FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1998
Commission File Number 1-11441
ENERGYNORTH, INC.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0363755
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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1260 Elm Street, P.O. Box 329, Manchester, New Hampshire 03105-0329 (603-625-4000)
(Address, zip code and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock - $1.00 Par Value
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, and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
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]
At October 27, 1998, nonaffiliates held 3,214,581 shares of the registrant's $1.00 par value common
stock. On December 2, 1998, the aggregate market value of those shares was $92,017,381.
At the close of business on December 22, 1998, the registrant had 3,319,718 outstanding shares of its
$1.00 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
Portions of the Proxy Statement furnished to Shareholders
in connection with Annual Meeting to be held February 3, 1999. Part III
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Page 1 of 49 pages.
Exhibit Index appears on Pages 46 through 48.
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TABLE OF CONTENTS
Part I Page No(s).
Item 1. Business
General 4-5
Utility Gas Distribution Business 5-6
Retail Propane Business 6
Mechanical Contracting Business 7
Summary of Revenues 7
Deregulation 7-8
Competition 8
Gas Supply
General 8
Supply Contracts and Storage 9
Cost of Purchased and Produced Gas 9-10
Supervision and Regulation 10
Employees 10
Executive Officers of the Registrant 11
Item 2. Properties 12
Item 3. Legal Proceedings 12-14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15-21
Item 7A. Quantitative and Qualitative Disclosures About Management Risk 21
Item 8. Financial Statements and Supplementary Data 22-41
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 41
Part III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners and Management 42
Item 13. Certain Relationships and Related Transactions 42
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TABLE OF CONTENTS (continued)
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Part IV Page No(s).
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 42-44
Signatures 45
Exhibit Index 46-48
Exhibit 23 - Consent of Independent Public Accountants 49
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ENERGYNORTH, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
General
The business of EnergyNorth, Inc., incorporated in the state of
New Hampshire in 1982, is the ownership of 100% of the
outstanding common stock of EnergyNorth Natural Gas, Inc. (ENGI),
EnergyNorth Propane, Inc. (ENPI), ENI Mechanicals, Inc. (ENMI)
and EnergyNorth Realty, Inc. EnergyNorth, Inc. (ENI or the
Registrant) and its subsidiaries, collectively referred to as the
"Company," are headquartered at 1260 Elm Street, Manchester, New
Hampshire, except for ENPI. ENPI is headquartered at 75
Regional Drive, Concord, New Hampshire. ENMI's wholly
owned subsidiaries, Northern Peabody, Inc. (NPI) and Granite
State Plumbing and Heating, Inc. (GSPH), are headquartered at
25 Depot Street, Manchester New Hampshire and 546 Mast Road,
Goffstown, New Hampshire, respectively. All subsidiaries are
incorporated in the state of New Hampshire.
The business of ENGI, the Registrant's principal subsidiary, is
the purchase, transportation and sale of natural gas for
residential, commercial and industrial use in New Hampshire.
ENPI is a retailer of liquefied petroleum gas (propane or LP) and
serves customers in central and southern New Hampshire. ENPI is a
member of VGS Propane, LLC (VGSP), a Vermont joint venture with Northern
New England Gas Corporation. VGSP is a limited liability company
which provides LP gas sales and service in the state of Vermont.
In May 1998, ENI acquired NPI and GSPH. Both are mechanical
contractors engaged in the design, construction and service of
plumbing, heating, ventilation, air conditioning and process
piping systems. They serve commercial, industrial and
institutional customers in northern New England. NPI has an
operating location in Portland, Maine.
In general, the senior management of ENI serves as the senior
management of all subsidiaries, other than NPI and GSPH. ENI provides
for the subsidiaries' administrative support and services and establishes
policies, plans and goals.
The service territory of ENGI has a population of approximately
470,000 in 27 communities situated in southern and central New
Hampshire, which includes the communities of Nashua, Manchester,
Concord and Laconia. The service area encompasses approximately
922 square miles. Located within 30 to 85 miles of Greater
Boston, ENGI's service territory offers a favorable business
climate with no general sales or personal income taxes, a
productive labor force and a comfortable, safe and clean environment
for residents and tourists.
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After three years of nonfarm employment growth rates greater than
both the New England average and the national average, the state
of New Hampshire nonfarm growth rate was 1.6% in 1998. This
compares to a 2.4% average growth rate nationally and a 2.2%
average rate for New England for the same period. However,
New Hampshire employment growth in 1999 is forecasted to be 2.4%.
New housing permits increased 15.4% in 1998 compared to 1997 and are
expected to increase another 5.4% in 1999. While the New Hampshire
unemployment rate for 1999 is forecasted at 2.4% compared to 2.6%
in 1998, the labor force is forecasted to increase by 1.5% in
1999. Job growth and low unemployment in the Company's service
area tend to result in an increase in volumes transported and
sold and numbers of customers. (All employment and housing
statistics are taken from The New England Economic Project's
October 1998 Economic Outlook for New Hampshire.) In fiscal
1998, the Company experienced net growth of more than 2.4% in
natural gas and transportation customers and approximately 6.8%
in propane customers over 1997.
ENGI's marketing focus continues to stress low cost growth by
concentrating on adding new customers along the Company's more
than 1,000 miles of gas mains and adding load from the existing
customer base, while also expanding its system of mains into
areas in which there is a significant demand for natural gas
service. ENGI has more than a 28% share of the home heating
market (based on households) within its service territory,
creating a potential for increased sales where the natural gas
pipeline is located and alternative fuels are used. In New
Hampshire, fuel oil has a penetration of over 55% of the home
heating market. Currently, the price of natural gas for heating
is higher than the full-service price of fuel oil. From a total
energy perspective, natural gas is a stronger competitor with a
complete line of gas appliances and uses, including ranges, water
heaters, clothes dryers, fireplaces and gas logs, outdoor lights
and natural gas heat pumps for heating and cooling. While these
multiple uses provide opportunities to be the total energy
provider to new customers, they also provide opportunities for
expansion within the existing customer base. Due to continued
customer conversions from other energy sources and expansion of
its service territory, ENGI has an opportunity for growth in the
retail sales market. During the past five years, ENGI has
experienced an annual average customer growth rate of more than
2.3%. This compares to an approximate 1.3% national average for
local distribution companies, according to the American Gas
Association. Additional growth in distribution operations also
occurs as industrial and commercial customers turn to natural gas
for electric generation because of a price advantage and as a
means to ensure compliance with the provisions of the Clean Air
Act. As the electric industry continues to move toward
deregulation, this option has become more attractive. The
development of new gas-burning technologies for industry has
provided opportunities for increased gas usage in market sectors
that are not sensitive to the weather.
Utility Gas Distribution Business
ENGI distributes natural gas as a regulated utility pursuant to
franchise authority granted by the State of New Hampshire Public
Utilities Commission (Commission). No operations are outside New
Hampshire. While ENGI's franchise area is primarily residential
in character, 59% of sales volumes are commercial and industrial.
As of September 30, 1998, the Company's utility business served
nearly 69,600 customers, of which approximately 88% were
residential and 12% were commercial and industrial. During
fiscal 1998, no ENGI customer purchased more than 4.2% of the
total ENGI annual sales and transportation volume.
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ENGI offers firm and interruptible transportation service to its
commercial and industrial customers. Transportation service
allows a customer to purchase a natural gas supply directly from
a third-party marketer. The marketer delivers the gas supply to
one of ENGI's interstate pipeline take stations. The customer
contracts with ENGI to transport the gas from the take station to
its facility. To ensure a continual, uninterrupted supply, ENGI
also provides an optional, separate standby service as a backup
to the gas supplies of transportation customers. As of September
30, 1998, ENGI had 66 firm transportation customers.
ENGI distributes gas to its utility customers through a system of
underground pipelines connected with its three operations centers
in Manchester, Nashua and Tilton, six take stations located in
Manchester, Londonderry, Windham, Concord, Hooksett and Suncook
and four production plant facilities in Manchester, Nashua,
Concord and Tilton. The pipelines are generally located in
public ways and are subject to licenses granted by
municipalities. ENGI serves more than 75% of New Hampshire's
natural gas customers.
On November 3, 1998, ENGI filed a petition with the Commission
for authority to operate in the city of Berlin, New Hampshire.
Berlin is a community of approximately 12,000 inhabitants in the
northern tier of the state. The petition is supported by a
request from the State of New Hampshire Department of Corrections
to provide natural gas service to a new prison complex being
constructed in Berlin. The prison will be located approximately
one-half mile from the Portland Natural Gas Transmission System.
ENGI anticipates additional development in the vicinity of the
prison complex, as well as interest from other energy users in
the city of Berlin.
Retail Propane Business
ENPI sells propane to more than 14,100 customers, of which
approximately 90% are residential and 10% are commercial and
industrial. ENPI's service territory includes more than 150
communities primarily located within a 50-mile radius of Concord.
Propane distribution does not require a regulatory franchise.
Propane is delivered to customers by trucks from ENPI's liquid
propane storage facilities located in communities within ENPI's
service territory. ENPI purchases the majority of its liquid
propane requirements on a firm contractual basis. The remaining
liquid propane requirement is purchased in the spot market.
ENPI utilizes futures and fixed price contracts purchased on
the NYMEX to manage market risk associated with a portion of
anticipated gas supply requirements, but it does not use
derivative instruments for trading purposes.
ENPI holds a 49% interest in VGSP, a joint venture, and provides
planning and management expertise through its representation on
the VGSP Board of Managers. In 1998, VGSP acquired Green
Mountain Propane Gas Company, creating the largest Vermont-based
propane company. VGSP services more than 10,000 customers
throughout the state of Vermont.
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Mechanical Contracting Business
NPI and GSPH are mechanical contractors engaged in the design,
construction and service of plumbing, heating, ventilation, air
conditioning and process piping systems. Both companies serve
commercial, industrial and institutional customers in northern
New England and Massachusetts from operating locations in
Manchester and Goffstown, New Hampshire and Portland, Maine.
Most mechanical systems are constructed on the site of each
project. NPI performs some fabrication work, mostly for
industrial customers, at its fabrication shop in Manchester, New
Hampshire. The total backlog of orders for NPI and GSPH at
September 30, 1998 was $16,197,000, all of which, except for
$5,207,000 is expected to be completed in fiscal year 1999.
Summary of Revenues
Revenues, in thousands of dollars, attributable to various
categories of gas distribution and related operations (unaudited)
during the last three fiscal years and mechanical contracting
operations for the five-month period ended September 30, 1998
(unaudited) are as follows:
September 30,
--------------------------------
1998 1997 1996
--------------------------------
Utility(natural gas)sales service $ 82,686 $ 91,670 $76,007
Utility transportation service 2,610 1,308 1,503
Propane gas sales 11,204 12,893 11,444
Service and appliance sales 2,128 2,185 1,917
Rentals 899 937 987
Contract sales 13,426 - -
--------------------------------
$112,953 $108,993 $91,858
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During the winter period, November 1 through March 31, the
Company's natural gas and propane revenues are substantially
higher than during the summer months. The increase in natural
gas and propane revenues during the winter, and the concomitant
increase in gas supply requirements, occurs because approximately
90% of ENGI's and ENPI's customers use natural gas and propane
for heating.
Deregulation
ENGI has been providing gas transportation rates and separate
standby and balancing services for commercial and industrial
customers since late 1993.
Gas transportation services have allowed customers to utilize
ENGI's distribution system for the transportation of gas
purchased from third-party gas marketers, creating competition
from gas marketers for the sale of gas to end users. At
September 30, 1998, ENGI had 66 firm transportation customers.
These customers are, for the most part, large commercial and
industrial customers. The volume transported for firm
transportation customers in fiscal 1998 was 1.5 Bcf,
approximately 13% of ENGI's total gas delivered. ENGI is
participating in a proceeding at the Commission to examine
further unbundling of the natural gas industry in New Hampshire.
The purpose of the proceeding is to determine whether and to what
extent unbundling provides benefits to customers and to make
recommendations to the Commission as to the advisability of
further unbundling to other classes of
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customers. Recommendations to the Commission are not expected until
late summer of 1999. ENGI cannot predict the outcome of the
proceeding or the impact on transportation volumes or
customers. ENGI expects the number of transportation
customers and the volume of gas transported to increase.
ENGI is the sole distributor and transporter of natural gas in
its franchise area. The Tennessee Gas Pipeline Company
(Tennessee) is the only interstate pipeline to serve ENGI's
franchise area. For that reason, and because installation of
private transmission mains would typically be impractical,
customers have not attempted to bypass ENGI's distribution
system.
Competition
Natural gas competes mainly with electricity and fuel oil. The
principal competitive factors between natural gas and alternative
fuels are the price of the fuel and the conversion costs from one
fuel to another. Competition is greatest among ENGI's commercial
and industrial customers who have the capability to use
alternative fuels. ENGI provides flexible rates for users with
dual-fuel capabilities in order to better compete with the
alternative fuels.
Under current market conditions, natural gas has a significant
price advantage over electricity in New Hampshire. Natural gas
heating costs are currently less than one-third of electric
heating costs. At the present time, the price of natural gas for
heating is higher than the full-service price of fuel oil. ENGI
continues to add customers who might otherwise elect to use oil,
because energy decisions are also based on factors other than
cost, such as service, cleanliness and environmental impact.
Demand for natural gas is expected to continue to increase as
national attention remains focused on its environmental
advantages, efficiency and security of supply. Commercial and
industrial customers continue to find gas technologies and
equipment attractive as they deal with the requirements of the
Clean Air Act Amendments of 1990 and other federal environmental
legislation.
The retail propane market is very competitive, and numerous other
retail propane operations exist within the communities served by
ENPI. The principal competitive factors in the industry are
price, dependability of delivery and service.
The mechanical contracting market is very competitive. Contracts
are awarded through a bid process in which there are, usually, at
least three bidders. The principal competitive factors are price
and the quality and reliability of the construction work.
Gas Supply
General. The Company's gas supply goal is to maintain a balanced
portfolio of supply that will continue to minimize the overall
cost of gas while providing the necessary security to meet demand
requirements.
Supply Contracts and Storage. ENGI's gas supply is principally
natural gas transported by the interstate pipeline system. ENGI
has contracted with Tennessee to deliver 56,833 Dekatherms
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("Dths," a unit of heating value equivalent to one million
British Thermal Units) per day on a firm transportation basis
with an additional 8,000 Dths per day on an interruptible basis.
ENGI also contracted with a New England supplier for city gate
delivery of 8,000 Dths per day (151 day service). Natural gas
supplies are purchased with both long-term and short-term firm
contracts. During fiscal year 1998, ENGI purchased approximately
1.8% of its annual natural gas requirements with short-term
contracts. ENGI did not purchase supply on the spot market in
fiscal year 1998. ENGI's long-term contracts, under which it has
firm supply for approximately 40,529 Dths per day, have remaining
terms of one to eight years.
In fiscal 1998, approximately 56% of the gas delivered by ENGI
came from domestic pipeline sources, 19% from Canadian pipeline
supplies and approximately 11% from supplemental pipeline
supplies. LP and liquefied natural gas (LNG) purchases from both
domestic and foreign sources made up approximately 1% of the gas
delivered by ENGI. Supplemental supplies of gas are produced
from plants owned and operated by ENGI. Third-party marketer
supply to end users on ENGI's system accounted for 13%.
All pipeline volumes are transported by Tennessee under FERC
tariffed rate schedules. The supply from Canada is transported
to Tennessee's system using the TransCanada and the Iroquois Gas
transmission systems.
In addition to long-term supply sources, ENGI stores gas during
the summer months under long-term contracts with the owners of
storage facilities located in Pennsylvania and New York. Gas
from these storage facilities, up to 24,304 Dths per day on a
firm basis, is delivered to ENGI during the winter months through
the Tennessee system. ENGI owns other on-site storage facilities
capable of holding 115,660 Dths of LP and 13,057 Dths of LNG.
ENGI has contracted for 300,000 Dths of supplemental gas vapor,
100,000 Dths of LNG and an additional one million gallons of LP
for the winter of 1998 - 1999.
The Company expects to be able to secure the gas supply required
to meet existing customer and forecasted new customer demands
through long-term commitments and purchases in the spot market.
Cost of Purchased and Produced Gas. The average unit cost of gas
purchased and produced during the twelve months ended
September 30, 1998 was approximately $4.09 per Mcf compared to $4.28 per
Mcf for the same period last year. The 1998 average unit cost
reflects the lower cost of gas supply in the marketplace. The
cost of gas adjustment (CGA) clause authorized by the Commission
permits recovery by ENGI from its customers (or requires refunds
to its customers) of gas costs (including pipeline, LP, LNG and
storage) that are higher (or lower) than the cost of gas included
in base rates. ENGI may adjust the approved CGA rate upward or
downward on a monthly basis. The monthly accumulative
adjustments may not exceed 10% of the approved unit cost of gas
sold. Amounts recovered through CGA rates are reconciled twice
annually against actual costs, for summer and winter periods, and
future CGA rates are adjusted accordingly.
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ENGI has a Natural Gas Price Risk Management Program designed to
protect customers from sharp increases in the commodity cost of
gas. Under the program, ENGI has purchased call and sold put
options for the 1998 - 1999 winter period. The call options
provide the right, but not the obligation, to purchase gas at a
predetermined price by a certain date. By selling a put option,
the Company agrees to purchase gas at a predetermined price by a
certain date. The purchase of call options and the sale of put
options creates a collar mechanism. The collar establishes a
maximum and minimum price at which the Company will buy gas
contracts on the commodities market. All program costs and
benefits will be passed on to customers through the CGA.
Margins earned on interruptible, 280-day sales and capacity
release are passed on to firm customers through the CGA. In
addition, costs associated with a fuel inventory trust, including
administration fees and carrying costs, are recovered through the
CGA.
Supervision and Regulation
ENI is generally exempt from regulation under the Public Utility
Holding Company Act of 1935, because its utility operations are
predominantly intrastate in character.
ENGI is subject to regulation by the Commission, which has
authority over accounting, rates and charges, the issuance of
securities and certain operating matters. Changes in utility
rates and charges cannot be made without a 30-day notice to the
Commission, which has the power to suspend, investigate and
change any proposed increase in rates and charges.
The natural gas and propane distribution businesses of ENGI and
ENPI are subject to extensive safety regulations and reporting
requirements promulgated by the United States Department of
Transportation, but are not otherwise subject to direct
regulation by federal agencies except as to environmental
matters. These subsidiaries are also subject to zoning and other
regulations by local authorities. Their capital expenditures,
earnings and operations have not been materially affected by
environmental and local regulation.
The mechanical contracting businesses of NPI and GSPH are subject
to OSHA regulations and local, state and federal building codes
but are not otherwise subject to direct regulation by federal,
state and local agencies.
Employees
At September 30, 1998, the Company had 421 full-time employees,
of whom 138 were represented by four contracts with Local 12012
of the United Steelworkers of America. The contracts expire in
2001 and 2002. Various locals of the United Association of
Plumbers and Pipefitters represent 96 employees under a contract
that expires in 2000.
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Executive Officers of the Registrant
The executive officers of the Registrant are listed below, together with age at December 22, 1998,
position and other information as to each. The term of office of each executive officer terminates
when his or her successor has been duly elected and qualified.
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Served as Principal Occupations and Employment During
Name and Position Officer Last Five Years Other Than
with the Registrant Age Since with the Registrant
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Robert R. Giordano 60 1982 Chairman and Chief Executive Officer of ENGI;
President and Chief formerly (until 1998) President and Chief
Executive Officer Executive Officer of ENGI; Chairman and Chief
Executive Officer of ENPI; Chairman, President
and Chief Executive Officer of ENMI.
Michelle L. Chicoine 42 1990 President of ENGI; formerly (1996-1998) Senior
Executive Vice President Vice President, Treasurer and Chief Financial
Officer, formerly (1993-1997) Vice President of
ENGI.
Frank L. Childs 54 1995 Senior Vice President, Treasurer and Chief
Senior Vice President, Financial Officer of ENGI; formerly (1997)
Treasurer and Chief Senior Vice President, formerly (1995-1997) Vice
Financial Officer President of ENGI; formerly (1992-1994)
Executive Vice President and Chief
Administrative Officer of UNITIL Corporation, a
registered public utility holding company;
formerly (until 1994) President of Fitchburg Gas
and Electric Light Company, a public utility.
Kenneth M. Margossian 50 1998 Executive Vice President of ENGI; formerly
Senior Vice President (1998) Senior Vice President of ENGI; formerly
(until 1997) President and Chief Operating Officer
of Commonwealth Gas Company, a natural gas
distribution company.
Richard P. Demers 62 1988 Vice Chairman of ENPI; formerly (1993-1998)
Vice President President of ENPI; Vice President of ENGI.
David A. Skrzysowski 52 1983 Vice President and Controller of ENGI.
Vice President and Controller
Stephen W. Smith 51 1997 Vice President of ENGI; formerly (1993-1996)
Vice President Director of Human Resources of Hampshire
Chemical Corporation.
