (as defined
in the Indenture).
SECTION 13. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing and shall be given to such party,
addressed to it at its address set forth below or such other address as such
party may hereafter specify for the purpose by notice to the other party.
Each such notice, request or communication shall be deemed delivered on the
earliest of (a) the date received or (b) the date of delivery, refusal or
nondelivery indicated on the return receipt if deposited in a United States
Postal Service Depository, postage prepaid, sent certified or registered
mail, return receipt requested. The parties' initial notice addresses are
as follows:
Party Address
----- -------
Borrower: The Energy Network
100 Columbus Avenue
Hartford, Connecticut 06103
Bank: Fleet National Bank
One Federal Street
Mail Stop: MAOFD07B
Boston, MA 02110
Attention: Thomas L. Rose,
Vice President, National Utilities
SECTION 14. NO WAIVER: REMEDIES. No failure on the part of the Bank
to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of
any other right. The provisions of this Agreement are not in limitation of
nor limited by inconsistent or differing provisions contained in the
Security Documents or the indenture or elsewhere, and any rights or remedies
hereunder are cumulative with (and not in exclusion of) all other rights and
remedies hereunder, or arising under any other agreement or provided by law.
The Borrower specifically acknowledges that the Indenture may permit
incurrence of additional Indebtedness and additional liens, permits certain
property dispositions and contemplates other matters which are prohibited by
this Agreement and agrees that, as between the Borrower and the Bank, the
provisions of this Agreement are controlling over the provisions of the
Indenture.
SECTION 15. INDEMNIFICATION. The Borrower hereby agrees to indemnify
and hold harmless the Bank from and against any and all claims, damages,
losses, liabilities, costs or expenses whatsoever which the Bank may incur
(i) by reason of any untrue statement or alleged untrue statement of any
material fact contained or incorporated by reference in any materials
furnished by the Borrower or any other Person (other than the Bank) in
connection with the making of the Loan or the sale of the Bonds, or the
omission or alleged omission to state therein a material fact necessary to
27<PAGE>
make such statements, in light of the circumstances under which they are or
were made, not misleading, or (ii) by reason of or in connection with the
execution and delivery or transfer of, or payment or failure to pay under,
the Letter of Credit, except for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by the gross
negligence or willful misconduct of the Bank in determining whether a
statement or draft presented under the Letter of Credit complies with the
terms of the Letter of Credit or in failing to pay under the Letter of
Credit after presentation to it by the Trustee of a draft and certificate
strictly complying with the terms and conditions of the Letter of Credit.
Further, the Borrower hereby agrees to pay, and to protect, indemnify and
save harmless the Bank and its officers, directors, shareholders, employees,
agents and servants from and against, any and all losses, liabilities
(including liabilities for penalties), actions, suits, judgments, demands,
damages, costs or expenses (including, without limitation, attorneys' fees
and expenses) of any nature arising from or relating to the offering,
issuance, sale or delivery of the Bonds (or any interest in any fund into
which the Bonds are placed), except for any such loss, liability, action,
suit, judgment, demand, damage, cost or expense to the extent, and only to
the extent, resulting from the Bank's gross negligence or willful
misconduct. Nothing in this Section 15 is intended to limit the Borrower's
reimbursement obligation set forth in Section 2 of this Agreement.
SECTION 16. CONTINUING OBLIGATION: SURVIVAL. This Agreement is a
continuing obligation and shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors,
transferees and assigns; PROVIDED, HOWEVER, that the Borrower may not assign
or delegate all or any part of this Agreement without the prior written
consent of the Bank. All representations and warranties of the Borrower
contained herein or made in connection herewith shall survive the making of
this Agreement or any payment made by the Bank under the Letter of Credit.
The Bank may, in accordance with applicable law, from time to time assign or
grant participations in this Agreement and/or the Letter of Credit issued
hereunder. Without limitation of the foregoing generality:
(i) The Bank may at any time pledge all or any portion of its
rights under this Agreement and the Related Documents to any of the 12
Federal Reserve Banks organized under Section 4 of the Federal Reserve
Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof
shall release the Bank from its obligations under this Agreement or
Related Documents.
(ii)The Bank shall have the unrestricted right at any time and
from time to time, and without the consent of or notice to the
Borrower, to grant to one or more banks or other financial institutions
(each, a Participant ) participating interests in the Bank s
obligations hereunder and/or under the Letter of Credit. In the event
of any such grant by the Bank of a participating interest to a
Participant, whether or not upon notice to the Borrower, the Bank shall
remain responsible for the performance of its obligations hereunder and
under the Letter of Credit and the Borrower shall continue to deal
solely and directly with the Bank in connection with the Bank s rights
and obligations hereunder. The Bank may furnish any information
concerning the Borrower in its possession from time to time to
28<PAGE>
prospective assignees and Participants; provided that the Bank shall
require any such prospective assignee or Participant to agree in
writing to maintain the confidentiality of such information to the same
extent as the Bank would be required to maintain such confidentiality.
All covenants and agreements of the Borrower contained herein shall
continue in full force and effect from and after the date hereof until
payment in full of all sums due hereunder. The obligations of the Borrower
pursuant to Section 15 and Section 19 shall survive termination of this
Agreement.
SECTION 17. TRANSFER OF THE LETTER OF CREDIT. The Letter of Credit
may be transferred only in accordance with the provisions set forth therein.
SECTION 18. LIMITED LIABILITY OF THE BANK. The Borrower assumes all
risks of the acts or omissions of the Trustee and any transferee of the
Letter of Credit with respect to the use of the Letter of Credit. Neither
the Bank nor any of its officers, directors, employees or attorneys shall be
liable or responsible for: (a) the use which may be made of the Letter of
Credit or for any acts or omissions of the Trustee or any beneficiary or
transferee in connection therewith; (b) the validity, sufficiency or
genuineness of documents, or of any endorsement(s) thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (c) payment by the Bank against
presentation of documents which do not comply with the terms of the Letter
of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit; or (d) any other circumstances
whatsoever in making or failing to make payment under the Letter of Credit;
PROVIDED that the Borrower shall have a claim against the Bank, and the Bank
shall be liable to the Borrower to the extent, but only to the extent, of
any direct, as opposed to consequential, losses, liabilities or damages
suffered by the Borrower which the Borrower proves were caused by the Bank's
willful misconduct or gross negligence. In furtherance and not in
limitation of the foregoing, the Bank may accept documents that appear on
their face to be in order, without responsibility for further investigation.
Further, and without limitation of the foregoing, the Bank is specifically
authorized to rely upon facsimile copies received by telecopier of any sight
drafts and certificates otherwise complying as to form with the terms and
conditions of the Letter of Credit.
SECTION 19. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand all reasonable costs and expenses (including, without limitation,
reasonable legal fees) of the Bank in connection with the preparation,
negotiation, execution, delivery, filing and recording of this Agreement and
any other documents which may be delivered in connection with this
Agreement, and any amendments or modifications of any of the foregoing, or
in connection with the examination, review or administration of any of the
foregoing, or in connection with the confirmation, perfection and/or
protection of the security interests granted or intended to be granted to
the Bank, as well as the costs and expenses (including, without limitation,
the reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with interpreting, administering, preserving, enforcing or
exercising any rights or remedies under this Agreement, the Security
Agreement and all other instruments and documents to be delivered hereunder,
29<PAGE>
all whether or not legal action is instituted. In addition, the Borrower
shall pay any and all stamp and other taxes and fees payable or determined
to be payable in connection with the execution, delivery, filing and
recording of this Agreement, the Security Agreement and such other
documents, and agrees to save the Bank harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees. The Borrower further agrees to pay,
and to save the Bank harmless from, any and all brokers' fees, investment
bankers' fees and the like which may be asserted in connection with any of
the transactions contemplated by this Agreement. The Bank did not have any
broker or investment banker in connection herewith. Any fees, expenses,
other charges or other payments which the Bank is entitled to receive from
the Borrower hereunder shall bear interest until paid at a fluctuating rate
per annum which shall at all times be equal to the lesser of (i) 4.00% per
annum plus the Prime Rate or (ii) the maximum rate permitted by then
applicable law.
SECTION 20. SEVERABILITY; MISCELLANEOUS. Any provision of this
Agreement which is prohibited, unenforceable or not authorized in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability or non-authorization without invalidating
the remaining provisions hereof or affecting the validity, enforceability or
legality of such provision in any other jurisdiction. Upon receipt of an
affidavit of an officer of the Bank as to the loss, theft, destruction or
mutilation of this Agreement or any Related Document which is not of public
record and, in the case of any such mutilation, upon surrender and
cancellation of such document, the Borrower will issue, in lieu thereof, a
replacement document of like tenor. All agreements between the Borrower and
the Bank are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the Bonds or
otherwise, shall the amount paid or agreed to be paid to the Bank for the
use or the forbearance of any Indebtedness exceed the maximum permissible
under applicable law. In this regard, it is expressly agreed that it is the
intent of the Borrower and the Bank, in the execution, delivery and
acceptance of this Agreement, to contract in strict compliance with the laws
of the State of Connecticut. If, under any circumstances whatsoever,
performance or fulfillment of any provision of this Agreement or any of the
Related Documents at the time such provision is to be performed or fulfilled
shall involve exceeding the limit of validity prescribed by applicable law,
then the obligation so to be fulfilled shall be reduced automatically to the
limits of such validity, and if under any circumstances whatsoever the Bank
should ever receive as interest an amount which would exceed the highest
lawful rate, such amount which would be excessive interest shall be applied
to the reduction of the principal balance of the Bank Obligations and not to
the payment of interest. The provisions of this Section shall control every
other provision of this Agreement and of each Related Document.
SECTION 21. GOVERNING LAW. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
Connecticut.
SECTION 22. CONSENT TO JURISDICTION; JURY TRIAL WAIVER. (a) The
Borrower irrevocably submits to the non-exclusive jurisdiction of any
Connecticut court or any federal court sitting within the State of
30<PAGE>
Connecticut over any suit, action or proceeding arising out of or relating
to this Agreement. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in such a
court and any claim that any such suit, action or proceeding has been
brought in an inconvenient forum. The Borrower agrees that final judgment
in any such suit, action or proceeding brought in such a court shall be
enforced in any court of proper jurisdiction by a suit upon such judgment,
provided that service of process in such action, suit or proceeding shall
have been effected upon the Borrower in one of the manners specified in
paragraph (b) of this Section 22 or as otherwise permitted by law.
(b) The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in paragraph (a) of this
Section 22 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set
forth in Section 13 or (ii) by serving a copy thereof upon it at its address
set forth in Section 13. The Borrower irrevocably waives, to the fullest
extent permitted by law, all claims of error by reason of any service as
contemplated herein and agrees that such service shall be deemed in every
respect effective service upon the Borrower in any such suit, action or
proceeding and, to the fullest extent permitted by law, shall be taken and
held to be valid personal service upon and personal delivery to the
Borrower.
(c) EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE
OTHER ON ANY MATTERS WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER AGREEMENTS EXECUTED IN
CONNECTION HEREWITH OR THE ADMINISTRATION THEREOF OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN). THE PROVISIONS OF THIS SECTION HAVE BEEN
FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT
TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY
OTHER PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED
IN ALL INSTANCES.
SECTION 23. TABLE OF CONTENTS; HEADINGS. The Table of Contents and
Section headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any
other purpose.
31<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered, as an instrument under seal, by their
respective officers thereunto duly authorized, as of the date first above
written.
THE ENERGY NETWORK, INC.
By: S/ Andrew H. Johnson
---------------------------
Name: Andrew H. Johnson
Title: Assistant Vice
President
FLEET NATIONAL BANK
By: S/ Thomas L. Rose
--------------------------
Name: Thomas L. Rose
Title: Vice President
32<PAGE>
EXHIBIT A
Project Description
-------------------
The Connecticut Development Authority (the Authority ) has previously
issued $11,000,000 principal amount of its Industrial Revenue Variable Rate
Demand Bonds (Capitol District Energy Center Project - 1986 Series) (the
1986 Series Bonds ) and $5,300,000 of its Industrial Revenue Variable Rate
demand Bonds (Capitol District Energy Center Project - 1988 Series) (the
1988 Series Bonds ) and together with the 1986 Series Bonds, the Prior
Obligations ) for the purpose of financing the acquisition, constriction and
installation of approximately 20,000 linear feet of pipeline for a local
district hearing and cooling system (the Project ). The Authority proposes
to make a loan from Bond proceeds to the Borrower to assist in the
refinancing of the Project through the refunding of the Prior Obligations.<PAGE>
EXHIBIT B
Letter of Credit
----------------
(See Attached)<PAGE>
IRREVOCABLE DIRECT PAY LETTER OF
CREDIT NO. CS1101345
DATE OF ISSUE: August 27, 1998
ISSUING BANK: APPLICANT:
Fleet National Bank The Energy Network, Inc.
a Member of Fleet Financial 100 Columbus Boulevard
Group Hartford, Connecticut 06144
c/o Fleet Pennsylvania Services
One Fleet Way
Scranton, PA 18507
BENEFICIARY:
State Street Bank and Trust
Company,
as Trustee under Indenture of
Trust Agreement dated as of
August 1, 1998
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Amount/Currency:
Up to USD $10,756,822.00
Up to Ten Million Seven Hundred
Fifty-Six Thousand Eight
Hundred and Twenty-Two
00/100ths US Dollars
Date and Place of Expiry:
August 27, 2000 at the
Issuing Bank
Dear Sirs:
At the request and for the account of our customer, The
Energy Network, Inc., 100 Columbus Boulevard, Hartford,
Connecticut 06144 (the Borrower ), we hereby establish in your
favor, as Trustee under the below-defined Indenture pursuant to
which $10,600,000 in aggregate principal amount of Connecticut
Development Authority Industrial Revenue Variable Rate Demand
Bonds (Capital District Energy Center Project- 1998 Refunding
Series) (the Bonds ) are being issued by the Connecticut
Development Authority (the Issuer ), this Irrevocable Direct Pay
Letter of Credit No. CS1101345 in the amount of $10,756,822 (the
Stated Amount ), of which (1) $10,600,000 (as from time to time
reduced or reinstated as provided in this Letter of Credit, the
Principal Component ) shall support the payment of the principal
or portion of the purchase price corresponding to principal of
the Bonds, and (2) $156,822 (as from time to time reduced or
(continued)
<PAGE>
reinstated as provided in this Letter of Credit, the Interest
Component ) shall support the payment of up to 45 days' interest
on the Bonds or portion of the purchase price corresponding to
interest at an assumed rate of 12% per annum, effective
immediately and expiring at 5:00 P.M. (Scranton time) on the
below-defined Stated Termination Date or earlier as hereinafter
provided. Any payment pursuant to a drawing under this Letter of
Credit will be made by us with our own funds, and not from any
separate funds of the Issuer or the Borrower. As used herein,
the term Indenture will be deemed to mean that certain
Indenture of Trust dated as of August 1, 1998 among the Issuer
and State Street Bank and Trust Company, as trustee (the
Trustee ). As used herein, the term Stated Termination Date
means August 27, 2000.
We hereby irrevocably authorize you to draw on us, in an
aggregate amount not to exceed the amount of this Letter of
Credit set forth above and in accordance with the terms and
conditions and subject to the reductions in amount as hereinafter
set forth, (1) in one drawing per month (subject to the
provisions contained in the next following paragraph) by your
draft (in the form of Annex A attached hereto), payable at sight
on a Business Day, and accompanied by your written and completed
certificate signed by you in the form of Annex B attached hereto
(such draft accompanied by such certificate being your Interest
Drawing ), an amount not exceeding the Interest Component,
computed at an assumed rate of 12% per annum; (2) in one or more
drawings by one or more of your drafts (in the form of Annex A
attached hereto), payable at sight on a Business Day, and
accompanied by your written and completed certificate signed by
you in the form of Annex C attached hereto (any such draft
accompanied by such certificate being your Tender Drawing ), an
aggregate amount not exceeding the sum of the Principal Component
and the Interest Component; (3) in one or more drawings by one or
more of your drafts (in the form of Annex A attached hereto),
payable at sight on a Business Day, and accompanied by your
written and completed certificate signed by you in the form of
Annex D attached hereto (any such draft accompanied by such
certificate being your Partial Redemption Drawing ), an
aggregate amount not exceeding the sum of the Principal Component
and the Interest Component; and (4) in a single drawing by your
draft (in the form of Annex A attached hereto), payable at sight
on a Business Day, and accompanied by your written and completed
certificate signed by you in the form of Annex E attached hereto
(such draft accompanied by such certificate being your Final
Drawing , and any Interest Drawing, Tender Drawing, Partial
Redemption Drawing or Final Drawing referred to herein being a
Drawing ), an amount not exceeding the sum of the Principal
Component and the Interest Component. Each such Drawing shall
cover principal of and/or accrued and unpaid interest on the
Bonds. Business Day means any day (i) that is not a Saturday,
Sunday or legal holiday, (ii) that is a day on which banks are
not required or authorized to close in Hartford, Connecticut or
(continued)
<PAGE>
New York, New York, (iii) that is a day on which banking
institutions in each of the cities in which the principal
corporate trust office of the Trustee, the principal office of
the Remarketing Agent (as defined in the Indenture) and our
principal office are located are not required or authorized to
remain closed and (iv) that is a day on which the New York Stock
Exchange is not closed.
