SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-8369
CONNECTICUT ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Connecticut 06-0869582
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
855 Main Street
Bridgeport, Connecticut 06604
(Address of Principal Executive Offices) (Zip Code)
(800) 760-7776
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 7, 1998
Common Stock, $1 par value 10,271,068
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PART 1. FINANCIAL INFORMATION
CONNECTICUT ENERGY CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Operating Revenues $ 38,002 $ 44,026 $ 215,282 $ 225,765
Purchased gas 17,847 22,539 108,497 118,584
----------- ---------- ----------- ---------
Gross margin 20,155 21,487 106,785 107,181
Operating Expenses:
Operations 11,517 11,482 37,688 38,120
Maintenance 903 853 2,887 2,781
Depreciation 4,081 3,988 12,561 11,810
Federal and state income taxes (1,806) (865) 12,604 11,330
Municipal, gross earnings and
other taxes 3,238 3,568 11,081 13,873
---------- ---------- ---------- ---------
Total operating expenses 17,933 19,026 76,821 77,914
---------- ---------- ---------- ---------
Operating income 2,222 2,461 29,964 29,267
Other (income) deductions, net (8) 171 (259) (420)
Interest Expense:
Interest on long-term debt and
amortization of debt issue costs 2,984 3,079 9,091 9,242
Other interest, net 265 416 735 1,030
---------- ---------- ---------- --------
Total interest expense 3,249 3,495 9,826 10,272
---------- ---------- ---------- --------
Net (Loss) Income $ (1,019) $ (1,205) $ 20,397 $ 19,415
========== ========== ========== =========
Net (loss) income per share -
Basic $ (0.10) $ (0.13) $ 2.04 $ 2.15
========== ========== ========== =========
Net (loss) income per share -
Diluted $ (0.10) $ (0.13) $ 2.03 $ 2.14
========== ========== ========== =========
Dividends paid per share $ 0.335 $ 0.33 $ 0.995 $ 0.99
---------- --------- ---------- ---------
Weighted average common shares
outstanding during period -
Basic 10,197,554 9,076,783 9,995,647 9,046,928
---------- --------- --------- ---------
Weighted average common shares
outstanding during period -
Diluted 10,249,801 9,129,030 10,047,894 9,076,400
---------- --------- ---------- ---------
See Notes to Consolidated Financial Statements.
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CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
<S> <C> <C>
June 30, Sept. 30,
1998 1997
--------- ---------
(Unaudited)
Assets
- ------
Utility Plant:
Gross utility plant $408,172 $399,675
Less: accumulated depreciation 134,080 130,553
-------- --------
Net utility plant 274,092 269,122
Nonutility property, net 4,383 3,343
-------- --------
Net utility plant and other property 278,475 272,465
-------- --------
Current Assets:
Cash and cash equivalents 5,639 6,644
-------- --------
Accounts receivable 38,400 32,127
Less: allowance for doubtful accounts 1,427 2,948
-------- --------
Net accounts receivable 36,973 29,179
-------- --------
Accrued utility revenues, net 2,646 2,541
Unrecovered purchased gas costs --- 5,523
Inventories 9,828 12,606
Prepaid expenses 5,155 4,067
-------- --------
Total current assets 60,241 60,560
-------- --------
Deferred Charges and Other Assets:
Unamortized debt expenses 5,896 6,038
Unrecovered deferred income taxes 44,589 42,929
Other 54,408 42,289
-------- --------
Total deferred charges and other assets 104,893 91,256
-------- --------
Total assets $443,609 $424,281
======== ========
See Notes to Consolidated Financial Statements.
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<TABLE>
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CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
<S> <C> <C>
June 30, Sept. 30,
1998 1997
--------- ---------
(Unaudited)
Capitalization and Liabilities
- ------------------------------
Common Shareholders' Equity:
Common stock: authorized-20,000,000
shares, par value $1 per share, issued and
outstanding-10,268,453 shares; 9,172,468
shares $ 10,268 $ 9,172
Capital in excess of par value 119,454 94,540
Unearned compensation (988) (1,068)
Retained earnings 52,513 42,297
Adjustment for minimum pension liability
(net of income taxes) (427) (427)
--------- ---------
Total common shareholders' equity 180,820 144,514
--------- ---------
Long-term debt 134,073 134,073
--------- ---------
Total capitalization 314,893 278,587
--------- ---------
Current Liabilities:
Short-term borrowings 15,183 31,400
Current maturities of long-term debt 454 4,654
Accounts payable 8,689 12,609
Federal, state and deferred income taxes 8,378 5,017
Other accrued taxes 2,598 4,567
Interest payable 2,669 3,499
Customers' deposits 1,711 1,718
Refunds due customers 369 2,627
Refundable purchased gas costs 5,664 ---
Other 5,029 3,892
--------- ---------
Total current liabilities 50,744 69,983
--------- ---------
Deferred Credits:
Deferred income taxes and investment
tax credits 70,447 67,893
Other 7,525 7,818
--------- ---------
Total deferred credits 77,972 75,711
--------- ---------
Total capitalization and liabilities $443,609 $424,281
========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
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CONNECTICUT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Nine Months Ended
June 30,
-----------------
1998 1997
---- ----
Net cash provided by operating activities $22,305 $26,255
------- -------
Cash Flows from Investing Activities:
Capital expenditures (18,773) (18,178)
Contributions in aid of construction 39 42
Payments for retirement of utility plant (110) (240)
Energy ventures 42 ---
------- -------
Net cash used by investing activities (18,802) (18,376)
------- -------
Cash Flows from Financing Activities:
Dividends paid on common stock (10,181) (8,994)
Issuance of common stock 26,090 3,107
Repayments of long-term debt (4,200) (140)
(Decrease) increase in short-term borrowings (16,217) 100
------- -------
Net cash (used) provided by financing activities (4,508) (5,927)
------- -------
Net (decrease) increase in cash and cash
equivalents (1,005) 1,952
Cash and cash equivalents at beginning of period 6,644 5,121
------- --------
Cash and cash equivalents at end of period $ 5,639 $ 7,073
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $10,634 $ 11,486
Income taxes $ 8,350 $ 4,291
See Notes to Consolidated Financial Statements.