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ITEM 2. PROPERTIES
The Company's utility gas distribution facilities constitute the
majority of its physical assets. As of September 30, 1998, ENGI
had approximately 1,086 miles of mains and 690 miles of service
connections. The utility's mains and service connections are
adequate to meet service requirements and are maintained through
a regular program of inspection and repair. Offices and
operations centers located in Nashua, Manchester, Concord and
Tilton are adequate for the needs of the Company and are
regularly maintained and in good condition. Substantially all of
the Company's properties are fully utilized.
Substantially all of the Company's utility properties are subject
to the liens of the indentures securing the ENGI First Mortgage
Bonds. In some cases, motor vehicles and nonutility assets are
subject to purchase money security interests held by banks. The
Manchester office building and substantially all of ENPI's assets
are subject to first mortgages. The Company also has long-term
leases for computer equipment.
Office/operating locations for NPI and GSPH in Manchester and
Goffstown, New Hampshire and Portland, Maine are leased until
2002-2003 with options to renew. The locations are adequate and
are regularly maintained and in good condition. Substantially
all vehicles and other equipment are leased or are subject to
purchase money security interests held by banks.
ITEM 3. LEGAL PROCEEDINGS
In addition to the matters described below, the Company is a
party in several proceedings of the sort that arise in the ordinary
course of its business. Such actions, for the most part, are
covered by insurance and, to the extent that they are not fully
covered, the damages sought are not material in amount. The Company
is a party to various routine Commission proceedings relating to
operations, none of which is expected to have a material impact
on the Company's earnings or assets.
The Company and certain of its predecessors owned or operated
several facilities for the manufacture of gas from coal, a
process used through the mid-1900s that produced by-products that
may be considered contaminated or hazardous under current law,
and some of which may still be present at such facilities. The
Company accrues environmental investigation and cleanup costs
with respect to former manufacturing sites and other
environmental matters when it is probable that a liability exists
and the amount or range of amounts can be reasonably estimated.
The New Hampshire Department of Environmental Services (NHDES)
has required remedial action for a portion of the Concord site at
which wastes were disposed from approximately 1852 through 1952.
The estimated cost to complete this remedial action ranges from
$1.9 million to $4.0 million,
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and the Company has recorded $1.9 million at September 30, 1998 in
deferred charges. The Company has received an order from the Commission
approving recovery from customers, over a seven-year period, of
substantially all costs, excluding carrying costs, of past and future
investigation, remediation and recovery efforts for the Concord site.
Recovery of costs incurred through April 30, 1998 began on June 1, 1998.
The total unamortized balance for the Concord site, including the
gasholder site, of $5.5 million at September 30, 1998 is excluded
from rate base. The Company may not earn a return or charge
rates to customers based on amounts not included in rate base.
The Company has instituted several lawsuits to recover the costs
of investigation and remediation of the Concord site. On
December 8, 1995, the Company filed suit in the United States
District Court for the District of New Hampshire against
Associated Electric and Gas Insurance Services, Ltd., American
Home Assurance Company, CIGNA Specialty Insurance Company,
International Insurance Company, Lloyd's, Underwriters at London,
Lexington Insurance Company and National Union Fire Insurance
Company, later adding Columbia Casualty Company as a defendant,
seeking declaratory judgment that they owe the Company a
defense and/or indemnification for environmental claims
associated with the Concord facility. The Company filed suit in
the New Hampshire (Hillsborough County) Superior Court on
December 8, 1995 against the Continental Insurance Company and
Netherlands Insurance Company seeking a declaratory
judgment that they owe the Company a defense and/or
indemnification for environmental claims associated with the
Concord facility.
At the direction of NHDES, the Company and Public Service Company
of New Hampshire (PSNH), an electric utility company, conducted an
environmental site characterization of a former manufactured gas
plant in Laconia, New Hampshire. The Laconia manufactured gas plant
operated between approximately 1887 and 1952, and the Company owned and
operated the facility for approximately the last seven years of
its active life. Without admitting liability, the Company and
PSNH entered into an agreement under which the costs of the site
characterization were shared. The Company's share of the costs of
the site characterization and a report to the NHDES totaled
$409,000 and has been recorded in deferred charges as of
September 30, 1998. The report describes conditions at the site,
including the presence of by-products of the manufactured gas
process in site soils, groundwater and sediments in an adjacent
water body. Based upon its review of the report, the NHDES has
directed PSNH and the Company to prepare and submit a remedial
action plan. The Company has recorded an additional $150,000 in
deferred charges at September 30, 1998, for risk characterization
studies at the Laconia site and a remedial action plan. The
Company expects to incur further costs but is currently unable to
predict the magnitude of any liability that may be imposed on it
for the cost of additional studies or the performance of a
remedial action in connection with the Laconia site. The Company
commenced proceedings in New Hampshire Superior Court and Federal
District Court on February 2, 1997 against eighteen of its
present and former insurers seeking recovery of expenses that
have been and will be incurred in connection with the
investigation and remediation of contamination from the Laconia
plant.
Through November 1998, the Company reached settlements with
defendants in gasholder related environmental lawsuits in an
aggregate amount of $3.5 million and further payment to the
Company of a portion of future Concord site remediation costs.
The Company expects that such settlement amounts will reduce the
amount that it will be permitted by the Commission to recover
from its ratepayers.
During 1998, the Company received a notice of potential
responsibility from the Environmental Protection Agency related
to a site in the area of its former gas manufacturing plant in
Nashua, New Hampshire. The Company's share of costs for the
disposal of contaminants at the site are estimated to range from
$300,000 to $350,000 and the Company recorded $300,000 in
deferred charges at
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September 30, 1998. The Company subsequently
received a request from the NHDES to investigate the former gas
manufacturing site in Nashua, New Hampshire. The Company expects
to incur cost but is currently unable to predict the magnitude of
any liability that may be imposed on it for cost of studies or
the performance of remedial action in connection with the Nashua
site.
The Company is pursuing and intends to pursue recovery from
insurance carriers and claims against any other responsible
parties seeking to ensure that they contribute appropriately to
reimburse the Company for any costs incurred with respect to
environmental matters. The Company intends to seek and expects
to receive approval of rate recovery methods with respect to
environmental matters after it has determined the extent of
contamination, received recommendations with regard to
remediation and commenced remediation efforts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the
fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Outstanding shares of the Company's common stock are listed and
traded on the New York Stock Exchange with the symbol "EI." High
and low sales prices during 1998 and 1997 were as follows:
Fiscal 1998 Fiscal 1997
High Low High Low
- ----------------------------------------------------------------
First Quarter $28 13/16 $22 3/4 $22 1/8 $19
Second Quarter 29 1/16 27 5/8 22 1/4 20 3/4
Third Quarter 29 3/4 26 3/8 22 5/8 21 1/4
Fourth Quarter 27 5/8 25 1/4 23 1/4 22
As of December 2, 1998, there were 2,019 holders of record of common stock.
Quarterly cash dividends paid were as follows:
Fiscal 1998 Fiscal 1997
- ----------------------------------------------------------------
First Quarter $.32 $.305
Second Quarter .32 .305
Third Quarter .335 .32
Fourth Quarter .335 .32
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
1998 1997 1996 1995 1994
------------------------------------------------
<C> <S> <S> <S> <S> <S>
Total operating revenues $109,926 $105,871 $ 88,954 $ 78,806 $ 97,050
Net income 5,378 6,518 6,078 4,104 5,422
Earnings per share 1.64 2.01 1.89 1.30 1.74
Cash dividends per share 1.31 1.25 1.19 1.12 1.08
Total assets 155,150 139,445 132,746 121,337 121,019
Capitalization:
Common stockholders' equity 50,890 47,722 45,167 42,114 40,778
Long-term debt (including capital lease obligations) 44,390 45,242 29,571 30,103 33,501
------------------------------------------------
Total capitalization $ 95,280 $ 92,964 $ 74,738 $ 72,217 $ 74,279
================================================
Short-term debt (including current portion of
long-term debt) $ 5,585 $ 1,078 $ 11,854 $ 5,501 $ 2,308
_______________
Reclassifications are made periodically to previously issued financial data to conform to the current presentation.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Earnings and Dividends
Earnings per share in 1998 were $1.64 compared to $2.01 in 1997.
Warmer weather in the Company's service territory significantly
impacted net income, which declined to $5.4 million in 1998 from
$6.5 million in 1997. Temperatures were 12.9% warmer than normal
and 11.4% warmer than the prior year. The effect of weather,
when compared to normal, reduced 1998 utility margin by $.51 per
share after taxes; whereas, warmer temperatures in 1997 decreased
utility margin by $.14 per share after taxes. In addition, 1997
earnings were $.20 per share higher than 1998 as a result of a
favorable net property tax settlement that was recorded in 1997.
Partially offsetting the 1998 decrease in net income was
continued customer growth and successful efforts to contain
operating costs. The earnings represent a return on average
common equity of 10.9%.
Cash dividends paid on common stock were $1.31, representing a
payout ratio of 80% of 1998 earnings. The Company's Board of
Directors continued its commitment to provide an attractive
return to shareholders by increasing the quarterly dividend
during the fiscal year. The current quarterly dividend of 33.5
cents per share is equal to an annual dividend of $1.34 per
share, a 4.7% increase over 1997 dividends.
<PAGE>
Utility Sales and Revenues
The rates charged to utility customers are regulated by the
Commission. The Commission is required by New Hampshire law to
allow the Company to charge rates that are just and reasonable,
such that the Company is compensated for the cost of providing
service and allowed a reasonable rate of return on its
investment. The Company regularly assesses whether it is earning
a reasonable return and files for rate increases when it
determines that it is not being permitted to earn a reasonable
return.
The Company generates revenues primarily through the sale and
transportation of natural gas. The Company's gas sales are
divided into two categories: firm, whereby the Company must
supply gas to customers on demand; and interruptible, whereby the
Company may, generally during colder months, temporarily
discontinue service to high-volume commercial and industrial
customers. Sales of gas to interruptible customers do not
materially affect the Company's operating income because all
margin on such sales is returned to the Company's firm customers.
The Company's tariff includes CGA rates that provide for
increases and decreases in the rates charged for gas to reflect
estimated changes in the cost of gas. Although changes in CGA
rates affect revenues, they do not affect total margin because
the CGA is a tariff mechanism designed to provide dollar-for-
dollar recovery of gas costs. Amounts recovered through CGA
rates are reconciled at least semiannually against actual costs,
and future CGA rates are adjusted accordingly.
The Company's sales are responsive to colder weather because the
majority of firm customers use natural gas for space heating
purposes. The Company measures weather through the use of degree
days. A degree day is calculated by subtracting the average
temperature for the day from 65 degrees Fahrenheit. The "normal"
number of degree days during any period is calculated based upon
a rolling approximate 30-year average number of degree days
during such period. The table below discloses degree day data as
recorded at the U.S. weather station in Concord, New Hampshire,
comparing actual degree days to the previous period and to
normal. Because of the size and topographical variations of the
Company's service territory, weather conditions within such
territory often vary. The Company considers Concord, New
Hampshire weather data to be representative of weather conditions
within its service territory.
<TABLE>
<CAPTION>
Degree days
----------------------
Prior Change vs. Change vs.
Actual period Normal prior period normal
------------------------------------------------
<C> <S> <S> <S> <S> <S>
Fiscal year ended September 30, 1998 6,532 7,373 7,499 (11.4)% (12.9)%
Fiscal year ended September 30, 1997 7,373 7,482 7,506 (1.5)% (1.8)%
Fiscal year ended September 30, 1996 7,482 6,834 7,549 9.5% (.9)%
</TABLE>
Operating revenues for EnergyNorth Natural Gas, Inc., the
Company's regulated gas distribution subsidiary, were $85.3
million in 1998 compared to $93 million in 1997, an 8.3%
decrease. Firm sales gas revenues in 1998 were $78.8 million
compared to $85.7 million in 1997. Firm transportation revenues
of $2.4 million were twice the level achieved in 1997. The weather in
<PAGE>
1998 was 12.9% warmer than normal and 11.4% warmer
than the previous year. Growth in the average number of
customers of 2.4% in 1998 helped mitigate the effects of the
warmer temperatures. Firm sendout, including transportation, was
11.6 Bcf compared to 11.5 Bcf in 1997. Volumes transported
increased more than 121%. This increase included a shift of
207,000 Mcf from firm commercial and industrial sales to
transportation, representing a decrease of $900,000 in operating
revenues attributable to the commodity cost of gas.
Shifts between transportation and sales gas will cause variations
in natural gas revenues since the transportation rate does not
include the commodity cost of gas, which is billed directly to
customers by their marketers. The Company's rate structure
provides for transportation service margin that is approximately
2.4% less than sales service margin. At September 30, 1998, the
Company had 66 firm transportation customers compared to 45
customers the previous year.
The Company is currently involved in a proceeding at the
Commission to examine further unbundling of the natural gas
industry in New Hampshire. The Company cannot predict the
outcome of this proceeding or potential impact on operating
income.
Utility Cost of Gas Sold
The cost of gas sold was $46.7 million in 1998 compared to $54.6
million in 1997. The decrease was primarily due to lower volumes
of gas sold ($6.1 million) and a decline in the unit cost ($2.4
million). The average unit cost of gas sold in 1998 was $4.09
per Mcf compared to $4.28 per Mcf in 1997. Decreases or
increases in purchased gas costs from suppliers have no
significant impact on margin, as they are passed on to customers
through the CGA.
Retail Propane Operations
Net income for 1998 for EnergyNorth Propane, Inc., the Company's
retail propane operation, was $201,000, a 57% decrease from 1997.
In March 1998, the Company's retail propane joint venture in
Vermont acquired Green Mountain Propane Gas Company. Since,
typically, third and fourth quarter results show losses because
of the seasonal use of gas, the timing of the acquisition
contributed to a 1998 after-tax loss of $244,000 from the joint
venture. The average number of retail propane customers
increased more than 7% in 1998. Despite substantial customer
growth, propane gallons sold were slightly less than 1997 due to
the warmer weather. While 1998 operating revenues of $11.2
million were $1.7 million less than 1997, there was no change in
gross margin. The Company was able to maintain a competitive
price while the unit cost of gas sold decreased more than 22%.
Operations and maintenance expense increased $186,000, or almost
5.2%, as a result of increases in sales expense to support an
effective marketing program and increases in wages and wage-
related benefits.
Mechanical Contracting Operations
The Company's mechanical contracting operations were acquired
under the purchase method of accounting in May 1998.
Consequently, five months of ENI Mechanicals, Inc. operations are
<PAGE>
included in fiscal year 1998 results, with no restatement for the
prior year. Contract revenues and operating income for the five
months ended September 30, 1998 were $13.4 million and $231,000,
respectively.
Operating Expenses
Operations and maintenance expense for fiscal year 1998 included
the expenses of the mechanical contracting operations that were
acquired in May 1998. The increase from 1997 was due mostly to
this acquisition, and operations and maintenance expense would
otherwise have been essentially unchanged from the prior year.
The warmer winter season resulted in lower maintenance and bad
debt expenses. Other operating and administrative costs decreased
as a result of effective cost containment efforts, which offset
increases in labor costs and health insurance and other employee
benefit costs.
Depreciation and amortization expense increased 7.3% in 1998 and
reflects continued expansion, including the full impact of the
Company's major main extension to serve Milford, New Hampshire,
which was completed in late fiscal year 1997. Depreciation and
amortization expense also includes normal upgrades to the
distribution system and related facilities and amortization of
environmental remediation costs. Net additions to property, plant
and equipment were $14.7 million and $13.3 million in 1998 and
1997, respectively.
Taxes other than income taxes increased almost $1.2 million to
$4.1 million in 1998. The 1997 results include a favorable
property tax settlement, net of adjustments, of more than $1
million.
The lower level of pretax income is the main reason for the
$706,000 decrease in federal and state income taxes in 1998.
Capital Resources and Liquidity
Because of the seasonal nature of the Company's gas operations, a
substantial portion of cash receipts is generated during the
November - March heating season, which results in the highest
cash inflow during late winter and early spring. Cash
requirements for capital expenditures, dividends, long-term debt
retirement, environmental remediation and working capital do not
track this pattern of cash receipts. The greatest demand for
cash is in the fall and early winter to support the completion of
the annual construction program and to fund gas inventories and
other working capital requirements.
The Company's major uses of cash in 1998 were capital
expenditures of $14.7 million, environmental remediation of
$661,000, additional investment of $1.8 million in the joint
venture for the purchase of Green Mountain Propane Gas Company,
and retirement of $1.3 million of long-term debt. In addition,
dividend payments to shareholders totaled $4.3 million in 1998.
These expenditures were funded primarily through cash generated
from current operations and short-term borrowings. Borrowings against
lines of credit during 1998 ranged from zero to a high of $3.6 million.
In addition, at September 30, 1998, deferred gas cost was in an
<PAGE>
overcollected position resulting from winter and summer activity.
The overcollected amounts will be returned to customers through the
CGA mechanism.
Capital expenditures for 1999 are currently projected at
approximately $13.4 million. Additional cash requirements will
be necessary for the payment of dividends, environmental
remediation, annual sinking fund requirements and maturities of
long-term debt and working capital. Cash to fund these
requirements is expected to be provided principally by internally
generated funds and short-term bank borrowings under the
Company's lines of credit. At September 30, 1998, the Company
had available lines of credit aggregating $26.2 million, $3.5
million of which was outstanding. In addition, a credit line of
$10.5 million was available at September 30, 1998, under the
Company's fuel inventory trust financing plan. At September 30,
1998, the Company's fuel inventory in trust in the consolidated
balance sheet was $8.7 million with an outstanding purchase
obligation of $8.7 million.
On September 30, 1998, the Company's capitalization ratio
consisted of 50.5% common equity and 49.5% debt, including short-
term debt.
Environmental Matters
The Company continues to work with federal and state
environmental agencies to assess the extent and environmental
impact of contaminants that may exist at or near former gas
manufacturing sites. The costs of such assessments and any
related remediation determined to be necessary is expected to be
funded from traditional sources of capital, recoveries from
insurance carriers and responsible third parties and customers.
For further information, see Note 11 to the consolidated
financial statements.
Results of Operations 1997 Compared to 1996
Net income increased to $6.5 million in 1997 from 1996 net income
of $6.1 million. Earnings per share in 1997 were $2.01 compared
to $1.89 in 1996. The 1997 increase in earnings was due primarily
to successful efforts to contain operating costs.
Operating revenues were more than $105 million in 1997, an
increase of 19% from 1996. Utility gas service revenues, which
represented more than 87% of total operating revenues, increased
by $15.5 million, or 20%. The increase resulted primarily from
higher CGA rates. The average unit cost of gas sold in 1997 was
$4.28 per Mcf compared to $3.96 per Mcf in 1996. Weather in the
Company's service territory was 1.5% warmer than 1996, although
the November - March winter heating season was 7.3% warmer. The
total volume of gas delivered to utility customers increased more
than 2%. Partially offsetting the impact of the warmer
temperatures was the 2.2% growth in the average number of utility
customers.
Propane operations recorded $12.9 million in total operating
revenues in 1997, an increase over 1996 of $1.5 million. The
increase was due primarily to an 8% increase in the average
number of propane customers and a 25% increase in the unit cost
of propane gallons sold.
<PAGE>
Operations and maintenance expense was approximately the same as
the prior year. Reductions in the work force, other cost saving
initiatives and workers' compensation and health insurance
refunds helped offset most of the increases from liability
insurance, uncollectible accounts and other administrative
expenses.
Taxes other than income taxes decreased $1.1 million to $2.9
million, due primarily to a favorable property tax settlement,
net of adjustments, of more than $1 million, which offset
property tax rate increases and additions to taxable property.
Factors That May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages
the use of cautionary statements accompanying forward-looking
statements. The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations includes forward-
looking statements concerning the impact of changes in the cost
of gas and of the CGA mechanism on total margin; projected
capital expenditures and sources of cash to fund expenditures;
impact of unbundling regulatory proceedings; year 2000 readiness;
and estimated costs of environmental remediation and anticipated
regulatory approval of recovery mechanisms. The Company's future
results, generally and with respect to such forward-looking
statements, may be affected by many factors, among which are
uncertainty as to the regulatory allowance of recovery of changes
in the cost of gas; uncertain demands for capital expenditures
and the availability of cash from various sources; uncertainty as
to whether transportation rates will be reduced in future
regulatory proceedings with resulting decreases in transportation
margins; uncertainty as to environmental costs and as to
regulatory approval of the full recovery of environmental costs,
transition costs and other regulatory assets; weather; results of
regulatory proceedings on unbundling; impact of new pipeline
supplies; and success of the Company's year 2000 readiness
efforts and those of its vendors and customers.
New Accounting Standards and Pronouncements
During fiscal year 1998, the Company implemented Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which establishes standards for computing and presenting
earnings per share, and SFAS No. 129, "Disclosure of Information
about Capital Structure," which establishes standards for
disclosure requirements regarding capital structure. Both SFAS
No. 128 and No. 129 have no material impact on the Company's
financial reporting.