If you shall draw on us by your Interest Drawing under
clause (1) of the first sentence of the immediately preceding
paragraph and you shall not have received from us within ten (10)
calendar days from the date of such drawing a written notice to
the effect that a default exists under our reimbursement
agreement with the Borrower and that the Interest Component of
the Letter of Credit will not be reinstated, your right to draw
on us in a single drawing by your Interest Drawing under said
clause (1) shall be automatically reinstated and, effective the
eleventh (11th) calendar day from the date of such drawing, you
shall again be authorized to draw on us by your Interest Drawing
in accordance with said clause (1); provided, however, that the
Interest Component of this Letter of Credit shall be decreased as
hereinafter provided in connection with amounts drawn pursuant to
Partial Redemption Drawings and any Tender Drawing. The
automatic reinstatement of your right to draw on us by your
Interest Drawing shall be applicable to successive drawings by
your Interest Drawings under clause (1) of the first sentence of
the immediately preceding paragraph so long as this Letter of
Credit shall not have terminated as set forth below.
Upon our honoring any Tender Drawing or Partial Redemption
Drawing presented by you hereunder, (i) the Principal Component
of this Letter of Credit and the amounts available to be drawn
hereunder by you with respect to principal of the Bonds by any
subsequent Drawing shall be automatically decreased by an amount
equal to the Principal Component of such Tender Drawing or
Partial Redemption Drawing, and (ii) the Interest Component of
this Letter of Credit and the amounts available to be drawn
hereunder by you with respect to accrued and unpaid interest on
the Bonds by any subsequent Drawing shall be automatically
decreased by an amount equal to the portion of the Interest
Component relating to Bonds purchased or redeemed with the
proceeds of such Tender Drawing or Partial Redemption Drawing,
but shall automatically reinstate as follows:
(A) with respect to any decrease upon payment of any
Tender Drawing, the amount of the Principal Component of
this Letter of Credit and the portion of the Interest
Component relating thereto shall be increased when and to
the extent, but only when and to the extent, that we are
reimbursed by or on behalf of the Borrower for any amount
drawn hereunder by any Tender Drawing. Any amount received
by us from or on behalf of the Borrower in reimbursement of
amounts drawn hereunder by any Tender Drawing shall, if
(continued)
<PAGE>
accompanied by your completed certificate signed by you in
the form of Annex F attached hereto, be applied to the
extent of the amount indicated therein to reimburse us for
amounts drawn hereunder by your Tender Drawings; and
(B) with respect to any decrease upon payment of any
Partial Redemption Drawing or Final Drawing, the amount of
the Principal Component relating thereto shall not be
reinstated.
Funds from us under this Letter of Credit are available to
you against presentation of your Interest Drawing, your Tender
Drawing, your Partial Redemption Drawing and your Final Drawing.
Each sight draft drawn under this Letter of Credit must bear on
its face the clause Drawn under Fleet National Bank Irrevocable
Direct Pay Letter of Credit No. CS1101345. Each Drawing shall
be presented to us at the following address: Fleet National
Bank, c/o Fleet Pennsylvania Services, Trade Services Operations,
One Fleet Way, Scranton, PA 18507, attention: Standby Letter of
Credit Unit, Mail Code PASCNO4E. A Drawing shall be deemed to
have been presented on the date actually received by us.
Presentation will also be deemed made upon our receipt of your
telecopier transmission to us (at Fax No. (717) 330-4187) of a
facsimile of the appropriate sight draft and drawing certificate
properly completed and signed, together with your undertaking to
send to us by regular U.S. Mail, for receipt on the next
following Business Day, the signed originals of such documents.
Presentation may not be made in any manner other than as provided
in this paragraph. If we receive any of your Drawings (other
than a Tender Drawing) at our aforesaid office, all in strict
conformity with the terms and conditions of this Letter of
Credit, not later than 12:00 noon (New York City time) on a
Business Day (provided that this Letter of Credit has not then
terminated), we will cause payment of same by 1:00 P.M. (New York
City time) on the next following Business Day in accordance with
your payment instructions. If we receive any of your Drawings
(other than a Tender Drawing) at such office, all in strict
conformity with the terms and conditions of this Letter of
Credit, after 12:00 A.M. (New York City time) on a Business Day
(provided that this Letter of Credit has not then terminated), we
will cause payment of same by 12:00 noon (New York City time) on
the second succeeding Business Day in accordance with your
payment instructions. If we receive any Tender Drawing at our
aforesaid office, all in strict conformity with the terms and
conditions of this Letter of Credit, not later than 10:00 A.M.
(New York City time) on any Business Day (provided that this
Letter of Credit has not then terminated), we will cause payment
of same by 2:30 P.M. (New York City time) on the same Business
Day in accordance with your payment instructions. If we receive
any Tender Drawing at such office, all in strict conformity with
the terms and conditions of this Letter of Credit, after 10:00
A.M. (New York City time) on any Business Day (provided that this
Letter of Credit has not then terminated), we will cause payment
(continued)
<PAGE>
of same by 12:00 noon (New York City time) on the next following
Business Day in accordance with your payment instructions. If
requested by you, payment under this Letter of Credit may be made
by wire transfer of Federal Reserve Bank of Boston funds to your
account in a bank on the Federal Reserve wire system or by
deposit of same day funds into a designated account that you
maintain with us. As used in this Letter of Credit cause
payment shall mean (i) the deposit of same day funds into a
designated account with us, if such deposit is requested; or (ii)
if wire transfer is requested, the entry of an appropriate wire
transfer in the Federal Reserve wire system and the obtaining of
a Federal Reserve reference number.
Upon the earliest of (i) our honoring your Final Drawing
presented hereunder accompanied by this Letter of Credit, (ii)
5:00 p.m. (New York City time) on the date on which we receive a
certificate signed by you accompanied by this Letter of Credit
stating that the Borrower has provided and you have accepted a
substitute or replacement Credit Facility (as defined in the
Indenture) in accordance with the terms of the Indenture that is
effective the date of such certificate, or (iii) the Stated
Termination Date, this Letter of Credit shall terminate.
This Letter of Credit is transferable in its entirety (but
not in part) to any transferee whom you certify to us has
succeeded you as Trustee under the Indenture, and may be
successively transferred. Transfer of the available balance
under this Letter of Credit to such transferee shall be effected
by the presentation to us of this Letter of Credit accompanied by
a certificate in the form of Annex G attached hereto. Upon such
presentation, we shall forthwith transfer the same to your
transferee. A transfer fee is payable to us as set forth in our
reimbursement agreement with the Borrower.
This Letter of Credit sets forth in full our undertaking,
and such undertaking shall not in any way be modified, amended,
amplified or limited by reference to any document, instrument or
agreement referred to herein (including, without limitation, the
Bonds), except only the Drawings referred to herein, which are
hereby incorporated by reference; and any such reference shall
not be deemed to incorporate herein by reference any document,
instrument or agreement except for such Drawings.
Only you (or a transferee permitted by the terms of this
Letter of Credit) may make drawings under this Letter of Credit.
Upon the payment to you or to your account of the amount
specified in a sight draft drawn hereunder, we shall be fully
discharged on our obligation under this Letter of Credit with
respect to such draft, and we shall not thereafter be obligated
to make any further payments under this Letter of Credit in
respect of such draft to you or to any other person who may have
made to you or who makes to you a demand for payment of principal
of, or interest on, any Bond.
(continued)
<PAGE>
To the extent consistent with the express provisions hereof,
this Letter of Credit shall be governed by the laws of The
Commonwealth of Massachusetts, except to the extent such laws are
inconsistent with the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, in which event such Uniform Customs
shall govern except as modified hereby (including, without
limitation, the provisions on transferability).
Communications with respect to this Letter of Credit shall
be in writing and shall be addressed to us at Fleet National
Bank, c/o Fleet Pennsylvania Services, Trade Services Operations,
One Fleet Way, Scranton, PA 18507, attention: Standby Letter of
Credit Unit, Mail Code PASCNO4E, and shall specifically refer to
the number of this Letter of Credit.
Very truly yours,
FLEET NATIONAL BANK
By:____________________________________
Authorized Signature<PAGE>
Annex A
-------
[Form of Sight Draft]
DRAWN UNDER FLEET NATIONAL BANK
IRREVOCABLE DIRECT PAY
LETTER OF CREDIT NO. CS1101345
Date:____________
AMOUNT: _______________________
Pay at sight
Pay to the order of ________________________, as trustee 1
(U.S. $_________________)
Charge to account of Fleet National Bank
Irrevocable Direct Pay Letter of Credit No. CS1101345 dated
August 27, 1998
TO: Fleet National Bank
c/o Fleet Pennsylvania Services
Trade Services Operations
One Fleet Way
Scranton, PA 18507
Attention: Standby Letter of Credit Unit
___________________, as Trustee
By:_________________________
Authorized Officer
The signature below constitutes an endorsement of this sight
draft.
___________________, as Trustee
By:_________________________
Authorized Officer
--------------------
1 By wire transfer in immediately available funds for the account
of ______, as trustee (Account No._________).<PAGE>
Annex B
-------
[Form of Certificate for Interest Drawing]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF UP TO 45 DAYS INTEREST
Irrevocable Direct Pay Letter of Credit No. CS1101345
-----------------------------------------------------
The undersigned, a duly authorized officer of the
undersigned Trustee (the 'Trustee'), hereby certifies to Fleet
National Bank (the 'Bank'), with reference to Irrevocable Direct
Pay Letter of Credit No. CS1101345 (the 'Letter of Credit', the
terms defined therein and not otherwise defined herein being used
herein as therein defined) issued by the Bank in favor of the
Trustee, as follows:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Letter of
Credit with respect to a payment of interest on Bonds on an
interest payment date, which payment is due and payable. As
of the record date for such interest payment, none of such
Bonds to which this drawing relates were Borrower Bonds or
Pledged Bonds, as those terms are defined in the Indenture.
(3) [The Interest Drawing of which this Certificate is a
part is the first Interest Drawing presented by the Trustee
under the Letter of Credit, and covers interest on the Bonds
accruing on and after [ ], 1998.]* [The Interest Drawing
last presented by the Trustee under the Letter of Credit was
honored and paid by the Bank on ______, 19 _, and the
Trustee has not received a notice within ten days of
presentation of such Interest Drawing from the Bank that a
default exists under the reimbursement agreement between the
Borrower and the Bank.]**
(4) The amount of the Interest Drawing of which this
Certificate is a part is $_____________. It was computed in
compliance with the terms and conditions of the Bonds and
the Indenture and does not exceed the amount available to be
drawn by the Trustee as the Interest Component under the
Letter of Credit.
________________________
* To be used in the Certificate relating to the first Interest
Drawing only.
** To be used in each Certificate relating to each Interest
Drawing other than the first Interest Drawing.
(continued)
<PAGE>
(5) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to
the payment when due of the interest amount owing on account
of the Bonds on an interest payment date, (b) no portion of
said amount shall be applied by the undersigned for any
other purpose, and (c) no portion of said amount shall be
commingled with other funds held by the undersigned.
IN WITNESS WHEREOF, the Trustee has executed and delivered
this Certificate as of the ___ day of _______________, ____.
[ ], as Trustee
By:_______________________________
Name:
Title:
<PAGE>
Annex C
-------
[Form of Certificate for Tender Drawing]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT OF
THE PURCHASE PRICE OF BONDS TENDERED AT THE OPTION OF
THE HOLDERS THEREOF OR PURSUANT TO MANDATORY TENDER
Irrevocable Direct Pay Letter of Credit No. CS1101345
-----------------------------------------------------
The undersigned, a duly authorized officer of the undersigned
Trustee (the 'Trustee'), hereby certifies to Fleet National Bank (the
'Bank'), with reference to Irrevocable Direct Pay Letter of Credit No.
CS1101345 (the 'Letter of Credit', the terms defined therein and not
otherwise defined herein being used herein as therein defined) issued
by the Bank in favor of the Trustee, as follows:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Letter of Credit
with respect to a payment, upon a tender of all or less than all of
the Bonds that are Outstanding (as defined in the Indenture), of the
unpaid principal amount of, and up to 45 days' accrued and unpaid
interest on, the Bonds to be purchased as a result of [optional tender
pursuant to the terms of Section 2.3(G)(1)c) of the Indenture]
[mandatory tender pursuant to the terms of Section 2.3(G)(1)(d) of the
Indenture]* (other than Borrower Bonds or Pledged Bonds, as those
terms are defined in the Indenture), which payment is due on the date
on which this Certificate and the Tender Drawing of which it is a part
are being presented to the Bank.
(3) The amount of the Tender Drawing of which this Certificate
is a part is equal to the sum of (i) $____________ being drawn in
respect of the payment of unpaid principal of Bonds (other than
Borrower Bonds or Pledged Bonds, as those terms are defined in the
Indenture) to be purchased as a result of a tender, plus (ii)
$___________ being drawn in respect of the payment of accrued and
unpaid interest on such Bonds.
(4) The Trustee shall register or cause to be registered in the
name of the Bank, or its designee, as pledgee of the Borrower, and
shall deliver or cause to be delivered (unless in book-entry form
only) to the Bank or its designee a principal amount of Bonds equal to
the principal amount of the Tender Drawing of which this Certificate
is a part as promptly as practicable, and in any event within three
(3) Business Days after presentation of said Tender Drawing.
_______________________
* Select one
(continued)
<PAGE>
(5) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the purchase price of, and accrued and unpaid
interest on, Bonds tendered pursuant to the Indenture, (b) no portion
of said amount shall be applied by the undersigned for any other
purpose, and (c) no portion of said amount shall be commingled with
other funds held by the undersigned.
(6) The amount of the Tender Drawing of which this Certificate
is a part was computed in compliance with the terms and conditions of
the Bonds and the Indenture and does not exceed the amount available
to be drawn by the Trustee under the Letter of Credit; the amount
being drawn hereby in respect of interest does not exceed the Interest
Component and the amount being drawn hereby in respect of principal
does not exceed the Principal Component.
The Trustee acknowledges that, pursuant to the terms of the
Letter of Credit, upon the Bank's honoring of the Tender Drawing of
which this Certificate is a part, the amount of the Letter of Credit
and the amounts available to be drawn by the Trustee thereunder by any
subsequent Drawing are automatically decreased, subject to
reinstatement as set forth in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____ day of _________________, ____.
[ ], as Trustee
By:_____________________________
Name:
Title:
<PAGE>
Annex D
-------
[Form of Certificate for Partial Redemption Drawing]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL AND UP TO 45 DAYS' INTEREST UPON PARTIAL
REDEMPTION
Irrevocable Direct Pay Letter of Credit No. CS1101345
-----------------------------------------------------
The undersigned, a duly authorized officer of the undersigned
Trustee (the 'Trustee'), hereby certifies to Fleet National Bank (the
'Bank'), with reference to Irrevocable Direct Pay Letter of Credit No.
CS1101345 (the 'Letter of Credit', the terms defined therein and not
otherwise defined herein being used herein as therein defined) issued
by the Bank in favor of the Trustee, as follows:
(1) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Letter of Credit
with respect to a payment, upon redemption of less than all of the
Bonds that are Outstanding (as defined in the Indenture), of the
unpaid principal amount of, and up to 45 days' accrued and unpaid
interest on, the Bonds to be redeemed pursuant to Section 2.4 of the
Indenture (other than Borrower Bonds or Pledged Bonds, as those terms
are defined in the Indenture).
(3) The amount of the Partial Redemption Drawing of which this
Certificate is a part is equal to the sum of (i) $____________ being
drawn in respect of the payment of unpaid principal of Bonds (other
than Borrower Bonds or Pledged Bonds, as those terms are defined in
the Indenture) to be redeemed, plus (ii) $_________ being drawn in
respect of the payment of accrued and unpaid interest on such Bonds.
(4) The amount of the Partial Redemption Drawing of which this
Certificate is a part was computed in accordance with the terms and
conditions of the Bonds and the Indenture and does not exceed the
amount available to be drawn by the Trustee under the Letter of
Credit; the amount being drawn hereby in respect of interest does not
exceed the Interest Component and the amount being drawn hereby in
respect of principal does not exceed the Principal Component.
(5) This Certificate and the Partial Redemption Drawing of which
it is a part are dated, and are being presented to the Bank for
payment on, the date on which the unpaid principal amount of and
interest on Bonds to be redeemed are due and payable under the
Indenture upon redemption of less than all of the Bonds that are
Outstanding (as defined in the Indenture).
(continued)
<PAGE>
(6) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the principal amount of, and accrued and unpaid
interest on, Bonds to be redeemed pursuant to the Indenture, (b) no
portion of said amount shall be applied by the undersigned for any
other purpose, and (c) no portion of said amount shall be commingled
with other funds held by the undersigned.
