<PAGE>
(YANKEE ENERGY LETTERHEAD)
YANKEE ENERGY SYSTEM, INC.
Notice of Annual Meeting of Shareholders
February 24, 1995
Meriden, CT
January 6, 1995
To the Shareholders:
The Annual Meeting of Shareholders of Yankee Energy System,
Inc., a Connecticut corporation, will be held at the Ramada Inn,
275 Research Parkway, Meriden, Connecticut (see map on back
cover)
on Friday, February 24, 1995 at 10:30 a.m. for the following
purposes:
1. To elect three directors for terms to expire at the 1998
Annual Meeting of Shareholders;
2. To ratify the appointment of Arthur Andersen LLP as
independent auditors for the year 1995;
3. To act upon such other matters as may properly be
brought
before the meeting affecting the business and affairs of the
Company.
Only shareholders of record at the close of business on
December 16, 1994 will be entitled to notice of and to vote at
the
meeting or any adjournment thereof.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the
Board of Directors,
Mary J. Healey
Secretary and
Assistant General Counsel
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of
Yankee Energy System, Inc. ("Yankee Energy" or the "Company"), in
connection with the solicitation of proxies on behalf of the
Yankee Energy Board of Directors (the "Board") to be voted at the
Annual Meeting of Shareholders on February 24, 1995 (the "1995
Annual Meeting") for the purposes set forth in the accompanying
Notice of Meeting. This Proxy Statement and Notice of Meeting,
the related proxy card and the 1994 Annual Report to Shareholders
are being mailed to shareholders beginning on or about January 5,
1995. Yankee Energy's principal place of business is 599
Research Parkway, Meriden, CT 06450-1030.
RECORD DATE
- - -----------
The Board has fixed the close of business on December 16,
1994 as the record date for the 1995 Annual Meeting. Only
shareholders of record on that date will be entitled to vote at
the meeting in person or by proxy.
PROXIES
- - -------
The proxies named on the enclosed proxy card were appointed
by the Board to vote the shares represented by the proxy card.
Upon receipt by the Company of a properly signed and dated proxy
card, the shares represented thereby will be voted in accordance
with the instructions on the proxy card. If a shareholder does
not return a signed proxy card, those shares so represented
cannot be voted by proxy. Shareholders are urged to mark the
boxes on the proxy card to show how their shares are to be voted.
If a shareholder returns a signed proxy card without marking the
boxes, the shares represented by the proxy card will be voted as
recommended by the Board herein and in the proxy card. The proxy
card also confers discretionary authority on the proxies to vote
on any other matter not presently known to management that may
properly come before the meeting. Any proxy delivered pursuant
to this solicitation is revocable at the option of the person(s)
executing the same (i) upon receipt by the Company before the
proxy is voted of a duly executed proxy bearing a later date,
(ii) by written notice of revocation to the Secretary of the
Company received before the proxy is voted or (iii) by such
person(s) voting in person at the 1995 Annual Meeting.
1
<PAGE>
VOTING SHARES
- - -------------
On the record date for the 1995 Annual Meeting, there were
10,287,683 shares of common stock outstanding and entitled to
vote. Each share of common stock is entitled to one vote. The
holders of a majority of the total number of the shares entitled
to vote who are present in person or by proxy shall constitute a
quorum for purposes of the meeting. Votes will be conducted at
the meeting by two inspectors of election appointed by the Board.
RETIREMENT OF PHILIP T. ASHTON AS CHIEF EXECUTIVE OFFICER
- - ---------------------------------------------------------
Mr. Philip T. Ashton will retire as Chief Executive Officer
("CEO") of the Company and its subsidiaries effective March 1,
1995. Mr. Ashton has been CEO of the Company since its
divestiture from Northeast Utilities on July 1, 1989. Mr. Ashton
will be succeeded by Mr. Branko Terzic, President and Chief
Operating Officer. Mr. Ashton, if re-elected as a director at
the 1995 Annual Meeting, will remain as Chairman of the Board for
at least one year from the date of the 1995 Annual Meeting. The
Board and Mr. Ashton's colleagues at the Company wish to express
their appreciation and gratitude for his valued service,
knowledge and commitment in leading the Company through its first
five years and establishing a strong foundation for its future
success.