</TABLE>
CONNECTICUT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
General
The unaudited consolidated financial statements presented herein should be read
in conjunction with the consolidated financial statements of Connecticut Energy
Corporation ("Connecticut Energy" or "Company") for the fiscal year ended
September 30, 1997 as presented in the Annual Report on Form 10-K. In the
opinion of management, the accompanying financial information reflects all
adjustments which are necessary to provide a fair presentation of the
interim periods shown. All such adjustments are of a normal recurring nature.
In preparing the financial statements in conformity with generally accepted
accounting principles, the Company uses estimates. Estimates are disclosed
when there is a reasonable possibility for change in the near term. For
this purpose, near term is defined as a period of time not to exceed one
year from the date of the financial statements. The Company's financial
statements have been prepared based on management's estimates of the impact of
regulatory, legislative and judicial developments on the Company or
significant groups of its customers. The recorded amounts of certain
accruals, reserves, deferred charges and assets could be materially impacted
if circumstances change which affect these estimates.
Accounting for the Effects of Regulation
The Company's principal subsidiary, The Southern Connecticut Gas Company
("Southern"), prepares its financial statements in accordance with the
provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"),
which requires a cost-based, rate-regulated enterprise such as Southern to
reflect the impact of regulatory decisions in its financial statements.
The Connecticut Department of Public Utility Control's ("DPUC") actions
through the ratemaking process can create regulatory assets in which costs
are allowed for ratemaking purposes in a period other than the period in
which the costs would be charged to expense if the reporting entity were
unregulated.
In the application of SFAS 71, Southern follows accounting policies that
reflect the impact of the rate treatment of certain events or transactions.
The most significant of these policies include the recording of deferred gas
costs, deferred conservation costs, deferred hardship heating customer
accounts receivable arrearages, deferred environmental evaluation costs and
an unfunded deferred income tax liability, with a corresponding unrecovered
asset, to account for temporary differences previously flowed through to
ratepayers.
Southern had net regulatory assets as of June 30, 1998 and September 30, 1997
of $64,593 and $63,606, respectively. These amounts are included in deferred
charges and other assets and deferred credits in the consolidated balance
sheets and are solely due to the application of the provisions of SFAS 71.
Effective April 1, 1996, the DPUC deregulated the sale of natural gas to
firm commercial and industrial customers by giving these customers an option to
purchase natural gas from independent brokers or marketers. Commercial and
industrial customers electing to purchase natural gas in this manner pay a
DPUC-approved firm transportation rate to the local gas distribution company
("LDCs") for the use of its distribution system.
Southern is one of three Connecticut LDCs whose firm transportation rates
are designed to provide the same margins earned from bundled services.
Because the new rates are margin neutral, there has not been any impact
upon Southern's ability to recover deferred costs through cost-based
rate regulation. Firm transportation rates have eliminated only the gas
cost component of the rates previously charged to these customers. The
Company has not experienced any adverse impact on its earnings or results
of operations from this change in rate structure. Additionally, the DPUC's
initiatives for competition have not been directed toward services for
certain groups of customers, including service to residential classes,
which represent the majority of Southern's total throughput and gross
margin.
Management believes that Southern continues to meet the requirements of SFAS 71
because Southern's rates for regulated services provided to its customers are
subject to DPUC approval, are designed to recover Southern's costs of
providing regulated services and continue to be subject to cost-of-service
based rate regulation by the DPUC.
Deferred Charges and Other Assets
Deferred charges and other assets include amounts related to the following:
June 30, Sept. 30,
As of 1998 1997
- -----------------------------------------------------------------------------
Conservation costs $ 4,741 $ 4,881
Energy assistance funding shortfall 374 882
Environmental evaluation costs 580 718
Gas holder costs 123 308
Hardship heating customer accounts receivable arrearages 16,368 13,439
Hardship heating customer assistance grant program 1,907 634
Investment in energy ventures 3,376 3,418
Nonqualified benefit plans 2,524 2,302
Prepaid pension and postretirement medical contributions 15,047 13,228
Investment in pipeline(1) 5,515 ---
Other 3,853 2,479
------- -------
$54,408 $42,289
======= =======
Southern has been allowed to recover various deferred charges in rates over
periods ranging from three to five years in accordance with the DPUC's
Decision in Southern's latest rate case.
Deferred Credits
Other deferred credits include amounts related to the following:
June 30, Sept. 30,
As of 1998 1997
- ------------------------------------------------------------------------------
Economic development initiatives $ 538 $1,339
Insurance reserves 1,148 1,122
Interruptible margin sharing 853 877
Nonqualified benefit plans 3,382 2,961
Other 1,604 1,519
------ ------
$7,525 $7,818
====== ======
(1) See section in Management's Discussion and Analysis entitled "Regulatory
Matters" for further detail.
Utility Operating Results
Due to the seasonal nature of gas sales for space heating purposes by
Southern, the results of operations for the nine months ended June 30, 1998
are not indicative of the results to be expected for the fiscal year ending
September 30, 1998.
Recent Accounting Developments
Effective October 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). This
statement establishes standards for the computation and presentation of
earnings per share ("EPS") by all entities with publicly held common
stock or potential common stock. The statement replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. The sole difference
between basic and diluted EPS relates to the common shares granted under the
Company's restricted stock award plan.
Note 2 - Commitments and Contingencies
Environmental Matters
Southern has identified coal tar residue at three sites in Connecticut
resulting from coal gasification operations conducted at those sites by
Southern's predecessors from the late 1800s through the first part of
this century. Many gas distribution companies throughout the country
carried on such gas manufacturing operations during the same period.
See section in Management's Discussion and Analysis entitled "Environmental
Matters" for further detail.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Connecticut Energy Corporation ("Connecticut Energy" or "Company") and its
subsidiaries and their representatives may, from time to time, make written
or oral statements, including statements contained in the Company's filings
with the Securities and Exchange Commission and in its annual report to
shareholders, including its Form 10-K for the fiscal year ended September
30, 1997 and this quarterly report on Form 10-Q, which constitute or contain
"forward-looking" information as that term is defined in the Private
Securities Litigation Reform Act of 1995.