The Trustee acknowledges that, pursuant to the terms of the
Letter of Credit, upon the Bank's honoring the Partial Redemption
Drawing of which this Certificate is a part, the amount of the Letter
of Credit and the amounts available to be drawn by the Trustee
thereunder by any subsequent Drawing are automatically and permanently
decreased by the amounts set forth in the Letter of Credit. The
Trustee acknowledges that pursuant to the immediately preceding
sentence, the Principal Component of the Letter of Credit is being
permanently reduced by $_____________ (the amount set forth in clause
(i) of Paragraph 3 above) and the maximum amount to which the Interest
Component can be reinstated under the Letter of Credit is being
permanently reduced by $___________ (the product of (x) the amount set
forth in clause (i) of Paragraph 3 above, times (y) 0.12, times (z)
45/365).
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _______ day of _________, ____.
[ ], as Trustee
By:__________________________
Name:
Title:<PAGE>
Annex E
-------
[Form of Certificate for Final Drawing]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT OF PRINCIPAL
AND UP TO 45 DAYS' INTEREST, UPON STATED OR ACCELERATED MATURITY OR
OPTIONAL OR MANDATORY REDEMPTION AS A WHOLE
Irrevocable Direct Pay Letter of Credit No. CS1101345
-----------------------------------------------------
The undersigned, a duly authorized officer of the undersigned
Trustee (the 'Trustee'), hereby certifies to Fleet National Bank (the
'Bank'), with reference to Irrevocable Direct Pay Letter of Credit No.
CS1101345 (the 'Letter of Credit', the terms defined therein and not
otherwise defined herein being used herein as therein defined) issued
by the Bank in favor of the Trustee, as follows:
(l) The Trustee is the Trustee under the Indenture.
(2) The Trustee is making a drawing under the Letter of Credit
with respect to a payment*
[ ] upon stated maturity,
[ ] upon acceleration, pursuant to Section 8.1 of the
Indenture,
[ ] upon optional redemption in whole, pursuant to Section
2.4 of the Indenture,
[ ] upon mandatory redemption in whole, pursuant to Section
2.4 of the Indenture,
of the unpaid principal amount of and up to 45 days' accrued and
unpaid interest on, all of the Bonds that are Outstanding within the
meaning of the Indenture (other than Borrower Bonds or Pledged Bonds,
as those terms are defined in the Indenture).
(3) The amount of the Final Drawing of which this Certificate is
a part is equal to the sum of (i) $_____________ being drawn in
respect of the payment of unpaid principal of Bonds
___________________________
*Check Applicable Section.
(continued)
<PAGE>
(other than Borrower Bonds or Pledged Bonds, as those terms are
defined in the Indenture), plus (ii) $_________ being drawn in respect
of the payment of accrued and unpaid interest on such Bonds.
(4) The amount of the Final Drawing of which this Certificate is
a part was computed in compliance with the terms and conditions of the
Bonds and the Indenture and does not exceed the amount available to be
drawn by the Trustee under the Letter of Credit; the amount being
drawn hereby in respect of interest does not exceed the Interest
Component and the amount being drawn hereby in respect of principal
does not exceed the Principal Component.
(5) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the principal amount of, and accrued and unpaid
interest on, the Bonds pursuant to the Indenture, (b) no portion of
said amount shall be applied by the undersigned for any other purpose,
and (c) no portion of said amount shall be commingled with other funds
held by the undersigned.
The Trustee acknowledges that, pursuant to the terms of the
Letter of Credit, upon the Bank's honoring the Final Drawing of which
this Certificate is a part, the Letter of Credit is automatically
terminated and no further amounts are available to be drawn by the
Trustee thereunder.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____________ day of ____________, ____.
[ ], as Trustee
By:_________________________
Name:
Title:<PAGE>
Annex F
-------
[Form of Reinstatement Certificate for Tender Drawing]
-----------------------------------------------------
CERTIFICATE FOR THE REINSTATEMENT OF AMOUNTS AVAILABLE UNDER
IRREVOCABLE DIRECT PAY LETTER OF CREDIT NO. CS1101345
The undersigned, a duly authorized officer of the undersigned
Trustee (the 'Trustee'), hereby certifies to Fleet National Bank (the
'Bank'), with reference to Irrevocable Direct Pay Letter of Credit No.
CS1101345 (the 'Letter of Credit', the terms defined therein and not
otherwise defined herein being used herein as therein defined) issued
by the Bank in favor of the Trustee, as follows:
(1) The Trustee is the Trustee under the Indenture.
(2) The amount of $__________ paid to you today by or on behalf
of the Borrower is a payment made to reimburse you, pursuant to
Section 2(f) of the Reimbursement Agreement dated as of August 1, 1998
(the Reimbursement Agreement ) among the Borrower and the Bank, for
amounts drawn under the Letter of Credit by Tender Drawings. Of such
amount, $___________ represents the aggregate principal amount of
Bonds resold or to be resold on behalf of the Borrower. The Trustee
hereby requests that you reinstate the Principal Component of the
Letter of Credit upon receipt of such payment in an amount equal to
such principal amount and that you reinstate the portion of the
Interest Component of the Letter of Credit relating to such Bonds.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the __________ day of ___________, ____.
[ ], as Trustee
By:_______________________
Name:
Title:
(continued)
<PAGE>
Annex G
-------
[Form of Transfer Certificate]
-----------------------------
INSTRUCTION TO TRANSFER
[Date]
Fleet National Bank
c/o Fleet Pennsylvania Services
Trade Services Operations
One Fleet Way
Scranton, PA 18507
Attention: Standby Letter of
Credit Unit
Mail Code: PASCNO4E
Re: Fleet National Bank Irrevocable Direct Pay Letter of Credit
No. CS1101345
Ladies and Gentlemen:
For value received, the undersigned beneficiary hereby
irrevocably transfers to the following (the Transferee):
________________________________
[Name of Transferee]
__________________________________
[Address]
all rights of the undersigned beneficiary to draw under the above-
captioned Letter of Credit (the 'Letter of Credit') in its entirety.
The Transferee has succeeded the undersigned as Trustee under the
Indenture (as defined in the Letter of Credit).
By this transfer, all rights of the undersigned beneficiary in
the Letter of Credit are transferred to the Transferee and the
Transferee shall have the sole rights as beneficiary thereof,
including sole rights relating to any amendments of the Letter of
Credit, whether increases in the amount to be drawn thereunder,
extensions of the expiration date thereof, or other amendments, and
whether such amendments now exist or are made after the date hereof.
All amendments of the Letter of Credit are to be delivered directly to
the Transferee without necessity of any consent of or notice to the
undersigned beneficiary. The undersigned hereby certifies that the
(continued)
<PAGE>
Transferee has become successor Trustee under the Indenture, and has
accepted such appointment in writing.
The original of the Letter of Credit is returned herewith, and in
accordance therewith we ask you to endorse the within transfer on the
reverse thereof, and forward it directly to the Transferee with your
customary notice of transfer.
Very truly yours,
[ ], as predecessor Trustee
By:________________________________
Authorized Officer
We certify that we have succeeded [predecessor Trustee] as
trustee under the Indenture.
[Name of Transferee]
By:_______________________________
Authorized Officer
<PAGE>
EXHIBIT C
FORM REQUEST FOR EXTENSION OF TERMINATION DATE
OF LETTER OF CREDIT
-------------------
[date]
Fleet National Bank
One Federal Street
Boston, Massachusetts 02110
Re: Request for Extension of Termination Date of Letter of
------------------------------------------------------
Credit
------
Ladies/Gentlemen:
Reference is hereby made to that certain Reimbursement Agreement, dated
as of August 1, 1998 (the "Agreement"), between The Energy Network, Inc.
(the "Borrower") and Fleet National Bank (the "Bank") and the Letter of
Credit referred to therein. All capitalized terms contained herein which
are not specifically defined shall be deemed to have the definition set
forth in the Agreement. The Institution hereby requests, pursuant to
Section 3(e) of the Agreement, that the Termination Date for the Letter of
Credit be extended by one year. This request is being given not earlier
than the year anniversary of the Letter of Credit and not later than 225
days prior to the scheduled Termination Date. Pursuant to Section 3(e) of
the Agreement, we have enclosed along with this request the following
information:
1. The outstanding principal amount of the Bonds;
2. The nature of any and all Events of Default and all conditions,
events and acts which with notice or lapse of time or both would become an
Event of Default; and
3. Any other pertinent information previously requested by the Bank.
The Bank is required to notify the Borrower, the Issuer, the Trustee
and the Remarketing Agent of its decision with respect to this request for
extension within 30 days of the date of this request. If the Bank fails to
notify the Borrower of its decision within such 30-day period, the Bank
shall be deemed to have rejected such request.
Very truly yours,
The Energy Network, Inc.
By:___________________________
Name:__________________
Title: ___________________
(continued)
<PAGE>
EXHIBIT D
List of Subsidiaries
--------------------
<PAGE>
EXHIBIT E
Litigation
----------
<PAGE>
EXHIBIT F
Financial Statement Certificate
-------------------------------
Fleet National Bank
One Federal Street
Boston, Massachusetts 02110
Attention: Thomas L. Rose, Senior Vice President
Ladies and Gentlemen:
As required by Section 5.04 of that certain 3-Year Revolving Credit
Agreement dated October 1, 1997, by and between The Energy Network, Inc.
( Borrower ) and Fleet National Bank, a review of the activities of Borrower
for the fiscal quarter/fiscal year ended [__________] has been made under my
supervision with a view to determining whether Borrower has kept, observed,
performed and fulfilled all of its obligations under the Revolving Credit
Agreement and all other agreements or undertakings contemplated thereby.
The undersigned hereby certifies that the amounts set forth below, with
abbreviated descriptions, to the best of my information and belief,
accurately present amounts required to be calculated by various covenants of
the Revolving Credit Agreement as of the last day of the fiscal
quarter/fiscal year noted above and all terms used herein have the identical
meaning as in the Revolving Credit Agreement.
1. 7(i)(B)(i) - Total Debt to Tangible Net Worth
---------------------------------------------
Total Debt _______________
Tangible Net Worth _______________
Ratio of Total Debt to Tangible Net Worth _______________
Maximum Permitted 2.25 to 1
2. 7(i)(B)(ii) - Minimum Tangible Net Worth
----------------------------------------
Tangible Net Worth _______________
Minimum Required 30,000,000
<PAGE>
3. 7(i)(B)(iii) Debt Service Coverage Ratio
----------------------------------------
EBITDA plus equity purchase funds _______________
Debt Service _______________
Debt Service Coverage Ratio _______________
Minimum Required 1.25 to 1
4. 7(I)(B)(iv) Interest Coverage Ratio
-----------------------------------
EBIT _______________
Interest expense _______________
Interest Coverage Ratio _______________
Minimum Required 2.5 to 1
5. 10(m) CTG s Debt to Capitalization
-----------------------------------
CTG total debt ________________
CTG capitalization ________________
CTG ratio of debt to capitalization ________________
Maximum Permitted 70%
6. 10(n) S&P Rating of CTG Operating Subsidiaries
-----------------------------------------------
Lowest Standard & Poor s debt rating of each
operating subsidiary of CTG ________________
Minimum Required BBB
The undersigned hereby further certifies that he/she has reviewed the
terms of the Revolving Credit Agreement and that, to the best of his/her
knowledge, no event has occurred which constitutes, or which with the
passage of time or service of notice, or both, would constitute, an Event of
Default as defined in the Revolving Credit Agreement.
Sincerely,
THE ENERGY NETWORK, INC.
By:
Title:
<PAGE>
EXHIBIT G
Existing Other Indebtedness and Liens
-------------------------------------
<PAGE>
APPENDIX C
----------
SUMMARY OF THE REIMBURSEMENT AGREEMENT
THE REIMBURSEMENT AGREEMENT
---------------------------
The Home has entered into a Reimbursement Agreement with the Bank
pursuant to which the Borrower has agreed to reimburse the Bank for sums
drawn on the Letter of Credit and to exercise its right to optionally redeem
the Bonds as described below so long as the Reimbursement Agreement is in
effect. The Reimbursement Agreement also provides for drawing fees,
transfer fees and other fees and charges. The Borrower s obligations under
the Reimbursement Agreement are secured by a pledge and assignment of a
Forward Equity Purchase Agreement with CTG Resources, Inc. (the Security
Documents)
The Reimbursement Agreement sets forth conditions to the issuance of
the Letter of Credit and certain representations and warranties which are to
be true at the closing date. Such representations and warranties include
representations as to: corporate organization; due execution and delivery;
no litigation; compliance with applicable agreements; payment of taxes;
compliance with laws; lack of encumbrances; accuracy of financial
information; no violation of Regulation U; no ERISA violation; no burdensome
contracts; environmental matters; and accuracy of information furnished.
The Reimbursement Agreement also contains affirmative and negative
covenants and reporting requirements. Affirmative covenants of the Home
include: payment of amounts due to the Bank; payment of taxes, charges and
other obligations; maintenance of insurance; maintenance of existence and
qualification; compliance with laws; rights of access; maintenance of proper
books and records; maintenance of property; continued conduct of business
and a prohibition against unrelated new lines of business; maintaining
principal operating accounts at the Bank; providing further assurances;
maintenance of a debt service coverage ratio of not less than 1.25 to 1.00;
maintenance of the ratio of debt to tangible net worth of not less than
2.25:1.00; and use of loan proceeds. Negative covenants include:
limitation on further indebtedness, subject to exceptions and baskets
described therein; limitation on further liens, subject to exceptions
described therein; limitation on guaranties, subject to exceptions described
therein; prohibition against dissolution or merger and limitations on asset
dispositions as described therein; prohibitions against further pledges;
limitations on loans to other persons and investments in other persons,
subject to exceptions described therein; prohibition against sale-leaseback
transactions; limitations on transactions with affiliates; and requirements
relating to environmental hazards. Reporting requirements include
requirements to furnish: annual audited financial statements of the
Borrower; quarterly unaudited financial statements of the Borrower;
compliance certificates; notice of defaults; notice of material litigation;
management letters; notice of ERISA violations; notice of environmental
violations; notice of change in accountants; notice of loss of material
permits; notice of material loss or casualty damage; notice of material
labor problems; notice of other adverse developments; and such other
information as the Bank may request.
The Reimbursement Agreement also sets out certain Events of Default.
These include: (i) failure to pay; (ii) failure to observe affirmative
covenants (including covenants relating to taxes, insurance, corporate
existence and qualification, compliance with laws and observance of
financial ratios), as well as failure to comply with any of the negative<PAGE>
covenants or reporting requirements; (iii) default under any other covenant
for 30 days after notice; (iv) failure of any representation or warranty to
have been true in any material respect; (v) cross-default to other
agreements with the Bank; (vi) cross-default to any subordinated debt or
other indebtedness of the Borrower in excess of $100,000; (vii) dissolution,
bankruptcy, reorganization or similar proceedings involving the Borrower,
any of its subsidiaries or any guarantor, other than involuntary proceedings
dismissed within 60 days; (viii) any attachment, execution or similar
process in excess of $100,000; (ix) material ERISA violations; (x) material
loss, theft, damage or destruction; (xi) material uninsured judgments; (xii)
cross-default to Indenture and Loan Agreement; (xiv) any material
environmental problem; and (xv) any event of default under other agreements
relating to other indebtedness owed to the Bank.
Upon the occurrence of an Event of Default, the Bank may, among other
things: (i) direct the Trustee to accelerate the Bonds; (ii) enforce its
rights under the Security Documents; (iii) enforce its rights against the
Borrower through legal action; and/or (iv) give notice of non-reinstatement
of the interest component of the Letter of Credit.
The Reimbursement Agreement also contains provisions as to the Bank s
right (but not obligation) to cure certain Borrower defaults;
indemnification of the Bank by the Borrower; amendment and waivers; notices
and other miscellaneous provisions.
<PAGE>
CONFORMED COPY
____________________________________________________________________________
THE ENERGY NETWORK, INC.