The Company has entered into an agreement with Mr. Ashton in
connection with his retirement relating to his compensation and
his responsibilities as Chairman. These responsibilities will
focus on the Company's vision for continued success and long-term
planning. As part of this agreement, effective March 1, 1995,
Mr. Ashton will receive $17,310 as a total monthly pension
benefit under the Company's Retirement Plan and Excess Benefit
Plan, which are described herein. Mr. Ashton will also be
compensated for his services as Chairman, as discussed herein.
OWNERSHIP OF VOTING STOCK BY CERTAIN BENEFICIAL OWNERS
- - ------------------------------------------------------
The following table sets forth information with respect to
the only person who, to the Company's knowledge, beneficially
owned more than five percent of the common stock of the Company
as of November 30, 1994.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Shares Percent of
of Beneficial Owner Beneficially Owned Shares
Outstanding
- - ------------------- ------------------ -----------------
Teachers Insurance and 558,500 5.43%
Annuity Association
College Retirement
Equities Fund
730 Third Avenue
New York, NY 10017-3206
</TABLE>
The Schedule 13F filing by such beneficial owner indicates
that such shares were held by a registered investment company for
the benefit of such beneficial owner.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
- - ---------------------------------------
The following table sets forth information with respect to
the beneficial ownership of the common stock of the Company by
its directors, executive officers and the directors and executive
officers as a group as of December 10, 1994.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Shares
of Beneficial Beneficially
Owner Position Owned (1)
- - ----------------- ------------------------ -------------
Philip T. Ashton Chairman of the Board and 16,334
Chief Executive Officer
Eileen S. Kraus Director 2,118
Frederick M. Lowther Director 3,258 (2)
Thomas H. O'Brien Director 3,568
Leonard A. O'Connor Director 3,014
Emery G. Olcott Director 3,318
Branko Terzic Director, President and
Chief Operating Officer 4,018
Nicholas L. Trivisonno Director 3,491 (3)
Michael E. Bielonko Vice President, Treasurer 2,621
and Chief Financial Officer
Charles E. Gooley Executive Vice President 2,578
Thomas J. Houde Vice President 1,983
-------
Directors and Executive
Officers As a Group
(11 persons) 46,301 (4)
</TABLE>
3
<PAGE>
- - --------------------
(1) The share amounts shown include 401(k) Employee Stock
Ownership Plan ("401(k) Plan") shares for Messrs. Ashton,
Bielonko, Gooley and Houde, and for all executive officers as a
group, allocated by the 401(k) Plan Trustee through September,
1994. No officer is entitled to a benefit under the 401(k) Plan
that is not generally available to all non-union employees who
meet the Plan's service requirements.
(2) Mr. Lowther is a beneficiary of 325 shares held in a trust
by his wife.
(3) Mr. Trivisonno's shares are held jointly with his wife.
(4) Less than one percent of the shares outstanding are owned by
the directors and executive officers as a group.
- - --------------------
As required by the Securities and Exchange Commission rules
under Section 16 of the Securities Exchange Act of 1934, the
Company notes that the open market purchase of shares awarded as
part of the Non-Employee Directors' Restricted Stock Compensation
Plan and non-employee Directors' quarterly stock retainers were
reported one month late. Based solely on a review of Section
16(a) reports filed by the Company's directors and executive
officers. The Company believes that all other filing
requirements under Section 16 of the Securities Exchange Act of
1934 have been met for fiscal year 1994.
1. ELECTION OF DIRECTORS
---------------------
The Board is divided into three classes of directorships,
with directors in each class serving staggered three-year terms.