The Financial Accounting Standards Board issued new accounting
standards which the Company will adopt in future periods. SFAS
No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and the disclosure of comprehensive income and its
components. This standard is effective in fiscal year 1999 and
is not expected to have a material impact on the Company's
financial reporting. SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," requires disclosure of
operating segments, including disclosures about products and
services, geographic areas and major customers. It is effective
in fiscal year 1999 and is not expected to have a material impact
on the Company's financial reporting. SFAS No.
<PAGE>
132, "Employer's Disclosures About Pensions and Other Postretirement
Benefits," revises employer's disclosures about pension and other
postretirement benefit plans. It does not change the measurement
of recognition of those plans. Effective in fiscal year 1999,
the standard is not expected to have a significant impact on the
Company's financial reporting. SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes
standards for recording all derivative instruments as assets and
liabilities measured at fair value. The standard is effective in
the fourth quarter of fiscal year 1999 and is not expected to
have a material impact on the Company's financial position.
The American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed and Obtained for Internal Use," and
SOP 98-5, "Reporting on the Costs of Start-up Activities." Both
are effective in fiscal year 2000 and adoption is not expected to
have a material impact on the Company's financial position.
Year 2000 Readiness
The Company has evaluated its principal computer systems and
noninformation technology systems including, but not limited to,
telecommunication systems, automated meter reading systems,
SCADA, regulator stations, plant remote control systems and
security systems to determine readiness for the year 2000. These
systems are currently capable of processing the year 2000, or are
in the process of being upgraded or replaced by systems that are
similarly capable. All necessary program modifications and system
upgrades and testing are expected to be completed by the year
2000. Costs incurred to date and costs expected to be incurred
to complete the year 2000 readiness are not material and will not
have a material impact on the Company's financial position or
results of operations. The Company is currently assessing year
2000 issues with third parties with whom it has a material
relationship. Except for the Company's major pipeline supplier,
who has provided assurance of compliance, the Company has not
determined the level of third-party risk. Preparation of a
contingency plan to address failure of various systems is in
process and is expected to be finalized prior to September 30,
1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into material market risk sensitive transactions.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements required by Regulation S-X
Consolidated Statements of Income EnergyNorth, Inc.
(In thousands, except per share amounts)
For the years ended September 30, 1998 1997 1996
- -------------------------------------------------------------------------
Operating revenues $109,926 $105,871 $88,954
Operating expenses:
Cost of sales 64,124 61,829 44,941
Operations and maintenance 23,073 21,658 21,660
Depreciation and amortization 6,604 6,153 5,825
Taxes other than income taxes 4,072 2,876 3,946
Federal and state income taxes 3,102 3,808 3,635
-------------------------------
Total operating expenses 100,975 96,324 80,007
-------------------------------
Operating income 8,951 9,547 8,947
Other income 1,173 956 907
Interest expense:
Interest on long-term debt 3,897 2,917 3,004
Other interest 849 1,068 772
-------------------------------
Total interest expense 4,746 3,985 3,776
-------------------------------
Net income $ 5,378 $ 6,518 $ 6,078
===============================
Weighted average shares outstanding 3,273 3,243 3,216
===============================
Earnings per share $ 1.64 $ 2.01 $ 1.89
===============================
<TABLE>
<C> <S>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets EnergyNorth, Inc.
(In thousands)
September 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------
<C> <S> <S>
Assets
Property:
Utility plant, at cost $158,595 $146,830
Accumulated depreciation and amortization 51,313 47,815
---------------------
Net utility plant 107,282 99,015
Net nonutility property, at cost 7,771 7,430
---------------------
Net property 115,053 106,445
---------------------
Current assets:
Cash and temporary cash investments 1,231 1,998
Note receivable - 111
Accounts receivable (net of allowances of $1,127 in 1998 and $1,357 in 1997) 9,727 3,430
Unbilled revenues 516 602
Materials and supplies 2,086 1,756
Supplemental gas supplies 9,653 9,120
Prepaid and deferred taxes 1,804 1,305
Recoverable FERC 636 transition costs 252 1,261
Prepaid expenses and other 2,252 2,258
---------------------
Total current assets 27,521 21,841
---------------------
Deferred charges and other assets:
Regulatory asset - income taxes 2,401 2,401
Recoverable environmental costs 6,113 6,546
Other deferred charges 1,941 1,923
Other assets 2,121 289
---------------------
Total deferred charges and other assets 12,576 11,159
---------------------
Total assets $155,150 $139,445
=====================
Stockholders' equity and liabilities
Capitalization (see accompanying statements) $ 95,280 $ 92,964
---------------------
Current liabilities:
Notes payable to banks 3,524 100
Current portion of long-term debt 2,061 932
Current portion of capital lease obligations - 46
Inventory purchase obligation 8,712 7,852
Accounts payable 10,431 6,046
Deferred gas costs 3,841 1,300
Accrued interest 272 311
Accrued and deferred taxes 342 111
Accrued FERC 636 transition costs 252 1,261
Accrued environmental remediation costs 2,345 1,546
Customer deposits and other 3,761 3,299
---------------------
Total current liabilities 35,541 22,804
---------------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 18,828 18,302
Unamortized investment tax credits 1,610 1,734
Regulatory liability - income taxes 1,141 1,254
Contributions in aid of construction and other 2,750 2,387
---------------------
Total deferred credits 24,329 23,677
---------------------
Total stockholders' equity and liabilities $155,150 $139,445
=====================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Capitalization EnergyNorth, Inc.
(In thousands, except share information)
September 30, 1998 1997
- ---------------------------------------------------------------------------------------
<C> <S> <S>
Capitalization:
Common stockholders' equity:
Common stock - par value of $1 per share; 10,000,000
shares authorized; 3,317,498 and 3,243,543 shares
issued and outstanding in 1998 and 1997, respectively $ 3,317 $ 3,244
Amount in excess of par 32,445 30,428
Retained earnings 15,128 14,050
------------------
Total common stockholders' equity 50,890 47,722
------------------
Long-term debt:
First Mortgage Bonds
Due 2009 8.44% 3,667 4,000
Due 2019 9.70% 7,000 7,000
Due 2020 9.75% 10,000 10,000
Due 2027 7.40% 21,975 22,000
Mortgage notes payable
Due 1999 8.75% 1,300 1,400
Due 2008 8.00% 899 959
Notes payable
Due 2000 prime 700 -
Due through 2003 prime plus .50% 631 815
Due through 2003 2.9% - 10.9% 279 -
------------------
46,451 46,174
Less current portion 2,061 932
------------------
Total long-term debt 44,390 45,242
------------------
Total capitalization $95,280 $92,964
==================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Common Stockholders' Equity EnergyNorth, Inc.
Common stock
-------------------------- Total common
$1.00 Amount in Retained stockholders'
(In thousands, except per share amounts) par value excess of par earnings equity
- ------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S>
Balance, September 30, 1995 $3,196 $29,583 $ 9,335 $42,114
Net income - - 6,078 6,078
Common stock - cash dividend ($1.19 per share) - - (3,827) (3,827)
Issuance of common stock under the Dividend
Reinvestment and Stock Purchase Plan 43 759 - 802
-------------------------------------------------------
Balance, September 30, 1996 3,239 30,342 11,586 45,167
Net income - - 6,518 6,518
Common stock - cash dividend ($1.25 per share) - - (4,054) (4,054)
Issuance of common stock under the Dividend
Reinvestment and Stock Purchase Plan 2 29 - 31
Issuance of common stock under the Key Employee
Performance and Equity Incentive Plan 3 57 - 60
-------------------------------------------------------
Balance, September 30, 1997 3,244 30,428 14,050 47,722
Net income - - 5,378 5,378
Common stock - cash dividend ($1.31 per share) - - (4,300) (4,300)
Issuance of common stock under the Key Employee
Performance and Equity Incentive Plan 4 95 - 99
Issuance of common stock for acquisition 69 1,922 - 1,991
-------------------------------------------------------
Balance, September 30, 1998 $3,317 $32,445 $15,128 $50,890
=======================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows EnergyNorth, Inc.
(In thousands)
For the years ended September 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<C> <S> <S> <S>
Cash flows from operating activities:
Net income $ 5,378 $ 6,518 $ 6,078
Noncash items:
Depreciation and amortization 7,152 6,869 6,606
Deferred taxes and investment tax credits, net 345 1,521 1,081
Changes in:
Accounts receivable, net 1,066 (1,401) 142
Unbilled revenues 86 (20) 4
Inventories (472) (247) (931)
Prepaid expenses and other 28 (211) (79)
Deferred gas costs 2,541 5,083 (9,428)
Accounts payable (728) (143) 1,421
Accrued liabilities 460 366 (171)
Accrued/prepaid taxes (400) (1,233) 1,495
Payments for environmental costs and other (1,242) (3,104) (823)
-------------------------------
Net cash provided by operating activities 14,214 13,998 5,395
-------------------------------
Cash flows from investing activities:
Additions to property (14,716) (13,262) (8,783)
Change in note receivable, net 131 (72) (39)
Other investing activities 249 - -
-------------------------------
Net cash used for investing activities (14,336) (13,334) (8,822)
-------------------------------
Cash flows from financing activities:
Issuance of common stock 99 91 802
Cash dividends on common stock (4,300) (4,054) (3,827)
Issuance of long-term debt 646 22,616 1,827
Repayment of long-term debt (1,338) (8,055) (3,536)
Repayment of capital lease obligations (46) (229) (256)
Change in notes payable to banks 3,392 (9,435) 7,785
Change in inventory purchase obligation 860 (15) 738
Change in other financing activities 42 (355) 89
-------------------------------
Net cash (used for) provided by financing activities (645) 564 3,622
Net(decrease)increase in cash and temporary cash investments (767) 1,228 195
Cash and temporary cash investments, beginning of year 1,998 770 575
-------------------------------
Cash and temporary cash investments, end of year $ 1,231 $ 1,998 $ 770
===============================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Note 1. Accounting Policies
The significant accounting policies followed by EnergyNorth, Inc.
and subsidiaries (Company) are set forth below.
Principles of Consolidation
The accompanying consolidated financial statements of the Company
include the accounts of all subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
the accompanying consolidated financial statements.
Business Organization
The Company's principal business activity is the management and
operation of a regulated gas distribution subsidiary, EnergyNorth
Natural Gas, Inc., located in southern and central New Hampshire.
The rates and accounting practices followed by the gas
distribution subsidiary are regulated by the State of New
Hampshire Public Utilities Commission (Commission). The Company's
accounting policies conform to generally accepted accounting
principles applicable to rate-regulated enterprises and reflect
the effects of the rate-making process in accordance with
Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for Certain Types of Regulation."
The Company also operates a nonregulated propane distribution
subsidiary, EnergyNorth Propane, Inc., and provides service and
sells appliances through its utility subsidiary.
During fiscal year 1998, the Company acquired two mechanical
contracting operations and, through a nonregulated subsidiary,
ENI Mechanicals, Inc., provides design, construction and service
of plumbing, heating, ventilation, air conditioning and process
piping systems to commercial, industrial and institutional
customers (see Note 9).
Business Segments
The Company added a mechanical contracting segment to its
operations during fiscal year 1998. Segmented operating results
and other financial data are presented in the following table (in
thousands):
Fiscal Year 1998
- -----------------------------------------------------------------
Revenues:
Energy segment $ 96,506
Mechanical contracting segment 13,426
Operating income:
Energy segment 11,670
Mechanical contracting segment 231
Identifiable assets:
Energy segment 145,470
Mechanical contracting segment 8,391
<PAGE>
Revenue Recognition
Utility revenues derived from the sale and transportation of
natural gas are based on rates authorized by the Commission.
Customers' meters are read and bills are rendered on a cycle
basis throughout each month. The Company records unbilled
revenues related to gas delivered but not billed at the end of the
accounting period.
Mechanical contracting work is performed under cost-plus-fee
contracts, fixed-price contracts and time and material contracts.
The Company follows the percentage-of-completion method of
accounting for contracts that extend for periods in excess of one
year. Revenues and related costs for time and material contracts
are recognized as the work is performed.
Cost of Gas Adjustment Clause
The Company's tariff includes a cost of gas adjustment (CGA)
clause that permits billings to customers for changes in its cost
of gas over a base period cost. The tariff provides for a CGA
calculation for a summer period and a winter period. The Company
may adjust the approved CGA rate upward or downward on a monthly
basis. The monthly cumulative adjustments may not exceed 10% of
the approved unit cost of gas sold. Any difference remaining
between the cost of gas incurred and amounts billed to customers
at the end of each summer or winter period is deferred for rate-
making and accounting purposes to the next corresponding summer
or winter period. Interest accrues on these amounts at the prime
rate, adjusted quarterly.
Inventories
Inventories are valued on the basis of the lower of average cost
or market.
Depreciation
The Company provides for depreciation on the straight-line basis.
The rates applied by the regulated subsidiary are approved by the
Commission. Such rates were equivalent to a composite rate of
3.4% for each of the years ended September 30, 1998, 1997 and
1996. The depreciation rates for nonregulated property, plant
and equipment were 7.5%, 8% and 8.2% for the years ended
September 30, 1998, 1997 and 1996, respectively. Under
depreciation practices required by the Commission, when gas
utility assets under the composite method are retired from
service, the cost of the retired assets is removed from the
property accounts and charged, together with any cost of removal,
to the accumulated depreciation accounts. For all other assets,
when assets are sold or retired, the cost of the assets and their
related accumulated depreciation are removed from the respective
accounts, net removal costs are recorded and any gain or loss is
included in income.
Deferred Charges
Total deferred charges consist primarily of regulatory assets and
the cost of issuing debt. The Company has established various
regulatory assets in cases where the Commission has permitted, or
is expected to permit, recovery of specific costs over a period
of time. At September 30, 1998, regulatory assets
<PAGE>
included $6.1 million for environmental investigation and remediation
costs and $2.4 million of unrecovered deferred state income taxes
(see Note 7).
The unamortized cost of issuing debt at September 30, 1998 is $2
million. Deferred financing costs are amortized over the life of
the related security. Other deferred charges are amortized over
the recovery period specified by the Commission.
Investment Tax Credits
Investment tax credits are amortized over the estimated useful
life of the property that gave rise to the credit.
Fair Value of Financial Instruments
Because of the short maturity of certain assets, which include
cash, temporary cash investments and accounts receivable, and
certain liabilities, which include accounts payable and notes
payable to banks, these instruments are stated at amounts that
approximate fair value.
If long-term debt outstanding at September 30, 1998 had been
refinanced using new issue debt rates of interest that on average
are lower than the outstanding rates, the present value of those
obligations would have increased from the amounts outstanding in
the September 30, 1998 accompanying consolidated balance sheet by
20%.
Derivative Instruments and Hedging Activities
The Company utilizes call and put option contracts and futures
contracts to manage market risk associated with a portion of
anticipated gas supply requirements. The Company's policy
prohibits utilization of derivatives for trading purposes.
Gains or losses on derivatives associated with forecasted
transactions are recognized when such forecasted transactions
affect earnings. If a derivative instrument is terminated early
because it is probable that a transaction or forecasted
transaction will not occur, any gain or loss as of such date is
immediately recognized in earnings. If such derivative is
terminated early for other economic reasons, any gain or loss as
of the termination date is deferred and recorded when the
associated transaction or forecasted transaction affects
earnings.
Although options and futures traded on the NYMEX are included in
the table below, they are not financial instruments since
physical delivery of natural and propane gas may be made pursuant
to these contracts. They are a major part of the commodity risk
management program.
<PAGE>
The following table summarizes the types of hedges used and the
related financial information as of September 30, 1998:
Notional Volumes Hedges of NYMEX Contracts
- ---------------------------------------------------------------
Futures - gallons Purchases 159
Calls - MMBtu Purchases 302
Puts - MMBtu Sales 302
$ Amount (In thousands)
- ---------------------------------------------------------------
Deferred losses, net $(31)
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect assets and liabilities, the
disclosure of contingent assets and liabilities, and revenues and
expenses. Actual amounts could differ from those estimates.
Reclassifications
Reclassifications are made periodically to previously issued
financial statements to conform to the current year's
presentation.
Note 2. Cash Flows
Supplemental disclosures of cash flow information were as follows
(in thousands):
1998 1997 1996
- -------------------------------------------------------------------------
Cash paid during the year for:
Interest (net of amount capitalized) $4,269 $4,080 $3,642
Income taxes 3,246 3,972 899
Noncash investing and financing activities:
Acquisition investment (see Note 9) 1,991 - -
In preparing the accompanying consolidated statements of cash
flows, all highly liquid investments having maturities of three
months or less when acquired were considered to be cash
equivalents and classified as cash and temporary cash
investments.
Note 3. Inventory Financing
The Company finances gas inventory purchases through the use of a
single purpose trust, which purchases gas with funds loaned to it
by a bank. As the Company requires gas to service customers, gas
is repurchased from the trust at original product cost plus
financing costs and trust fees. The cost of gas and related
financing are recoverable through the CGA.
<PAGE>
The bank credit agreement provides for a .375% commitment fee on
the credit line and interest at prime (8.25% at September 30,
1998) with a fixed-rate interest option at less than prime on the
outstanding balance. The trust agreement provides for a
management fee of $8,000 annually. The credit agreement between
the trust and the bank provides for a total commitment of up to
$10.5 million through February 1999.
As of September 30, 1998 and 1997, the gas inventories under the
trust agreement and controlled by the Company totaled $8.7
million and $7.8 million, respectively, and are included in
inventories in the accompanying consolidated balance sheets.
Inventory purchase obligations under this financing agreement are
reflected as a current liability in the accompanying consolidated
balance sheets.
Note 4. Notes Payable to Banks
As of September 30, 1998, the Company had $26.2 million available
under various unsecured bank lines of credit that are renewed
annually, $3.5 million of which was outstanding. The weighted
average interest rate on borrowings outstanding on September 30,
1998 was 7.8%. The lines bear interest at prime, prime plus 1%
or less than prime on certain of the lines for fixed periods of
time, and are due on demand. For some lines, the terms of the
credit agreements require annual commitment fees of .25% of the
lines.
Note 5. Long-Term Debt
Interest payments for the First Mortgage Bonds are due
semiannually. The First Mortgage Bonds are collateralized by
first mortgage liens on substantially all real property and
operating plant facilities of the Company's gas utility
operations.
The aggregate amounts of principal due for all long-term debt for
each of the five years subsequent to September 30, 1998 are as
follows (in thousands):
Fiscal year Amount
- -----------------------------------------------------------------
1999 $2,061
2000 1,416
2001 572
2002 487
2003 435
Note 6. Common Stock
On June 6, 1990, the Board of Directors declared a dividend
distribution of one Right for each outstanding share of common
stock of the Company. The Rights will not be exercisable until a
person (Acquiring Person) or group of affiliated or associated
persons acquires 10% or more of the Company's outstanding common
stock or announces an intention to make a tender offer that would
result in ownership by such person or persons of 20% or more of
the Company's outstanding common stock. Following such an event
and unless earlier redeemed or expired, each Right entitles its
holder to purchase from the Company one share of common stock for
$48.00.
<PAGE>
In the event the Company is acquired in a merger or other
business combination, 50% or more of its consolidated assets or
earning power is sold or transferred, any person acquires 15% or
more of the Company's outstanding common stock, or an Acquiring
Person engages in one or more self-dealing transactions with the
Company, each Right will entitle its holder to purchase, at the
Rights' exercise price, a number of shares of common stock of the
Company or of the acquiring company having a value of twice such
exercise price. Any Rights held by an Acquiring Person or its
affiliate or associate become null and void upon the occurrence
of any such events.
Prior to expiration of the Rights and except in certain instances
following acquisitions of 10% or more of the Company's common
stock, the Company may redeem all of the Rights for one cent per
Right. The Rights do not carry voting or dividend rights and have
no dilutive effect or effect on the earnings of the Company.
The distribution of the Rights was made on June 18, 1990 to
shareholders of record on that date and attach to all common
shares issued at and after that date. The Rights will expire on
June 18, 2000 unless such date is extended or unless the Rights
are earlier redeemed by the Company.
Note 7. Income Taxes
At September 30, 1998 and 1997, a SFAS No. 109 related regulatory
liability amounted to $892,000 and $960,000, respectively, for
the tax benefit of unamortized investment tax credits, and
$249,000 and $294,000, respectively, for the excess reserves for
deferred taxes as a result of pre-July 1, 1987 deferred income
taxes that were recorded in excess of the current federal
statutory income tax rate.
A deferred state income tax liability and a corresponding
regulatory asset of approximately $2.4 million, representing
revenues the Company expects to recover from utility gas service
customers, were established at September 30, 1994 as a result of
recording deferred state income taxes on the cumulative temporary
differences due to a change in New Hampshire tax law. Effective
June 2, 1994, the 1% franchise tax assessed on sales of natural
gas was repealed. Prior to the change in tax law, the franchise
tax was permitted as a credit against the New Hampshire Business
Profits Tax (NHBPT). Because franchise tax payments exceeded the
NHBPT, the Company's gas distribution subsidiary never incurred a
NHBPT liability; therefore, no deferred state income taxes
related to temporary differences were recorded.