All statements other than the financial statements and other statements of
historical facts included in this quarterly report regarding the Company's
financial position and strategic initiatives and addressing industry
developments are forward-looking statements. Where, in any forward-looking
statement, the Company, or its management, expresses an expectation or
belief as to future results, such expectation or belief is expressed in
good faith and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will result or be
achieved or accomplished. Factors which could cause actual results to
differ materially from those stated in the forward-looking statements may
include, but are not limited to, general and specific economic, financial
and business conditions; federal and state regulatory, legislative and
judicial developments which affect the Company or significant groups of its
customers; the impact of competition on the Company's revenues; fluctuations
in weather from normal levels; changes in development and operating costs;
the availability and cost of natural gas; the availability and terms of
capital; exposure to environmental liabilities; the costs and effects
of unanticipated legal proceedings; the successful implementation and
achievement of internal performance goals; the impact of unusual items
resulting from ongoing evaluations of business strategies and asset
valuations; and changes in business strategy.
RESULTS OF OPERATIONS
Net Income
- ----------
The Company's consolidated net income for the three and nine months ended
June 30, 1998 and 1997 is detailed below:
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<S>
<C> <C> <C> <C>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
(in thousands, except per share) 1998 1997 1998 1997
---- ---- ---- ----
Net (Loss) Income $(1,019) $(1,205) $20,397 $19,415
======= ======= ======= =======
Net (loss) income per share - Diluted $ (0.10) $ (0.13) $ 2.03 $ 2.14
======= ======= ======= =======
Weighted average common shares outstanding - Diluted 10,250 9,129 10,048 9,076
------- ------- ------- -------
</TABLE>
The net loss for the three months ended June 30, 1998 was approximately 15%
lower than the net loss recorded in the corresponding 1997 period. This
was principally due to lower taxes, lower interest expense and higher other
income. The reduction in net loss for the 1998 quarter was partially offset
by lower firm and interruptible margins.
Net income for the nine months ended June 30, 1998 increased approximately
5% compared to the nine months ended June 30, 1997 principally due to higher
firm margins, lower operations expense, lower property and gross earnings
taxes and lower interest expense. Partially offsetting the increase in
net income were lower interruptible margins, lower other income as well as
higher operating expenses for maintenance, depreciation and income taxes.
Results for both 1998 periods reflect the issuance of 1,035,000 shares of
common stock in November of 1997.
Total Sales and Transportation Volumes
- --------------------------------------
Total volumes of gas sold and transported by the Company's principal
subsidiary, The Southern Connecticut Gas Company ("Southern"), for the three
and nine months ended June 30, 1998 were approximately 5,500 and 29,201
MMcf, respectively, representing decreases of approximately 47% and
21% compared to the corresponding 1997 periods. These decreases occurred
in most sales categories and were primarily attributable to weather which
was approximately 18% and 7% warmer compared to the three and nine months
ended June 30, 1997, respectively. Higher volumes of firm transportation
during the three and nine months ended June 30, 1998 and higher off-system
sales volumes during the nine months ended June 30, 1998 partially offset
the overall decrease in sales and transportation volumes.
Firm Sales and Transportation Volumes
- -------------------------------------
Firm sales and transportation volumes for the three and nine months ended
June 30, 1998 decreased approximately 13% and 4%, respectively, compared
to the corresponding 1997 periods. This was due to lower firm sales
principally due to warmer weather in the 1998 periods. The overall decreases
in this category for the 1998 periods were partially offset by the continued
growth in Southern's firm customer base and by increases in firm
transportation volumes.
Interruptible Sales and Transportation Volumes
- ----------------------------------------------
Margins earned on volumes delivered to interruptible customers vary depending
upon the relationship of the market price for alternate fuels to the cost of
natural gas and related transportation. Margins earned, net of gross
earnings tax, from on-system interruptible services in excess of an annual
target were allocated through a margin sharing mechanism between Southern
and its firm customers. Beginning June 1, 1996, excess on-system margins
earned that would have been returned to Southern's firm customers have been
redirected, with Connecticut Department of Public Utility Control ("DPUC")
approval, to fund certain economic development and hardship assistance
programs. Off-system margins earned, net of gross earnings tax, continue
to be shared between Southern and its firm customers.
The chart below depicts volumes of gas sold to and transported for on-system
interruptible customers, off-system sales volumes and off-system
transportation volumes under a special contract with The Connecticut Light
and Power Company for its Devon electric generating station as well as gross
margins earned and retained due to the margin sharing mechanism on these
services for the three and nine months ended June 30, 1998 and 1997:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
(dollars in thousands) 1998 1997 1998 1997
---- ---- ---- ----
Gross margin earned $2,068 $2,690 $7,267 $9,736
====== ====== ====== ======
Gross margin retained $1,618 $2,435 $4,536 $6,385
====== ====== ====== ======
Volumes sold and transported (MMcf) 2,280 6,581 9,921 16,873
------ ------ ------ ------
Gross margin retained represents the difference between gross margin earned and
margin to be allocated through the margin sharing mechanism. Gross margin
earned and retained by Southern was lower for the three and nine months
ended June 30, 1998 compared to the corresponding 1997 periods principally
due to the competitive price of other energy sources compared to natural
gas.
Total interruptible volumes for the three and nine months ended June 30, 1998
were lower compared to the corresponding 1997 periods primarily due to
decreases in off-system transportation and on-system interruptible sales
volumes due to the competitive price of other energy sources compared to
natural gas. Off-system sales activity for the three months ended
June 30, 1998 was lower than the corresponding 1997 quarter, while an increase
in off-system sales activity for the nine months ended June 30, 1998
partially offset the overall decrease in this category for that period.
Gross Margin
- ------------
The Company's gross margin for the three months ended June 30, 1998 was
approximately 6% lower compared to the corresponding 1997 period. This
decrease was principally attributed to both lower firm and interruptible
margins. Gross margin for the nine months ended June 30, 1998 was
relatively unchanged compared to the corresponding 1997 period.