At each annual meeting of shareholders, the terms of directors in
one of the three classes expire and directors are elected in a
class to succeed those whose terms expire. The terms of the
directors so elected will expire at the third annual meeting of
shareholders thereafter. Pursuant to the Company's Restated
Certificate of Incorporation, the Board has fixed the number of
directorships at nine: three in the class to be elected at the
1995 Annual Meeting whose members' terms will expire at the 1998
Annual Meeting, three in the class whose members' terms will
expire at the 1996 Annual Meeting of Shareholders, and three in
the class whose members' terms will expire at the 1997 Annual
Meeting of Shareholders. Mr. Branko Terzic, President and Chief
Operating Officer, was appointed at the December 6, 1994 Board
meeting to fill the vacancy in the class to be elected at the
1995 Annual Meeting.
Mr. John K. Armstrong retired from the Board effective at
the December 6, 1994 Board meeting. He has served the Company as
4
<PAGE>
a director and member of the Audit, Finance and Long Range
Planning Committees since March, 1990. His colleagues and
friends on the Board and at the Company thank him for his
guidance in financial matters especially and general Company
policy and for his contributions to the overall success of the
Company. He served as a valued member of the Board and his
knowledge helped strengthen and advance the position of the
Company. His incisive comments, sense of teamwork and
collegiality will be sorely missed. The Board and the entire
Company extend their best wishes in his retirement. As a result
of Mr. Armstrong's retirement, there will be a vacancy in the
class of directorships whose members' terms will expire in 1996.
It is expected that such vacancy will be filled by the Board
pursuant to the Company's Restated Certificate of Incorporation
and Bylaws.
It is intended that the shares represented by the
accompanying proxy will be voted at the 1995 Annual Meeting for
the election of nominees Philip T. Ashton, Eileen S. Kraus and
Branko Terzic, as the three directors in the class of
directorships whose members' terms will expire in 1998, unless
the proxy specifies otherwise. If, for any reason not presently
known, Messrs. Ashton or Terzic or Ms. Kraus will not be
available for election at the time of the 1995 Annual Meeting,
the shares represented by the accompanying proxy may be voted for
the election in his or her stead of a substitute nominee
designated by the Board or a committee thereof, unless the proxy
withholds authority to vote for all nominees.
If a quorum is present in person or by proxy at the 1995
Annual Meeting, the affirmative vote of a majority of the voting
power of the shares represented at the meeting shall be suffi-
cient to elect directors. In certain circumstances, a sharehold-
er will be considered to be present at the meeting for quorum
purposes, but will not be deemed to have voted in the election of
directors. Such circumstances will exist where a shareholder is
present but specifically abstains from voting for directors, or
where shares are represented at the meeting by a proxy conferring
authority to vote on certain matters but not on the election of
directors. Under Connecticut law, such abstentions and non-votes
have the effect of a vote against the election of the Board's
nominees.
The following information relates to the nominees named
above and to the other directors of the Company whose terms will
continue after the 1995 Annual Meeting.
5
<PAGE>
<TABLE>
<CAPTION>
NOMINEES FOR TERMS EXPIRING IN 1998
<C> <S>
Principal Occupation and
Other Information
-------------------------
Philip T. Ashton Chairman and Chief Executive Officer,
Age 60 Yankee Energy System, Inc. and its
Director Since 1989 subsidiaries, Meriden, CT, since
September 15, 1994. From July 1, 1989
to September 15, 1994, Mr. Ashton was
President and CEO. He was elected
Chairman in February, 1994. From 1982
until July 1, 1989, he was Senior Vice
President and General Manager- Gas
Group for The Connecticut Light and
Power Company and Northeast Utilities
Service Company. He is a director and
past chairman of the New England Gas
Association and a director of the
American Gas Association and of the
Connecticut Capitol Region Growth
Council. He is also chairman of the
Greater Hartford Chapter of the American
Red Cross, a director of Church Homes,
Inc., and past chairman of the Iroquois
Gas Transmission System Management
Committee.
- - -----------------------------------------------------------------
Eileen S. Kraus President, Shawmut Bank of Connecticut,
Age 56 N. A. and Vice Chairman of Shawmut
Director Since 1990 National Corporation of Boston since
September, 1992; Vice Chairman, Consumer
Banking and Marketing Groups, The
Connecticut National Bank and Shawmut
Bank, N.A. from 1990-1992; Executive
Vice President, Consumer Banking and
Marketing Groups, The Connecticut
National Bank and Shawmut Bank, N.A.,
1988-July, 1990. She is a director of
The Stanley Works and CPC International.
She is also a trustee and executive
committee member of Trinity College,
Kingswood-Oxford School and Horace
Bushnell Memorial Hall and Chairman of
the Greater Hartford Chamber of
Commerce.
- - -----------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
Branko Terzic President and Chief Operating Officer,
Age 47 Yankee Energy System, Inc. and its
Director Since subsidiaries since September 15, 1994.