<PAGE>
The tax effects of cumulative differences that gave rise to the deferred tax
liabilities and deferred tax assets for the years ended September 30, 1998 and
1997 were as follows (in thousands):
1998 1997
- --------------------------------------------------------------------------
Deferred tax assets:
Deferred gas costs $ 1,450 $ 240
Contributions in aid of construction 759 726
Unamortized investment tax credits 545 590
Allowance for doubtful accounts 434 524
Other 1,285 1,044
-------------------------
Total deferred tax assets 4,473 3,124
-------------------------
Deferred tax liabilities:
Property-related 18,035 16,873
Environmental costs 1,455 1,936
Other 2,073 1,880
-------------------------
Total deferred tax liabilities 21,563 20,689
-------------------------
Net deferred tax liability $17,090 $17,565
=========================
Deferred income taxes were classified in the accompanying consolidated balance
sheets at September 30, 1998 and 1997 as follows (in thousands):
1998 1997
- --------------------------------------------------------------------------
Current $(1,738) $ (737)
Long-term 18,828 18,302
-------------------------
Total $17,090 $17,565
=========================
The components of federal and state income taxes reflected in the accompanying
consolidated statements of income for the years ended September 30, 1998, 1997
and 1996 were as follows (in thousands):
1998 1997 1996
- -------------------------------------------------------------------------
Federal:
Current $2,939 $3,649 $ (32)
Deferred (265) (383) 3,165
Investment tax credits (124) (136) (140)
--------------------------------------
Total federal 2,550 3,130 2,993
--------------------------------------
State:
Current 601 756 (65)
Deferred (49) (78) 707
--------------------------------------
Total state 552 678 642
--------------------------------------
Total provision for income taxes $3,102 $3,808 $3,635
======================================
<PAGE>
The total federal and state income tax provision, as a percentage of income
before federal and state income taxes, was 36.6%, 36.9% and 37.4% for the years
ended September 30, 1998, 1997 and 1996, respectively. The following table
reconciles the income tax provision calculated using the federal statutory tax
rate of 34% to the book provision for federal and state income taxes (in
thousands):
1998 1997 1996
- ------------------------------------------------------------------------------
Tax calculated at statutory rate $2,883 $3,511 $3,302
Increase (reduction) in effective tax resulting from:
Amortization of investment tax credit (124) (136) (140)
Adjustment due to change in tax rates (28) (28) (28)
State taxes, net of federal tax benefit 364 447 424
Other, net 7 14 77
----------------------
Total provision for income taxes $3,102 $3,808 $3,635
======================
Note 8. Employee Benefit Plans
Pension Plans
The Company has noncontributory defined benefit plans covering substantially all
employees. Benefits are based on years of credited service and average earnings
during the five highest consecutive years of earnings prior to the normal
retirement date.
The Company's funding policy is to annually contribute to the plans an amount
that is not less than the minimum amount required by the Employee Retirement
Income Security Act of 1974 and not more than the maximum amount deductible for
income tax purposes.
The Company also has a Supplemental Executive Retirement Plan (SERP) for certain
management employees. Benefits are based on the employee's service and earnings
as defined in the SERP. The SERP is a nonqualified plan under the Internal
Revenue Code and has no advance funding. Benefit payments are made directly by
the Company to retired employees or their beneficiaries.
Net periodic pension cost included the following components (in thousands):
1998 1997 1996
- ----------------------------------------------------------------------------
Service cost for benefits earned $ 684 $ 663 $ 624
Interest cost on projected benefit obligations 1,397 1,316 1,193
Actual return on plan assets (442) (4,526) (1,230)
Net amortization and deferral (1,143) 3,101 (103)
---------------------------
Net periodic pension cost $ 496 $ 554 $ 484
===========================
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the funded status of the plans at September 30,
1998 and 1997 (in thousands):
1998 1997
- ------------------------------------------------------------------------------------------------
Accumulated Accumulated
Assets benefits Assets benefits
exceed exceed exceed exceed
accumulated assets accumulated assets
benefits (unfunded) benefits (unfunded)
--------------------------------------------------------
<C> <S> <S> <S>
Vested benefit obligation $16,275 $ 1,442 $13,502 $ 1,112
========================================================
Accumulated benefit obligation $16,820 $ 1,686 $14,015 $ 1,271
========================================================
Projected benefit obligation $20,119 $ 2,326 $16,965 $ 2,001
Plan assets at fair value 21,316 - 21,018 -
--------------------------------------------------------
Funded status 1,197 (2,326) 4,053 (2,001)
Unrecognized transition
(asset) obligation (357) 250 (440) 312
Unrecognized prior service cost 447 6 535 6
Unrecognized net loss (gain) 649 713 (2,588) 540
Additional minimum liability - (329) - (128)
Adjustment for contribution
8/1/98 - 9/30/98 78 - - -
--------------------------------------------------------
Prepaid pension (pension liability) $ 2,014 $(1,686) $ 1,560 $(1,271)
========================================================
</TABLE>
Assumptions used to determine the projected benefit obligation were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------
<C> <S> <S> <S>
Discount rate 7.0% 7.5% 7.5%
Rate of increase in future compensation levels 4.0% - 5.5% 4.0% - 5.5% 4.0% - 5.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
</TABLE>
Plan assets are invested in common stocks and bonds.
The Company has employee 401(k) savings and investment plans covering
substantially all employees. The Company made contributions of $254,000,
$242,000 and $216,000 for the years ended September 30, 1998, 1997 and 1996,
respectively.
The Company is a participating employer in a defined contribution profit sharing
plan and trust covering certain employees who meet specific age and service
requirements. No profit sharing contributions were made to the plan in 1998.
The plan includes a salary reduction provision with a matching discretionary
employer contribution. The Company contributed $33,000 in 1998.
The Company is also a contributing employer to various area-wide, union-
negotiated, multi-employer defined pension plans covering certain employees by
craft. Contributions totaled $245,000 in 1998.
<PAGE>
Other Postemployment Benefits
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits to qualified retired employees.
The expense recorded in fiscal 1998, 1997 and 1996 for providing postretirement
benefits, including amortization of the accumulated projected benefit obligation
over a 20-year period, was $486,000, $542,000 and $588,000, respectively.
The Company has funded these benefit costs by making cash contributions, at the
same level of expense recorded, to voluntary employee benefit association (VEBA)
trusts established separately for salaried and hourly paid employees.
The following table sets forth the funded status of the plans at September 30,
1998 and 1997 (in thousands):
1998 1997
- -------------------------------------------------------------------------------
Accumulated postretirement benefit obligation as of July 31:
Retirees $ 2,289 $ 2,477
Fully eligible active plan participants 1,347 1,130
Other active participants 1,643 1,606
-----------------
5,279 5,213
Plan assets at fair market value (3,013) (2,555)
Unrecognized transition obligation (3,922) (4,183)
Unrecognized net gain 1,826 1,697
-----------------
Accrued postretirement benefit cost at July 31 170 172
Contributions for the two-month period ended September 30 118 133
-----------------
Accrued postretirement benefit cost at September 30 $ 52 $ 39
=================
The components of net periodic postretirement benefit cost at September 30, 1998
and 1997 were as follows (in thousands):
1998 1997
- -------------------------------------------------------------------------------
Service cost - benefits attributed to services during the year $ 122 $ 133
Interest cost on accumulated postretirement benefit obligation 385 367
Actual asset return (180) (462)
Net amortization and deferral 159 504
-------------
Net periodic postretirement benefit cost $ 486 $ 542
=============
A 9% average annual rate of increase in the per capita costs of covered health
care benefits was assumed for fiscal 1998, reduced in steps of 1% to a level of
5% at 2002 and thereafter. This decrease results from changes in estimates of
future health care inflation, assumed changes in health care utilization and
related effects. Increasing the assumed health care cost trend rates by one
percentage point in each year would have resulted in a $212,000 increase in the
accumulated postretirement benefit obligation as of July 31, 1998 and an
increase in the aggregate of the service cost and interest cost components of
net periodic postretirement benefit cost of $21,000 for fiscal 1998. A discount
rate of 7% was used to determine the accumulated postretirement
<PAGE>
benefit obligation. The expected long-term rate of return on plan assets is
9%. Plan assets are invested in common stocks and bonds.
Note 9. Acquisition
In May 1998, the Company acquired Northern Peabody, Inc. (NPI) and Granite State
Plumbing and Heating, Inc. (GSPH). Both NPI and GSPH are mechanical contractors
engaged in the design, construction and service of plumbing, heating,
ventilation, air conditioning and process piping systems in northern New
England. They became wholly owned subsidiaries of ENI Mechanicals, Inc., a
subsidiary of the Company. For financial statement purposes, the acquisition
was recorded as a purchase. Accordingly, the results of operations of NPI and
GSPH are included in the accompanying consolidated financial statements since
May 1, 1998. The assets of the acquired companies had a combined fair value of
approximately $8.5 million at the date of acquisition. The Companies were
acquired for an aggregate purchase price of approximately $2 million, which was
comprised of 69,890 shares of the Company's common stock. NPI and GSPH
outstanding debt and liabilities at the date of the acquisition were
approximately $6.5 million. The purchase price was allocated to assets, net of
liabilities, based on estimated fair values at the date of acquisition. The
fair value of assets purchased was written down by $245,000 to adjust for
goodwill.
The following unaudited pro forma summary combines the consolidated results of
operations of the Company and NPI and GSPH as if the acquisition had occurred at
the beginning of fiscal years 1998, 1997 and 1996. The pro forma summary is
presented for information purposes only and is not necessarily indicative of
what would have occurred if the acquisition had been made as of those dates. In
addition, the pro forma summary is not intended to be a projection of future
results.
Pro forma information (unaudited)
(In thousands, except share information)
For the years ended September 30, 1998 1997 1996
- -------------------------------------------------------------------------
Operating revenues $127,841 $137,071 $117,810
Net income 5,584 6,809 6,411
Earnings per share 1.68 2.06 1.95
<PAGE>
Note 10. Operating Leases
The Company leases certain facilities and equipment under long-term,
noncancelable operating lease agreements having terms greater than one year.
Future minimum rental commitments for these leases, at September 30, 1998, are
approximated as follows (in thousands):
Fiscal year Amount
- -----------------------------------------------------------------
1999 $350
2000 322
2001 257
2002 223
2003 95
The total rental expense charged to operations for the years ended September 30,
1998, 1997 and 1996 was approximately $557,000, $574,000 and $616,000,
respectively.
Note 11. Commitments and Contingencies
Contracts
The Company has various contractual agreements covering the transportation of
natural gas, underground storage facilities and the purchase of natural gas,
which are recoverable under the Company's CGA. These contracts expire at
various times from 1999 to 2011.
Litigation
The Company and its subsidiaries have been named in certain lawsuits arising
from normal operations. In the opinion of management, the outcome of these
lawsuits will not have a material adverse effect on the financial position or
results of operations of the Company.
Environmental Issues
The Company and certain of its predecessors owned or operated several facilities
for the manufacture of gas from coal, a process used through the mid-1900s that
produced by-products that may be considered contaminated or hazardous under
current law, and some of which may still be present at such facilities. Like
other companies in the natural gas industry, the Company is a party to
governmental actions associated with former gas manufacturing sites.
The Company is engaged in remedial action at a former gas manufacturing site in
Concord, New Hampshire, and is participating with Public Service Company of New
Hampshire in ongoing site assessment and evaluation of remedial options at a
site located in Laconia, New Hampshire. The Company received a notice of
potential responsibility from the Environmental Protection Agency related to a
site in the area of its former gas manufacturing plant in Nashua, New Hampshire,
and also received a request from the New Hampshire Department of Environmental
Services to investigate this former gas manufacturing site. Costs to complete
remedial action at the Concord site and the
<PAGE>
Company's share of investigation and evaluation costs at the other sites are
estimated to range from $2.3 million to $5 million. Along with costs incurred
to date, the Company has recorded $2.3 million in accrued liability at
September 30, 1998 with a corresponding charge to recoverable environmental
costs. Actual environmental remediation costs to be incurred depend on a number
of factors, and therefore future costs may differ from the amount currently
recorded as a liability. Factors that may bear on cost include changes
in remediation techniques or practices, changes in regulatory standards
and the nature and extent of contamination at the sites. The Company accrues
environmental investigation and cleanup costs with respect to former gas
manufacturing sites and other environmental matters when it is probable that a
liability exists and the amount or range of amounts can be reasonably estimated.
The Company has received orders from the Commission that provide for recovery
from customers, over a seven-year period, of substantially all costs, excluding
carrying costs, of past and future investigation, remediation and recovery
efforts for the Concord site. The unamortized balance of unrecovered costs
($5.5 million at September 30, 1998) is excluded from rate base. The Company
may not earn a return or charge rates to customers based on amounts not included
in rate base.
The Company has instituted several lawsuits to recover the costs of
investigation and remediation of the Concord site and investigation of the
Laconia site. Through November 1998, the Company reached settlements with
certain of the defendants in those suits in an aggregate amount of $3.5 million.
The settlements also include further payment to the Company of a portion of
future Concord site remediation costs. The proceeds are being reflected as
reductions in deferred charges, as shown in the accompanying consolidated
balance sheets. The Company expects that such settlement amounts will reduce
the amount that it will be permitted by the Commission to recover from its
customers.
The Company is pursuing and intends to pursue recovery from insurance carriers
and claims against any other responsible parties seeking to ensure that they
contribute appropriately to reimburse the Company for any costs incurred with
respect to environmental matters. The Company will continue to seek and expects
to receive approval of rate recovery methods with respect to environmental
matters after it has determined the extent of contamination, received
recommendations with regard to remediation and commenced remediation efforts.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders of EnergyNorth, Inc.:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of EnergyNorth, Inc. (a New Hampshire corporation) and
subsidiaries as of September 30, 1998 and 1997, and the related consolidated
statements of income, common stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1998. These consolidated 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 and schedule 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 financial statements referred to above present fairly, in
all material respects, the financial position of EnergyNorth, 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 audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedule under part IV, Item 14, is presented for purposes of additional
analysis and is not a required part of the basic consolidated financial
statements. This information has been subjected to the auditing procedures
applied in our audit of the basic consolidated financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 4, 1998
<PAGE>
(b) Supplementary Financial Information
<TABLE>
<CAPTION>
Selected Quarterly Financial Data (Unaudited) EnergyNorth, Inc.
(In thousands, except per Operating Operating Net income Earnings (loss) Cash dividend
share amounts) revenues income (loss) (loss) per share paid per share
- -----------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
First Quarter
1998 $30,892 $ 4,801 $ 4,142 $1.28 $.32
1997 29,454 4,434 3,618 1.12 .305
- -----------------------------------------------------------------------------------------------------------
Second Quarter
1998 42,032 6,658 5,836 1.80 .32
1997 48,898 7,295 6,581 2.03 .305
- -----------------------------------------------------------------------------------------------------------
Third Quarter
1998 20,498 (823) (1,758) (.54) .335
1997 18,085 (853) (1,576) (.49) .32
- -----------------------------------------------------------------------------------------------------------
Fourth Quarter
1998 16,504 (1,685) (2,842) (.86) .335
1997 9,434 (1,329) (2,105) (.65) .32
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Note: Earnings (loss) per share are based on the weighted average shares
outstanding at the end of the quarter. In the opinion of the Company, the
quarterly financial data include all adjustments, consisting of normal
recurring adjustments and reclassifications, necessary for a fair presentation
of such information. Quarterly amounts vary significantly due to seasonal
weather conditions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no such matters during the fiscal year ended September 30, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item is incorporated by reference to pages 3
and 4 of the Registrant's Proxy Statement for its Annual Meeting to be held
February 3, 1999, except for information relating to identification of Executive
Officers of the Registrant which is contained in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated by reference to
"Compensation of Directors," "Executive Compensation" and "Noncontributory
Retirement Plan" on pages 5 through 7 of the Registrant's Proxy Statement for
its Annual Meeting to be held February 3, 1999.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this Item is incorporated by reference to pages 2
and 3 of the Registrant's Proxy Statement for its Annual Meeting to be held
February 3, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or related transactions that require disclosure.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
(a) List of documents filed as part of this Report
(1) Financial Statements
The following financial statements are included herein under Part II, Item 8:
Page No(s).
in this Report
<C> <S>
Consolidated Statements of Income for the years ended
September 30, 1998, 1997 and 1996 22
Consolidated Balance Sheets at September 30, 1998 and 1997 23
Consolidated Statements of Capitalization at September 30,
1998 and 1997 24
Consolidated Statements of Common Stockholders' Equity for the years
ended September 30, 1998, 1997 and 1996 25
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996 26
Notes to Consolidated Financial Statements 27-39
Report of Independent Public Accountants 40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(2) Financial Statement Schedules
The following supplementary financial statement schedules required by Rule
5-04 of Regulation S-X, and report thereon, are filed as part of this Form
10-K on the page indicated below:
<C> <S> <S>
Schedule Page No. in
Number Description this Report
II Consolidated Valuation and Qualifying Accounts for the
three years ended September 30, 1998 44
Report of Independent Public Accountants 40
Schedules other than the one listed above are either not required or not applicable, or
the required information is shown in the financial statements or notes thereto.
(3) Exhibits Required by Item 601 of Regulation S-K
See Exhibit Index on pages 46 through 48.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended September 30, 1998.
(c) Exhibits - See Exhibit Index on pages 46 through 48
(d) Financial Statement Schedules
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
ENERGYNORTH, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Reserves that are deducted in the balance sheets
from assets to which they apply:
Additions
----------------------
Balance at Charged to Charged to Balance
Year ended beginning costs and other at end
September 30, Description of period expenses accounts(1) Deductions of period
- ----------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S>
1998 Allowance for
doubtful accounts $1,357 $1,095 $125 $1,450 $1,127
1997 Allowance for
doubtful accounts 1,211 1,232 140 1,226 1,357
1996 Allowance for
doubtful accounts 950 1,137 143 1,019 1,211
______________________
(1) Represents recoveries on accounts previously written off
</TABLE>
<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.
ENERGYNORTH, INC.
Date: December 22, 1998 by: /s/ Robert R. Giordano
Robert R. Giordano
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 indicated on
December 22, 1998.
/s/ Robert R. Giordano Director, President and
Robert R. Giordano Chief Executive Officer
(principal executive officer)
/s/ Frank L. Childs Senior Vice President, Treasurer and
Frank L. Childs Chief Financial Officer
(principal financial officer)
/s/ David A. Skrzysowski Vice President and Controller
David A. Skrzysowski (principal accounting officer)
/s/ Edward T. Borer Director
Edward T. Borer
/s/ N. George Mattaini Director
N. George Mattaini
/s/ John E. Tulley II Director
John E. Tulley II
/s/ Richard B. Couser Director
Richard B. Couser
/s/ Sylvio L. Dupuis Director
Sylvio L. Dupuis
<PAGE>
EXHIBIT INDEX
The exhibits listed below are filed herewith, or are
incorporated herein by reference to other filings.
Exhibit
Number Description
3.1 Articles of Incorporation of EnergyNorth, Inc.
are incorporated by reference to Exhibit 3.1 to
EnergyNorth, Inc.'s Quarterly Report on Form 10-Q (File
No. 1-11441) for the quarter ended March 31, 1996.
3.2 By-Laws of EnergyNorth, Inc., as amended, are
incorporated by reference to Exhibit 4 to EnergyNorth,
Inc.'s Post-Effective Amendment No. 2 to Registration
Statement on Form S-3, No. 33-58127, dated November 21,
1996.
4.1 Gas Service, Inc. General and Refunding Mortgage
Indenture, dated as of June 30, 1987, as amended and
supplemented by a First Supplemental Indenture, dated as
of October 1, 1988, and by a Second Supplemental
Indenture, dated as of August 31, 1989, is incorporated
by reference to Exhibit 4.1 to EnergyNorth, Inc.'s Form
10-K (File No. 0-11035) for the fiscal year ended
September 30, 1989.
4.2 Third Supplemental Indenture, dated as of
September 1, 1990, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.2 to
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for
the fiscal year ended September 30, 1990.
4.3 Fourth Supplemental Indenture, dated as of
January 10, 1992, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.3 to
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for
the fiscal year ended September 30, 1992.
4.4 Fifth Supplemental Indenture, dated as of
February 1, 1995, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.4 to
EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for the
fiscal year ended September 30, 1996.
4.5 Sixth Supplemental Indenture, dated as of
September 15, 1997, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.5 to
EnergyNorth Natural Gas, Inc.'s Amendment No. 1 to
Registration Statement on Form S-1, No. 333-32949, dated
September 10, 1997.
4.6 Copies of credit agreements defining the rights
of holders of long-term debt of certain subsidiaries of
EnergyNorth, Inc., under which the amounts of the debt
issued do not
<PAGE>
exceed 10% of the consolidated assets of
EnergyNorth, Inc., will be furnished to the Securities
and Exchange Commission upon request.
4.7 Rights Agreement, dated as of June 18, 1990,
between the Registrant and State Street Bank & Trust
Company as Rights Agent is incorporated by reference to
Exhibit I-2 to EnergyNorth, Inc.'s Registration
Statement on Form 8-A, dated June 18, 1990.