Southern's firm rates include a Weather Normalization Adjustment clause ("WNA")
which allows Southern to charge or credit the non-gas portion of its firm rates
to reflect deviations from normal weather. Because weather during the three
and nine months ended June 30, 1998 was approximately 8% and 9% warmer than
normal, respectively, the operation of the WNA collected approximately
$1,140,000 and $6,017,000, respectively, from firm customers. This compares to
a return to firm customers of approximately $803,000 during the three months
ended June 30, 1997 and a collection from firm customers of approximately
$2,369,000 during the nine months ended June 30, 1997.
Southern's firm sales rates include a Purchased Gas Adjustment clause ("PGA")
which allows Southern to flow back to its customers, through periodic
adjustments to amounts billed, increased or decreased costs incurred for
purchased gas compared to base rate levels without affecting gross margin.
The operation of Southern's PGA increased revenues and gas costs for the
three and nine months ended June 30, 1998 by approximately $1,275,000 and
$10,576,000, respectively. For the three and nine months ended June 30,
1997, PGA adjustments increased revenues and gas costs by approximately
$482,000 and $5,762,000, respectively.
Operations Expense
- ------------------
Operations expense for the nine months ended June 30, 1998 decreased
approximately 1% compared to the nine months ended June 30, 1997.
The decrease was primarily due to lower amortizations related to Southern's
certified hardship forgiveness program due to the conclusion of the
amortization period as of December 31, 1996 and lower pension and health
care costs. Partially offsetting the overall decrease in operations expense
for the 1998 period were higher expenses in the areas of labor, partly due
to early retirement incentives paid to union employees during the three months
ended June 30, 1998; outside services; regulatory commission expense and
certain other general and administrative expenses.
Depreciation Expense
- --------------------
Depreciation expense for the three and nine months ended June 30, 1998
increased approximately 2% and 6%, respectively, compared to the
corresponding 1997 periods. The increases were primarily due to additions
to plant in service by Southern.
Federal and State Income Taxes
- ------------------------------
Total federal and state income tax credits increased for the three months ended
June 30, 1998 compared to the corresponding 1997 period due to an adjustment to
the effective tax rate as well as a higher pre-tax loss for the 1998
quarter. The total provision for income taxes for the nine months ended
June 30, 1998 increased approximately 11% compared to the corresponding
1997 period primarily due to higher pre-tax income and a higher effective
tax rate. The higher effective tax rate was primarily caused by the tax
treatment of conservation expenditures and uncollectibles and the inability
to make tax-deductible employee benefit plan contributions.
Municipal, Gross Earnings and Other Taxes
- -----------------------------------------
Municipal, gross earnings and other taxes decreased approximately 9% and 20%
for the three and nine months ended June 30, 1998, respectively, compared
to the corresponding 1997 periods. For the three months ended June 30, 1998,
the decrease was primarily due to lower gross earnings tax due to lower
revenues and a lower provision for property taxes. For the nine months
ended June 30, 1998, the decrease was primarily due to the DPUC Decision
which required Southern to change its accounting treatment for accruing
property taxes (see section entitled "Regulatory Matters" for further
detail) and, to a lesser extent, lower gross earnings tax due to lower
revenues.
Other (Income) Deductions, Net
- ------------------------------
Other income for the three months ended June 30, 1998 was higher compared to
the corresponding 1997 period. This was primarily due to the contribution
to earnings by one of the Company's nonutility subsidiaries in the 1998
quarter compared to a net loss in the 1997 quarter. Other income for the
nine months ended June 30, 1998 was lower compared to the nine months ended
June 30, 1997 primarily due to the receipt of approximately $974,000 in
interest income in the 1997 period from one of Southern's interstate
pipeline suppliers related to Southern's prepayment of transition costs
associated with Federal Energy Regulatory Commission's ("FERC") Order
No. 636. The nine month period ended June 30, 1998 was also favorably
impacted by the operating results of the Company's nonutility subsidiaries.
Additionally, both 1998 periods benefited by an increase in investment
income related to investments in nonqualified employee benefit plan trusts.
Interest Expense
- ----------------
Total interest expense decreased approximately 7% and 4% for the three and nine
months ended June 30, 1998, respectively, compared to the corresponding 1997
periods primarily due to lower short-term interest expense related to lower
average short-term borrowings, lower long-term debt expense due to debt
repayments, lower short-term interest expense on pipeline refunds not yet
returned to firm customers and lower interest expense on transition costs.
Partially offsetting the decreases in total interest expense was an increase
in short-term interest expense on deferred purchased gas costs for the
three and nine months ended June 30, 1998.
Year 2000
- ---------
Many enterprises that rely on computer processing for critical functions have
been affected by the existence of certain systems that are not capable of
processing dates beyond December 31, 1999. To determine whether system
development plans need to be modified to include renovation of such
systems, an evaluation must be made of those systems that will be used in the
year 2000.
The Company has addressed this issue by expanding its computer system planning
process to include a complete inventory and assessment of the risks and
exposures of its hardware and software. Based on this review, management
believes that its current plans address the affected systems and that any
renovation activities will not have a material adverse impact on the
financial condition or the results of operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
- --------------------
The seasonal nature of Southern's business creates large short-term cash
demands primarily to finance gas purchases, customer accounts receivable
and certain tax payments. To provide these funds, as well as funds for
capital expenditure programs and other corporate purposes, Connecticut
Energy and Southern have credit lines with a number of banks as detailed
below:
Shared
Connecticut Connecticut
Energy Southern Energy/Southern Total
- ------------------------------------------------------------------------------
As of June 30, 1998:
Committed lines $5,000,000 $32,000,000 $20,000,000 $57,000,000
Uncommitted lines --- $10,000,000 $10,000,000 $20,000,000
Effective January 1, 1998, Connecticut Energy and Southern entered into an
agreement with one bank for a shared committed line of credit in the amount
of $20,000,000, replacing an existing line that expired on December 20, 1997.