December, 1994 From June, 1993 to September 14, 1994,
Mr. Terzic was Managing Director of
Arthur Andersen Economic Consulting,
Washington, D.C. From October, 1990 to
May, 1993, Commissioner, Federal Energy
Regulatory Commission and from 1986 to
October, 1990, Group Vice President and
Director of AUS Consultants (management
consultants) in Milwaukee, Wisconsin.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THESE
NOMINEES -----------
<TABLE>
<CAPTION>
OTHER DIRECTORS
<C> <S>
- - ---------------
Terms Expiring Principal Occupation and
in 1996: Other Information
- - -------------- -------------------------
Thomas H. O'Brien President, O'Brien Associates
Age 70 (management and financial consultants),
Director since 1990 Garden City, NY, since 1984. President,
Jamaica Water Securities Corp., Purchase,
NY, 1989-1990; Chairman and Chief
Executive Officer, Jamaica Water Supply
Co., 1987-89 and director until 1990;
director and consultant, TransCanada
Pipelines Ltd. (USA), 1984-1989. He is a
director of Ridgewood Savings Bank, a
trustee and chairman of the Audit
Committee of Hofstra University and a
director of various Prudential mutual
funds.
- - -----------------------------------------------------------------
Nicholas L. Trivisonno Executive Vice President-Strategic
Age 47 Planning and Group President, GTE Corp.,
Director since 1990 telecommunications), Stamford, CT,
since October, 1993; Senior Vice
President - Finance, 1989-October, 1993;
Vice President and Controller, 1988-89.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
He is a director of Rayonier
Incorporated, Stamford, Connecticut.
He also serves on the Boards of Junior
Achievement, St. Joseph's Medical
Center and Allendale Insurance Company,
and is a trustee and corporation member
of Babson College.
OTHER DIRECTORS
- - ---------------
Terms Expiring Principal Occupation and
in 1997: Other Information
- - -------------- ------------------------
Frederick M. Lowther Partner in the law firm of Dickstein,
Age 51 Shapiro & Morin, LLP., Washington, D.C.,
Director since 1992 since 1973. He has been a member of the
firm's Executive Committee and chairman
of its Compensation Committee since
1989.
- - -----------------------------------------------------------------
Leonard A. O'Connor Retired. He was Vice President and
Age 68 Consultant of Yankee Energy System, Inc.
Director since 1989 and its subsidiaries from July 1, 1990
to July 1, 1991 and Vice President and
Chief Financial Officer from July 1,
1989 to July 1, 1990. From 1988 to June
30, 1989, he was Vice President, Finance
and Accounting (Gas) of Northeast
Utilities Service Company. Mr. O'Connor
is a director of BayBank Connecticut.
- - -----------------------------------------------------------------
Emery G. Olcott President and Chief Executive Officer,
Age 56 Canberra Industries, Inc., Meriden, CT
Director since 1989 (manufacturer and distributor of
analytical instruments and chemicals),
since 1971. He is a director of
Goodwin, Loomis & Britton, Inc.,
Hartford, CT and Rotando, Lerch &
Iafeliece, Stamford, CT.
- - -----------------------------------------------------------------
</TABLE>
8
<PAGE>
The Board has an Executive Committee, an Audit Committee, a
Finance Committee, an Organization and Compensation Committee and
a Committee on Directors. Mr. Ashton, as an employee director,
presently receives no compensation for his services as Chairman
or a committee member. Mr. Ashton will retire as an employee of
the Company on March 1, 1995, and, thereafter, will be
compensated for his services as Chairman at an annual retainer of
$25,000, plus regular director and committee meeting fees. Non-
employee directors receive a $9,000 annual retainer and $700 for
each Board or committee meeting attended. Committee chairpersons
receive $800 for each committee meeting attended. Messrs.
Trivisonno, O'Brien and Olcott and Ms. Kraus receive an
additional $1,500 per year for their services as Chairs of the
Audit, Finance and Organization and Compensation Committees and
Committee On Directors, respectively. For the fiscal year ended
September 30, 1994, the Board held 10 meetings, the Audit
Committee held 3 meetings, the Finance Committee held 5 meetings,
the Organization and Compensation Committee held 3 meetings and
the Committee on Directors held 3 meetings. The Executive
Committee did not meet. Since the Board meets to discuss
planning and strategy, the Long Range Planning Committee was
dissolved on February 25, 1994. All directors attended more than
75 percent of Board and Committee meetings held in fiscal year
1994.