$15,000,000
6.90% Senior Secured Notes due 2010
__________________
NOTE PURCHASE AGREEMENT
__________________
Dated as of October 14, 1998
____________________________________________________________________________
[Exhibits B, C, D and E are photocopies of the documents as delivered.]<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
1.AUTHORIZATION OF NOTES. . . . . . . . . . . . . . . . . . 1
2.SALE AND PURCHASE OF NOTES. . . . . . . . . . . . . . . . 1
3.CLOSING. . . . . . . . . . . . . . . . . . . . . . . . 1
4.CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . 2
4.1. Representations and Warranties. . . . . . . . 2
4.2. Performance; No Default. . . . . . . . . . . . 2
4.3. Compliance Certificates. . . . . . . . . . . . 2
4.4. Opinions of Counsel. . . . . . . . . . . . . . 3
4.5. Purchase Permitted By Applicable Law, etc. . . 3
4.6. Payment of Special Counsel Fees. . . . . . . . 3
4.7. Private Placement Number. . . . . . . . . . . 3
4.8. Changes in Corporate Structure. . . . . . . . 3
4.9. Credit Rating. . . . . . . . . . . . . . . . . 4
4.10. Subsidiary Guarantees. . . . . . . . . . . . . 4
4.11. Pledge Agreement; Collateral Agency Agreement. 4
4.12. Consent. . . . . . . . . . . . . . . . . . . . 4
4.13. Forward Equity Purchase Agreement. . . . . . . 4
4.14. Support Agreement. . . . . . . . . . . . . . . 4
4.15. Proceedings and Documents. . . . . . . . . . . 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . 5
5.1. Organization; Power and Authority. . . . . . . 5
5.2. Authorization, etc. . . . . . . . . . . . . . 5
5.3. Disclosure. . . . . . . . . . . . . . . . . . 5
5.4. Organization and Ownership of Shares of Subsidiaries;
Affiliates. . . . . . . . . . . . . . . . . . 6
5.5. Financial Statements. . . . . . . . . . . . . 6
5.6. Compliance with Laws, Other Instruments, etc. 7
5.7. Governmental Authorizations, etc. . . . . . . 7
5.8. Litigation; Observance of Agreements, Statutes and
Orders . . . . . . . . . . . . . . . . . . . . 7
5.9. Taxes. . . . . . . . . . . . . . . . . . . . . 7
5.10. Title to Property; Leases; Pledge Agreement. . 8
5.11. Licenses, Permits, etc. . . . . . . . . . . . 8
5.12. Compliance with ERISA. . . . . . . . . . . . . 9
5.13. Private Offering by the Company. . . . . . . . 9
1<PAGE>
5.14. Use of Proceeds; Margin Regulations. . . . . . 10
5.15. Existing Indebtedness; Future Liens. . . . . . 10
5.16. Foreign Assets Control Regulations, etc. . . . 10
5.17. Status under Certain Statutes. . . . . . . . . 11
5.18. Environmental Matters. . . . . . . . . . . . . 11
5.19. Representations in Transaction Documents. . . 11
6. REPRESENTATIONS OF THE PURCHASER. . . . . . . . . . . 12
6.1. Purchase for Investment. . . . . . . . . . . . 12
6.2. Source of Funds. . . . . . . . . . . . . . . . 12
7. INFORMATION AS TO COMPANY. . . . . . . . . . . . . . . 13
7.1. Financial and Business Information. . . . . . 13
7.2. Officer s Certificate . . . . . . . . . . . . 16
7.3. Inspection. . . . . . . . . . . . . . . . . . 16
8. INTEREST ON THE NOTES; PREPAYMENT OF THE NOTES. . . . 17
8.1. Interest on the Notes. . . . . . . . . . . . . 17
8.2. Maturity. . . . . . . . . . . . . . . . . . . 17
8.3. Optional Prepayments with Make-Whole Amount. . 17
8.4. Prepayment in Connection with a Change of Control. 17
8.5. Notices, Etc; Calculation of Make-Whole Amounts. 18
8.6. Allocation of Partial Prepayments. . . . . . . 19
8.7. Maturity; Surrender, etc. . . . . . . . . . . 19
8.8. Purchase of Notes. . . . . . . . . . . . . . . 19
8.9. Make-Whole Amount. . . . . . . . . . . . . . . 19
9. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . 21
9.1. Compliance with Law. . . . . . . . . . . . . . 22
9.2. Insurance. . . . . . . . . . . . . . . . . . . 21
9.3. Maintenance of Properties. . . . . . . . . . . 21
9.4. Payment of Taxes and Claims. . . . . . . . . . 21
9.5. Corporate Existence, etc. . . . . . . . . . . 22
9.6. Subsidiary Guarantees, etc. . . . . . . . . . 22
10. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . 22
10.1. Transactions with Affiliates. . . . . . . . . 22
10.2. Merger, Consolidation, etc. . . . . . . . . . 23
10.3. Consolidated Net Worth. . . . . . . . . . . . 23
10.4. Debt Service Coverage Ratio. . . . . . . . . . 23
10.5. Indebtedness. . . . . . . . . . . . . . . . . 23
10.6. Intercompany Indebtedness. . . . . . . . . . . 24
10.7. Liens. . . . . . . . . . . . . . . . . . . . . 24
2<PAGE>
10.8. Sale and Leasebacks. . . . . . . . . . . . . . 25
10.9. Restricted Payments. . . . . . . . . . . . . . 25
10.10. Amendments, etc. to Forward Equity Purchase
Agreement. . . . . . . . . . . . . . . . . . . 26
11. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . 26
12. REMEDIES ON DEFAULT, ETC. . . . . . . . . . . . . . . 29
12.1. Acceleration. . . . . . . . . . . . . . . . . 29
12.2. Other Remedies. . . . . . . . . . . . . . . . 29
12.3. Rescission. . . . . . . . . . . . . . . . . . 30
12.4. No Waivers or Election of Remedies, Expenses, etc. 30
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. . . . . 30
13.1. Registration of Notes. . . . . . . . . . . . . 30
13.2. Transfer and Exchange of Notes. . . . . . . . 31
13.3. Replacement of Notes. . . . . . . . . . . . . 31
14. PAYMENTS ON NOTES. . . . . . . . . . . . . . . . . . . 32
14.1. Place of Payment. . . . . . . . . . . . . . . 32
14.2. Home Office Payment. . . . . . . . . . . . . . 32
15. EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . 32
15.1. Transaction Expenses. . . . . . . . . . . . . 32
15.2. Survival. . . . . . . . . . . . . . . . . . . 33
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 33
17. AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . 33
17.1. Requirements. . . . . . . . . . . . . . . . . 33
17.2. Solicitation of Holders of Notes. . . . . . . 34
17.3. Binding Effect, etc. . . . . . . . . . . . . . 34
17.4. Notes held by Company, etc. . . . . . . . . . 34
18. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 34
19. REPRODUCTION OF DOCUMENTS. . . . . . . . . . . . . . . 35
20. CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . 35
21. SUBSTITUTION OF PURCHASER. . . . . . . . . . . . . . . 36
3<PAGE>
22. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 37
22.1. Successors and Assigns. . . . . . . . . . . . 37
22.2. Payments Due on Non-Business Days. . . . . . . 37
22.3. Severability. . . . . . . . . . . . . . . . . 37
22.4. Construction. . . . . . . . . . . . . . . . . 37
22.5. Counterparts. . . . . . . . . . . . . . . . . 37
22.6. Governing Law. . . . . . . . . . . . . . . . . 37
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and
Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness/Liens
EXHIBIT 1 -- Form of 6.90% Senior Secured Note due 2010
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the
Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel
for the Purchasers
EXHIBIT A -- Form of Subordination Provisions
EXHIBIT B -- Form of Collateral Agency Agreement
EXHIBIT C -- Form of Consent
EXHIBIT D -- Form of Modification of Forward Equity Purchase
Agreement
4<PAGE>
EXHIBIT E -- Form of Pledge Agreement
EXHIBIT F -- Form of Subsidiary Guarantee
5<PAGE>
THE ENERGY NETWORK, INC.
100 Columbus Blvd.
Hartford, Connecticut 06144
6.90% Senior Secured Notes due 2010
As of October 14, 1998
METROPOLITAN LIFE INSURANCE COMPANY
ONE MADISON AVENUE
NEW YORK, NEW YORK 10010
Ladies and Gentlemen:
THE ENERGY NETWORK, INC., a Connecticut corporation (the
"Company"), agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $15,000,000
aggregate principal amount of its 6.90% Senior Secured Notes due 2010 (the
"Notes", such term to include any such notes issued in substitution therefor
pursuant to Section 13 of this Agreement). The Notes shall be substantially
in the form set out in Exhibit 1, with such changes therefrom, if any, as
may be approved by you and the Company. Certain capitalized terms used in
this Agreement are defined in Schedule B; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit
attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to you and you will purchase from the Company, at the
Closing provided for in Section 3, Notes in the principal amount specified
opposite your name in Schedule A at the purchase price of 100% of the
principal amount thereof.
1<PAGE>
3. CLOSING.
The sale and purchase of the Notes to be purchased by you shall
occur at the offices of Milbank, Tweed, Hadley & McCloy, One Chase Manhattan
Plaza, New York, New York 10005, at 10:00 a.m., New York City time, at a
closing (the "Closing") on October 14, 1998 or on such other Business Day
thereafter on or prior to October 30, 1998 as may be agreed upon by the
Company and you. At the Closing the Company will deliver to you the Notes
to be purchased by you in the form of a single Note (or such greater number
of Notes in denominations of at least $100,000 as you may request) dated the
date of the Closing and registered in your name (or in the name of your
nominee), against delivery by you to the Company or its order of immediately
available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to an
account of the Company designated in a written notice from the Company to
you at least two Business Days in advance of the Closing. If at the Closing
the Company shall fail to tender such Notes to you as provided above in this
Section 3, or any of the conditions specified in Section 4 shall not have
been fulfilled to your satisfaction, you shall, at your election, be re-
lieved of all further obligations under this Agreement, without thereby
waiving any rights you may have by reason of such failure or such nonful-
fillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to
you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:
4.1. Representations and Warranties.
The representations and warranties of the Company in this Agree-
ment and the other Transaction Documents to which the Company is a party
shall be correct when made and at the time of the Closing.
4.2. Performance; No Default.
The Company shall have performed and complied with all agreements
and conditions contained in this Agreement and in each other Transaction
Document to which the Company is a party required to be performed or
complied with by it prior to or at the Closing and after giving effect to
the issue and sale of the Notes (and the application of the proceeds thereof
as contemplated by Section 5.14) no Default or Event of Default shall have
2<PAGE>
occurred and be continuing.
4.3. Compliance Certificates.
(a) OFFICER'S CERTIFICATE. The Company shall have delivered to
you an Officer s Certificate, dated the date of the Closing, certifying that
the conditions specified in Sections 4.1, 4.2 and 4.8 have been fulfilled.
(b) SECRETARY'S CERTIFICATE. Each of the Company, CTG and each
Subsidiary shall have delivered to you a certificate certifying as to the
resolutions attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Transaction Documents to which
it is a party.
4.4. Opinions of Counsel.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Murtha, Cullina,
Richter and Pinney LLP, counsel for the Company, CTG and each Subsidiary,
covering the matters set forth in Exhibit 4.4(a) and covering such other
matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company hereby instructs its counsel
to deliver such opinion to you) and (b) rom Milbank, Tweed, Hadley & McCloy,
your special counsel in connection with such transactions, covering the
matters set forth in Exhibit 4.4(b) and covering such other matters incident
to such transactions as you may reasonably request.
4.5. Purchase Permitted By Applicable Law, etc.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the
New York Insurance Law) permitting limited investments by insurance
companies without restriction as to the character of the particular invest-
ment, (ii) not violate any applicable law or regulation (including, without
limitation, Regulation T, U or X of the Board of Governors of the Federal
Reserve System) and (iii) not subject you to any tax, penalty or liability
under or pursuant to any applicable law or regulation, which law or
regulation was not in effect on the date hereof. If requested by you, you
shall have received an Officer s Certificate certifying as to such matters
of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.
3<PAGE>
4.6. Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company shall
have paid on or before the Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.7. Private Placement Number.
A Private Placement number issued by Standard & Poor s CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained
for the Notes.
4.8. Changes in Corporate Structure.
Neither CTG nor the Company shall have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not
have succeeded to all or any substantial part of the liabilities of any
other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.
4.9. Credit Rating.
You shall have received evidence, in a form satisfactory to you,
that Standard & Poor s and Moody s have assigned ratings of not less than A-
and A3, respectively, to the senior unsecured long-term debt of CNG.
4.10. Subsidiary Guarantees.
Each Subsidiary of the Company shall have executed and delivered a
Subsidiary Guarantee and each such Subsidiary Guarantee shall be in full
force and effect.
4.11. Pledge Agreement; Collateral Agency Agreement.
The Company and the Collateral Agent shall have executed and
delivered the Pledge Agreement and the Pledge Agreement shall be in full
force and effect. The stock certificates identified in Annex 1 to the
Pledge Agreement, together with undated stock powers executed in blank in
connection therewith, shall have been delivered to the Collateral Agent.
All necessary and appropriate filings shall have been made in all necessary
4<PAGE>
and appropriate public offices and all other necessary and appropriate
actions shall have been taken so that the Liens created by the Pledge
Agreement constitute perfected first priority Liens on all right, title and
interest of the Company in the Collateral.
The Collateral Agency Agreement shall have been executed and
delivered by the parties thereto and shall be in full force and effect.
4.12. Consent.
CTG, the Company and the Collateral Agent shall have executed and
delivered the Consent and the Consent shall be in full force and effect.
4.13. Forward Equity Purchase Agreement.
The Company and CTG shall have executed and delivered the
Modification of Forward Equity Purchase Agreement and the Forward Equity
Purchase Agreement as amended thereby shall be in full force and effect.
4.14. Support Agreement.
CTG shall have executed and delivered the Support Agreement and
the Support Agreement shall be in full force and effect.
4.15. Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and the other Transaction
Documents and all documents and instruments incident to such transactions
shall be satisfactory to you and your special counsel, and you and your
special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. Organization; Power and Authority.
The Company is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
5<PAGE>
jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. The Company has the corporate power and
authority to own or hold under lease the properties it purports to own or
hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver this Agreement, the Notes and the other
Transaction Documents to which the Company is a party and to perform the
provisions hereof and thereof. The Company is a wholly-owned Subsidiary of
CTG.
5.2. Authorization, etc.
This Agreement, the Notes and the other Transaction Documents to
which the Company is a party have been duly authorized by all necessary
corporate action on the part of the Company, and this Agreement constitutes,
and upon execution and delivery thereof each Note and each other Transaction
Document to which the Company is a party will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors rights generally and
(ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
5.3. Disclosure.
Except as disclosed in Schedule 5.3, this Agreement, the
documents, certificates or other writings delivered to you by or on behalf
of the Company in connection with the transactions contemplated hereby and
the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. Except as expressly
described in Schedule 5.3, or in one of the documents, certificates or other
writings identified therein, or in the financial statements listed in
Schedule 5.5, since September 30, 1997, there has been no change in the
financial condition, operations, business, properties or prospects of the
Company or any Subsidiary except changes that individually or in the aggre-
gate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected to
have a Material Adverse Effect that has not been set forth herein or in the
other documents, certificates and other writings delivered to you by or on
6<PAGE>
behalf of the Company specifically for use in connection with the
transactions contemplated hereby.
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.
(a) Schedule 5.4 contains (except as noted therein) complete and
correct lists (i) of the Company s Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization,
and the percentage of shares of each class of its capital stock or similar
equity interests outstanding owned by the Company and each other Subsidiary
and (ii) of the Company s Affiliates, other than Subsidiaries.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by
the Company and its Subsidiaries have been validly issued, are fully paid
and nonassessable and are owned by the Company or another Subsidiary free
and clear of any Lien other than the Lien of the Pledge Agreement.
(c) Each Subsidiary identified in Schedule 5.4 is a corporation
or other legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and is duly qualified as
a foreign corporation or other legal entity and is in good standing in each
jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Each such Subsidiary has the corporate
or other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it
transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the
agreements listed on Schedule 5.4 and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to pay
dividends out of profits or make any other similar distributions of profits
to the Company or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
5.5. Financial Statements.
The Company has delivered to each Purchaser copies of the
financial statements listed on Schedule 5.5. All of said financial
statements (including in each case the related schedules and notes) fairly
7<PAGE>
present in all material respects the consolidated financial position of the
Persons indicated therein as of the respective dates specified in such
Schedule and the consolidated results of their operations and cash flows for
the respective periods so specified and have been prepared in accordance
with GAAP consistently applied throughout the periods involved except as set
forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
5.6. Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this
Agreement, the Notes and the other Transaction Documents to which the
Company is a party will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect
of any property of the Company or any Subsidiary under (other than the Lien
of the Pledge Agreement), any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any
other agreement or instrument to which the Company or any Subsidiary is
bound or by which the Company or any Subsidiary or any of their respective
properties may be bound or affected, (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applic-
able to the Company or any Subsidiary or (iii) violate any provision of any
statute or other rule or regulation of any Governmental Authority applicable
to the Company or any Subsidiary.
5.7. Governmental Authorizations, etc.
No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this
Agreement, the Notes or any other Transaction Document to which the Company
is a party, except for filings in respect of the Liens created pursuant to
the Pledge Agreement.
5.8. Litigation; Observance of Agreements, Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect.
8<PAGE>
(b) Neither the Company nor any Subsidiary is in default under
any term of any agreement or instrument to which it is a party or by which
it is bound, or any order, judgment, decree or ruling of any court,
arbitrator or Governmental Authority or is in violation of any applicable
law, ordinance, rule or regulation (including without limitation Environ-
mental Laws) of any Governmental Authority, which default or violation,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.9. Taxes.