The new agreement extends the credit line term until December 31, 1998, and
the initial term may be extended from year to year thereafter dependent upon
the operating cash requirements of the Company and its subsidiary and
approval by the bank. At June 30, 1998, unused lines of credit totaled
$66,300,000.
In May 1998, one of the Company's nonutility subsidiaries, CNE Energy Services
Group, Inc. ("CNE Energy"), entered into a term loan agreement with a bank.
Under this agreement, CNE Energy may borrow up to $15,000,000 to reimburse
Southern for costs incurred to construct distribution facilities to transport
natural gas to an electric generating plant in Bridgeport. Borrowings began
in May 1998.
Because of the availability of short-term credit and the ability to issue
long-term debt and additional equity, management believes it has adequate
financial flexibility to meet its anticipated cash needs.
Operating cash flows for the nine months ended June 30, 1998 compared to the
corresponding 1997 period were lower primarily due to a lower comparative
increase in accrued taxes and reductions in refunds due customers, transition
cost liability and liabilities related to margins earned which were used
to fund certain economic development initiatives in Bridgeport and to provide
grants to customers to reduce Southern's hardship assistance balances. The
decrease in operating cash flows in the 1998 period was partially offset by
collections from customers through the operation of the PGA and a lower
comparative increase in accounts receivable balances.
Investing Activities
- --------------------
Capital expenditures, net of contributions in aid of construction,
approximated $18,734,000 and $18,136,000 for the nine months ended June 30,
1998 and 1997, respectively. On an annual basis, Southern relies upon cash
flows from operating activities to fund a portion of these expenditures, with
the remainder funded by short-term borrowings and, at some later date,
long-term debt and capital stock financings.
Financing Activities
- --------------------
On May 26, 1998, the Board of Directors of the Company increased the
quarterly dividend on the Company's common stock to $0.335 per share, or an
indicated annual dividend rate of $1.34 per share.
In November 1997, the Company completed a public sale of 1,035,000 shares of
its common stock at a price of $24.25 per share and received net proceeds of
approximately $24,224,000. The proceeds of this sale were used for the
repayment of Southern's short-term debt. The method, timing and amounts of
any future financings by the Company or its subsidiaries will depend on a
variety of factors, including capitalization ratios, coverage ratios,
interest costs, the state of the capital markets and general economic
conditions.
Regulatory Matters
- ------------------
In accordance with Connecticut statutes, Southern is undergoing a periodic
review of rates and services by the DPUC that commenced in January 1998. A
periodic review entails a complete review by the DPUC of Southern's financial
and operating records. Public hearings will be held to determine whether
Southern's current rates are unreasonably discriminatory or more or less than
just, reasonable and adequate.
On July 8, 1998 Southern received an interim Decision regarding the
"overearnings" portion of this docket. According to Connecticut statutes, a
utility which earns 100 basis points or more over its allowed rate of return
for six consecutive months may be reviewed by the DPUC. The DPUC ordered a
rate reduction of $528,000. Management cannot predict the financial or
operational impact of any final decision which may result from this review
which is still ongoing.
Southern received a Decision from the DPUC on its special contract with Duke
Energy Trading and Marketing to transport natural gas to a 520 megawatt
electric generating plant in Bridgeport. Under the contract,
Southern will own, operate and maintain the 16", nearly 11-mile main,
and CNE Energy will be solely responsible for financing the project and
its maintenance costs. This effectively removes any risk from Southern or
its ratepayers for any future operating and maintenance costs. Construction
was completed and the plant was operational in July 1998.
In October 1997, Southern requested that the DPUC consider a proposed change in
Southern's accounting treatment for property taxes, which would account for such
taxes as a prepaid expense. This method is consistent with the practice of
other major public service companies in Connecticut. Southern had been
accruing for property taxes in the year prior to the payment date. On
November 19, 1997, under the reopened Docket No. 93-03-09, Application of
The Southern Connecticut Gas Company to Increase Its Rates and Charges, the
DPUC approved Southern's proposal. The stipulations in the Decision ordered
Southern to reduce its reserve for property taxes by approximately $3,722,000,
with fifty percent, or approximately $1,861,000, flowing through as a one-time
reduction to property tax expense and the remaining fifty percent to be refunded
to firm customers through the operation of the PGA in three equal amounts
during the second quarter of fiscal 1998.
Environmental Matters
- ---------------------
Southern has identified coal tar residue at three sites in Connecticut
resulting from coal gasification operations conducted at those sites by
Southern's predecessors from the late 1800s through the first part of this
century. Many gas distribution companies throughout the country carried on
such gas manufacturing operations during the same period. The coal tar
residue is not designated a hazardous material by any federal or Connecticut
agency, but some of its constituents are classified as hazardous.
On April 27, 1992, Southern notified the Connecticut Department of
Environmental Protection ("DEP") and the United States Environmental
Protection Agency of the presence of coal tar residue at the sites. On
November 9, 1994, the DEP informed Southern that it had performed a
preliminary review of the information provided to it by Southern and had
determined that, based on current priorities and limited staff resources, a
comprehensive review of site conditions and subsequent participation by the
DEP "are not possible at this time."
On September 8, 1997, Southern received a letter from the DEP informing it that
the three sites had been entered on the Connecticut Inventory of Hazardous
Waste Sites. The letter states that the site located on Pine Street in
Bridgeport, Connecticut may be of particular interest to the state of
Connecticut because of its proximity to the Connecticut Department of
Transportation expansion project of the U.S. Highway Route Number 95 Corridor.
Placement of the sites on the Inventory of Hazardous Waste Sites means that
the DEP may pursue remedial action pursuant to the Connecticut General
Statutes.
Each site is located in an area that permits Southern to voluntarily perform
any remedial action. Connecticut law also allows Southern to retain a Licensed
Environmental Professional to conduct further environmental assessments and,
if necessary, to develop remedial action plans in accordance with Connecticut
Remediation Standard Regulations. Southern is currently conferring with
officials of the DEP to establish priorities in connection with the
environmental assessments.