The Executive Committee has the authority and may exercise
all the powers of the Board in the management and control of the
business of the Company (except matters within the power of the
Audit Committee) during intervals between meetings of the Board.
Messrs. Ashton (Chairman), Olcott and Trivisonno are members of
the Executive Committee. The Audit Committee meets periodically
with management, the internal auditors and the Company's
independent auditors to review the activities of each and to
discuss audit matters, financial reporting and the adequacy of
internal corporate controls. The Audit Committee reports its
findings and makes recommendations to the Board. Mr. Trivisonno
(Chairman) and Ms. Kraus are members of the Audit Committee. The
Finance Committee periodically reviews the financial plans and
budgets of the Company to determine if they are fiscally sound
and consistent with the Company's overall business goals.
Messrs. O'Brien (Chairman) and O'Connor are members of the
Finance Committee. The Organization and Compensation Committee
is responsible for executive compensation and organization, and
administers the Company's Annual and Long-Term Incentive
Compensation Plans and the Non-Employee Directors' Restricted
Stock Plan. Messrs. Lowther and Olcott (Chairman) and Ms. Kraus
are members of the Organization and Compensation Committee. The
Committee on Directors is responsible for recommending to the
Board criteria for the selection of candidates for director,
evaluating candidates and recommending nominees to fill vacancies
on the Board. The Committee on Directors may also review and
9
<PAGE>
make recommendations to the Executive and Organization and
Compensation Committees or the Board on the compensation program
for directors. The Committee on Directors will consider
recommendations for director nominees that are submitted by
shareholders in writing to the Secretary of the Company in
accordance with the requirements set forth in the Bylaws of the
Company. A copy of the relevant provisions of the Bylaws may be
obtained from the Secretary of the Company. Ms. Kraus
(Chairperson) and Messrs. Lowther, O'Brien and Olcott are members
of this Committee.
A part of each non-employee director's annual retainer is
paid in common stock valued at $3,600 (or such slightly higher
amount as is needed to avoid any fractional shares). These
shares are purchased on the open market and payments are made at
the Board meeting immediately following the annual meeting of
shareholders in February. The balance of the annual retainer is
paid in cash at each regular December, June and September
meeting. For 1994, the stock retainer paid to each non-employee
directors equaled 144 shares of common stock of the Company based
on a fair market value of $24.25 per share on the date of
purchase.
Under the Non-Employee Directors' Restricted Stock Plan,
established in 1991 to promote ownership of the Company's common
stock by members of the Board, each non-employee director, upon
his or her election or reelection to the Board, receives an award
of 450 restricted shares of the Company's common stock. One-
third of such restricted shares of common stock vests each year
at subsequent Annual Meetings of Shareholders. The Board may
make appropriate adjustments in share amounts in the event of any
change in the Company's common stock, such as a stock split, or
other change in the Company's corporate structure or distribution
to shareholders. Participants in the Plan have voting rights and
rights to receive dividends and other distributions with respect
to such shares, but until their vesting, such shares will be
subject to the Plan's provisions on forfeiture and restrictions
on disposition. In February, 1994, Messrs. Lowther, O'Connor and
Olcott each received 450 shares upon reelection to a three-year
term, and 150 shares vested for all non-employee directors upon
completion of a year of their respective terms.
EXECUTIVE COMPENSATION
- - ----------------------
The members of the Organization and Compensation Committee
(the "Committee") for fiscal 1994 were Messrs. Lowther and Olcott
and Ms. Kraus. All three members are non-employee directors and
none has any direct or indirect material interest in or
relationship with the Company outside of his or her position as
director.
10
<PAGE>
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
The Committee is responsible for advising management on
organizational issues, making recommendations to the Board on
executive compensation, administering the Company's Annual and
Long-Term Incentive Compensation Plans and overseeing the Non-
Employee Directors' Restricted Stock Plan.