The Company and its Subsidiaries have filed all tax returns that
are required to have been filed in any jurisdiction, and have paid all taxes
shown to be due and payable on such returns and all other taxes and assess-
ments levied upon them or their properties, assets, income or franchises, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the
amount of which is not individually or in the aggregate Material or (ii) the
amount, applicability or validity of which is currently being contested in
good faith by appropriate proceedings and with respect to which the Company
or a Subsidiary, as the case may be, has established adequate reserves in
accordance with GAAP. The Company knows of no basis for any other tax or
assessment that could reasonably be expected to have a Material Adverse
Effect. The charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of Federal, state or other taxes for all fiscal
periods are adequate. The Federal income tax liabilities of the Company and
its Subsidiaries have been determined and paid for all fiscal years up to
and including the fiscal year ended September 30, 1997, and have been
audited by the Internal Revenue Service for all fiscal years up to and
including the fiscal year ended September 30, 1988.
5.10. Title to Property; Leases; Pledge Agreement.
The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are
Material, including all such properties reflected in the most recent audited
balance sheet referred to in Section 5.5 or purported to have been acquired
by the Company or any Subsidiary after said date (except as sold or
otherwise disposed of in the ordinary course of business), in each case free
and clear of Liens prohibited by this Agreement. All leases that
individually or in the aggregate are Material are valid and subsisting and
are in full force and effect in all material respects.
The provisions of the Pledge Agreement are effective to create, in
9<PAGE>
favor of the Collateral Agent, a legal, valid and enforceable Lien on or in
all of the Collateral which Lien shall be, upon the retaining or taking of
possession by the Collateral Agent of the applicable stock certificates as
contemplated by Section 5 of the Pledge Agreement and the filing of UCC
financing statements with the Secretary of the State of the State of
Connecticut, a perfected first priority Lien.
5.11. Licenses, Permits, etc.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually
or in the aggregate are Material, without known conflict with the
rights of others;
(b) to the best knowledge of the Company, no product of the
Company or any of its Subsidiaries infringes in any material respect
any license, permit, franchise, authorization, patent, copyright,
service mark, trademark, trade name or other right owned by any other
Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or
any of its Subsidiaries.
5.12. Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to Title
I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in section 3 of ERISA), and
no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by
the Company or any ERISA Affiliate, or in the imposition of any Lien on any
of the rights, properties or assets of the Company or any ERISA Affiliate,
in either case pursuant to Title I or IV of ERISA or to such penalty or
10<PAGE>
excise tax provisions or to section 401(a)(29) or 412 of the Code, other
than such liabilities or Liens as would not be individually or in the aggre-
gate Material.
(b) The present value of the aggregate benefit liabilities under
each of the Plans (other than Multiemployer Plans), determined as of the end
of such Plan s most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan s most recent
actuarial valuation report, did not exceed the aggregate current value of
the assets of such Plan allocable to such benefit liabilities. The term
"BENEFIT LIABILITIES" has the meaning specified in section 4001 of ERISA and
the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning specified in
section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined as
of the last day of the Company s most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated
by section 4980B of the Code) of the Company and its Subsidiaries is not
Material.
(e) The execution and delivery of this Agreement and the issuance
and sale of the Notes hereunder will not involve any transaction that is
subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the
Code. The representation by the Company in the first sentence of this
Section 5.12(e) is made in reliance upon and subject to the accuracy of your
representation in Section 6.2 as to the sources of the funds used to pay the
purchase price of the Notes to be purchased by you.
5.13. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has offered
the Notes or any similar securities for sale to, or solicited any offer to
buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you and one other Institutional
Investor, each of which has been offered the Notes at a private sale for
investment. Neither the Company nor anyone acting on its behalf has taken,
11<PAGE>
or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.
5.14. Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes as
set forth in Schedule 5.14. Taking into account such application of the
proceeds of the sale of the Notes, the purchase of the Notes as contemplated
hereunder will not constitute an extension of credit secured directly or
indirectly by margin stock within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System (12 CFR 221) and you shall not be
obligated to require the Company to execute a Form F.R. G-3 under said
Regulation U. No part of the proceeds from the sale of the Notes hereunder
will be used, directly or indirectly, for the purpose of buying or carrying
or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220). Margin stock does not constitute more than 5% of the value of
the consolidated assets of the Company and its Subsidiaries and the Company
does not have any present intention that margin stock will constitute more
than 5% of the value of such assets. As used in this Section, the terms
"MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings
assigned to them in said Regulation U.
5.15. Existing Indebtedness; Future Liens.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Indebtedness of the Company and
its Subsidiaries as of the date hereof, since which date there has been no
Material change in the amounts, interest rates, sinking funds, installment
payments or maturities of the Indebtedness of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no
waiver of default is currently in effect, in the payment of any principal or
interest on any Indebtedness of the Company or such Subsidiary and no event
or condition exists with respect to any Indebtedness of the Company or any
Subsidiary that would permit (or that with notice or the lapse of time, or
both, would permit) one or more Persons to cause such Indebtedness to become
due and payable before its stated maturity or before its regularly scheduled
dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor
any Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property,
12<PAGE>
whether now owned or hereafter acquired, to be subject to a Lien not
permitted by Section 10.7.
5.16. Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its use
of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or
any enabling legislation or executive order relating thereto.
5.17. Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the Public Utility
Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
5.18. Environmental Matters.
Neither the Company nor any Subsidiary has knowledge of any claim
or has received any notice of any claim, and no proceeding has been
instituted raising any claim against the Company or any of its Subsidiaries
or any of their respective real properties now or formerly owned, leased or
operated by any of them or other assets, alleging any damage to the
environment or violation of any Environmental Laws, except, in each case,
such as could not reasonably be expected to result in a Material Adverse
Effect. Except as otherwise disclosed in CTG s most recent Annual Report on
Form 10-K previously furnished to you,
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any claim, public or private,
of violation of Environmental Laws or damage to the environment
emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of
them or to other assets or their use, except, in each case, such
as could not reasonably be expected to result in a Material
Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or formerly
owned, leased or operated by any of them and has not disposed of
any Hazardous Materials in a manner contrary to any Environmental
13<PAGE>
Laws in each case in any manner that could reasonably be expected
to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased
or operated by the Company or any of its Subsidiaries are in
compliance with applicable Environmental Laws, except where
failure to comply could not reasonably be expected to result in a
Material Adverse Effect.
5.19. Representations in Transaction Documents.
The representations and warranties of the Company in each other
Transaction Document to which the Company is a party and of each Subsidiary
in its Subsidiary Guarantee are true and correct.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. Purchase for Investment.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, PROVIDED that the disposition of your or their
property shall at all times be within your or their control. You understand
that the Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act
or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is re-
quired by law, and that the Company is not required to register the Notes.
6.2. Source of Funds.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used
by you to pay the purchase price of the Notes to be purchased by you
hereunder:
(a) the Source is an "insurance company general account" (as the
term is defined in Prohibited Transaction Exemption ("PTE") 95-60
(issued July 12, 1995)) in respect of which the reserves and
14<PAGE>
liabilities (as defined by the annual statement for life insurance
companies approved by the National Association of Insurance
Commissioners (the "NAIC Annual Statement")) for the general account
contract(s) held by or on behalf of any employee benefit plan together
with the amount of the reserves and liabilities for the general account
contract(s) held by or on behalf of any other employee benefit plans
maintained by the same employer (or affiliate thereof as defined in PTE
95-60) or by the same employee organization in the general account do
not exceed 10% of the total reserves and liabilities of the general
account (exclusive of separate account liabilities) plus surplus as set
forth in the NAIC Annual Statement filed with your state of domicile;
or
(b) the Source is a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to any employee benefit plan (or its
related trust) that has any interest in such separate account (or to
any participant or beneficiary of such plan (including any annuitant))
are not affected in any manner by the investment performance of the
separate account; or
(c) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or
(ii) a bank collective investment fund, within the meaning of the PTE
91-38 (issued July 12, 1991) and, except as you have disclosed to the
Company in writing pursuant to this paragraph (b), no employee benefit
plan or group of plans maintained by the same employer or employee
organization beneficially owns more than 10% of all assets allocated to
such pooled separate account or collective investment fund; or
(d) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of
the QPAM Exemption), no employee benefit plan s assets that are includ-
ed in such investment fund, when combined with the assets of all other
employee benefit plans established or maintained by the same employer
or by an affiliate (within the meaning of Section V(c)(1) of the QPAM
Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed 20% of the total client assets managed by
such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, neither the QPAM nor a person controlling or controlled
by the QPAM (applying the definition of "control" in Section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Company and
15<PAGE>
(i) the identity of such QPAM and (ii) the names of all employee
benefit plans whose assets are included in such investment fund have
been disclosed to the Company in writing pursuant to this paragraph
(d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (f); or
(g) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in
Section 3 of ERISA.
16<PAGE>
7. INFORMATION AS TO COMPANY.
7.1. Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) QUARTERLY STATEMENTS -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), duplicate
copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
stockholder s equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with
such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments;
(b) ANNUAL STATEMENTS -- within 105 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
stockholder s equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied
17<PAGE>
(A) by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all mate-
rial respects, the financial position of the companies being
reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and
(B) a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making
their audit, they have become aware of any condition or event that
then constitutes a Default or an Event of Default, and, if they
are aware that any such condition or event then exists, specifying
the nature and period of the existence thereof (it being
understood that such accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of any Default or
Event of Default unless such accountants should have obtained
knowledge thereof in making an audit in accordance with generally
accepted auditing standards or did not make such an audit);
(c) SEC AND OTHER REPORTS -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company, CTG, any CTG Subsidiary or any
Subsidiary to public securities holders generally, and (ii) each
regular or periodic report (including Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q), each registration statement (without
exhibits except as expressly requested by such holder), and each
prospectus and all amendments thereto filed by the Company, CTG, any
CTG Subsidiary or any Subsidiary with the Securities and Exchange
Commission and of all press releases and other statements made
available generally by the Company, CTG, any CTG Subsidiary or any
Subsidiary to the public concerning developments that are Material;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any
event within five days after a Responsible Officer becoming aware of
the existence of any Default or Event of Default or that any Person has
given any notice or taken any action with respect to a claimed default
hereunder or that any Person has given any notice or taken any action
with respect to a claimed default of the type referred to in Section
11(f), a written notice specifying the nature and period of existence
18<PAGE>
thereof and what action the Company is taking or proposes to take with
respect thereto;
(e) ERISA MATTERS -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations there-
under, for which notice thereof has not been waived pursuant to
such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the
Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty
or excise tax provisions of the Code relating to employee benefit
plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, could reasonably be
expected to have a Material Adverse Effect;
(f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice to the
Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse
Effect; and
(g) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
19<PAGE>
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
7.2. Officer s Certificate.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by
a certificate of a Senior Financial Officer setting forth:
(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.3, 10.4, 10.5, 10.7(i),
10.8 and 10.9 during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and
(b) EVENT OF DEFAULT -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company
or any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Company
shall have taken or proposes to take with respect thereto.
7.3. Inspection.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) NO DEFAULT -- if no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to
discuss the affairs, finances and accounts of the Company and its
20<PAGE>
Subsidiaries with the Company s officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in
writing; and
(b) DEFAULT -- if a Default or Event of Default then exists, at
the expense of the Company, to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent
public accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may be
requested.
8. INTEREST ON THE NOTES; PREPAYMENT OF THE NOTES.
8.1. Interest on the Notes.
(a) Interest will accrue and be payable on the Notes in the
amounts and at the times specified in the first paragraph thereof.
Notwithstanding anything above or in the Notes to the contrary, upon the
occurrence and during the continuance of a Credit Rating Event interest
shall accrue and be payable on the Notes at a rate that is 0.50% per annum
above the rate of interest that would otherwise be applicable to the Notes
pursuant to the first paragraph thereof.
(b) For purposes of subsection (a) above, a "Credit Rating Event"
shall have occurred upon, and shall continue for so long as, (i) the senior
unsecured long-term debt of any CTG Subsidiary shall be rated BBB- or less
by Standard & Poor s or Baa3 or less by Moody s or (ii) the rating of the
senior unsecured long-term debt of all of the CTG Subsidiaries shall have
been withdrawn or otherwise not maintained by Standard & Poor s or Moody s.
8.2. Maturity.
As provided therein, the entire unpaid principal amount of the
Notes shall be due and payable on October 14, 2010.
21<PAGE>
8.3. Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as in Section 8.5,
prepay at any time all, or from time to time any part of, the Notes, in an
amount not less than $1,000,000 in the case of a partial prepayment, at 100%
of the principal amount so prepaid, plus the Make-Whole Amount determined
for the prepayment date with respect to such principal amount.
8.4. Prepayment in Connection with a Change of Control.
(a) Promptly and in any event within five Business Days after any
Responsible Officer has knowledge of the occurrence of a Change of Control,
the Company shall give written notice thereof to the holders of all
outstanding Notes, which notice shall (i) refer specifically to this Section
8.4 and describe the Change of Control in reasonable detail (including the
Persons party thereto), (ii) specify a date not less than 30 days and not
more than 60 days after the date of such notice (the "Control Prepayment
Date") and (iii) offer to prepay on the Control Prepayment Date all (but not
less than all) the Notes, at 100% of the principal amount thereof, together
with interest accrued thereon to the Control Prepayment Date, plus the
applicable Make-Whole Amount determined for the Control Prepayment Date with
respect to such principal amount. Each holder of a Note shall notify the
Company of such holder s acceptance or rejection of such offer by giving
written notice of such acceptance or rejection to the Company on a date (the
"Control Response Date") at least 10 days prior to the Control Prepayment
Date, and the Company shall prepay on the Control Prepayment Date all of the
Notes held by each holder of Notes that has accepted such offer in
accordance with this Section 8.4(a) at a price in respect of each Note held
by such holder equal to 100% of the principal amount thereof, together with
interest accrued thereon to the Control Prepayment Date, plus the applicable
Make-Whole Amount determined for the Control Prepayment Date with respect to
such principal amount; PROVIDED, however, that the failure by a holder of
any Note to respond to such offer in writing on or before the Control
Response Date shall be deemed to be an acceptance of such offer.
(b) A "Change of Control" will be deemed to have occurred for
purposes of Section 8.4(a) if any Person or Persons acting in concert,
together with Affiliates thereof, shall in the aggregate, directly or
indirectly, control or own (beneficially or otherwise) more than 45% of the
total voting power of all classes of CTG s then outstanding voting
securities.
8.5. Notices, Etc; Calculation of Make-Whole Amounts.
22<PAGE>
(a) The Company will give each holder of Notes written notice of
each optional prepayment under Section 8.3 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such
notice shall specify such date, the aggregate principal amount of the Notes
to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid, and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid.
(b) Each notice of optional prepayment pursuant to Section 8.3
and each notice of prepayment pursuant to Section 8.4(a), shall be
accompanied by a certificate of a Senior Financial Officer as to the
estimated applicable Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation, and two Business
Days prior to each such prepayment, the Company shall deliver to each holder
of Notes to be prepaid a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
(c) In the event the Company shall incorrectly determine the
Make-Whole Amount payable in connection with any Note to be prepaid pursuant
to Section 8.3 or 8.4(a) or declared to be immediately due and payable
pursuant to Section 12.1 hereof, the holder of such Note shall not be bound
by such incorrect determination but, instead, shall be entitled to receive
an amount equal to the Make-Whole Amount, if any, determined by the Required
Holders, in the case of Section 8.3, and in all other cases, by such holder
in compliance with the terms of this Agreement, which determination shall
be, absent manifest error, conclusive.
8.6. Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes pursuant to
Section 8.3, the principal amount of the Notes to be prepaid shall be
allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof
not theretofore called for prepayment.
8.7. Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section
8, the principal amount of each Note to be prepaid shall mature and become
due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
23<PAGE>
Make-Whole Amount, if any. From and after such date, unless the Company
shall fail to pay such principal amount when so due and payable, together
with the interest and Make-Whole Amount, if any, as aforesaid, interest on
such principal amount shall cease to accrue. Any Note paid or prepaid in
full shall be surrendered to the Company and cancelled and shall not be
reissued, and no Note shall be issued in lieu of any prepaid principal
amount of any Note.
8.8. Purchase of Notes.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any
of the outstanding Notes except upon the payment or prepayment of the Notes
in accordance with the terms of this Agreement and the Notes. The Company
will promptly cancel all Notes acquired by it or any Affiliate pursuant to
any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for
any such Notes.
8.9. Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Sched-
uled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, PROVIDED that the Make-Whole Amount may in
no event be less than zero. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to Section 8.3 or 8.4 or
has become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal
24<PAGE>
of any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business
Day preceding the Settlement Date with respect to such Called
Principal, on the display designated as Bloomberg Financial Markets
"Page PX7" (or such other display as may replace Bloomberg Financial
Markets Page PX7) for actively traded U.S. Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date, or (ii) if such yields are not reported as
of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported,
for the latest day for which such yields have been so reported as of
the second Business Day preceding the Settlement Date with respect to
such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement
Date. Such implied yield will be determined, if necessary, by (a) con-
verting U.S. Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (b) interpolating
linearly between (1) the actively traded U.S. Treasury security with
the duration closest to and greater than the Remaining Average Life and
(2) the actively traded U.S. Treasury security with the duration
closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with re-
spect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, PROVIDED that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next suc-
ceeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
25<PAGE>
such Settlement Date pursuant to Section 8.3, 8.4 or 12.1.