Management cannot at this time predict the costs of any future site analysis
and remediation, if any, nor can it estimate when any such costs, if any, would
be incurred. While such future analytical and cleanup costs could possibly be
significant, management believes that, based upon the provisions of the
Partial Settlement in Southern's most recent rate order and regulatory
precedent with other local gas distribution companies in Connecticut,
Southern will be able to recover these costs through its customer rates.
Although the method, timing and extent of any recovery remain uncertain,
management currently does not expect that the incurrence of such costs will
materially adversely impact the Company's financial condition or results of
operations.
PART II- OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are inapplicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 10 - Agreement between The Southern Connecticut Gas
Company and Connecticut Energy Corporation and David Silverstone
related to change in control, dated April 1, 1998, is filed
herewith at pages 21 to 30.
Exhibit 27 - Financial Data Schedule
Submitted only in electronic format to the Securities and Exchange
Commission.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter.
SIGNATURES
Pursuant to the requirements 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.
CONNECTICUT ENERGY CORPORATION
(Registrant)
Date: August 12, 1998 By: /s/ Vincent L. Ammann, Jr.
--------------- ------------------------------
Vincent L. Ammann, Jr.
Vice President and
Chief Accounting Officer
AGREEMENT
THIS AGREEMENT, made as of the 1st day of April, 1998, by and among
The Southern Connecticut Gas Company, a company incorporated in the
State of Connecticut with executive offices at 855 Main Street, Bridgeport,
Connecticut ("Southern"), and Connecticut Energy Corporation, a company
incorporated in the State of Connecticut with executive offices at 855 Main
Street, Bridgeport, Connecticut ("the Company"), and David Silverstone, an
individual residing at 131 Underhill Road, Hamden, Connecticut 06517 (the
"Executive").
WHEREAS, Executive serves as Vice President of Southern; and
WHEREAS, Southern and the Company seek to retain Executive in this position;
and
WHEREAS, Executive desires to continue his employment with Southern in
accordance with the terms set forth below;
NOW, THEREFORE, in consideration of the remuneration and other benefits to
be provided by Southern and the Company and the services to be provided by
Executive, and in consideration of other mutual promises herein contained, the
parties hereby agree as follows:
1. DEFINITIONS.
The following terms when used herein with initial capital letters shall,
unless the context clearly requires to the contrary, have the meanings
assigned to them below:
(a) "Cause" means the Executive's gross negligence, willful misconduct or
conviction of a felony, which negligence, misconduct or conviction has a
demonstrable and material adverse affect upon the Company or Southern,
provided that the Company or Southern shall have given the Executive
written notice of the alleged negligence or misconduct and the Executive
shall have failed to cure such negligence or misconduct within 30 days
after his receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date stated in a
written notice of such termination delivered by the Company or Southern
to the Executive and accompanied by the resolution duly adopted by the
affirmative vote of not less than 2/3 of the entire membership of the
Board of Directors of the Company or Southern at a meeting of said Board
(after reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the Board) finding
that, in the good faith opinion of the Board of Directors of the Company or
Southern, the Executive was guilty of conduct constituting Cause hereunder
and setting forth in reasonable detail the facts and circumstances claimed
to provide the basis for the Executive's termination, provided that the
effective date shall not be less than 30 days from the date such notice
is given.
(b) "Change in Control" of the Company shall be deemed to have occurred if:
(i) Any Person is or becomes an Acquiring Person;
(ii) Less than 2/3 of the total membership of the Board of
Directors of the Company shall be Continuing Directors; or
(iii) The shareholders of the Company shall approve a merger or
consolidation of the Company or a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
In connection with the preceding definition of "Change in Control",
the capitalized terms therein are defined as follows:
(iv) "Acquiring Person" means any Person who is or becomes a
"beneficial owner" (as defined in Rule 13d-3 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding voting securities, unless such person has filed Schedule
13G and all required amendments thereto with respect to its holdings and
continues to hold such securities for investment in a manner qualifying such
Person to utilize Schedule 13G for reporting of ownership.
(v) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act as in effect as of the date hereof.
(vi) "Continuing Directors" means any member of the Board of Directors of
the Company who was a member of said Board prior to the date hereof and any
successor of a Continuing Director while such successor is a member of the
Board of Directors of the Company who is not an Acquiring Person or an
Affiliate or Associate of an Acquiring Person and who is recommended or
elected to succeed the Continuing Director by a majority of the Continuing
Directors.
(vii) "Person" shall have the meaning assigned to it in Section 13(d) and
14(d) of the Exchange Act.
(c) "Good Reason" means:
(i) An adverse change in the Executive's status, duties or responsibilities as
an Executive of the Company or Southern;
(ii) Failure of the Company or Southern to pay or provide the Executive
in a timely fashion the salary or benefits to which he is entitled under
any Employment Agreement between the Company or Southern and the Executive
then in effect or under any benefit plans or policies in which the
Executive was then participating (including, without limitation, any
incentive, bonus, stock option, restricted stock, health, accident,
disability, life insurance, thrift, vacation pay, deferred compensation
and retirement plans or policies);
(iii) The reduction of the Executive's salary (except in connection with
a uniform and general reduction of salaried employees' compensation effected
by the Company or Southern);
(iv) The taking of any action by the Company or Southern (including the
elimination of a plan without providing substitutes therefore, the reduction
of the Executive's awards thereunder or failure to continue the Executive's
participation therein) that would substantially diminish the aggregate
projected value of the Executive's awards or benefits under the Company's
or Southern's benefit plans or policies described in Section 1(c)(ii) in
which the Executive was then participating; provided, however, that the Board
of Directors may determine at any time to discontinue Southern's Management
Incentive Compensation Plan. The Executive further acknowledges that awards
under such Plan may vary from year to year and that, under the terms of such
Plan, no awards or reduced awards may be made in any particular year.
(v) A failure by the Company or Southern to obtain from any successors the
assent to this Agreement contemplated by Section 12 hereof; or
(vi) The relocation of the principal office at which the Executive is to
perform his services on behalf of the Company or Southern to a location
outside the State of Connecticut or a substantial increase in the
Executive's business travel obligations.