Compensation Philosophy
- - -----------------------
The Board adheres to the following philosophy regarding
compensation of the Company's executive officers:
- to provide competitive total pay opportunities relative
to a peer group of comparable gas utilities ("Peer Group") in
order to attract and retain high quality executive talent
critical to the Company's success. The Peer Group consists of a
group of investor-owned gas utilities located throughout the
United States with similar annual revenues and operating
characteristics to Yankee Gas Services Company, the Company's
principal operating subsidiary.
- to pay for performance through a mix that emphasizes
competitive cash incentives and merit-based salary increases and
de-emphasizes perquisites. It is the Board's intention to
generally ensure that compensation expenses are deductible under
Section 162(m) of the Internal Revenue Code, the "million dollar
cap" on named executive officer compensation deductions.
- to create a mutuality of interest between executives
and shareholders through competitive stock award and option
programs that encourage participants to acquire and hold
significant ownership positions and to reinforce common interests
with other significant constituencies through incentive plan
goals that enhance customer service and employee safety.
Compensation Pursuant to Plans
- - ------------------------------
BASE SALARY - The Company maintains formal salary grades and
ranges for its executive officers. Positions are graded based
upon responsibility level and salary ranges were established at
the market average based upon a competitive study of the Peer
Group. Annual salary increases are determined based upon a
competitive increase budget, individual performance and position
within the salary range.
ANNUAL INCENTIVE COMPENSATION PLAN - The plan is designed to
enhance financial and operating performance, customer service,
employee safety and corporate efficiency through performance-
11
<PAGE>
based cash incentive awards. Each year, the Committee
establishes corporate and individual performance goals for the
Chief Executive Officer ("CEO") and other plan participants based
upon strategic priorities and, especially, the annual Business
Plan. The goals are weighted relative to their importance to the
Company and the relative impact each participant will have upon
their results. Specific, measurable performance levels for
threshold, target and maximum payouts, 15 percent, 25 percent and
35 percent, respectively, of base salary for the CEO and 10
percent, 15 percent and 25 percent, respectively, for the other
four executive officers, are then set for performance against
goals. The plan is intended to pay fully competitive annual cash
compensation levels, in combination with base salary, when
performance against goals matches the target level.
At the end of each fiscal year, the Committee receives a
management report on results versus goals in the annual Business
Plan and meets with the CEO to evaluate the performance of the
other executive officers. This performance, expressed as a
percent with attainment of all goals being rated as 100 percent,
determines compensation amounts. The Committee has retained the
flexibility to exercise sound business judgment to modify the
mechanical results of applying the terms of the plan when the
Committee deems it prudent to do so.
THE LONG-TERM INCENTIVE COMPENSATION PLAN - The plan, as
approved by shareholders in 1991, grants the Committee
significant flexibility to award to key employees restricted
stock, stock options and stock appreciation rights. This
flexibility enables the Committee to respond to changing
strategic, competitive, regulatory, tax and accounting forces in
an efficient manner. Over time, the philosophy is to provide
competitive stock awards and options, with plan details
structured to encourage executives to acquire and hold
significant share positions. This directly aligns executive and
shareholder interests.
The Board has made awards of non-qualified stock options and
restricted stock to executive officers and upper management and
plans to make regular additional awards. Option grants are
financially efficient and can provide additional performance
incentives because any gain to the recipient is based entirely
upon stock price appreciation. Utilizing restricted shares
acquired under the Long-Term Incentive Compensation Plan, which
shares vest in varying percentages over five years from the date
of the grant, executives may exercise options and satisfy tax
withholding requirements to acquire and hold an increasing
ownership position in the Company in a financially efficient
manner.
OTHER COMPENSATION - Consistent with the Company's pay-for-
12
<PAGE>
performance philosophy, there are no significant perquisites such
as personal club memberships or automobiles.
CEO Compensation
- - ----------------
The Committee meets in the absence of the CEO to evaluate
his performance. The Committee reports on all executive
evaluations to the other non-employee members of the Board. For
1994, the base salary increase for Mr. Ashton, the CEO, was based
on competitive pay rates for CEOs of the Peer Group. Mr. Ashton
received a five percent base salary increase. Incentive
compensation was based on performance against a combination of
corporate and individual goals. A variety of corporate goals
were assigned to Mr. Ashton in major areas of focus under the
Company's annual Business Plan. Weightings are in parentheses.