"Settlement Date" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.3 or 8.4 or has become or is declared to be
immediately due and payable pursuant to Section 12.1, as the context
requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. Compliance with Law.
The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each
of them is subject, including, without limitation, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership
of their respective properties or to the conduct of their respective
businesses, in each case to the extent necessary to ensure that non-compli-
ance with such laws, ordinances or governmental rules or regulations or
failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
9.2. Insurance.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with
respect to their respective properties and businesses against such
casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
26<PAGE>
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar
business and similarly situated.
9.3. Maintenance of Properties.
The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary
wear and tear), so that the business carried on in connection therewith may
be properly conducted at all times, PROVIDED that this Section shall not
prevent the Company or any Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable
in the conduct of its business and the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.4. Payment of Taxes and Claims.
The Company will and will cause each of its Subsidiaries to file
all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all
other taxes, assessments, governmental charges, or levies imposed on them or
any of their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have
become delinquent, and all claims for which sums have become due and payable
that have or might become a Lien on properties or assets of the Company or
any Subsidiary, provided that neither the Company nor any Subsidiary need
pay any such tax or assessment or claims if (i) the amount, applicability or
validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with
GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment
of all such taxes, assessments and claims in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
9.5. Corporate Existence, etc.
Subject to Section 10.2, the Company will at all times preserve
and keep in full force and effect its corporate existence. The Company will
at all times preserve and keep in full force and effect the corporate
existence of each of its Subsidiaries (unless merged into the Company or a
Subsidiary) and all rights and franchises of the Company and its
27<PAGE>
Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise could not, individually or in the
aggregate, have a Material Adverse Effect (it being understood that the
Company may sell or otherwise dispose of ENServe Corporation and KBC Energy
Services of New England (either through the sale of the stock thereof or the
sale of all or substantially all of the assets thereof) and may dissolve ENI
Gas Services, Inc., ENServe Corporation and TEN Gas Services, Inc. in
connection therewith).
9.6. Subsidiary Guarantees, etc.
If on any date the Company or any of its Subsidiaries creates a
Subsidiary or acquires a Person which thereupon becomes a Subsidiary, the
Company shall promptly, and in any event within 30 days of such creation or
acquisition, (i) cause such Subsidiary to execute and deliver to each holder
of a Note a Subsidiary Guarantee and (ii) cause all shares of common stock
of such Subsidiary owned by the Company or another Subsidiary to be pledged
to the Collateral Agent pursuant to the Pledge Agreement.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are out-
standing:
10.1. Transactions with Affiliates.
Except for the Forward Equity Purchase Agreement as in effect on
the date of the Closing, the Company will not and will not permit any
Subsidiary to enter into directly or indirectly any transaction or group of
related transactions (including without limitation the purchase, lease, sale
or exchange of properties of any kind or the rendering of any service) with
any Affiliate (other than the Company or another Subsidiary), except in the
ordinary course and pursuant to the reasonable requirements of the Company s
or such Subsidiary s business and upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm s-length transaction with a Person not an Affiliate.
10.2. Merger, Consolidation, etc.
The Company shall not consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in
a single transaction or series of transactions to any Person unless:
28<PAGE>
(a) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance, transfer or
lease substantially all of the assets of the Company as an entirety, as
the case may be, shall be a solvent corporation organized and existing
under the laws of the United States or any State thereof (including the
District of Columbia), and, if the Company is not such corporation, (i)
such corporation shall have executed and delivered to each holder of
any Notes its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, the Notes
and the other Transaction Documents to which the Company is a party and
(ii) the Company shall have caused to be delivered to each holder of
any Notes an opinion of nationally recognized independent counsel, or
other independent counsel reasonably satisfactory to the Required
Holders, to the effect that all agreements or instruments effecting
such assumption are enforceable in accordance with their terms and
comply with the terms hereof; and
(b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing and
the Company could incur at least $1.00 of interest bearing Indebtedness
under Section 10.5(d).
No such conveyance, transfer or lease of substantially all of the assets of
the Company shall have the effect of releasing the Company or any successor
corporation that shall theretofore have become such in the manner prescribed
in this Section 10.2 from its liability under this Agreement or the Notes.
10.3. Consolidated Net Worth.
The Company will not, at any time, permit Consolidated Net Worth
to be less than 100% of the amount thereof as of September 30, 1997.
10.4. Debt Service Coverage Ratio.
The Company will not, at any time, permit the Debt Service
Coverage Ratio to be less than 1.25 to 1.0.
10.5. Indebtedness.
The Company will not, and will not permit any Subsidiary to,
incur, create, assume or otherwise become or be liable in respect of any
Indebtedness, except
29<PAGE>
(a) the Notes;
(b) the Indebtedness outstanding under the Credit Agreement in an
aggregate principal amount of not greater than $20,000,000;
(c) Indebtedness outstanding on the date hereof as specified in
Schedule 5.15, but not any extension, renewal or refunding thereof
unless permitted by subsection (d) below; and
(d) additional Indebtedness if on the date such Indebtedness is
incurred and after giving effect thereto and to the concurrent
retirement of any Indebtedness the Pro Forma Interest Coverage Ratio
would not be less than 2.0 to 1.0.
10.6. Intercompany Indebtedness.
The Company will not, and will not permit any Subsidiary to,
incur, create, assume or otherwise become liable in respect of any
Indebtedness owing to any Subsidiary (the "Payee Subsidiary") unless the
Payee Subsidiary is a Wholly-Owned Subsidiary and such Indebtedness is
unsecured and is subordinated in right of payment pursuant to subordination
provisions in the form of Exhibit A to (x) in the case of the Company, the
Company s obligations with respect to the Notes and (y) in the case of any
Subsidiary, such Subsidiary s obligations under its Subsidiary Guarantee.
10.7. Liens.
The Company will not, and will not permit any Subsidiary to,
create, assume, incur or suffer to exist any Lien upon or with respect to
any property or assets, whether now owned or hereafter acquired, of the
Company or any Subsidiary, excluding from the operation of this Section:
(a) Liens created pursuant to the Pledge Agreement;
(b) Liens existing on the date hereof securing Indebtedness of
the Company or any Subsidiary outstanding on the date hereof and
specified in Schedule 5.15;
(c) Liens incurred or deposits made in connection with workers
compensation, unemployment insurance and other types of social security
or retirement benefits and Liens (for sums not yet due) of carriers,
warehousemen, mechanics and other similar Liens, in each case incurred
or made in the ordinary course of business and not in connection with
30<PAGE>
the incurrence of Indebtedness;
(d) Liens for taxes, assessments or governmental charges or
levies either not yet due and payable or to the extent that nonpayment
thereof is permitted by the proviso to Section 9.4;
(e) Liens (including Liens securing obligations in respect of
Capital Leases) to secure Indebtedness incurred in connection with the
financing of all or a part of the purchase price or cost of improvement
of property acquired or improved by the Company or a Subsidiary after
the date hereof, PROVIDED that (i) the aggregate principal amount of
Indebtedness secured by such Lien in respect of any such property or
improvement and all other Indebtedness secured by a Lien on such
property or improvement shall not exceed the lesser of (x) the cost of
such property or improvement and (y) the fair market value of such
property or improvement, (ii) such Lien shall not extend to or cover
any other property of the Company or such Subsidiary and (iii) such
Lien shall be created contemporaneously with, or within 12 months
after, the acquisition or improvement of such property;
(f) Liens created by or resulting from any litigation or legal
proceeding that is effectively stayed while the underlying claims are
being contested in good faith by appropriate proceedings and with
respect to which the Company or such Subsidiary has established
adequate reserves on its books in accordance with GAAP;
(g) any extension, renewal or replacement of any Lien described
in Subsections (a), (b) or (e) above, PROVIDED that the principal
amount of Indebtedness secured thereby immediately before giving effect
to such extension, renewal or replacement is not increased and such
Lien is not extended to any other property; and
(h) Liens incurred by the Company or any Subsidiary in addition
to those described in Subsections (a) through (g) above, PROVIDED that,
upon the incurrence thereof and immediately after giving effect
thereto, (x) the aggregate amount of Priority Indebtedness does not
exceed 20% of Consolidated Net Worth and (y) the Company would be able
to incur at least $1.00 of additional interest bearing Indebtedness
under Section 10.5(d).
10.8. Sale and Leasebacks.
The Company will not, and will not permit any Subsidiary to, enter
31<PAGE>
into any Sale and Leaseback Transaction unless, immediately after giving
effect thereto, (x) the aggregate amount of Priority Indebtedness does not
exceed 20% of Consolidated Net Worth and (y) the Company would be able to
incur at least $1.00 of additional interest bearing Indebtedness under
Section 10.5(d).
10.9. Restricted Payments.
The Company will not, and will not permit any Subsidiary to, at
any time, declare or make, or incur any liability to declare or make, any
Restricted Payment unless immediately after giving effect to such action (x)
no Default or Event of Default shall have occurred and be continuing, (y)
the Company would be able to incur at least $1.00 of additional interest
bearing Indebtedness under Section 10.5(d) and (z) the aggregate amount of
Restricted Payments of the Company and its Subsidiaries for the period
commencing on the Closing Date and ending on the date such Restricted
Payment is declared or made, inclusive, would not exceed Consolidated Net
Income for such period.
10.10. Amendments, etc. to Forward Equity Purchase Agreement.
The Company will not (i) terminate, or accept the termination of,
the Forward Equity Purchase Agreement or (ii) other than the Modification of
Forward Equity Purchase Agreement, consent to any amendment, modification,
supplement or waiver to or of the Forward Equity Purchase Agreement without
the written approval of the Required Holders.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or Make-
Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance with
any term contained in Sections 10.3 to 10.10, inclusive; or
32<PAGE>
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) or any other
Transaction Document to which the Company is a party and such default
is not remedied within 30 days after the earlier of (i) a Responsible
Officer obtaining actual knowledge of such default and (ii) the Company
receiving written notice of such Default from any holder of a Note (any
such written notice to be identified as a "notice of default" and to
refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company, CTG, any CTG Subsidiary or any Subsidiary or by
any officer of the Company, CTG, any CTG Subsidiary or any Subsidiary
in this Agreement or any other Transaction Document or in any writing
furnished in connection with the transactions contemplated hereby or
thereby proves to have been false or incorrect in any material respect
on the date as of which made; or
(f) (i) the Company or any CTG Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness (that, in the case of a CTG Subsidiary only, is
outstanding in an aggregate principal amount of at least $1,000,000),
in any case beyond any period of grace provided with respect thereto,
or (ii) the Company or any CTG Subsidiary is in default in the per-
formance of or compliance with any term of any evidence of any
Indebtedness (that, in the case of a CTG Subsidiary only, is
outstanding in an aggregate principal amount of at least $1,000,000),
or of any mortgage, indenture or other agreement relating thereto or
any other condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared (or one or
more Persons are entitled to declare such Indebtedness to be), due and
payable before its stated maturity or before its regularly scheduled
dates of payment, or (iii) as a consequence of the occurrence or
continuation of any event or condition (other than the passage of time
or the right of the holder of Indebtedness to convert such Indebtedness
into equity interests), (x) the Company or any CTG Subsidiary has
become obligated to purchase or repay any Indebtedness before its
regular maturity or before its regularly scheduled dates of payment
(that, in the case of a CTG Subsidiary only, is outstanding in an
aggregate principal amount of at least $1,000,000), or (y) one or more
Persons have the right to require the Company or any CTG Subsidiary so
to purchase or repay such Indebtedness; or
33<PAGE>
(g) CTG, the Company or any CTG Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the ap-
pointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by CTG, the Company or any
CTG Subsidiary, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving
a petition for relief or reorganization or any other petition in bank-
ruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of CTG, the Company or any CTG Subsidiary, or
any such petition shall be filed against CTG, the Company or any CTG
Subsidiary and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against one or more of
the Company and its Subsidiaries and which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within 60 days after the expiration of such stay;
or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabil-
ities" (within the meaning of section 4001(a)(18) of ERISA) under all
34<PAGE>
Plans, determined in accordance with Title IV of ERISA, shall exceed
$1,000,000, (iv) the Company or any ERISA Affiliate shall have incurred
or is reasonably expected to incur any liability pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (v) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or
any Subsidiary establishes or amends any employee welfare benefit plan
that provides post-employment welfare benefits in a manner that would
increase the liability of the Company or any Subsidiary thereunder; and
any such event or events described in clauses (i) through (vi) above,
either individually or together with any other such event or events,
could reasonably be expected to have a Material Adverse Effect; or
(k) any Subsidiary Guarantee ceases to be in full force and
effect or any Subsidiary or any Person acting on behalf of any
Subsidiary contests in any manner the validity, binding nature or
enforceability of its Subsidiary Guarantee; or
(l) the Forward Equity Purchase Agreement ceases to be in full
force and effect on CTG or any Person acting on behalf of CTG contests
in any manner the validity, binding nature or enforceability of such
Agreement or CTG fails to receive sufficient dividends from its
Subsidiaries or proceeds from the sale of CTG stock in the open market
35<PAGE>
to enable it to make all required payments thereunder or CTG otherwise
defaults in the payment or performance of any of its obligations
thereunder; or
(m) the Liens created pursuant to the Pledge Agreement cease to
constitute a valid and perfected first priority Lien on the collateral
intended to be covered thereby in favor of the Collateral Agent or the
Pledge Agreement otherwise ceases to be in full force or effect or the
Company or any Person acting on behalf of the Company contests in any
manner the validity, binding nature or enforceability of the Pledge
Agreement or such Liens; or
(n) the total tangible assets of CTG and its Subsidiaries
determined on a consolidated basis in accordance with GAAP (as reported
on the balance sheet included in CTG s most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission) are less
than $400,000,000 or the tangible net worth of CTG and its Subsidiaries
determined on a consolidated basis in accordance with GAAP is less than
$100,000,000; or
(o) CTG ceases to own free and clear of any Lien all of the
outstanding shares of common stock of each of the Company and CNG; or
(p) CTG incurs, creates, assumes, guarantees or otherwise becomes
liable with respect to any Indebtedness.
As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
36<PAGE>
12. REMEDIES ON DEFAULT, ETC.
12.1. Acceleration.
(a) If an Event of Default with respect to the Company described
in paragraph (g) or (h) of Section 11 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause (i)
of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing,
the Required Holders may at any time at its or their option, by notice or
notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by such Event of Default may at any time, at
its or their option, by notice or notices to the Company, declare all the
Notes held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued
and unpaid interest thereon and (y) the Make-Whole Amount determined in
respect of such principal amount (to the full extent permitted by applicable
law), shall all be immediately due and payable, in each and every case
without presentment, demand, protest or further notice, all of which are
hereby waived. The Company acknowledges, and the parties hereto agree, that
each holder of a Note has the right to maintain its investment in the Notes
free from repayment by the Company (except as herein specifically provided
for) and that the provision for payment of a Make-Whole Amount by the
Company in the event that the Notes are prepaid or are accelerated as a
result of an Event of Default, is intended to provide compensation for the
deprivation of such right under such circumstances.
12.2. Other Remedies.
If any Default or Event of Default has occurred and is continuing,
and irrespective of whether any Notes have become or have been declared
immediately due and payable under Section 12.1, the holder of any Note at
the time outstanding may proceed to protect and enforce the rights of such
37<PAGE>
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in
any Note, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or otherwise.
12.3. Rescission.
At any time after any Notes have been declared due and payable
pursuant to paragraph (b) or (c) of Section 12.1, the Required Holders, by
written notice to the Company, may rescind and annul any such declaration
and its consequences if (a) the Company has paid all overdue interest on the
Notes, all principal of and Make-Whole Amount, if any, on any Notes that are
due and payable and are unpaid other than by reason of such declaration, and
all interest on such overdue principal and Make-Whole Amount, if any, and
(to the extent permitted by applicable law) any overdue interest in respect
of the Notes, at the Default Rate, (b) all Events of Default and Defaults,
other than non-payment of amounts that have become due solely by reason of
such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment
of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 12.3 will extend to or affect any subsequent
Event of Default or Default or impair any right consequent thereon.
12.4. No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder s rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof or by any other Transaction Document to which the Company is
a party shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by
statute or otherwise. Without limiting the obligations of the Company under
Section 15, the Company will pay to the holder of each Note on demand such
further amount as shall be sufficient to cover all costs and expenses of
such holder incurred in any enforcement or collection under this Section 12,
including, without limitation, reasonable attorneys fees, expenses and
disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. Registration of Notes.
38<PAGE>
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The
name and address of each holder of one or more Notes, each transfer thereof
and the name and address of each transferee of one or more Notes shall be
registered in such register. Prior to due presentment for registration of
transfer, the Person in whose name any Note shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes hereof,
and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and
correct copy of the names and addresses of all registered holders of Notes.