The Executive shall be deemed to have terminated his employment for
Good Reason effective upon the effective date stated in a written notice
of such termination given by him to the Company and Southern setting forth
in reasonable detail the facts and circumstances claimed to provide the
basis for termination, provided that the effective date may not precede,
nor be more than 60 days from, the date such notice is given. The
Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good
Reason hereunder.
(d) "Qualifying Surviving Spouse" means the Executive's widow to whom
he has been married for more than one year at the time of benefit payment
commencement pursuant to this Agreement.
2. EMPLOYMENT: Southern shall employ Executive and Executive hereby
accepts such employment upon the terms and conditions hereinafter set forth.
3. TERM OF EMPLOYMENT: The term of this Agreement shall begin on
April 1, 1998, and shall continue thereafter until terminated by either
party by written notice given to the other party at least thirty (30)
days prior to the effective date of any such termination. The effective
date of the termination shall be the date stated in such notice, provided
that if the Company or Southern specifies an effective date that is more
than thirty (30) days following the date of such notice, the Executive may,
upon thirty (30) days' written notice to the Company or Southern,
accelerate the effective date of such termination.
4. COMPENSATION: For all services rendered by Executive under this
Agreement, Southern shall pay Executive an annual base salary, payable
at such times as is customary for Southern to pay its officers, in such
amount as Southern's Board of Directors shall establish from time to
time. Executive's base salary is subject to upward or downward revision
by the Board of Directors at such time as the Board generally increases
or reduces the salary rates of other officers of Southern. Executive
shall also participate in Southern's Management Incentive Compensation
Plan (the "Plan") for such years as the Board of Directors determines
the Plan shall be in effect. Executive shall be entitled to any other
benefits available to officers and employees of Southern generally.
5. CHANGE IN CONTROL: If a Change in Control of the Company shall have
occurred, and Executive's employment by the Company or Southern is
terminated effective as of a date within three (3) years after the date of
such Change in Control for any reason other than (1) his death, (2) his
Disability, (3) his retirement on his Normal Retirement Date, (4) by the
Company for Cause, or (5) by Executive without Good Reason, Executive
shall be under no further obligation to perform services for the Company
or Southern and shall be entitled to receive the following payments:
(a) The Company or Southern shall pay to Executive his full base salary
through the effective date of the termination within five (5) business
days thereafter and all benefits and awards (including both the cash and
stock components) to which Executive is entitled under any benefit plans
or policies in which he was a participant prior to the Change in Control,
at the time such payments are due pursuant to the terms of such benefit
plans or policies as in effect immediately prior to the Change in Control.
(b) In addition to the entitlements set forth in Section 3(a), the Company
or Southern shall pay to Executive, in a lump sum not later than ten (10)
business days following the effective date of the termination:
(i) an amount equal to three (3) times Executive's annual base salary on
the effective date of the termination or, if higher, immediately prior to
the Change in Control;
(ii) an amount equal to three (3) times the greater of (A) the highest
amount of the annual bonus awarded to Executive in the five (5) fiscal
years immediately preceding the year in which the Change in Control
occurred or (B) an amount equal to the amount Executive would have been
awarded under the Company's bonus plan in effect immediately prior to the
Change in Control for the fiscal year in which the Change of Control
occurred had he continued to render services to the Company at the same
level of performance, at the same level of salary, and in the same position
as immediately prior to the Change in Control;
(iii) an amount equal to three (3) times the greater of (A) the largest
annual contribution made by Southern (or the Company, or by both) to The
Southern Connecticut Gas Company TARGET Plan for Salaried and Certain Other
Executives on Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change of Control occurred or
(B) an amount equal to the contribution the Company would have made to said
Plan on his behalf for the fiscal year in which the Change of Control occurred
had he participated in said Plan for the entire fiscal year, received a base
salary equal to the salary he was receiving immediately prior to the Change in
Control and had he elected to contribute to the Plan the same percentage of
his base salary as he was contributing on said date; and
(iv) an amount equal to thirty five percent (35%) of Executive's annual
base salary on the effective date of the termination or, if higher,
immediately prior to the Change in Control (as compensation for medical,
life insurance and other benefits lost as a result of termination of his
employment).
(v) If a payment may be increased by reference to an alternate calculation
which cannot be made by the time the payment is due, payment of the lesser
known amount shall be made when due, and if any additional amount becomes
due, such additional amount shall be paid within ten (10) days after the
information upon which calculation of such payment is dependent first
becomes available.
The amount of all payments due to Executive pursuant to this Section 5(b)
shall be reduced by four percent (4%) for each full calendar month by which
the date which is two (2) years from the effective date of the Executive's
termination extends beyond his Normal Retirement Date (as that term is
defined in The Southern Connecticut Gas Company Pension Plan for Salaried
Employees).
Upon entering into this Agreement and for a period of fourteen (14) days
following each anniversary of the date hereof (the "Election Period"), the
Executive may, in writing, direct the Company or Southern to pay any amounts
to which he is entitled under this Section 5(b) in five (5) equal annual
installments, with the first such installment payable within ten (10)
business days of the effective date of the termination and each successive
installment payable on the anniversary of the effective date of the termination
or the next following business day if such date is not a business day (the
"Deferred Payment Election"). A Deferred Payment Election, once made,
cannot be revoked except during an Election Period; provided, however,
no Deferred Payment Election can be made or revoked by Executive during
an Election Period that occurs after a Change in Control or at a time when,
in the judgment of the Company, a Change in Control may occur within sixty
(60) days of such Election Period.
(c) The Company or Southern shall pay or provide to Executive, or his widow
or children as the case may be, such amounts and benefits as may be required
so that the pension and other post-retirement benefits paid or made
available to him, his widow and his children are equal to those, if any,
which would have been paid under The Southern Connecticut Gas Company
Pension Plan for Salaried Executives as in effect immediately prior to
the Change in Control, assuming Executive continued in the employ of the
Company or Southern at the same salary until the third anniversary of the
effective date of the termination of his employment or until his Normal
Retirement Date, whichever is earlier.
(d) Executive shall not be required to mitigate the amount of any payment
provided in this Section 5, nor shall any payment or benefit provided for
in this Section 5 be offset by any compensation earned by him as the result
of employment by another employer, by retirement benefits, or by offset
against any amount claimed to be owed by the Executive to the Company or
Southern, or otherwise.