Goals were assigned in the areas of customer service satisfaction
(15 percent), profitability and shareholder value (30 percent),
expansion of markets and market share (25 percent), employee
competence (ten percent) and public and employee safety (five
percent). Mr. Ashton was also assigned individual goals in the
areas of management succession planning, long-term planning and
corporate community involvement. The weighting for these goals
totalled 15 percent. The goal weights were based on priorities
established under the Company's annual Business Plan.
The Committee, and the Board as a whole, found that Mr.
Ashton had continued his consistently high level of performance,
having met or exceeded more than 90 percent of the goals assigned
to him. The maximum percentage of base salary Mr. Ashton was
eligible to receive as incentive compensation in 1994 was 35
percent. His actual incentive compensation award amounted to
approximately 31 percent of his base salary.
EMERY G. OLCOTT, CHAIRMAN OF THE COMMITTEE
EILEEN S. KRAUS
FREDERICK M. LOWTHER
Corporate Performance Graph
- - ----------------------------
The following graph and table compares the total shareholder
returns over the last five fiscal years to the Standard & Poor's
500 Stock Index ("S&P 500") and Standard & Poor's Utility Index
("S&P Utilities"). Total return values for the S&P 500, S&P
Utilities and Yankee Energy were calculated based on cumulative
total return values assuming the reinvestment of dividends. The
shareholder return shown on the graph below is not necessarily
indicative of future performance.
[GRAPH]
13
<PAGE>
<TABLE>
<CAPTION>
TOTAL SHAREHOLDER RETURNS
<S> <C> <C> <C>
FISCAL YANKEE S&P S&P
YEAR ENERGY 500 UTILITY
- - ------ ------ ---- -------
1989 100 100 100
1990 95 91 99
1991 136 119 115
1992 173 132 131
1993 238 149 163
1994 205 155 142
</TABLE>
Summary Executive Compensation Table
------------------------------------
The following table sets forth the compensation paid by the
Company and its subsidiaries to each of the executive officers of
the Company for services rendered in all capacities to the
Company and its subsidiaries for the three fiscal years ended
September 30, 1992, 1993 and 1994.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C>
Name and
Principal Fiscal Salary Other Annual
Position Year ($)(5) Bonus($) Compensation($)(6)
- - ------------- ----- --------- -------- ---------------
P. T. Ashton 1994 249,999.96 80,000.00 0
Chairman and 1993 235,416.65 83,000.00 0
Chief Executive 1992 225,000.00 50,000.00 0
Officer
M. E. Bielonko(10)1994 127,124.96 30,000.00 0
Vice President, 1993 118,749.96 30,000.00 0
Treasurer and 1992 115,000.00 25,000.00 0
Chief Financial
Officer
C. E. Gooley(11) 1994 143,499.99 36,000.00 0
Executive 1993 129,166.69 32,000.00 0
Vice President 1992 123,500.04 26,500.00 0
T. J. Houde(12) 1994 99,583.31 22,000.00 0
Vice President 1993 92,916.65 22,000.00 0
1992 87,650.01 20,000.00 0
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
B. Terzic(13) 1994 11,494.27 0 0
President and
Chief Operating
Officer
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (continued)
Long Term Compensation
----------------------
Awards
-------
<S> <C> <C> <C>
Securities
Name and Restricted Underlying
Principal Fiscal Stock Options/
Position Year Awards(7) SARs (#)(8)
- - ----------- ------ ---------- ---------------
P. T. Ashton 1994 0 18,000
Chairman and 1993 0 0
Chief Executive 1992 0 0
Officer
M. E. Bielonko 1994 0 6,000
Vice President, 1993 0 0
Treasurer and 1992 0 0
Chief Financial
Officer
C. E. Gooley 1994 0 7,500
Executive 1993 0 0
Vice President 1992 0 0
T. J. Houde 1994 0 2,500
Vice President 1993 0 0
1992 20,010.00 0
B. Terzic 1994 4,000.00 10,000
President and
Chief Operating
Officer
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (continued)
Long Term Compensation
----------------------
Payouts
-------
<S> <C> <C> <C>
Name and
Principal Fiscal LTIP All Other
Position Payouts($) Awards Compensation($)(9)
- - ----------- ------ ---------- ---------------
P. T. Ashton 1994 0 0
Chairman and 1993 0 2,239.25
Chief Executive 1992 0 2,182.32
Officer
M. E. Bielonko 1994 0 0
Vice President, 1993 0 2,739.25
Treasurer and 1992 0 10,582.32
Chief Financial
Officer
C. E. Gooley 1994 0 0
Executive 1993 0 3,739.25
Vice President 1992 0 10,582.32
T. J. Houde 1994 0 0
Vice President 1993 0 2,739.25
1992 0 8,782.32
B. Terzic 1994 0 28,439.97
President and
Chief Operating
Officer
</TABLE>
- - --------------------
(5) Salaries for the officer group are reviewed annually with
changes in salary rates having been effective on May 1 of each of
the years shown. Future base salary increases will occur on
January 1 of each year. No officer received an increase in
annual salary rate on May 1, 1992. See also Footnote 9.