13.2. Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of
the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of
such Note or his attorney duly authorized in writing and accompanied by the
address for notices of each transferee of such Note or part thereof), the
Company shall execute and deliver, at the Company s expense (except as
provided below), one or more new Notes (as requested by the holder thereof)
in exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially
in the form of Exhibit 1. Each such new Note shall be dated and bear
interest from the date to which interest shall have been paid on the surren-
dered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient
to cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations of less
than $100,000, PROVIDED that if necessary to enable the registration of
transfer by a holder of its entire holding of Notes, one Note may be in a
denomination of less than $100,000. Any transferee, by its acceptance of a
Note registered in its name (or the name of its nominee), shall be deemed to
have made the representation set forth in Section 6.2.
13.3. Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any
Note (which evidence shall be, in the case of an Institutional Investor,
notice from such Institutional Investor of such ownership and such loss,
theft, destruction or mutilation), and
39<PAGE>
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $50,000,000, such Person s
own unsecured agreement of indemnity shall be deemed to be satis-
factory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a
new Note, dated and bearing interest from the date to which interest shall
have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest
shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole Amount,
if any, and interest becoming due and payable on the Notes shall be made in
Hartford, Connecticut at the principal office of the Company in such
jurisdiction. The Company may at any time, by notice to each holder of a
Note, change the place of payment of the Notes so long as such place of
payment shall be either the principal office of the Company in such
jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
14.2. Home Office Payment.
So long as you or your nominee shall be the holder of any Note,
and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation
thereon, except that upon written request of the Company made concurrently
with or reasonably promptly after payment or prepayment in full of any Note,
you shall surrender such Note for cancellation, reasonably promptly after
any such request, to the Company at its principal executive office or at the
40<PAGE>
place of payment most recently designated by the Company pursuant to Section
14.1. Prior to any sale or other disposition of any Note held by you or
your nominee you will, at your election, either endorse thereon the amount
of principal paid thereon and the last date to which interest has been paid
thereon or surrender such Note to the Company in exchange for a new Note or
Notes pursuant to Section 13.2. The Company will afford the benefits of
this Section 14.2 to any Institutional Investor that is the direct or
indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in
this Section 14.2.
15. EXPENSES, ETC.
15.1. Transaction Expenses.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including
reasonable attorneys fees of a special counsel and, if reasonably required,
local or other counsel) incurred by you and each holder of a Note in
connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement, the Notes or any
other Transaction Document (whether or not such amendment, waiver or consent
becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how
to enforce or defend) any rights under this Agreement, the Notes or any
other Transaction Document or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
Agreement, the Notes or any other Transaction Document, or by reason of
being a holder of any Note, and (b) the costs and expenses, including
financial advisors fees, incurred in connection with the insolvency or
bankruptcy of the Company or any Subsidiary or in connection with any work-
out or restructuring of the transactions contemplated hereby and by the
Notes. The Company will pay, and will save you and each other holder of a
Note harmless from, all claims in respect of any fees, costs or expenses if
any, of brokers and finders (other than those retained by you).
15.2. Survival.
The obligations of the Company under this Section 15 will survive
the payment or transfer of any Note, the enforcement, amendment or waiver of
any provision of this Agreement or the Notes, and the termination of this
Agreement.
41<PAGE>
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive
the execution and delivery of this Agreement and the Notes, the purchase or
transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a
Note, regardless of any investigation made at any time by or on behalf of
you or any other holder of a Note. All statements contained in any certifi-
cate or other instrument delivered by or on behalf of the Company pursuant
to this Agreement or any other Transaction Document to which the Company is
a party shall be deemed representations and warranties of the Company under
this Agreement. Subject to the preceding sentence, this Agreement, the
Notes and the Transaction Documents embody the entire agreement and
understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. Requirements.
This Agreement and the Notes may be amended, and the observance of
any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and
the Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as
it is used therein), will be effective as to you unless consented to by you
in writing, and (b) no such amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby,
(i) subject to the provisions of Section 12 relating to acceleration or
rescission, change the amount or time of any prepayment or payment of
principal of, or reduce the rate or change the time of payment or method of
computation of interest or of the Make-Whole Amount on, the Notes,
(ii) change the percentage of the principal amount of the Notes the holders
of which are required to consent to any such amendment or waiver, or
(iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.
17.2. Solicitation of Holders of Notes.
(a) SOLICITATION. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required,
to enable such holder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of
42<PAGE>
the provisions hereof or of the Notes. The Company will deliver executed or
true and correct copies of each amendment, waiver or consent effected
pursuant to the provisions of this Section 17 to each holder of outstanding
Notes promptly following the date on which it is executed and delivered by,
or receives the consent or approval of, the requisite holders of Notes.
(b) PAYMENT. The Company will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder
of Notes as consideration for or as an inducement to the entering into by
any holder of Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security
is concurrently granted, on the same terms, ratably to each holder of Notes
then outstanding even if such holder did not consent to such waiver or
amendment.
17.3. Binding Effect, etc.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them
and upon each future holder of any Note and upon the Company without regard
to whether such Note has been marked to indicate such amendment or waiver.
No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or
waived or impair any right consequent thereon. No course of dealing between
the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights
of any holder of such Note. As used herein, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
17.4. Notes held by Company, etc.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any
of its Affiliates shall be deemed not to be outstanding.
18. NOTICES.
43<PAGE>
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid) or (b) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other
address as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of the Chief Financial
Officer, or at such other address as the Company shall have specified
to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually
received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may
hereafter be executed, (b) documents received by you at the Closing (except
the Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to you, may be reproduced by
you by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and you may destroy any original
document so reproduced. The Company agrees and stipulates that, to the
extent permitted by applicable law, any such reproduction shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by you in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting
any such reproduction to the same extent that it could contest the original,
or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
44<PAGE>
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information"
means information delivered to you by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received
by you as being confidential information of the Company or such Subsidiary,
PROVIDED that such term does not include information that (a) was publicly
known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or
any person acting on your behalf, (c) otherwise becomes known to you other
than through disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to you under Section 7.1 that are otherwise
publicly available. You will maintain the confidentiality of such Confiden-
tial Information in accordance with procedures adopted by you in good faith
to protect confidential information of third parties delivered to you,
PROVIDED that you may deliver or disclose Confidential Information to
(i) your directors, officers, employees, agents, attorneys and affiliates
(to the extent such disclosure reasonably relates to the administration of
the investment represented by your Notes), (ii) your financial advisors and
other professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 20,
(iii) any other holder of any Note, (iv) any Institutional Investor to which
you sell or offer to sell such Note or any part thereof or any participation
therein (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 20),
(v) any Person from which you offer to purchase any security of the Company
(if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires
access to information about your investment portfolio or (viii) any other
Person to which such delivery or disclosure may be necessary or appropriate
(w) to effect compliance with any law, rule, regulation or order applicable
to you, (x) in response to any subpoena or other legal process, (y) in
connection with any litigation to which you are a party or (z) if an Event
of Default has occurred and is continuing, to the extent you may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under your
Notes and this Agreement. Each holder of a Note, by its acceptance of a
Note, will be deemed to have agreed to be bound by and to be entitled to the
45<PAGE>
benefits of this Section 20 as though it were a party to this Agreement. On
reasonable request by the Company in connection with the delivery to any
holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that
is a party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates
as the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and
such Affiliate, shall contain such Affiliate s agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon
receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so
substituted as a purchaser hereunder and such Affiliate thereafter transfers
to you all of the Notes then held by such Affiliate, upon receipt by the
Company of notice of such transfer, wherever the word "you" is used in this
Agreement (other than in this Section 21), such word shall no longer be
deemed to refer to such Affiliate, but shall refer to you, and you shall
have all the rights of an original holder of the Notes under this Agreement.
22. MISCELLANEOUS.
22.1. Successors and Assigns.
All covenants and other agreements contained in this Agreement by
or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
22.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount or
interest on any Note that is due on a date other than a Business Day shall
be made on the next succeeding Business Day without including the additional
days elapsed in the computation of the interest payable on such next
succeeding Business Day.
46<PAGE>
22.3. Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by
law) not invalidate or render unenforceable such provision in any other
jurisdiction.
22.4. Construction.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by
such Person.
22.5. Counterparts.
This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6. Governing Law.
This Agreement shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of
Connecticut excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
* * * * *
47<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.
Very truly yours,
THE ENERGY NETWORK, INC.
By: James P. Bolduc
Title:Executive Vice President and
Chief Financial Officer
The foregoing is hereby
agreed to as of the
date thereof.
METROPOLITAN LIFE INSURANCE COMPANY
By: Gerald P. Marcus
Title: Director
48<PAGE>
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
----------------------------- ---------------------
METROPOLITAN LIFE INSURANCE COMPANY$15,000,000
(1)All payments on or in respect
of the Notes to be by bank wire
transfer of Federal or other
immediately available funds, for
receipt not later than 12:00 noon
(New York time) on the
date payment is due, to:
The Chase Manhattan Bank
33 East 23rd Street
New York, NY 10010
Account No.: 002-2-410591
ABA No.: 021000021
Each such wire transfer shall set forth the name of The Energy Network,
Inc., the full title (including the coupon rate and final maturity date) of
the Notes, a reference to the PPN, and the due date and application (as
among principal, premium and interest) of the payment being made.
(2)Address for all notices and other communications:
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
Telephone No. (212) 578-5705
Telecopier No. (212) 578-0266
Attention: Treasurer<PAGE>
SCHEDULE A
----------
With a duplicate copy to:
Metropolitan Life Insurance Company
334 Madison Avenue
Convent Station, New Jersey 07961
Telephone: (201) 254-3000
Telecopier: (201) 254-3050
Attention: Vice President - Private Placement Unit
(3) Tax Identification No.: 13-5581829<PAGE>
DEFINED TERMS
-------------
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person,
(a) any other Person that at such time directly or indirectly through one or
more intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person, and (b) any Person beneficially owning or
holding, directly or indirectly, 5% or more of any class of voting or equity
interests of the Company or any Subsidiary or any corporation of which the
Company and its Subsidiaries beneficially own or hold, in the aggregate,
directly or indirectly, 5% or more of any class of voting or equity
interests. As used in this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "Affiliate" is a reference to an Affiliate of
the Company.
"ATTRIBUTABLE DEBT" means, as to any particular lease relating to
a Sale and Leaseback Transaction, the present value of all lease rentals
required to be paid by the Company or any Subsidiary under such lease during
the remaining term thereof (determined in accordance with generally accepted
financial practice using a discount factor equal to the interest rate
implicit in such lease).
"BANK" means Fleet National Bank, a national banking association.
"BUSINESS DAY" means (a) for the purposes of Section 8.9 only, any
day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed, and (b) for the
purposes of any other provision of this Agreement, any day other than a
Saturday, a Sunday or a day on which commercial banks in New York City or
Hartford, Connecticut are required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as lessee under
such Capital Lease which would, in accordance with GAAP, appear as a
liability on a balance sheet of such Person.
"CHANGE OF CONTROL" is defined in Section 8.4.
"CLOSING" is defined in Section 3.
"CNG" means Connecticut National Gas Corporation, a Connecticut<PAGE>
SCHEDULE B
----------
corporation.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time
to time.
"COLLATERAL" has the meaning assigned to such term in the Pledge
Agreement.
"COLLATERAL AGENCY AGREEMENT" means the Amended and Restated
Collateral Agency Agreement dated as of the date hereof between the
Collateral Agent, the Bank, and the purchasers party thereto, substantially
in the form of Exhibit B, as amended, supplemented or otherwise modified
from time to time.
"COLLATERAL AGENT" means State Street Bank and Trust Company in
its capacity as collateral agent pursuant to the Collateral Agency
Agreement.
"COMAPNY" means The Energy Network, Inc., a Connecticut
corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSENT" means the Amended and Restated Consent of CTG and
Agreement dated as of the date hereof, substantially in the form of Exhibit
C, as amended, supplemented or otherwise modified from time to time.
"CONSOLIDATED ADJUSTED EBITDA" means, with respect to any period,
the sum of (i) Consolidated Net Income for such period, (ii) all FEPA
Payments received by the Company during such period and (iii) all amounts
deducted in the computation of Consolidated Net Income for such period on
account of (w) Interest Charges, (x) taxes imposed on or measured by income,
(y) depreciation and (z) amortization.
"CONSOLIDATED NET INCOME" means, with respect to an period, the
net earnings (or loss) of the Company and its Subsidiaries for such period,
determined for each in accordance with, and consolidated in accordance with,
GAAP, excluding:
(i) proceeds of life insurance policies;
(ii) gains arising from (a) the sale or disposition of any assets
which are not current assets, (b) any write-up subsequent to the
Closing Date in the book value of any asset owned by the Company or a
Subsidiary and (c) the acquisition of debt securities for a cost less
than principal and accrued interest;
(iii) the net income of any Person other than a Subsidiary in which<PAGE>
SCHEDULE B
----------
the Company or a Subsidiary has any form of equity interest, except to
the extent such Person s net income has been actually distributed and
received by the Company or a Subsidiary in the form of cash or other
property (the latter valued at the fair market value thereof at time of
distribution as determined by the Company s independent public
accountants);
(iv) earnings of any Subsidiary accrued prior to the date it
became a Subsidiary;
(v) any portion of the net earnings of any Subsidiary which for
any reason is unavailable for payment of dividends to the Company or
any other Subsidiary;
(vi) extraordinary gains and losses (including, without
limitation, capital gains or losses in aggregate amounts exceeding
$100,000 in any one fiscal year, and extraordinary charges or credits);
(vii) any amounts paid or payable in any currency that at the time
of determination of Consolidated Net Income is not fully convertible
into United States dollars;
(viii) net earnings of any successor to or transferee corporation of
the Company prior to consummation of the transaction that resulted in
such consolidation, merger or transfer of assets;
(ix) any deferred credit (or amortization of a deferred credit)
arising from the acquisition in any manner of any other Person; and
(x) income from any transactions with any Affiliates of the
Company unless received in cash.
"CONSOLIDATED NET WORTH" means the consolidated stockholder s
equity of the Company and its Subsidiaries determined in accordance with
GAAP.
"CREDIT AGREEMENT" means, collectively, the 364-Day Revolving
Credit Agreement and the 3-Year Revolving Credit Agreement, each dated as of
October 1, 1997 between the Company and the Bank.
"CTG" means CTG Resources, Inc., a Connecticut corporation.
"CTG SUBSIDIARY" means any Subsidiary of CTG other than the
Company.
"DEBT SERVICE" means, with respect to any period, the sum of the
following: (i) Interest Charges for such period and (ii) all payments of
principal in respect of Indebtedness of the Company and its Subsidiaries
(including the principal component of any payments in respect of Capital<PAGE>
SCHEDULE B
----------
Lease Obligations) paid or payable during such period after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and
all other items required to be eliminated in the course of the preparation
of consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP.
"DEBT SERVICE COVERAGE RATIO" means, at any time, the ratio of (i)
Consolidated Adjusted EBITDA for the period of four consecutive fiscal
quarters ending on, or most recently ended prior to, such time to (ii) Debt
Service for such period.
"DEFAULT" means an event or condition the occurrence or existence
of which would, with the lapse of time or the giving of notice or both,
become an Event of Default.
"DEFAULT RATE" means an interest rate of 8.90% per annum.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including
but not limited to those related to hazardous substances or wastes, air
emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promul-
gated thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FEPA PAYMENTS" means all payments in cash by CTG to the Company
under the Forward Equity Purchase Agreement.
"FORWARD EQUITY PURCHASE AGREEMENT" means the Forward Equity
Purchase Agreement dated as of October 1, 1997 between CTG and the Company,
as amended, supplemented or otherwise modified from time to time.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means<PAGE>
SCHEDULE B
----------
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary,
or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in
effect guaranteeing any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including
(without limitation) obligations incurred through an agreement, contingent
or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor
under any Guaranty, the indebtedness or other obligations that are the
subject of such Guaranty shall be assumed to be direct obligations of such
obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health
or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage,<PAGE>
SCHEDULE B
----------
seepage, or filtration of which is or shall be restricted, prohibited or
penalized by any applicable law (including, without limitation, asbestos,
urea formaldehyde foam insulation and polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant
to Section 13.1.
"INDEBTEDNESS" with respect to any Person means, on any date, all
indebtedness, obligations and liabilities for borrowed money which in
accordance with GAAP would be included as a liability on a balance sheet of
such Person as of such date, and in any event shall include, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement
with respect to any such property);
(c) all Capital Leases Obligations of such Person;
(d) all liabilities secured by any Lien with respect to any
property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
(f) all liabilities with respect to any agreement to pay the
purchase price of any product or service where such agreement to pay is
not dependent upon whether such product or service is furnished; and
(g) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person of
the character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 5% of the aggregate
principal amount of the Notes then outstanding, and (c) any bank, trust<PAGE>
SCHEDULE B
----------
company, savings and loan association or other financial institution, any
pension plan, any investment company, any insurance company, any broker or
dealer, or any other similar financial institution or entity, regardless of
legal form.