10.1 Gas transportation agreement (FT-A), dated as
of September 1, 1993, between Tennessee Gas Pipeline
Company and EnergyNorth Natural Gas, Inc. is
incorporated by reference to Exhibit 10.1 to
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for
the fiscal year ended September 30, 1993.
10.2 Gas transportation agreement (Contract No.
632), dated as of September 1, 1993, between Tennessee
Gas Pipeline Company and EnergyNorth Natural Gas, Inc.
is incorporated by reference to Exhibit 10.2 to
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the
fiscal year ended September 30, 1995.
10.3 Supplemental Executive Retirement Plan of
EnergyNorth, Inc., as amended, is incorporated by
reference to Exhibit 10.3 to EnergyNorth, Inc.'s Form
10-K (File No. 1-11441) for the fiscal year ended
September 30, 1996.
10.4 Deferred Compensation Agreement, dated as of
October 1, 1997, between Robert R. Giordano and the
Registrant is incorporated by reference to Exhibit
10.4 to EnergyNorth, Inc.'s Form 10-K (File No.
1-11441) for fiscal year ended September 30, 1997.
10.5 Deferred Compensation Agreement, dated as of
October 1, 1997, between Richard P. Demers and the
Registrant is incorporated by reference to Exhibit
10.7 to EnergyNorth, Inc.'s Form 10-K (File No.
1-11441) for fiscal year ended September 30, 1997.
10.6 Deferred Compensation Agreement, dated as of
October 1, 1997, between Frank L. Childs and the
Registrant is incorporated by reference to Exhibit
10.8 to EnergyNorth, Inc.'s Form 10-K (File No.
1-11441) for fiscal year ended September 30, 1997.
10.7 Deferred Compensation Agreement, dated as of
October 1, 1997, between Michelle L. Chicoine and the
Registrant is incorporated by reference to Exhibit
10.9 to EnergyNorth, Inc.'s Form 10-K (File No.
1-11441) for fiscal year ended September 30, 1997.
10.8 EnergyNorth, Inc. 1992 Directors' Deferred
Compensation Plan, as amended is incorporated by
reference to Exhibit 10.10 to EnergyNorth, Inc.'s
Form 10-K (File No. 1-11441) for fiscal year ended
September 30, 1997.
10.9 Employment Agreement, dated as of December 1, 1998,
between Robert R. Giordano and the Registrant.
<PAGE>
10.10 Employment Agreement, dated as of December 1, 1998,
between Michelle L. Chicoine and the Registrant.
10.11 Management Continuity Agreement, dated as of
November 20, 1998, between Robert R. Giordano and the
Registrant.
10.12 Management Continuity Agreement, dated as
of November 20, 1998, between Kenneth M. Margossian
and the Registrant.
10.13 Management Continuity Agreement, dated as
of December 2, 1996, between Michelle L. Chicoine and
the Registrant is incorporated by reference to Exhibit
10.18 to EnergyNorth, Inc.'s Form 10-K (File No. 1-
11441) for the fiscal year ended September 30, 1996.
10.14 Management Continuity Agreement, dated as
of December 2, 1996, between Frank L. Childs and the
Registrant is incorporated by reference to Exhibit 10.19
to EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for
the fiscal year ended September 30, 1996.
10.15 Management Continuity Agreement, dated as
of December 7, 1995, between Richard P. Demers and the
Registrant is incorporated by reference to Exhibit 10.20
to EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for
the fiscal year ended September 30, 1996.
10.16 EnergyNorth, Inc. Key Employee Performance
and Equity Incentive Plan, as amended, is incorporated
by reference to Exhibit 10.15 to EnergyNorth, Inc.'s
Form 10-K (File No. 0-11035) for the fiscal year ended
September 30, 1995.
10.17 EnergyNorth, Inc. Directors' Incentive
Compensation Plan is incorporated by reference to
Exhibit 10 to EnergyNorth Inc.'s Quarterly Report on
Form 10-Q (File No. 1-11441) for the quarter ended March
31, 1997.
10.18 EnergyNorth, Inc. 1998 Stock Option Plan.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule of the Registrant.
99 EnergyNorth, Inc.'s Dividend Reinvestment and
Stock Purchase Plan, as amended, is incorporated by
reference to Exhibit 99 of EnergyNorth Inc.'s Post-
Effective Amendment No. 2 to Registration Statement on
Form S-3, No. 33-58127, dated November 21, 1996.
EMPLOYMENT AGREEMENT
AGREEMENT dated as of December 1, 1998, between
ENERGYNORTH, INC., a New Hampshire corporation (the "Company") and
ROBERT R. GIORDANO, residing in Bedford, New Hampshire (the
"Executive').
WHEREAS, the Executive has been employed by the Company
or its subsidiaries for more than thirty (30) years in various
executive positions and has performed valuable services to the
Company; and
WHEREAS, the Executive is willing to continue in the
employ of the Company, and the Company desires to retain the
services of the Executive;
NOW, THEREFORE, in consideration of the foregoing and the
respective covenants and agreements of the Executive and the
Company herein contained, the parties hereto agree as follows:
1. Employment.
The Company agrees to employ the Executive and may assign
the Executive to work for it and for any subsidiary or affiliated
company, and the Executive agrees to perform the duties assigned to
him upon the terms and conditions herein provided.
2. Position and Responsibilities.
The Company shall employ the Executive and the Executive
agrees to serve, as President & Chief Executive Officer or any
other comparable office to which he is elected for the term and on
the conditions hereinafter set forth. The Executive agrees to
perform such services not inconsistent with his position as shall
be assigned to him by the Board of Directors of the Company
<PAGE>
("Board'). If elected, the Executive shall also serve as an
officer of any of the Company's subsidiary or affiliated
corporations.
3. Term of Employment:
The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of the date first
mentioned above and shall continue through March 31, 2003.
4. Compensation.
For all services to be rendered by the Executive in any
capacity during the period of his employment under this Agreement,
including, without limitation, services as an executive, officer,
director, or member of any committee of the Company or of any
subsidiary, affiliate or division thereof, the Company will pay or
cause to be paid to the Executive and will provide or cause to be
provided to the Executive the following:
(a) Salary. The Executive shall be compensated by
the Company for his services in such capacities at the aggregate
base salary rate of two hundred seventy thousand dollars ($270,000)
per year or such higher rate as the Board may, in its discretion,
determine, payable in equal installments no less frequently than
monthly. In addition, the Executive shall be compensated by the
Company crediting to his Deferred Compensation Account, maintained
in accordance with the Deferred Compensation Agreement between the
Executive and the Company, as amended or replaced, such amount as
the Board may, in its discretion, determine, payable in equal
installments no less frequently than monthly.
(b) Incentive Compensation. The Executive shall be
entitled to participate in any existing or future incentive
compensation, stock option, stock purchase or other bonus plans
<PAGE>
covering the employees of the Company (or any subsidiary or
affiliate) on the same basis as other officers, but in any event,
no less favorable than that in effect on December 1, 1998 and where
applicable, in any such plans of any subsidiary, affiliate or
division thereof from which he receives compensation.
(c) Deferred Compensation. The Executive shall
have the right to defer what would otherwise be current
compensation in accordance with a Deferred Compensation Agreement
entered into between the Executive and the Company effective as of
November 30, 1993, as amended or replaced. The Executive, may, in
addition, be compensated by the Company crediting amounts to his Deferred
Compensation Account, maintained in accordance with such Deferred
Compensation Agreement, as such intervals during each year as the
Company may determine.
(d) Automobile. The Company shall provide to the
Executive an automobile for his exclusive use in accordance with
Company policy, and in any event on a basis no less favorable than
that enjoyed by him at the date of this Agreement.
(e) Vacations. The Executive shall be entitled to
vacation pursuant to that policy applicable to other employees of
similar rank and stature at the Company.
5. Expenses.
The Company (or its subsidiaries or affiliates, as the
case may be) shall reimburse the Executive for all reasonable
expenses, including travel, and other disbursements incurred by him
for or on behalf of the Company (or its subsidiaries or affiliates)
in the performance of his duties hereunder consistent with the
current reimbursement policies of the Company, but in no event less
favorable than the reimbursement policies in existence on the
effective date of this Agreement.
<PAGE>
6. Participation in Benefit and Incentive Plans.
The Executive shall participate in any retirement, pension, group
life, health or accident insurance, stock option, stock purchase,
restricted stock, bonus or any other employee benefit or incentive
plans generally available to the executives and employees of the
Company (or any subsidiary or affiliate), whether now in force or
hereafter adopted, in accordance with their terms. In the event
the Executive is employed by the Company pursuant to this Agreement
and elects to retire under the provisions of the EnergyNorth, Inc.
Retirement Plan for Salaried Employees ("Pension Plan"), the
Executive shall be entitled to the same post-retirement medical,
life and other applicable benefits that
other officer level executives at the Company receive upon
retirement in accordance with the Company's then existing
administrative policies; and further, the Executive shall be
entitled to receive post-retirement medical, life and other
applicable benefits that other officer level executives at the
Company receive upon retirement in accordance with the Company's
then existing administrative policies if within five years after a
Change of Control of the Company, the Executive is discharged
without Cause or resigns for Good Reason as each of those terms is
defined in the Management Continuity Agreement ("MCA") between the
Executive and the Company, dated as of December 7, 1995 as amended.
7. Termination of Employment.
(a) Discharge for Cause. Notwithstanding any of
the foregoing provisions of this Agreement, the Executive may, at
any time during the term of this Agreement, be discharged by the
Board for Cause. For the purposes of this Section 7 cause shall
mean: conviction of a felony or crime involving an act of moral
turpitude, dishonesty, or misfeasance which substantially
interferes with the orderly business of the Company or any of its
subsidiaries, action that directly or indirectly
<PAGE>
causes the Company or its subsidiaries to suffer substantial loss or
damage, refusal to follow or material neglect of reasonable
requests of the Company made pursuant to this Agreement, and conduct
that substantially interferes with or damages the standing or
reputation of the Company or any of its subsidiaries. In the event
of termination of employment for Cause, this Agreement and all of the
rights and obligations of the parties hereto shall forthwith terminate,
except where this Agreement expressly provides that any provisions survive
termination of this Agreement.
(b) Termination by the Company. If the Company
terminates the Executive prior to termination of this Agreement
(except for Cause), the Company shall pay semi-
monthly to the Executive, or if he is not living, to his estate or
to his beneficiary designated hereunder, as the case may be, as
severance pay and as liquidated damages an amount equal to the
average monthly rate of salary paid and accrued plus one-twenty-
fourth (1/24) of the previous three years' annual average total
incentive compensation award earned under the EnergyNorth, Inc.
Key Employee Performance and Equity Incentive Plan to the
Executive, including any amounts the Executive has elected to
defer, during the 12 months immediately prior to his termination of
employment. Such payments shall commence on the last day of the
month following the date of his termination of employment and shall
continue through the end of the term of this Agreement. The
Executive shall continue to receive medical, dental, vision and
life insurance benefits paid by the Company which shall continue
through the end of the term of this Agreement and at the time the
Executive elects to retire under the provisions of the Pension
Plan, the Executive shall receive post-retirement medical benefits
in accordance with the Company's administrative policies in effect
at the date of termination.
<PAGE>
The Executive shall be required to mitigate his damages
by attempting to secure comparable employment, and if he does
accept other employment, any benefits or payments received pursuant
to this Section 7 shall be reduced by any compensation earned
and/or the value of other benefits received (other than qualified
pension benefit plans) as a result of such employment.
In addition to the severance payment described in the
first paragraph of this Section 7(b), if the Company terminates the
Executive prior to the termination of this Agreement (except for
Cause), the Company shall pay to the Executive in one payment,
within ten days of the Date of Termination (as defined below), an
amount of cash equal to the product of (1) the number of shares of
Company Common Stock forfeited by the Executive pursuant to Section
9.1 of the EnergyNorth, Inc. Key Employee Performance and Equity
Incentive Plan and (2) the average closing prices of
Company Common Stock on the New York Stock Exchange on the five
trading days ending on the Date of Termination (as defined below).
If the Company terminates the Executive prior to the
termination of this Agreement, the Company's obligations to the
Executive shall be limited to those specified in this Section 7(b).
It is understood that the Company shall not be under any obligation
to make payments pursuant to this Section 7(b) upon any termination
of employment which gives rise to payments under the MCA.
(c) Executive Default or Death. If the Executive
defaults hereunder, or is unwilling to perform services hereunder,
or dies while employed, the Company shall have no further
obligation hereunder to make payments to the Executive beyond the
Date of Termination (as defined below) of employment.
<PAGE>
(d) Disability.
(i) In the event that the Executive, because
of accident, disability or physical or mental illness, is incapable
of performing the essential functions of the job with or without
reasonable accommodation, the Company shall have the right to
terminate the Executive's employment under this agreement upon
thirty (30) days' written notice to the Executive. In the event of
such determination, the Company shall make semi-monthly payments to
the Executive in an amount equal to the monthly rate of salary paid
and accrued to the Executive in the most recent month in which he
was paid prior to the determination of his disability plus one-
twenty-fourth (1/24) of the previous three years' annual average
total incentive compensation award earned under the EnergyNorth,
Inc. Key Employee Performance and Equity Incentive Plan, reduced by
the amount of monthly payments made under any long-term disability
insurance or plan, if any. Such semi-monthly payments shall
continue for the number of months remaining in the term of the
agreement following
the date of his disability. In addition, if the Executive becomes
disabled and the Executive has twenty (20) years or more of service
at the time of disability, the Company will continue to provide the
same medical, dental and life insurance benefits as provided to
other active employees until such time as the Executive elects to
retire under the provisions of the Pension Plan. Disability for
purposes of this section shall have the same meaning as provided
under any long-term disability policy of the Company which covers
the Executive, or, if none, as defined in the EnergyNorth, Inc.
Retirement Plan for Salaried Employees.
(ii) Prior to a determination of disability as
provided in Subsection (i) of this Section 7(d), if the Executive
fails to perform under this contract due to mental or physical
illness, the period of such failure to perform prior to such
determination of disability but subsequent
<PAGE>
to any accrued sick days, vacation days and reasonable leaves of
absence shall be considered paid leave, and the Company shall continue
to make salary payments to the Executive for the duration of such paid
leave. Any period during which the Executive is receiving benefits
under any long-term disability plan of the Company shall be
considered unpaid leave.
(e) Notice of Termination. Any termination by the
Company for Cause (as such term is defined in Section 7(a)
hereunder), shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 15. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which
(i) indicates the specific termination
provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated, and
(iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 15 days
after the giving of such notice).
(f) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated
by the Company for Cause, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may
be,
<PAGE>
(ii) if the Executive's employment is
terminated by the Company other than for Cause, death or disability
pursuant to Section 7 (d), the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination, and
(iii) if the Executive's employment is
terminated by reason of death or disability pursuant of Section 7
(d), the Date of Termination shall be the date of death of the
Executive or the date the Executive is determined to be incapable
of performance in accordance with Section 7(d) of this Agreement,
as the case may be.
(g) Nothing under this Agreement shall affect the
Executive's right to receive payments under his Deferred
Compensation Agreement.
8. Executive's Obligations.
(a) Non-Competition. While receiving payments from
the Company under this Agreement or under the MCA, and for a period
of twelve months thereafter, the Executive will
not directly or indirectly, own, manage, operate, control or
participate in the ownership, management, operation or control of,
or be connected as an officer, employee, partner, director or
otherwise with, or have any financial interest in, or aid or assist
anyone else in the conduct of, any business (other than the
businesses of the Company) which is in direct competition with the
business conducted by the Company or any of its subsidiaries, in
any geographic area where such business is being conducted during
such period. Nothing in this Section 8, however, shall restrict
the right of the Executive to own, whether for himself or as a
fiduciary, not more than 1% of the equity securities of a company
any of the securities of a company any of the securities of which
are registered under Sections 11(b) or 11(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
<PAGE>
(b) Non-Disclosure. During the term of this
Agreement and thereafter, the Executive shall not, without the
written consent of the Board or a person authorized thereby,
disclose or use (except in the course of his employment hereunder
and in furtherance of the business of the Company or any
subsidiaries or affiliates thereof) any confidential information or
proprietary data of the Company or any of its subsidiaries or
affiliates thereof, including, without limitation, customer lists,
cost information or pricing information.
(c) Solicitation for Employment. While he is
receiving payments from the Company under this Agreement or under
the MCA, and for a period of six months thereafter, the Executive
will not, directly or indirectly, employ, solicit for employment,
or advise or recommend to any other person that they employ or
solicit for employment, any person employed at the time by the
Company or any of its subsidiaries for the purpose of competing
with the Company in such manner as is described in Subsection (a)
of this Section 8.
9. Successor.
The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform it if no successor had taken place. As used in
this Agreement, "Company" shall mean the company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
<PAGE>
10. Entire Agreement.
This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter
hereof. This Agreement shall supersede the agreement between the
Company and the Executive dated as of December 1, 1995 (the "Prior
Agreement") in all respects, unless this Agreement is held invalid
or unenforceable by a court of competent jurisdiction, in which
case the Prior Agreement shall remain, and shall be deemed to have
remained at all times, in full force and effect.
11. Arbitration.
Any dispute or controversy between the parties relating
to this Agreement shall be settled by binding arbitration in the
City of Manchester, State of New Hampshire, pursuant to the
governing rules of the American Arbitration Association and shall
be subject to the provisions of New Hampshire Revised Statutes
Annotated Chapter 542. Judgment upon the award may be entered in
any court of competent jurisdiction.
12. Assignability.
This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives. Neither
this Agreement nor any right or obligation hereunder may be
assigned by the Company (except to any subsidiary or affiliate) or
by the Executive.
13. Withholding.
The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
permitted to be withheld pursuant to any applicable law or
regulation. The Company may withhold such other amounts as may be
permitted by law.
<PAGE>
14. Amendment; Waiver.
This Agreement may be amended only by an instrument in
writing signed by the parties hereto, and any provision hereof may
be waived only by an instrument in writing signed by the party or
parties against whom or which enforcement of such waiver is sought.
The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall
in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a
breach of any provision hereof be taken or held to be a waiver of
any succeeding breach of such provision or a waiver of the
provision itself or a waiver of any other provision of this
Agreement.
15. Notices.
All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Robert R. Giordano
12 Cobbler Lane
Bedford, NH 03110
If to the Company:
Vice President of Human Resources
EnergyNorth, Inc.
1260 Elm Street
P.O. Box 329
Manchester, NH 03105
<PAGE>
Copy:
Richard Samuels, Esquire
McLane, Graf, Raulerson & Middleton
900 Elm Street
P.O. Box 326
Manchester, NH 03105
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
16. Validity.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect, nor shall the invalidity or
unenforceability of a portion of any provision of this Agreement
affect the validity or enforceability of the balance of such
provision. If any provision of this Agreement, or portion thereof
is so broad, in scope or duration, as to be unenforceable, such
provision or portion thereof shall be interpreted to be only so
broad as is enforceable.
17. Beneficiary.
The Executive hereby designates as his beneficiary under
this Agreement Priscilla L. Giordano, provided that the Executive
may change his beneficiary, or provide for alternate beneficiaries,
at any time by notifying the Company in writing of such change, and
no consent shall be required from the beneficiary or from the
Company.
18. Independent Covenants.
The obligations of the Executive set forth in paragraph 8
represent independent covenants by which the Executive is and will
remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
<PAGE>
19. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the substantive internal law and not the conflict
of law provisions of the State of New Hampshire.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first mentioned above.
ENERGYNORTH, INC.
BY: /S/ EDWARD T. BORER
EDWARD T. BORER
Chairman - Board of Directors
/S/ ROBERT R. GIORDANO
ROBERT R. GIORDANO
EMPLOYMENT AGREEMENT
AGREEMENT dated as of December 1, 1998, between
ENERGYNORTH, INC., a New Hampshire corporation (the "Company") and
MICHELLE L. CHICOINE, residing in Bedford, New Hampshire (the
"Executive').
WHEREAS, the Executive has been employed by the Company
or its subsidiaries in various executive positions and has
performed valuable services to the Company; and
WHEREAS, the Executive is willing to continue in the
employ of the Company, and the Company desires to retain the
services of the Executive;
NOW, THEREFORE, in consideration of the foregoing and the
respective covenants and agreements of the Executive and the
Company herein contained, the parties hereto agree as follows:
1. Employment.
The Company agrees to employ the Executive and may assign
the Executive to work for it and for any subsidiary or affiliated
company, and the Executive agrees to perform the duties assigned to
her upon the terms and conditions herein provided.
2. Position and Responsibilities.
The Company shall employ the Executive and the Executive
agrees to serve, as Executive Vice President Officer, or any other
office to which she is elected, for the term and on the conditions
hereinafter set forth. The Executive agrees to perform such
services not inconsistent with her position as shall be assigned to
her by the Board of Directors of the Company ("Board'). If
elected, the Executive shall also serve as an officer of any of the
Company's subsidiary or affiliated corporations.