(e) If any payment to Executive required by this Section 5 is not made
within the time for such payment specified herein, the Company or Southern
shall pay to him interest on such payment at the legal rate payable from
time to time upon judgments in the State of Connecticut from the date such
payment is payable under the terms hereof until paid.
(f) If any payment or benefit to Executive provided for in this Agreement
is subject to the excise tax imposed pursuant to Section 4999 of the
Internal Revenue Code of 1986, as amended, (which tax, together with
any similar tax hereafter imposed is referred to in this Agreement as the
"Excise Tax") the Company or Southern shall pay to him an additional amount
such that the total amount of the payments to or for the benefit of
Executive under this Agreement (including payments made pursuant to this
Section 5(f), net of the Excise Tax and all other applicable federal, state
and local taxes shall equal the total amount of the payments and benefits to
which Executive would have been entitled under this Agreement but for this
Section 5(f), net of all applicable federal, state and local taxes except the
Excise Tax.
The amount of the payment to Executive under this Section 5(f) shall be
estimated by the Company's independent auditors based upon the following
assumptions:
(i) All payments to Executive under this Agreement and all other payments
and benefits to him in connection with a Change in Control of the Company
shall be deemed to be "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" shall be deemed
to be subject to the Excise Tax unless, in the written opinion of tax
counsel selected by the Company's independent auditors, (a signed copy of
which opinion shall be delivered to Executive) such payment or benefits are not
subject to the Excise Tax;
(ii) Except to the extent that the total of the payments and benefits to
Executive under this Agreement exceeds the total of the "excess parachute
payments" made to him, no such payments or benefits shall be deemed to be
part of the "base amount" within the meaning of Section 280G(b)(3) of the
Code; and
(iii) Executive shall be deemed to pay federal, state and local taxes at
the highest marginal rate of taxation for the applicable calendar year.
The estimated amount of the payment due to Executive pursuant to this
Section 5(f) shall be paid to him in a lump sum not later than thirty
(30) business days following the effective date of termination. In the
event that the amount of the estimated payment is less than the amount
actually due to him under this Section 5(f), the amount of any such
shortfall shall be paid to him within ten (10) days after the existence
of the shortfall is discovered.
6. DUTIES: Executive shall serve in such capacities and with such titles
as may be assigned to him by the Board of Directors of Southern and the
Company, and shall assume such duties as the Board of Directors of Southern
and the Company shall assign to him.
7. TERMINATION: Subject to the applicable provisions of Section 5 of this
Agreement, Executive's employment pursuant to this Agreement may be
terminated by Southern or the Company on thirty (30) days written notice
at any time, with or without Cause. Executive's term of employment shall
also terminate upon his death or permanent disability. Such terminations
shall not constitute a termination of employment without Cause for purposes
of Section 5 of this Agreement. Permanent disability shall mean Executive's
inability by reason of physical or mental impairment or illness to fulfill
his obligation hereunder for the reasonably foreseeable future, as
determined by the Board of Directors of Southern and the Company after
considering all relevant medical evidence.
8. AMENDMENT: Amendment of the terms of this Agreement shall not be valid
unless made in writing and signed by duly authorized representatives of
Southern and the Company and by Executive.
9. EXECUTIVE'S EXPENSES: The Company and Southern, or the successor of
either of such companies, shall pay or reimburse Executive (or, if
appropriate, his Qualified Surviving Spouse) for all costs, including
reasonable attorney's fees and expenses of litigation and arbitration,
incurred by Executive (or his Qualified Surviving Spouse) in successfully
contesting or disputing any action taken by the Company and Southern, or
the successor of either of such companies, purportedly pursuant to
Section 5 of this Employment Agreement or in successfully seeking to obtain
or enforce any right or benefit provided by Section 5 of this Employment
Agreement.
10. NOTICES: Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and personally delivered or
sent by registered or certified mail postage prepaid, properly addressed
(if to Executive, at his residence address as then reflected in the
Company's personnel records; if to Southern and the Company, at 855 Main
Street, Bridgeport, Connecticut 06604, Attention: Vice President, Human
Resources or at such other address as the executive offices of the Company
may be located), return receipt requested, and shall be deemed given as of
the date of delivery or personally delivered or of mailing if properly mailed.
11. WAIVER OF BREACH: The waiver by Southern or the Company of a breach
of any provision of this Agreement by Executive shall not operate or be
construed as a waiver of any prior or subsequent breach by Executive.
12. INTEGRATION: This Agreement shall be the sole and exclusive Agreement
among Southern, the Company, and Executive, and any other agreements or
arrangements among them are hereby superseded, canceled, and made void
and of no effect.
13. BINDING AGREEMENT: This Agreement shall inure to the benefit of and
be enforceable by Executive, his heirs, executors, administrators,
successors, and assigns. This Agreement shall be binding upon the Company,
Southern and their successors and assigns. The Company and Southern
respectively shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of its or their business and/or assets expressly to assume and agree
to perform this Agreement in accordance with its terms. The Company and
Southern respectively shall obtain such assumption and agreement prior to
the effectiveness of any succession. The obligations of this Agreement may
not be assigned by Executive.
14. COUNTERPARTS: This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
15. CHOICE OF LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut (except that, if
application of Connecticut's choice of law rules would result in this
Agreement being governed, construed or interpreted in accordance with
the substantive law of a jurisdiction other than Connecticut, Connecticut's
choice of law rules shall not supersede or vary the choice of law made by
this Section 15).
16. SEVERABILITY: The provisions of this Agreement are severable, and the
invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
THE SOUTHERN CONNECTICUT GAS COMPANY
By /s/ Samuel M. Sugden
Samuel M. Sugden, duly authorized Chairman,
Nominating and Salary Committee
CONNECTICUT ENERGY CORPORATION
By /s/ Samuel M. Sugden
Samuel M. Sugden, duly authorized Chairman,
Nominating Salary Committee
/s/ David Silverstone
David Silverstone
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0
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0
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</TABLE>