"INTEREST CHARGES" means, with respect to any period, the sum
(without duplication) of the following (in each case, eliminating all
offsetting debits and credits between the Company and its Subsidiaries and
all other items required to be eliminated in the course of the preparation
of consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP): (i) all interest in respect of Indebtedness of the
Company and its Subsidiaries (including imputed interest on Capital Lease
Obligations and Attributable Debt) deducted in determining Consolidated Net
Income for such period, together with all interest capitalized or deferred
during such period and not deducted in determining Consolidated Net Income
for such period, and (ii) all debt discount and expense amortized or
required to be amortized in the determination of Consolidated Net Income for
such period.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust
agreements and all similar arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.9.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the
Company and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties
of the Company and its Subsidiaries taken as a whole, or (b) the ability of
the Company to perform its obligations under this Agreement, the Notes or
any other Transaction Document to which the Company is a party, or (c) the
validity or enforceability of this Agreement, the Notes or any other
Transaction Document to which the Company is a party.
"MODIFICATION OF FORWARD EQUITY PURCHASE AGREEMENT" means the
First Amendment to the Forward Equity Purchase Agreement, substantially in
the form of Exhibit D.
"MOODY'S" means Moody s Investors Service, Inc.
"MULTIEMPLOYER PLAN" means any Plan that is a multiemployer plan
(as such term is defined in section 4001(a)(3) of ERISA).<PAGE>
SCHEDULE B
----------
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend
to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the pre-
ceding five years, have been made or required to be made, by the Company or
any ERISA Affiliate or with respect to which the Company or any ERISA
Affiliate may have any liability.
"PLEDGE AGREEMENT" means the Amended and Restated Pledge and
Assignment Agreement dated as of the date hereof between the Company and the
Collateral Agent, substantially in the form of Exhibit E, as amended,
supplemented or otherwise modified from time to time.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PRIORITY INDEBTEDNESS" means, without duplication, the sum of (i)
all Indebtedness of the Company secured by Liens pursuant to Section
10.7(i), (ii) all Attributable Debt of the Company and its Subsidiaries and
(iii) all Indebtedness of Subsidiaries other than Indebtedness owing to the
Company or permitted pursuant to Section 10.6.
"PRO FORMA INTEREST CHARGES" means, at any time, the net amount of
(i) Interest Charges for the period of four consecutive fiscal quarters
ending on, or most recently ended prior to, such time MINUS (ii) all such
Interest Charges in respect of Indebtedness of the Company or any Subsidiary
being retired out of the proceeds of any Indebtedness being created,
incurred or assumed at such time PLUS (iii) scheduled Interest Charges for
the period of 12 full calendar months next succeeding such time in respect
of the Indebtedness being created, incurred or assumed at such time. For
the purposes of the foregoing clause (iii), Indebtedness that bears interest
at a variable rate will be deemed to bear interest during the period in
question at a rate equal to the rate in effect at such time.
"PRO FORMA INTEREST COVERAGE RATIO" means, at any time, the ratio<PAGE>
SCHEDULE B
----------
of (i) Consolidated Adjusted EBITDA for the period of four consecutive
fiscal quarters ending on, or most recently ended prior to, such time to
(ii) Pro Forma Interest Charges.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible,
choate or inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-
14 issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of a majority
in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of
the relevant portion of this agreement.
"RESTRICTED PAYMENT" means
(i) any dividend or other distribution, direct or indirect, on or
on account of any shares of capital stock of any class of the Company,
except a dividend payable solely in such shares;
(ii) any redemption, retirement, purchase or other acquisition,
direct or indirect, of any shares of capital stock of any class of the
Company or of any warrants, rights or options to purchase or otherwise
acquire any such shares, in any manner other than (x) solely in
exchange for other such shares or (y) unless such redemptions,
retirement, purchase or other acquisition shall be made
contemporaneously from the net proceeds of a sale of such stock,
warrants, rights or options; and
(iii) any prepayment, payment, purchase or other retirement or
acquisition, direct or indirect, by the Company or any Subsidiary of
all or part of the principal amount of any subordinated debt (except
out of the proceeds of a substantially concurrent issuance of other
subordinated debt) prior to the regularly scheduled maturity date
thereof (as in effect on the date such subordinated debt was incurred).
"SALE AND LEASEBACK TRANSACTION" means a transaction or series of
transactions pursuant to which the Company or any Subsidiary shall sell or
transfer to any Person (other than the Company or a Subsidiary) any
property, whether now owned or hereafter acquired, and, as part of the same
transaction or series of transactions, the Company or any Subsidiary shall
rent or lease as lessee or similarly acquire the right to possession or use
of, such property or one or more properties which it intends to use for the
same purpose or purposes as such property.<PAGE>
SCHEDULE B
----------
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"STANDARD & POOR'S" means Standard & Poor s Rating Group, a
division of McGraw-Hill, Inc.
"SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries (unless such partnership
or joint venture can and does ordinarily take major business actions without
the prior approval of such Person or one or more of its Subsidiaries).
Unless the context otherwise clearly requires, any reference to a "Sub-
sidiary" is a reference to a Subsidiary of the Company.
"SUBSIDIARY GUARANTEE" means a guarantee of the obligations of the
Company under this Agreement and the Notes, substantially in the form of
Exhibit F.
"SUPPORT AGREEMENT" means the Support Agreement dated as of the
date hereof from CTG in favor of the holders from time to time of the Notes.
"TRANSACTION DOCUMENTS" means this Agreement, the Notes, the
Pledge Agreement, each Subsidiary Guarantee, the Forward Equity Purchase
Agreement, the Modification of Forward Equity Purchase Agreement, the
Consent, the Collateral Agency Agreement and the Support Agreement.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors
qualifying shares) and voting interests of which are owned by any one or
more of the Company and the Company s other Wholly-Owned Subsidiaries at
such time.<PAGE>
EXHIBIT 1
---------
[FORM OF NOTE]
THE ENERGY NETWORK, INC.
6.90% SENIOR SECURED NOTE DUE 2010
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, THE ENERGY NETWORK, INC.
(herein called the "Company"), a corporation organized and existing under
the laws of the State of Connecticut, hereby promises to pay to
[_______________________], or registered assigns, the principal sum of
[________________________________________] DOLLARS (or so much thereof as
shall not have been prepaid) on October 14, 2010, with interest (computed on
the basis of a 360-day year of twelve 30-day months) (a) on the unpaid
balance thereof at the rate of 6.90% per annum from the date hereof, payable
quarterly, on the 14th day of January, April, July and October in each year,
commencing on January 14, 1998, until the principal hereof shall have become
due and payable, and (b) to the extent permitted by law, on any overdue
payment (including any overdue prepayment) of principal, any overdue payment
of interest and any overdue payment of any Make-Whole Amount (as defined in
the Note Purchase Agreements referred to below), payable quarterly as
aforesaid (or, at the option of the registered holder hereof, on demand), at
the rate of 8.90% per annum. Notwithstanding anything to the contrary
above, the interest rate applicable to this Note may be increased by 0.50%
as provided in Section 10.1 of the Note Purchase Agreements referred to
below.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the United
States of America at the principal office of the Company in Hartford,
Connecticut or at such other place as the Company shall have designated by
written notice to the holder of this Note as provided in the Note Purchase
Agreements referred to below.
This Note is one of a series of Senior Secured Notes (herein
called the "Notes") issued pursuant to the Note Purchase Agreement, dated as
of October 14, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company and the respective Purchasers named
therein and is entitled to the benefits thereof. Each holder of this Note
will be deemed, by its acceptance hereof, (i) to have agreed to the
confidentiality provisions set forth in Section 20 of the Note Purchase
Agreements and (ii) to have made the representation set forth in Section 6.2
of the Note Purchase Agreements.
This Note is secured by, and entitled to the benefits of, the
Pledge Agreement referred to in the Note Purchase Agreements. Payment of
the principal of, and Make-Whole Amount, if any, and interest on this Note
has been guaranteed by the Subsidiaries of the Company in accordance with<PAGE>
the Subsidiary Guarantees referred to in the Note Purchase Agreements.
This Note is a registered Note and, as provided in the Note Purch-
ase Agreements, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or such holder s attorney duly
authorized in writing, a new Note for a like principal amount will be issued
to, and registered in the name of, the transferee. Prior to due presentment
for registration of transfer, the Company may treat the person in whose name
this Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes, and the Company will not be affected by
any notice to the contrary.
This Note is subject to prepayment, in whole or from time to time
in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be
declared or otherwise become due and payable in the manner, at the price
(including any applicable Make-Whole Amount) and with the effect provided in
the Note Purchase Agreements.
This Note shall be construed and enforced in accordance with the
laws of the State of Connecticut.
THE ENERGY NETWORK, INC.
By_________________________
Title:<PAGE>
FIRST AMENDMENT TO FORWARD EQUITY PURCHASE AGREEMENT
This First Amendment to Forward Equity Purchase Agreement, made as of
October 14, 1998 (this "Amendment") is between CTG Resources, Inc., a
Connecticut corporation ("CTG"), and The Energy Network, Inc., a Connecticut
corporation ("TEN").
W I T N E S S E T H:
--------------------
WHEREAS, CTG and TEN are parties to a forward equity purchase agreement
dated October 1, 1997 (the "Agreement"); and
WHEREAS, TEN has requested that CTG provide TEN with capital in
addition to the capital required to be provided under the Agreement to
enable TEN to carry on and expand its business and CTG is willing to provide
additional contributions to TEN; and
WHEREAS, CTG expects to benefit from the activities of TEN which will
be enabled through the additional capital to TEN under this Amendment;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. AMENDMENT OF AGREEMENT. The Agreement is hereby amended (a) by
increasing the aggregate amount of contributions into TEN by CTG pursuant to
paragraph 1 thereof by $32,600,000 from $90,000,000 to $122,600,000, of
which, as of the date of this Amendment, $7,500,000 has been paid and
$115,100,000 remains payable under the terms of the Agreement, as amended
hereby, and (b) by increasing the quarterly installments of $1,875,000 each
payable on the first day of each January, April, July and October in each of
the years 1999 through and including 2009 by $375,000 each to $2,250,000 and
continuing with four quarterly installments of $4,025,000 each in 2010.
2. AGREEMENT TO REMAIN IN EFFECT EXCEPT AS MODIFIED. Except as
modified by this Amendment, the Agreement shall remain in full force and
effect. <PAGE>
IN WITNESS WHEREOF, the parties have duly executed, or have caused
their duly authorized officers or representatives to execute, this amendment
as of the date first above written.
CTG RESOURCES, INC.
By: S/ James P. Bolduc
--------------------------
Its Executive VP & CFO
THE ENERGY NETWORK, INC.
By: S/ James P. Bolduc
--------------------------
Its Executive VP & CFO
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
CONNECTICUT NATURAL GAS CORPORATION AND SUBSIDIARIES
-----------------------------------------------------
COMPUTATION OF CONSOLIDATED PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
-------------------------------------------------------------------------
(Thousands of Dollars Except for Shares and Per Share Date)
Fiscal Year Ended September 30,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Net income applicable to common stock:
Income $ 15,196 $ 17,075 $ 18,995 $ 17,019 $ 17,703
Less-Preferred stock dividends 61 62 63 62 66
---------- ---------- ---------- ---------- ----------
Net income applicable to common stock $ 15,135 $ 17,013 $ 18,932 $ 16,957 $ 17,637
========== ========== ========== ========== ==========
Weighted average number of shares of common
stock outstanding during the year
Basic 8,871,349 10,632,001 10,146,932 9,926,980 9,539,695
Restricted Stock Plan 51,616 51,758 28,612 32,389 38,104
---------- ---------- ---------- ---------- ----------
Fully Diluted 8,922,965 10,683,759 10,175,544 9,959,369 9,577,799
========== ========== ========== ========== ==========
Net income per share of common stock -
Basic $1.71 $1.60 $1.87 $1.71 $1.85
===== ===== ===== ===== =====
Fully Diluted $1.70 $1.59 $1.86 $1.70 $1.84
===== ===== ===== ===== =====
</TABLE>
<PAGE>
EXHIBIT 21
CTG RESOURCES, INC. AND SUBSIDIARIES
----------------------------------------------------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<S> <C> <C>
Percentage of Voting
Incorporated Under Securities Owned By
Name of Subsidiary Laws of Immediate Parent
------------------ ------------------ --------------------
Connecticut Natural Gas
Corporation ("CNG")(1) Connecticut 100%
CNG Realty Corp. Connecticut 100%
The Greenwich Gas System, Inc.(2) Connecticut 100%
The Energy Network, Inc.("TEN")(3) Connecticut 100%
The Hartford Steam Company Connecticut 100%
ENServe, Incorporated Connecticut 100%
ENI Gas Services, Inc. Connecticut 100%
TEN Gas Services, Inc. Connecticut 100%
TEN Transmission Company Connecticut 100%
</TABLE>
[FN]
(1) CNG Realty Corp. is a wholly owned subsidiary of CNG at September 30, 1998.
(2) The Greenwich Gas System, Inc.: inactive.
(3) The Hartford Steam Company, ENServe, Incorporated, ENI Gas Services, Inc.,
TEN Gas Services, Inc. and TEN Transmission Company are wholly owned
subsidiaries of TEN at September 30, 1998.
<PAGE>
EXHIBIT 23
ARTHUR ANDERSEN LLP
Hartford, Connecticut
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8 (Registration Statement
No. 333-29515) concerning its Employee Savings Plan, Registration Statement
on Form S-8 (Registration Statement No. 333-29521) concerning its Union
Employee Savings Plan and its Registration Statement on Form S-3
(Registration Statement No.33-38087-99) concerning its Automatic Dividend
Reinvestment Plan.
S/ Arthur Andersen LLP
--------------------------
(ARTHUR ANDERSEN LLP)
Hartford, Connecticut
December 2, 1998
<PAGE>
Exhibit 24
Page 1 of 1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned does
hereby appoint and constitute Reginald L. Babcock as his or her agent and
attorney-in-fact to execute in his or her name, place and stead (whether on
behalf of the undersigned individually or as a director of CTG Resources,
Inc. or otherwise) the Annual Report on Form 10-K of CTG Resources, Inc.
respecting its fiscal year ended September 30, 1998 and any and all
amendments thereto and to file such Form 10-K and any such amendments
thereto with the Securities and Exchange Commission. Said attorney shall
have the power to act hereunder.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
1st day of December, 1998.
S/ Bessye W. Bennett S/ Denis F. Mullane
------------------------------------ ------------------------------------
(Bessye W. Bennett) (Denis F. Mullane)
Director Director
S/ Herman J. Fonteyne S/ Richard J. Shima
------------------------------------ ------------------------------------
(Herman J. Fonteyne) (Richard J. Shima)
Director Director
S/ Victor H. Frauenhofer S/ Laurence A. Tanner
------------------------------------ ------------------------------------
(Victor H. Frauenhofer) (Laurence A. Tanner)
Director Director
S/ Beverly L. Hamilton S/ Michael W. Tomasso
------------------------------------ ------------------------------------
(Beverly L. Hamilton) (Michael W. Tomasso)
Director Director
S/ Harvey S. Levenson
------------------------------------
(Harvey S. Levenson)
Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL
INFORMATION EXTRACTED
FROM THE CONSOLIDATED
BALANCE SHEETS,
STATEMENTS OF INCOME,
STATEMENTS OF CASHFLOWS
AND STATEMENTS OF
CAPITALIZATION AND IS
QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO
SUCH FINANCIAL
STATEMENTS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 293,646
<OTHER-PROPERTY-AND-INVEST> 56,191
<TOTAL-CURRENT-ASSETS> 66,125
<TOTAL-DEFERRED-CHARGES> 43,219
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 459,181
<COMMON> 66,950
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 56,447
<TOTAL-COMMON-STOCKHOLDERS-EQ> 123,397
0
879
<LONG-TERM-DEBT-NET> 215,852
<SHORT-TERM-NOTES> 2,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 5,733
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 111,320
<TOT-CAPITALIZATION-AND-LIAB> 459,181
<GROSS-OPERATING-REVENUE> 282,748
<INCOME-TAX-EXPENSE> 13,066
<OTHER-OPERATING-EXPENSES> 240,227
<TOTAL-OPERATING-EXPENSES> 253,293
<OPERATING-INCOME-LOSS> 29,455
<OTHER-INCOME-NET> 1,665
<INCOME-BEFORE-INTEREST-EXPEN> 31,120
<TOTAL-INTEREST-EXPENSE> 15,924
<NET-INCOME> 15,196
61
<EARNINGS-AVAILABLE-FOR-COMM> 15,135
<COMMON-STOCK-DIVIDENDS> 8,596
<TOTAL-INTEREST-ON-BONDS> 2,087
<CASH-FLOW-OPERATIONS> 27,091
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.70
<PAGE>
</TABLE>