<PAGE>
3. Term of Agreement and Duties.
(a) Term of Employment. The period of the
Executive's employment under this Agreement shall be deemed to have
commenced as of the date first mentioned above and shall continue
for a period of at least twenty-four (24) full calendar months
thereafter, subject to renewal in accordance with Section 3(b)
below.
(b) One-Year Evergreen Provision. This Agreement
shall be reviewed annually by the Board at its meeting held for the
review of compensation and in all events prior to December 1 of
each year. At such yearly review, the Board shall consider whether
or not to extend the term of this Agreement for an additional year.
Unless the Board affirmatively votes not to extend this Agreement,
the term of employment and the termination of this Agreement shall
be extended for a period of one year from the previous termination
date. In the event the Board votes not to extend this Agreement,
the termination date of this Agreement shall be the later of the
expiration of twenty-four (24) months from the effective date of
this Agreement or twenty-four (24) months from December 1st of the
year in which this Agreement was last extended.
(c) Duties. During such period of her employment
hereunder, except for illness, vacation periods, and reasonable
leaves of absence, the Executive shall devote substantially all of
her business time, attention, skill and efforts to the faithful
performance of her duties. With the approval of the Board,
however, the Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in,
companies or organizations, when, in the Board's judgment, that
service will not conflict with the interests of the Company or any
of its subsidiaries or affiliates or divisions or materially affect
the performance of the Executive's duties pursuant to this
Agreement.
<PAGE>
4. Compensation.
For all services to be rendered by the Executive in any
capacity during the period of her employment under this Agreement,
including, without limitation, services as an executive, officer,
director, or member of any committee of the Company or of any
subsidiary, affiliate or division thereof, the Company will pay or
cause to be paid to the Executive and will provide or cause to be
provided to the Executive the following:
(a) Salary. The Executive shall be compensated by
the Company for her services in such capacities at the aggregate
base salary rate of one hundred seventy-five thousand dollars
($175,000) per year or such higher rate as the Board may, in its
discretion, determine, payable in equal installments no less
frequently than monthly. In addition, the Executive shall be
compensated by the Company crediting to her Deferred Compensation
Account, maintained in accordance with the Deferred Compensation
Agreement between the Executive and the Company, as amended or
replaced, such amount as the Board may, in its discretion,
determine, payable in equal installments no less frequently than
monthly.
(b) Incentive Compensation. The Executive shall be
entitled to participate in any existing or future incentive
compensation, stock option, stock purchase or other bonus plans
covering the employees of the Company (or any subsidiary or
affiliate) on the same basis as other officers; and where
applicable, in any such plans of any subsidiary, affiliate or
division thereof from which she receives compensation.
(c) Deferred Compensation. The Executive shall
have the right to defer what would otherwise be current
compensation in accordance with a Deferred Compensation Agreement
entered into between the Executive and the Company, as amended or
replaced. The Executive,
<PAGE>
may, in addition, be compensated by the Company crediting amounts
to her Deferred Compensation Account, maintained in accordance with
such Deferred Compensation Agreement, as such intervals during each
year as the Company may determine.
(d) Automobile. The Company shall provide to the
Executive an automobile, or an automobile allowance, for her
exclusive use on the same basis as other officers and in any event
on a basis no less favorable than that enjoyed by her at the date
of this Agreement.
(e) Vacations. The Executive shall be entitled to
vacation pursuant to that policy applicable to other employees of
similar rank and stature at the Company.
5. Expenses.
The Company (or its subsidiaries or affiliates, as the
case may be) shall reimburse the Executive for all reasonable
expenses, including travel, and other disbursements incurred by her
for or on behalf of the Company (or its subsidiaries or affiliates)
in the performance of her duties hereunder consistent with the
current reimbursement policies of the Company, but in no event less
favorable than the reimbursement policies in existence on the
effective date of this Agreement.
6. Participation in Benefit and Incentive Plans.
The Executive shall participate in any retirement, pension, group
life, health or accident insurance, stock option, stock purchase,
restricted stock, bonus or any other employee benefit or incentive
plans generally available to the executives and employees of the
Company (or any subsidiary or affiliate), whether now in force or
hereafter adopted, in accordance with their terms. In the event
the Executive is employed by the Company pursuant to this Agreement
and elects to retire under the provisions of the EnergyNorth, Inc.
Retirement Plan for Salaried Employees ("Pension Plan"), the
Executive shall be entitled to the same post-retirement medical,
life and other applicable benefits that
<PAGE>
other officer level executives at the Company receive upon
retirement in accordance with the Company's then existing
administrative policies. Further, the Executive shall be entitled
to receive post-retirement medical, life and other applicable
benefits that other officer level executives at the Company receive
upon retirement in accordance with the Company's then existing
administrative policies and at the time the Executive elects to
retire under the provisions of the Pension Plan if within two years
after a Change of Control of the Company, the Executive is
discharged without Cause or resigns for Good Reason as each of
those terms is defined in the Management Continuity Agreement
("MCA") between the Executive and the Company, as amended.
7. Termination of Employment.
(a) Discharge for Cause. Notwithstanding any of
the foregoing provisions of this Agreement, the Executive may, at
any time during the term of this Agreement, be discharged by the
Board for Cause. For the purposes of this Section 7 cause shall
mean: conviction of a felony or crime involving an act of moral
turpitude, dishonesty, or misfeasance which substantially
interferes with the orderly business of the Company or any of its
subsidiaries, action that directly or indirectly causes the Company
or its subsidiaries to suffer substantial loss or damage, refusal
to follow or material neglect of reasonable requests of the Company
made pursuant to this Agreement, and conduct that substantially
interferes with or damages the standing or reputation of the
Company or any of its subsidiaries. In the event of termination of
employment for Cause, this Agreement and all of the rights and
obligations of the parties hereto shall forthwith terminate, except
where this Agreement expressly provides that any provisions survive
termination of this Agreement.
(b) Termination by the Company. If the Company
terminates the Executive prior to termination of this Agreement
(except for Cause), the Company shall pay semi-
<PAGE>
monthly to the Executive, or if she is not living, to her estate or
to her beneficiary designated hereunder, as the case may be, as
severance pay and as liquidated damages an amount equal to the
average monthly rate of salary paid and accrued plus one-twenty-
fourth (1/24) of the previous three years' annual average total
incentive compensation award earned under the EnergyNorth, Inc.
Key Employee Performance and Equity Incentive Plan to the
Executive, including any amounts the Executive has elected to
defer, during the 12 months immediately prior to her termination of
employment. Such payments shall commence on the last day of the
month following the date of her termination of employment and shall
continue through the end of the term of this Agreement. The
Executive shall continue to receive medical, dental, vision and
life insurance benefits paid by the Company which shall continue
through the end of the term of this Agreement and at the time the
Executive elects to retire under the provisions of the Pension
Plan, the Executive shall receive post-retirement medical benefits
in accordance with the Company's then existing policies.
The Executive shall be required to mitigate her damages
by attempting to secure comparable employment, and if she does
accept other employment, any benefits or payments received pursuant
to this Section 7 shall be reduced by any compensation earned
and/or the value of other benefits received (other than qualified
pension benefit plans) as a result of such employment.
In addition to the severance payment described in the
first paragraph of this Section 7(b), if the Company terminates the
Executive prior to the termination of this Agreement (except for
Cause), the Company shall pay to the Executive in one payment,
within ten days of the Date of Termination (as defined below), an
amount of cash equal to the product of (1) the number of shares of
Company Common Stock forfeited by the Executive pursuant to Section
9.1 of the EnergyNorth, Inc. Key Employee Performance and Equity
Incentive Plan and (2) the average closing prices of
<PAGE>
Company Common Stock on the New York Stock Exchange on the five
trading days ending on the Date of Termination (as defined below).
If the Company terminates the Executive prior to the
termination of this Agreement, the Company's obligations to the
Executive shall be limited to those specified in this Section 7(b).
It is understood that the Company shall not be under any obligation
to make payments pursuant to this Section 7(b) upon any termination
of employment which gives rise to payments under the MCA.
(c) Executive Default or Death. If the Executive
defaults hereunder, or is unwilling to perform services hereunder,
or dies while employed, the Company shall have no further
obligation hereunder to make payments to the Executive beyond the
Date of Termination (as defined below) of employment.
(d) Disability.
(i) In the event that the Executive, because
of accident, disability or physical or mental illness, is incapable
of performing the essential functions of the job with or without
reasonable accommodation, the Company shall have the right to
terminate the Executive's employment under this agreement upon
thirty (30) days' written notice to the Executive. In the event of
such determination, the Company shall make semi-monthly payments to
the Executive in an amount equal to the monthly rate of salary paid
and accrued to the Executive in the most recent month in which she
was paid prior to the determination of her disability plus one-
twenty-fourth (1/24) of the previous three years' annual average
total incentive compensation award earned under the EnergyNorth,
Inc. Key Employee Performance and Equity Incentive Plan, reduced by
the amount of monthly payments made under any long-term disability
insurance or plan, if any. Such semi-monthly payments shall
continue for the number of months remaining in the term of the
agreement following
<PAGE>
the date of her disability. In addition, if the Executive becomes
disabled and the Executive has twenty (20) years or more of service
at the time of disability, the Company will continue to provide the
same medical, dental and life insurance benefits as provided to
other active employees until such time as the Executive elects to
retire under the provisions of the Pension Plan. Disability for
purposes of this section shall have the same meaning as provided
under any long-term disability policy of the Company which covers
the Executive, or, if none, as defined in the EnergyNorth, Inc.
Retirement Plan for Salaried Employees.
(ii) Prior to a determination of disability as
provided in Subsection (i) of this Section 7(d), if the Executive
fails to perform under this contract due to mental or physical
illness, the period of such failure to perform prior to such
determination of disability but subsequent to any accrued sick
days, vacation days and reasonable leaves of absence shall be
considered paid leave, and the Company shall continue to make
salary payments to the Executive for the duration of such paid
leave. Any period during which the Executive is receiving benefits
under any long-term disability plan of the Company shall be
considered unpaid leave.
(e) Notice of Termination. Any termination by the
Company for Cause (as such term is defined in Section 7(a)
hereunder), shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 15. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which
(i) indicates the specific termination
provision in this Agreement relied upon,
<PAGE>
(ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated, and
(iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 15 days
after the giving of such notice).
(f) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated
by the Company for Cause, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may
be,
(ii) if the Executive's employment is
terminated by the Company other than for Cause, death or disability
pursuant to Section 7 (d), the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination, and
(iii) if the Executive's employment is
terminated by reason of death or disability pursuant to Section 7
(d), the Date of Termination shall be the date of death of the
Executive or the date the Executive is determined to be incapable
of performance in accordance with Section 7(d) of this Agreement,
as the case may be.
(g) Nothing under this Agreement shall affect the
Executive's right to receive payments under her Deferred
Compensation Agreement.
8. Executive's Obligations.
(a) Non-Competition. While receiving payments from
the Company under this Agreement or under the MCA, and for a period
of twelve months thereafter, the Executive will
<PAGE>
not directly or indirectly, own, manage, operate, control or
participate in the ownership, management, operation or control of,
or be connected as an officer, employee, partner, director or
otherwise with, or have any financial interest in, or aid or assist
anyone else in the conduct of, any business (other than the
businesses of the Company) which is in direct competition with the
business conducted by the Company or any of its subsidiaries, in
any geographic area where such business is being conducted during
such period. Nothing in this Section 8, however, shall restrict
the right of the Executive to own, whether for herself or as a
fiduciary, not more than 1% of the equity securities of a company
any of the securities of which are registered under Sections 11(b)
or 11(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(b) Non-Disclosure. During the term of this
Agreement and thereafter, the Executive shall not, without the
written consent of the Board or a person authorized thereby,
disclose or use (except in the course of his employment hereunder
and in furtherance of the business of the Company or any
subsidiaries or affiliates thereof) any confidential information or
proprietary data of the Company or any of its subsidiaries or
affiliates thereof, including, without limitation, customer lists,
cost information or pricing information.
(c) Solicitation for Employment. While she is
receiving payments from the Company under this Agreement or under
the MCA, and for a period of six months thereafter, the Executive
will not, directly or indirectly, employ, solicit for employment,
or advise or recommend to any other person that they employ or
solicit for employment, any person employed at the time by the
Company or any of its subsidiaries for the purpose of competing
with the Company in such manner as is described in Subsection (a)
of this Section 8.
<PAGE>
9. Successor.
The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform it if no successor had taken place. As used in
this Agreement, "Company" shall mean the company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
10. Entire Agreement.
This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter
hereof.
11. Arbitration.
Any dispute or controversy between the parties relating
to this Agreement shall be settled by binding arbitration in the
City of Manchester, State of New Hampshire, pursuant to the
governing rules of the American Arbitration Association and shall
be subject to the provisions of New Hampshire Revised Statutes
Annotated Chapter 542. Judgment upon the award may be entered in
any court of competent jurisdiction.
12. Assignability.
This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives. Neither
this Agreement nor any right or obligation hereunder may be
assigned by the Company (except to any subsidiary or affiliate) or
by the Executive.
<PAGE>
13. Withholding.
The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
permitted to be withheld pursuant to any applicable law or
regulation. The Company may withhold such other amounts as may be
permitted by law.
14. Amendment; Waiver.
This Agreement may be amended only by an instrument in
writing signed by the parties hereto, and any provision hereof may
be waived only by an instrument in writing signed by the party or
parties against whom or which enforcement of such waiver is sought.
The failure of either party hereto at any time to require the
performance by the other party hereto of any provision hereof shall
in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto of a
breach of any provision hereof be taken or held to be a waiver of
any succeeding breach of such provision or a waiver of the
provision itself or a waiver of any other provision of this
Agreement.
15. Notices.
All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
<PAGE>
If to the Executive:
Michelle L. Chicoine
8 Boxwood Road
Bedford, NH 03110
If to the Company:
Robert R. Giordano
President and CEO
EnergyNorth, Inc.
1260 Elm Street
P.O. Box 329
Manchester, NH 03105
Copy:
Richard Samuels, Esquire
McLane, Graf, Raulerson & Middleton
900 Elm Street
P.O. Box 326
Manchester, NH 03105
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
16. Validity.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect, nor shall the invalidity or
unenforceability of a portion of any provision of this Agreement
affect the validity or enforceability of the balance of such
provision. If any provision of this Agreement, or portion thereof
is so broad, in scope or duration, as to be unenforceable, such
provision or portion thereof shall be interpreted to be only so
broad as is enforceable.
<PAGE>
17. Beneficiary.
The Executive hereby designates as her beneficiary under
this Agreement David A. Goldman, provided that the Executive may
change her beneficiary, or provide for alternate beneficiaries, at
any time by notifying the Company in writing of such change, and no
consent shall be required from the beneficiary or from the Company.
18. Independent Covenants.
The obligations of the Executive set forth in paragraph 8
represent independent covenants by which the Executive is and will
remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
19. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the substantive internal law and not the conflict
of law provisions of the State of New Hampshire.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first mentioned above.
ENERGYNORTH, INC.
BY: /S/ ROBERT R. GIORDANO
ROBERT R. GIORDANO
President & CEO
/S/ MICHELLE L. CHICOINE
MICHELLE L. CHICOINE
November 20, 1998
Robert R. Giordano
12 Cobbler Lane
Bedford, New Hampshire 03110
Management Continuity Agreement
Dear Mr. Giordano:
The Board of Directors (the "Board") of EnergyNorth, Inc.
(the "Company") recognizes that, as is the case with many
publicly held corporations, there always exists the
possibility of a change of control of the Company. This
possibility and the uncertainty it creates may result in the
loss or distraction of members of management of the Company
and its subsidiaries to the detriment of the Company and its
shareholders.
The Board considers the establishment, maintenance, and
continuity of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and
its shareholders. The Board also believes that when a change
of control is perceived as imminent, or is occurring, the
Board should be able to receive and rely on disinterested
advice from management regarding the best interests of the
Company and its shareholders without concern that members of
management might be distracted or concerned by the personal
uncertainties and risks created by the perception of an
imminent or occurring change of control.
Accordingly, the Board has determined that appropriate
steps should be taken to assure the Company of the continued
employment and attention and dedication to duty of certain
members of management of the Company and to ensure the
availability of their disinterested advice, notwithstanding
the possibility, threat or occurrence of a change of control.
Therefore, in order to fulfill the above purposes, the
Board has designated you as eligible for severance benefits as
set forth below.
1. Offer. In order to induce you to remain in the employ of
the Company and to provide continued services to the Company
now and in the event that a change of control is imminent or
occurring, this letter agreement (the "Agreement") sets forth
severance benefits which the Company offers to pay to you in
the event of a termination of your employment (as described in
Section 5 below, excluding a termination for Cause,
disability, death or retirement) subsequent to a Change of
Control of the Company (as defined in Section 4 below).
2. Operation. This Agreement shall be effective immediately
upon its execution but, anything in this Agreement to the
contrary notwithstanding, neither this Agreement nor any of
its provisions shall be operative unless and until there has
been a Change of Control
<PAGE>
while you are still an employee of
the Company, nor shall this Agreement govern or affect your
employment relationship with the Company except as explicitly
set forth herein. Upon a Change of Control, if you are still
employed by the Company, this Agreement and all of its
provisions shall become operative immediately. If your
employment relationship with the Company is terminated before
a Change of Control, you shall have no rights or obligations
under this Agreement.
3. Term.
Term of Agreement. The term of this Agreement shall
commence immediately upon the date hereof and continue for a
period of at least sixty full calendar months thereafter.
One-Year Evergreen Provision. This Agreement shall be
reviewed annually by the Board at its meeting held for the
review of compensation and in all events prior to December 1
of each year. At such yearly review, the Board shall consider
whether or not to extend the term of this Agreement for an
additional year. Unless the Board affirmatively votes not to
extend this Agreement, the term of this Agreement shall be
extended for a period of one year from the previous
termination date. In the event the Board votes not to extend
this Agreement, the termination date of this Agreement shall
be the later of sixty months from the effective date of this
Agreement or sixty months from December 1st of the year in
which this Agreement was last extended.
4. Change in Control: For the purpose of this Agreement, a
"Change of Control" shall mean:
(1) The acquisition by any individual, entity or
group [within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")] (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall
not constitute a Change of Control: (i) any acquisition
directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (ii)
any acquisition by the Company, (iii) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled
by the Company or (iv) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation,
if, following such reorganization, merger or
consolidation, the conditions described in clauses (i),
(ii) and (iii) of Subparagraph (3) of this Subsection (b)
are satisfied; or
<PAGE>
(2) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs
as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
(3) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or
consolidation,(i) more than 60% of, respectively, the
then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of directors
is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially
the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no
Person (excluding the Company, any employee benefit plan
(or related trust) of the Company or such corporation
resulting from such reorganization, merger or
consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of directors
and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such
reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization,
merger or consolidation; or
(4) Approval by the shareholders of the Company of
(i) a complete liquidation or dissolution of the Company
or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other
than to a corporation, with respect to which following
such sale or other disposition, (A) more than 60% of,
respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the
then outstanding voting securities of such corporation
entitled to vote generally in the election of directors
is then beneficially owned, directly or
<PAGE>
indirectly by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning,
immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of directors
and (C) at least a majority of the members of the board
of directors of such corporation were members of the
Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
5. Severance Benefit.
Severance Benefits. If, within three years after a
Change of Control (as defined above) of the Company, you are
discharged without Cause or resign for Good Reason (as defined
below), the Company shall:
(i) pay to you within ten business days following the Date of
Termination (as defined below) a lump sum severance benefit
equal to (a) the greater of three times (1) your annual
salary, including deferrals, as in effect immediately prior to
the Change of Control, or (2) your annual salary including
deferrals, as in effect on the Date of Termination, plus (b)
the greater of (1) three times the average of the prior three
years' annual incentive compensation award earned by you under
the EnergyNorth, Inc. Key Employee Performance and Equity
Incentive Plan (the "Incentive Plan") or (2) three times your
"target" level of incentive compensation, for the year in
which the Date of Termination falls, under the Incentive Plan,
plus (c) interest on any delayed payment at the rate of 150%
of the Prime Rate as posted by BankBoston;
(ii) pay to you within ten business days following the Date of
Termination an additional lump sum severance benefit equal to
the amount of the annual incentive compensation award, at the
"target" level of incentive compensation for the year in which
the Date of Termination falls, under the Incentive Plan,
multiplied by a fraction, the numerator of which shall be the
number of days in the Incentive Plan Year in which the Date of
Termination takes place through and including the Date of
Termination, and the denominator of which shall be 365, plus
interest on any delayed payment at the rate of 150% of the
Prime Rate as posted by BankBoston.
(iii) to pay you within ten business days following the Date of
Termination an additional lump sum cash amount equal to the
present value of the excess of
<PAGE>
(a) the aggregate benefit that would have been paid under the
EnergyNorth, Inc. Retirement Plan for Salaried Employees and the
EnergyNorth, Inc. Supplemental Executive Retirement Plan (the "Retirement
Plans") as in effect on the date of this Agreement, if you had
continued to be employed and to be entitled to service credit
for eligibility and benefit purposes during, and had
terminated on the last day of ("Deemed Termination Date") the
36-month period immediately following the actual Date of
Termination, over (b) the aggregate benefit actually payable
under the Retirement Plans and any successor retirement
program of the Company. For purposes of such calculation, the
following assumptions shall apply: (1) that you would continue
to be compensated during the 36-month period following
termination at annual rate of compensation equal to that used
to calculate the payments provided by 5(a)(i) above,
calculated on the basis of the compensation amount used in the
benefit formula under the Retirement Plans; (2) that you are
fully vested and entitled to receive a benefit under the
Retirement Plans if age and service requirements (based on the
age on, and assumed service you would have earned up to, the
Deemed Termination Date) satisfy the requirements for benefit
payments thereunder at any time; and (3) that the aggregate
benefit that would have been paid under the Retirement Plans
is as of either the normal or early retirement date for which
you would have qualified, if you were still employed on that
date, whichever would produce the highest present value amount
payable under this Section 5(a)(iii); and
(iv) continue to provide to you, for the thirty-six month
period following the Date of Termination, all health, dental,
vision and life insurance benefits ("Welfare Benefits")
pursuant to any and all qualified and non-qualified employee
benefit plans in which you were a participant on the Date of
Termination, as if you continued to be employed by the Company
during such thirty-six month period. Any and all Welfare
Benefits based on or with reference to your base salary shall
be calculated based upon the compensation determined pursuant
to Section 5(a)(i), and to the extent that any such Welfare
Benefits shall not be payable or provided to you under any
plan, the Company shall pay or provide such Welfare Benefits
to you on an individual basis. If the Company for any reason
is unable to continue the Welfare Benefits on an individual
basis, then the Company shall pay to you within ten business
days following the Date of Termination a lump sum cash amount
equal to the present value of the Welfare Benefits; and
(v) except to the extent prohibited under either of the
Retirement Plans, allow you at any time during the ninety day
period commencing on the Date of Termination, to retire as an
employee of the Company under the Retirement Plans and deem
the period commencing on the Date of Termination and ending on
the date of your retirement not to constitute a break in
service with respect to the Retirement Plans, provided that
you have satisfied the age and length-of-service requirements
set forth in the Retirement Plans.
(b) Good Reason. If any of the following events occurs
within five years after a Change of Control, you may
voluntarily terminate your employment within 30 days of the
occurrence of such event and be entitled to the severance
benefits set forth in Subsection (a) above:
<PAGE>
(i) the Company assigns any duties to you which are
inconsistent with your position, duties, offices, titles,
responsibilities, reporting requirements or status with the
Company immediately prior to a Change of Control; or
(ii) the Company reduces your base salary, including
deferrals, as in effect immediately prior to a Change of
Control; or
(iii) the Company discontinues any bonus or other compensation
plans or any other benefit, stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health
plan, disability plan or similar plan (as the same existed
immediately prior to the Change of Control) in which you
participated or were eligible to participate in immediately
prior to the Change of Control and in lieu thereof does not
make available plans providing at least comparable benefits;
or
(iv) the Company takes action which adversely affects your
participation in, or eligibility for, or materially reduces
your benefits under, any of the plans described in (3) above,
or which deprives you of any material fringe benefit enjoyed
by you immediately prior to the Change of Control, or fails to
provide you with the number of paid vacation days to which you
were entitled in accordance with normal vacation policy
immediately prior to the Change of Control; or
(v) the Company requires you to be based at any office or
location other than one within a 50-mile radius of the
boundaries of EnergyNorth Natural Gas, Inc.'s franchise
territory as such boundaries existed immediately prior to the
Change in Control; or
(vi) the Company purports to terminate your employment
otherwise than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 7,
provided that such successor has received at least ten days
prior written notice from the Company or from you of the
requirements of Section 7.
You shall have the sole right to determine, in good
faith, whether any of the above events has occurred. Anything
in this Agreement to the contrary notwithstanding, a
termination of employment by you for any reason during the 30-
day period immediately following the first anniversary of a
Change of Control ("Window Period") shall be deemed to be a
termination for Good Reason for all purposes of this
Agreement.
(c) Cause. Cause shall mean: conviction of a felony or
crime involving an act of moral turpitude, dishonesty, or
misfeasance which substantially interferes with the orderly
business of the Company or any of its subsidiaries, action
that directly or indirectly causes the Company or its
subsidiaries to suffer substantial loss or damage, refusal to
follow or material neglect of reasonable requests of the
Company made pursuant to this Agreement, and conduct that
substantially interferes with or damages the standing or
reputation of the Company or any of its subsidiaries.
<PAGE>
(d) Notice of Termination. Any termination by the Company
for Cause, or by you for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 9. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be
not more than 15 days after the giving of such notice).
(e) Date of Termination. "Date of Termination" means (A) if
your employment is terminated by the Company for Cause, or by
you for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case
may be, (B) if your employment is terminated by the Company
other than for Cause or disability, the Date of Termination
shall be the date on which the Company notifies you of such
termination and (C) if your employment is terminated by reason
of death or disability, the Date of Termination shall be the
date of your death or the date you are determined to have a
disability under any long-term disability policy of the
Company which covers you, or, if none, as defined in the
EnergyNorth, Inc. Retirement Plan for Salaried Employees, as
the case may be.
(f) Other Benefits Payable. The severance benefit described
in Subsection (a) above shall be payable in addition to, and
not in lieu of, all other accrued or vested or earned by
deferred compensation, rights, options or other benefits which
may be owed to you following discharge or resignation (and not
contingent on any Change of Control preceding such
termination), including but not limited to accrued vacation or
sick pay, amounts or benefits payable, if any, under any bonus
or other compensation plans, stock option plan, stock
ownership plan, stock purchase plan, life insurance plan,
health plan, disability plan or similar plan.
(g) Excise Tax Make-Whole. In the event it shall be
determined that any payment or distribution by the Company to
you or for your benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") (or any successor
thereto) or comparable state or local tax or any interest or
penalties with respect to such excise tax or comparable state
or local tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then you shall be entitled to receive
additional payment (a "Gross-Up Payment"). The Gross-Up
Payment shall be equal to the sum of the Excise Tax and all
taxes (including any interest or penalties imposed with
respect to such taxes) imposed upon the Gross-Up Payment.
If you determine that a Gross-Up Payment is
required, you shall so notify the Company in writing,
specifying the amount of Gross-Up Payment required and details
as to the calculation thereof. The Company shall, within 30
days, either pay such Gross-Up Payment (net of applicable wage
withholding) to you or furnish an unqualified opinion from
Independent Tax Counsel (as defined below), addressed to you
and the
<PAGE>
Company, that there is substantial authority (within
the meaning of Section 6661 of the Code) for the position that
no Gross-Up Payment is required. "Independent Tax Counsel"
means a lawyer with expertise in the area of executive
compensation tax law, who shall be selected by you and shall
be reasonably acceptable to the Company, and whose fees and
disbursements shall be paid by the Company.
If the Internal Revenue Service or other tax
authority proposes in writing an adjustment to your income tax
would result in a Gross-Up Payment, you shall promptly notify
the Company in writing and shall refrain for at least thirty
days after giving such notice, if so permitted by law, from
paying any tax (including interest, penalties and additions to
tax) asserted to be payable as a result of such proposed
adjustment. Before the expiration of such period, the Company
shall either pay the Gross-Up Payment or provide an opinion
from Independent Tax Counsel to you and the Company as to
whether it is more likely than not that the proposed
adjustment would be successfully challenged if the matter were
to be litigated. If the opinion provides that a challenge
would be more likely than not to be successful if the issue
were litigated, and the Company requests in writing that you
contest such proposed adjustment, then you shall contest the
proposed adjustment and shall consult in good faith with the
Company with respect to the nature of all action to be taken
in furtherance of the contest of such proposed adjustment;
provided that you, after such consultation with the Company,
shall determine in your sole discretion the nature of all
action to be taken to contest such proposed adjustment,
including (A) whether any such action shall initially be by
way of judicial or administrative proceedings, or both, (B)
whether any such proposed adjustment shall be contested by
resisting payment thereof or by paying the same and seeking a
refund thereof, and (C) if you shall undertake judicial action
with respect to such proposed adjustment, the court or other
judicial body before which such action shall be commenced and
the court or other judicial body to which any appeals should
be taken. You agree to take appropriate appeals of any
judicial decision that would require the Company to pay a
Gross-Up Payment, provided the Company requests in writing
that you do so and provides an opinion from Independent Tax
Counsel to you and the Company that it is more likely than not
that the appeal would be successful. You further agree to
settle, compromise or otherwise terminate a contest with the
Internal Revenue Service or other tax authority with respect
to all or a portion of the proposed adjustment giving rise to
the Gross-Up Payment, if requested by the Company in writing
to do so at any time, in which case you shall be entitled to
receive from the Company the Gross-Up Payment. In no event
shall you compromise or settle all or any portion of a
proposed adjustment which would result in a Gross-Up Payment
without the written consent of the Company.
You shall not be required to take or continue
any action pursuant to this paragraph 5(g) unless the Company
acknowledges its liability under this Agreement in the event
that the Internal Revenue Service or other tax authority
prevails in the contest. The Company hereby agrees to
indemnify you in a manner reasonably satisfactory to you for
any fees, expenses, penalties, interest or additions to tax
which you may incur as a result of contesting the validity of
any Excise Tax and to pay you promptly upon receipt of a
written demand therefor all costs and expenses which you may
incur in connection with contesting such proposed adjustment
(including reasonable fees and disbursements of Independent Tax
<PAGE>
Counsel); provided, however, that the Company shall not be
required to pay any amount necessary to permit your
institution of a claim for refund under this paragraph 5(g).
If you shall have contested any proposed
adjustment as above provided, and for so long as you shall be
required under the terms of this paragraph 5(g) to continue
such contest, the Company shall not be required to pay a Gross-
Up Payment until there occurs a Final Determination (as
defined below) of your liability for the tax and any interest,
penalties and additions to tax asserted to be payable as a
result of such proposed adjustment. A "Final Determination"
shall mean (A) a decision, judgment, decree or other order by
any court of competent jurisdiction, which decision, judgment,
decree or other order has become final after all allowable
appeals by either party to the action have been exhausted, the
time for filing such appeal has expired or you have no right
under the terms thereof to request an appeal, (B) a closing
agreement entered into under Section 7121 of the Code or any
other settlement agreement entered into in connection with an
administrative or judicial proceeding and with your consent,
or (C) the expiration of the time for instituting a claim for
refund, or if such a claim was filed, the expiration of the
time for instituting suit with respect thereto.
In the event you receive any refund from the
Internal Revenue Service or other tax authority on account of
an overpayment of Excise Tax, such amount, together with that
part of any Gross-Up Payment attributable to such amount,
shall be promptly paid by you to the Company.
Payment Obligations Absolute. Upon a Change of Control
the Company's obligations to pay the severance benefits or
make any other payments described in this Section 5 shall be
absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company or any of its subsidiaries may have against you or
anyone else. You shall not be required to mitigate damages,
and if you do accept other employment, any benefits or
payments hereunder shall not be reduced by any compensation
earned or other benefits received as a result of such
employment.
Legal Fees and Expenses. Subject to and contingent upon
the occurrence of a Change of Control the Company agrees to
pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which you may reasonably
thereafter incur as a result of any contest, litigation or
arbitration (regardless of the outcome thereof) by the
Company, you or others of the validity or enforceability of,
or liability under, any provision of this Agreement (including
any contest by you about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed
payment at the rate of 150%. of the Prime Rate posted by the
Bank of Boston.
(h) Retirement. If your employment is terminated due to
retirement, you shall not be entitled to severance benefits
under this Agreement, regardless of the occurrence of a Change
of Control. A termination by retirement shall have occurred
where your termination is caused by the fact that you have
reached normal retirement age for employees in your position.
<PAGE>
6. Assignability. This Agreement is binding on and is for
the benefit of the parties hereto and their respective
successors, heirs, executors, administrators and other legal
representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to
any subsidiary or affiliate) or by you.
7. Successor. The Company shall require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and
agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As
used in this Agreement, "Company" shall mean the company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
8. Amendment; Waiver. This Agreement may be amended only by
an instrument in writing signed by the parties hereto, and any
provision hereof may be waived only by an instrument in
writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either
party hereto at any time to require the performance by the
other party hereto of any provision hereof shall in no way
affect the full right to require such performance at any time
thereafter, nor shall the waiver by either party hereto of a
breach of any provision hereof be taken or held to be a waiver
of any succeeding breach of such provision or a waiver of the
provision itself or a waiver of any other provision of this
Agreement.
9. Notices . All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to you:
Robert R. Giordano
12 Cobbler Lane
Bedford, NH 03110
If to the Company:
Director of Human Resources
EnergyNorth, Inc.
1260 Elm Street
P.O. Box 329
Manchester, NH 03105-0329
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
<PAGE>
10. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect, nor
shall the invalidity or unenforceability of a portion of any
provision of this Agreement affect the validity or
enforceability of the balance of such provision. If any
provision of this Agreement, or portion thereof is so broad,
in scope or duration, as to be unenforceable, such provision
or portion thereof shall be interpreted to be only so broad as
is enforceable.
11. Arbitration. Any dispute or controversy between the
parties relating to this Agreement shall be settled by binding
arbitration in the City of Manchester, State of New Hampshire,
pursuant to the governing rules of the American Arbitration
Association and shall be subject to the provisions of New
Hampshire Revised Statutes Annotated Chapter 542. Judgment
upon the award may be entered in any court of competent
jurisdiction.
12. Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state or local
taxes as shall be permitted to be withheld pursuant to any
applicable law or regulation. The Company may withhold such
other amounts as may be permitted by law.
13. Entire Agreement. This Agreement contains the entire
understanding of the Company and you with respect to the
subject matter hereof.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the substantive internal law and
not the conflict of law provisions of the State of New
Hampshire.
<PAGE>
If the terms of the foregoing Agreement are acceptable to
you, please sign and return to the Company the enclosed copy
of this Agreement whereupon this Agreement shall become a
valid and legally binding contract between you and the
Company.
Very truly yours,
ENERGYNORTH, INC.
By: /S/ SYLVIO L. DUPUIS
Sylvio L. Dupuis,
Chairman, Compensation Committee
Accepted and Agreed as of the
date first above written:
/S/ ROBERT R. GIORDANO
Robert R. Giordano
December 21, 1998
November 20, 1998
Kenneth M. Margossian
1 Stratton Drive
Westborough, MA 01581
Management Continuity Agreement
Dear Mr. Margossian:
The Board of Directors (the "Board") of EnergyNorth,
Inc.(the "Company") recognizes that, as is the case with many
publicly held corporations, there always exists the possibility
of a change of control of the Company. This possibility and the
uncertainty it creates may result in the loss or distraction of
members of management of the Company and its subsidiaries to the
detriment of the Company and its shareholders.
The Board considers the establishment, maintenance, and
continuity of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and
its shareholders. The Board also believes that when a change of
control is perceived as imminent, or is occurring, the Board
should be able to receive and rely on disinterested advice from
management regarding the best interests of the Company and its
shareholders without concern that members of management might be
distracted or concerned by the personal uncertainties and risks
created by the perception of an imminent or occurring change of
control.
<PAGE>
Accordingly, the Board has determined that appropriate steps
should be taken to assure the Company of the continued employment
and attention and dedication to duty of certain members of
management of the Company and to ensure the availability of their
disinterested advice, notwithstanding the possibility, threat or
occurrence of a change of control.
Therefore, in order to fulfill the above purposes, the Board
has designated you as eligible for severance benefits as set
forth below.
1. Offer: In order to induce you to remain in the employ of
the Company and to provide continued services to the Company now
and in the event that a change of control is imminent or
occurring, this letter agreement (the "Agreement") sets forth
severance benefits which the Company offers to pay to you in the
event of a termination of your employment (as described in
Section 5 below, excluding a termination for Cause, disability,
death or retirement) subsequent to a Change of Control of the
Company (as defined in Section 4 below).
2. Operation: This Agreement shall be effective immediately
upon its execution but, anything in this Agreement to the
contrary notwithstanding, neither this Agreement nor any of its
provisions shall be operative unless and until there has been a
Change of Control while you are still an employee of the Company,
nor shall this Agreement govern or affect your employment
relationship with the Company except as explicitly set forth
herein. Upon a Change of Control, if you are still employed by
the Company, this
<PAGE>
Agreement and all of its provisions shall
become operative immediately. If your employment relationship
with the Company is terminated before a Change of Control, you
shall have no rights or obligations under this Agreement.
3. Term:
a) Term of Agreement. The term of this Agreement shall
commence immediately upon the date hereof and continue for a
period of at least twenty-four full calendar months
thereafter.
b) One-Year Evergreen Provision. This Agreement shall be
reviewed annually by the Board at its meeting held for the
review of compensation and in all events prior to December 1
of each year. At such yearly review, the Board shall
consider whether or not to extend the term of this Agreement
for an additional year. Unless the Board affirmatively
votes not to extend this Agreement, the term of this
Agreement shall be extended for a period of one year from
the previous termination date. In the event the Board votes
not to extend this Agreement, the termination date of this
Agreement shall be the later of twenty-four months from the
effective date of this Agreement or twenty-four months from
December 1st of the year in which this Agreement was last
extended.
4. Change in Control: For the purpose of this Agreement,
a "Change of Control" shall mean:
(1) The acquisition by any individual, entity or group
[within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the
<PAGE>
"Exchange Act")](a "Person") of beneficial ownership (within the meaning of
Rule13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");provided,
however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a
conversion privilege), (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii)
and(iii) of Subparagraph (3) of this Subsection (b) are
satisfied; or
(2) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs
<PAGE>
as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board; or
(3) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 60% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case may
be) beneficially owns,
<PAGE>
directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or
consolidation; or
(4) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation, with respect
to which following such sale or other disposition, (A) more than
60% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding the Company and any employee benefit plan (or
related
<PAGE>
trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
5. Severance Benefit:
a. Severance Benefits. If, within two years after a
Change of Control (as defined above) of the Company, you are
discharged without Cause or resign for Good Reason (as defined
below), the Company shall pay to you within ten business days
following the Date of Termination (as defined below) a lump sum
severance benefit equal to 2.95 multiplied by your annual salary,
including deferrals, as in effect on the Date of Termination,
plus the average of the previous three years' annual incentive
compensation award earned under the EnergyNorth, Inc. Key
Employee Performance and Equity Incentive Plan, plus interest on
any delayed payment at the rate of 150% of the Prime Rate as
posted by the Bank of Boston.
b. Good Reason. If any of the following events occurs
within two years after a
<PAGE>
Change of Control, you may voluntarily
terminate your employment within 30 days of the occurrence of
such event and be entitled to the severance benefits set forth in
Subsection (a) above:
(1) the Company assigns any duties to you which are
inconsistent with your position, duties, offices, titles,
responsibilities, reporting requirements or status with the
Company immediately prior to a Change of Control; or
(2) the Company reduces your base salary, including
deferrals, as in effect immediately prior to a Change of Control;
or
(3) the Company discontinues any bonus or other
compensation plans or any other benefit, stock ownership plan,
stock purchase plan, stock option plan, life insurance plan,
health plan, disability plan or similar plan (as the same existed
immediately prior to the Change of Control) in which you
participated or were eligible to participate in immediately prior
to the Change of Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(4) the Company takes action which adversely affects
your participation in, or eligibility for, or materially reduces
your benefits under, any of the plans described in (3) above, or
which deprives you of any material fringe benefit enjoyed by you
immediately prior to the Change of Control, or fails to provide
you with the number of paid vacation days to which you were
entitled in accordance with normal vacation policy immediately
prior to the Change of Control; or
(5) the Company requires you to be based at any office
or location other than one
<PAGE>
within a 50-mile radius of the
boundaries of EnergyNorth Natural Gas, Inc.'s Franchise territory
as such boundaries existed immediately prior to the Change in
Control; or
(6) the Company purports to terminate your employment
otherwise than as expressly permitted by this Agreement; or
(7) the Company fails to comply with and satisfy
Section 7, provided that such successor has received at least ten
days prior written notice from the Company or from you of the
requirements of Section 7.
You shall have the sole right to determine, in good faith,
whether any of the above events has occurred. Anything in this
Agreement to the contrary notwithstanding, a termination of
employment by you for any reason during the 30-day period
immediately following the first anniversary of a Change of
Control ("Window Period") shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
c) Cause. Cause shall mean: conviction of a felony or
crime involving an act of moral turpitude, dishonesty, or
misfeasance which substantially interferes with the orderly
business of the Company or any of its subsidiaries, action that
directly or indirectly causes the Company or its subsidiaries to
suffer substantial loss or damage, refusal to follow or material
neglect of reasonable requests of the Company made pursuant to
this Agreement, and conduct that substantially interferes with or
damages the standing or reputation of the Company or any of its
subsidiaries.
d) Notice of Termination. Any termination by the Company
for Cause, or by you for Good Reason, shall be communicated by
Notice of Termination to the other party hereto
<PAGE>
given in accordance with Section 9. For purposes of this Agreement,
a"Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide
a basis for termination of your employment under the provision so
indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 15 days after
the giving of such notice).
e) Date of Termination. "Date of Termination" means (A)
if your employment is terminated by the Company for Cause, or by
you for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case
maybe, (B) if your employment is terminated by the Company other
than for Cause or disability, the Date of Termination shall be
the date on which the Company notifies you of such termination
and (C) if your employment is terminated by reason of death or
disability, the Date of Termination shall be the date of your
death or the date you are determined to have a disability under
any long-term disability policy of the Company which covers you,
or, if none, as defined in the EnergyNorth, Inc. Retirement Plan
for Salaried Employees, as the case may be.
(f) Other Benefits Payable. The severance benefit
described in Subsection (a) above shall be payable in addition
to, and not in lieu of, all other accrued or vested or earned by
deferred compensation, rights, options or other benefits which
may be owed to you following discharge or resignation (and not
contingent on any Change of Control
<PAGE>
preceding such termination),
including but not limited to accrued vacation or sick pay,
amounts or benefits payable, if any, under any bonus or other
compensation plans, stock option plan, stock ownership plan,
stock purchase plan, life insurance plan, health plan, disability
plan or similar plan.
g) Payment Obligations Absolute. Upon a Change of Control
the Company's obligations to pay the severance benefits or make
any other payments described in this Section 5 shall be absolute
and unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Company or any of
its subsidiaries may have against you or anyone else. You shall
not be required to mitigate damages, and if you do accept other
employment, any benefits or payments hereunder shall not be
reduced by any compensation earned or other benefits received as
a result of such employment.
h) Legal Fees and Expenses. Subject to and contingent
upon the occurrence of a Change of Control the Company agrees to
pay promptly as incurred, to the full extent permitted by law,
all legal fees and expenses which you may reasonably thereafter
incur as a result of any contest, litigation or arbitration
(regardless of the outcome thereof) by the Company, you or others
of the validity or enforceability of, or liability under, any
provision of this Agreement (including any contest by you about
the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the rate of 150% of
the Prime Rate posted by the Bank of Boston.
i) Retirement. If your employment is terminated due to
retirement, you shall not be
<PAGE>
entitled to severance benefits under
this Agreement, regardless of the occurrence of a Change of
Control. A termination by retirement shall have occurred where
your termination is caused by the fact that you have reached
normal retirement age for employees in your position.
(j) Ceiling on Severance Benefits. In order to comply with
certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code") severance benefits payable under this
Agreement shall be subject to the following ceiling
notwithstanding anything in this Agreement to the contrary: The
"aggregate present value" of severance benefits payable under
this Agreement and of payments to you or for your benefit which
would be "parachute payments" if their "aggregate present value"
equalled or exceeded 300% of your "base amount" shall in no event
exceed 295% of your "base amount" (within those terms' meaning
under Section 280G of the Code).
It is the intention of the parties to this Agreement that no
severance benefits hereunder will be paid to the extent that such
benefits (either alone or when aggregated with other benefits
paid to you or for your benefit) constitute "excess parachute
payments" within the meaning of Section 280G of the Code as
amended from time to time.
6. Assignability. This Agreement is binding on and is for the
benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may
be assigned by the Company (except to any subsidiary or
affiliate) or by you.
7. Successor. The Company shall require any successor (whether
direct or indirect, by
<PAGE>
purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform. As used in this Agreement,
"Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law,
or otherwise.
8. Amendment: Waiver. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any
provision hereof may be waived only by an instrument in writing
signed by the party or parties against whom or which enforcement
of such waiver is sought. The failure of either party hereto at
any time to require the performance by the other party hereto of
any provision hereof shall in no way affect the full right to
require such performance at any time thereafter, nor shall the
waiver by either party hereto of a breach of any provision hereof
be taken or held to be a waiver of any succeeding breach of such
provision or a waiver of the provision itself or a waiver of any
other provision of this Agreement.
9. Notices . All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to you:
Kenneth M. Margossian
1 Stratton Drive
Westborough, MA 01581
<PAGE>
If to the Company:
Vice President of Human Resources
EnergyNorth, Inc.
1260 Elm Street
P.O. Box 329
Manchester, NH 03105-0329
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
10. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect, nor shall
the invalidity or unenforceability of a portion of any provision
of this Agreement affect the validity or enforceability of the
balance of such provision. If any provision of this Agreement,
or portion thereof is so broad, in scope or duration, as to be
unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
11. Arbitration. Any dispute or controversy between the parties
relating to this Agreement shall be settled by binding
arbitration in the City of Manchester, State of New Hampshire,
pursuant to the governing rules of the American Arbitration
Association and shall be subject to the provisions of New
Hampshire Revised Statutes Annotated Chapter 542. Judgment upon
the award may be entered in any court of competent jurisdiction.
12. Withholding. The Company may withhold from any amounts
payable under this
<PAGE>
Agreement such Federal, state or local taxes
as shall be permitted to be withheld pursuant to any applicable
law or regulation. The Company may withhold such other amounts
as may be permitted by law.
13. Entire Agreement. This Agreement contains the entire
understanding of the Company and you with respect to the subject
matter hereof.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the substantive internal law and not
the conflict of law provisions of the State of New Hampshire.
If the terms of the foregoing Agreement are acceptable to
you, please sign and return to the Company the enclosed copy of
this Agreement whereupon this Agreement shall become a valid and
legally binding contract between you and the Company.
Very truly yours,
EnergyNorth, Inc.
By: /s/ Robert R. Giordano
Robert R.Giordano,
President and Chief
Executive Officer
Accepted and Agreed as of
the date first above written:
/s/ Kenneth M. Margossian
Kenneth M. Margossian
ENERGYNORTH, INC.
1998 STOCK OPTION PLAN
1. Purposes
The purposes of the 1998 Stock Option Plan (the "Plan") are
to encourage eligible officers, directors, and employees of
EnergyNorth, Inc. (the "Company") and its Subsidiaries to
increase their efforts to make the Company and each Subsidiary
more successful, to provide an additional inducement for such
individuals to remain with the Company or a Subsidiary, to reward
such individuals by providing the opportunity to acquire the
Common Stock, $1.00 par value, of the Company (the "Common
Stock") on favorable terms, and to provide a means through which
the Company may attract able persons to enter the employ of the
Company or its Subsidiaries.
2. Administration
The Plan shall be administered by the Compensation Committee
of the Board of Directors of the Company (the "Compensation
Committee"), so long as it is comprised of two or more non-
employee Directors, provided that no option shall be granted
without the approval of the Board of Directors.
The Committee shall interpret the Plan and prescribe such
rules, regulations, and procedures in connection with the Plan as
it shall deem to be necessary or advisable for the administration
of the Plan consistent with the purposes of the Plan. The
Committee shall keep records of actions taken at its meetings.
3. Eligibility
Officers, and directors, of the Company or any Subsidiary
and those employees ("Key Employees") of the Company or any
Subsidiary who share the primary responsibility for the
management, growth, or protection of the business of the Company
or any Subsidiary shall be eligible to receive stock options as
described herein. Only Key Employees shall be eligible to receive
incentive stock options.
Subject to the provisions of the Plan and the approval of
the Board of Directors, the Committee shall have authority to
grant stock options as described herein and, in its discretion,
to determine the individuals to whom stock options shall be
granted (an "Optionee") and the number of shares to be covered by
each stock option. In determining the eligibility of any
individual, as well as in determining the number of shares
covered by each stock option, the Committee shall consider the
position and the responsibilities of the individual being
considered, the nature and value to the Company or a Subsidiary
of his or her services, his or her present and/or potential
contribution to the success of the Company or a Subsidiary, and
such other factors as the Committee may deem relevant.
4. Shares Available for Stock Options
The aggregate number of shares of the Common Stock which may
be issued or delivered under the Plan is 200,000 shares, subject
to adjustment and acceleration as set forth in Section 7. If any
stock option granted under the Plan is canceled in full or
expires before exercise, the shares subject to such stock option
shall again be available for the purposes of the Plan.
5. Grant of Stock Options
The Committee shall have the authority, in its discretion,
to grant "incentive stock options" pursuant to Section 422 of the
Internal Revenue Code of 1986, as the same may from time to time be
<PAGE>
amended, (the "Code") and to grant "nonstatutory stock
options" (stock options which do not qualify under Section 422 of
the Code). The aggregate fair market value, determined as of the
date of grant and as set forth in Section 6.G., of all shares
issuable upon exercise of all incentive stock options which
become exercisable by a Key Employee for the first time during
any calendar year under all plans of the corporation employing
such Key Employee, any parent or subsidiary corporations of such
corporation and any predecessor corporation of any such
corporation, shall not exceed $100,000.
6. Terms and Conditions of Stock Options
Stock options granted under the Plan shall be subject to the
following terms and conditions and such other terms and
conditions as the Committee shall deem advisable:
A. Purchase Price. The purchase price at which each stock
option may be exercised (the "option price") shall be such price
(either greater than, the same as, or less than the fair market
value per share of the Common Stock on the date of grant) as the
Committee, in its discretion, shall determine but (i) in the case
of incentive stock options, shall not be less than one hundred
percent (100%) of the fair market value per share of the shares
of Common Stock covered by the stock option on the date of grant
and (ii) in the case of incentive stock options granted to a Key
Employee who together with the members of his immediate family
owns, or may be deemed to own, beneficially, more than 10% of the
outstanding voting securities of the Company (as the terms
"immediate family" and "beneficial ownership" are defined under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and such other terms and conditions as the Committee shall
deem advisable (such a Key Employee is referred to as a
"Principal Shareholder"), shall not be less than one hundred and
ten percent (110%) of the fair market value per share of the
shares of Common Stock covered by the stock option on the date of
grant. In exercising its discretion, the Committee shall take
into account the nature and value to the Company of the
recipient's service, and such other factors as the Committee may
deem relevant. For purposes of this Section 6.A., fair market
value shall be determined as set forth in Section 6.G.
B. Payment. The option price is to be paid in full in cash
upon the exercise of a stock option; provided, however, that in
lieu of cash an individual may, if authorized by the Committee,
exercise a stock option by tendering to the Company shares of
Common Stock owned by the individual and having a fair market
value on the date of exercise, determined as set forth in Section
6(G), equal to the option price. The provisions of this Section
6.B. shall not preclude the payment of the option price of a
stock option by any other legally permissible method specifically
approved by the Committee. No shares shall be issued or delivered
upon exercise of a stock option until payment of the option price
in full has been made. When payment of the option price in full
has been made, the Optionee shall be considered for all purposes
to be the owner of the shares with respect to which payment has
been made.
C. Restrictions on Exercise. No incentive stock option or
nonstatutory stock option shall be exercisable after the
expiration of ten years from the date of grant or, in the case of
an incentive stock option or nonstatutory stock option granted to
a Principal Shareholder, five years from the date of grant.
Except as provided in this Section 6.C. and in Section 6.E.,
stock options may be exercised at such times, in such amounts and
subject to such restrictions as shall be determined by the
Committee.
D. Transfer. No stock option shall be transferable other
than by will by the laws of descent and distribution, and each
stock option shall be exercisable during the lifetime of an
Optionee only by the Optionee.
E. Retirement, Termination, Disability, Death. If a Key
Employee Retires (as defined below) or if the employment of a
Key Employee who is disabled within the meaning of Section
422(c)(6) of the Code ("Disabled Optionee") is voluntarily
terminated with the consent of the Company or a Subsidiary, any
then outstanding stock option held by such Key Employee shall
become immediately exercisable by such Key Employee at any time
prior to the stock option expiration date or within three years
after the
<PAGE>
date of termination of employment, whichever is the
shorter period. "Retires" shall mean retirement on or after date
of Normal Retirement, or on any earlier date such that the
employee's benefits are not reduced, under the Company's
retirement plan. Whether termination of employment is a
voluntary termination with consent and whether a Key Employee is
disabled within the meaning of Section 422(c)(6) of the Code
shall be determined in each case by the Committee, and any such
determination by the Committee shall be final and binding.
If the service of an Optionee who is a director is
terminated because such Optionee cannot at his or her age stand
for re-election to the Committee, any then outstanding stock
option held by such Optionee shall continue to be exercisable and
shall expire in accordance with its terms.
Following the death of an Optionee, any outstanding stock
option held by any such recipient at the time of death shall be
exercisable in full (whether or not so exercisable on the date of
the recipient's death, but subject to such other restrictions on
the exercise of incentive stock options as are set forth in
Section 6(C)) by the person or persons entitled to do so under
the recipient's will, or, if the recipient shall fail to make
testamentary disposition of such stock option or shall die
intestate, by the recipient's legal representative, in either
case at any time prior to the expiration date of such stock
option or within one year after the date of death, whichever is
the shorter period.
In the event of termination of the employment of an employee
or the service of any other Optionee for any reason other than as
set forth in this Section 6.E., the rights of such Optionee under
any then outstanding stock option shall terminate at the date of
such termination of employment except as otherwise provided in
the stock option agreement entered in accordance with
Section 6.F.
F. Stock Option Agreement. Each stock option shall be
confirmed by a stock option agreement which shall be executed by
the Chairman of the Committee or the President on behalf of the
Company and by the person to whom such stock option is granted.
G. Valuation. The fair market value of the Common Stock
shall be the average of the closing price of the Common Stock, as
reported on the New York Stock Exchange, during the ten trading
days immediately preceding the date of grant.
7. Adjustment and Acceleration of Shares
If a dividend or other distribution shall be declared upon
the Common Stock payable in shares of the Common Stock, the
number of shares of the Common Stock then subject to any
outstanding stock option and the number of shares which may be
issued or delivered under the Plan but are not then subject to an
outstanding stock option shall be adjusted by adding thereto the
number of shares which would have been distributable thereon if
such shares had been outstanding on the date fixed for
determining the shareholders entitled to receive such stock
dividend or distribution.
If the outstanding shares of the Common Stock shall be
changed into or exchangeable for a different number or kind of
shares of stock or other securities of the Company or another
corporation, whether through reorganization, reclassification,
recapitalization, stock split-up, combination of shares, merger
or consolidation, then there shall be substituted for each share
of the Common Stock subject to any then outstanding stock option
and for each share of the Common Stock which may be issued or
delivered under the Plan but are not then subject to an
outstanding stock option, the number and kind of shares of stock
or other securities into which each outstanding share of the
Common Stock shall be so changed or for which each such share
shall be exchangeable; or, alternatively the Committee, or the
governing body of any successor entity, shall make an appropriate
and equitable adjustment in the number and kind of option shares
as to which the option is then unexercised in order that, after
such event, the option shares as to which the option is then
unexercised shall represent the same potential
<PAGE>
ownership interest in the company (or that part of a successor
entity which consists of the company) immediately after such event
as they represent immediately before such event.
Each outstanding stock option shall become immediately and
fully exercisable for a period of six months following the date
of the following occurrences: (i) if any person (including a
group as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934) becomes directly or indirectly the beneficial owner
of 20% or more of the Common Stock; (ii) as a result of or in
connection with any cash tender offer, exchange offer, merger or
other business combination, sale of assets or contested election,
or combination of the foregoing, the persons who were directors
of the Company just prior to such event cease to constitute a
majority of the Company's Committee of Directors; or (iii) the
stockholders of the Company approve an agreement providing for a
transaction in which the Company will cease to be an independent
publicly-owned corporation or a sale or other disposition of all
or substantially all of the assets of the Company occurs.
In case of any adjustment or acceleration as provided for in
this Section 7, the aggregate option price for all shares
subject to each then outstanding stock option prior to such
adjustment or acceleration shall be the aggregate option price
for all shares of stock or other securities (including any
fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares.
All references in this Plan to shares shall, where the
context so requires, be deemed to be references to such shares as
adjusted pursuant to this Section 7. If any such adjustment to
the number of shares subject to the grant of stock options
requires the approval of stockholders in order to enable the
Company to issue incentive stock options then no such adjustment
shall be made without the approval of the stockholders.
Notwithstanding the foregoing, in the case of incentive stock
options, if the effect of any adjustment or acceleration is to
cause the stock option to fail to continue to qualify as an
incentive stock option or to cause a modification, extension, or
renewal of such stock option within the meaning of Section 424(h)
of the Code, the Committee of Directors may elect not to make
such adjustment or acceleration but rather shall use reasonable
efforts to effect such other adjustment of each then outstanding
stock option as the Committee of Directors in its sole discretion
shall deem equitable and which will not result in any
disqualification, modification, extension, or renewal (within the
meaning of Section 424(h) of the Code) of such stock option.
8. Effect of the Plan on the Rights of Directors or Employees
Neither the adoption of the Plan nor any action of the
Committee or the Board of Directors pursuant to the Plan shall be
deemed to give any person any right to be granted a stock option
under the Plan, and nothing in the Plan or in any stock option
agreement shall confer upon any person any right to continue to
serve the Company or any Subsidiary as an employee, officer,
director, consultant, or otherwise, or interfere in any way with
the rights of the Company or any Subsidiary to terminate the
service or employment of any person at any time.
9. Amendment
The right to alter and amend the Plan at any time and from
time to time and the right to revoke or terminate the Plan are
hereby specifically reserved to the Board of Directors; provided
always that no such revocation or termination shall terminate any
outstanding stock option previously granted under the Plan; and
provided further that no such alteration or amendment of the Plan
shall, without prior shareholder approval, (i) increase the total
number of shares which may be issued or delivered under the Plan,
(ii) make any changes in the class of eligible officers,
directors, or employees, or (iii) extend the periods set forth in
the Plan during which stock options may be granted. No
alteration, amendment, revocation, or termination of the Plan
shall, without the written consent of the holder of a stock
option previously granted under the Plan, adversely affect the
rights of such holder with respect to such stock option.
<PAGE>
10. Effective Date and Duration of Plan
The date of adoption of the Plan shall be November 19, 1998
provided that the Plan is ratified and approved by shareholders
of the Company at a meeting of such holders held on or prior to
November 18, 1999. No stock option granted under the Plan may be
exercised until after such ratification and approval. No stock
option may be granted under the Plan subsequent to November 18,
2008.
EXHIBIT 21
Subsidiaries of EnergyNorth, Inc.
EnergyNorth, Inc., incorporated in the state of New Hampshire,
has 100% ownership of the common stock of the following:
Broken Bridge Corporation, 1260 Elm Street, Manchester, New Hampshire.
EnergyNorth Natural Gas, Inc., 1260 Elm Street, Manchester, New Hampshire.
EnergyNorth Propane, Inc., 75 Regional Drive, Concord, New Hampshire.
ENI Mechanicals, Inc., 1260 Elm Street, Manchester, New Hampshire.
EnergyNorth Realty, Inc., 1260 Elm Street, Manchester, New Hampshire.
ENI Resources, Inc., 1260 Elm Street, Manchester, New Hampshire.
_______________
All of the above companies are incorporated in the state of New Hampshire.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of EnergyNorth, Inc.:
As independent public accountants, we hereby consent to the
incorporation by reference in the registration statement on Form
S-3, File No. 33-58127 of our reports dated November 4, 1998,
included in EnergyNorth, Inc.'s Form 10-K for the year ended
September 30, 1998, and to all references to our firm included in
this registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 22, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
EnergyNorth, Inc. condensed consolidated balance sheet as of September 30, 1998
and condensed consolidated statement of income and statement of cash flows for
the fiscal year ended September 30, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 107,282<F1>
<OTHER-PROPERTY-AND-INVEST> 7,771<F2>
<TOTAL-CURRENT-ASSETS> 27,521
<TOTAL-DEFERRED-CHARGES> 10,455
<OTHER-ASSETS> 2,121
<TOTAL-ASSETS> 155,150
<COMMON> 3,317
<CAPITAL-SURPLUS-PAID-IN> 32,445
<RETAINED-EARNINGS> 15,128
<TOTAL-COMMON-STOCKHOLDERS-EQ> 50,890
0
0
<LONG-TERM-DEBT-NET> 44,390
<SHORT-TERM-NOTES> 3,524
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,061
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 54,285
<TOT-CAPITALIZATION-AND-LIAB> 155,150
<GROSS-OPERATING-REVENUE> 109,926
<INCOME-TAX-EXPENSE> 3,102
<OTHER-OPERATING-EXPENSES> 97,873
<TOTAL-OPERATING-EXPENSES> 100,975
<OPERATING-INCOME-LOSS> 8,951
<OTHER-INCOME-NET> 1,173
<INCOME-BEFORE-INTEREST-EXPEN> 10,124
<TOTAL-INTEREST-EXPENSE> 4,746
<NET-INCOME> 5,378
0
<EARNINGS-AVAILABLE-FOR-COMM> 5,378
<COMMON-STOCK-DIVIDENDS> 4,300
<TOTAL-INTEREST-ON-BONDS> 3,628
<CASH-FLOW-OPERATIONS> 14,214
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $51,313
<F2>Net of accumulated depreciation of $10,311
</FN>
</TABLE>