(6) The Company provides no perquisites or personal benefits
having monetary value, such as automobiles and individual club
memberships.
(7) Restricted shares that were awarded to the above officers
under the Long Term Incentive Compensation Plan, which was
approved by the Shareholders of the Company on February 22, 1991,
16
<PAGE>
vest on an annual basis in accordance with the following
scheduled: 10 percent in the first year, 15 percent in the
second year and 25 percent in each of the following three years.
Mr. Terzic was awarded 4,000 shares of restricted stock upon on
his election as President and Chief Operating Officer. At the
end of fiscal year 1994, Mr. Ashton owned 3,352 shares of
restricted stock valued at $78,772; Mr. Bielonko owned 846 shares
at a value of $19,881; Mr. Gooley owned 882 shares at a value of
$20,727 and Mr. Houde owned 931 shares at a value of $26,999.
Mr. Terzic owned 4,000 shares, which were purchased after the
close of the fiscal year. As of the date of purchase, these
shares had a value of $83,880. Dividends are paid on these
shares.
(8) Stock options were granted to Messrs. Ashton, Bielonko,
Gooley and Houde on April 28, 1994 and to Mr. Terzic on September
15, 1994 at a per market share price of $21.63 and $21.375,
respectively. These options are cumulatively exercisable in 20
percent increments annually over the first five years of the
grant.
(9) In January, 1993, the Board approved payments to the
officers for their efforts during the October 21, 1992 to January
4, 1993 work stoppage. Payments were also given to all non-
bargaining unit employees. Messrs. Bielonko and Houde received
$500 and Mr. Gooley received $1,500.
Lump sum payments were made to these officers in lieu of
base salary increases for 1992; half paid in May, 1992 and half
in November, 1992. The amounts awarded were $8,400 to Messrs.
Bielonko and Gooley and $6,600 to Mr. Houde.
The compensation shown for 1992 and 1993 also reflects the
Company's match under the 401(k) Plan.
Mr. Terzic received a $25,000 signing bonus when he was
elected President and Chief Operating Officer and was paid $1,204
for per diem expenses and $2,229.97 for residential relocation
expenses.
(10) Mr. Bielonko was elected to the additional position of
Treasurer on September 21, 1992.
(11) Mr. Gooley was elected Executive Vice President as of
July 1, 1994.
(12) Mr. Houde was elected Vice President of January 1, 1992.
(13) Mr. Terzic was elected President and Chief Operating
Officer as of September 15, 1994.
17
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
- - -------------------------------------
The following table provides a summary of individual grants
of stock options under the Company's Long Term Incentive Plan
made during the year to each of the named executive officers.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------
<S> <C> <C> <C> <C>
Number of Percent
Securities of Total
Underlying Options/SARs
Option/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
(#)(14) Fiscal Year ($/Sh) Date
-------------------------------------------------------
Ashton 18,000 22% $21.63 4/28/2004
Bielonko 6,000 7% $21.63 4/28/2004
Gooley 7,500 9% $21.63 4/28/2004
Houde 2,500 3% $21.63 4/28/2004
Terzic 10,000 12% $21.375 9/15/2004
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
For Option Term(15)
------------------------------------------
<S> <C> <C> <C>
0% 5% ($) 10% ($)
------------------------------------------
Ashton 0 244,854 620,508
Bielonko 0 81,618 206,836
Gooley 0 102,022 258,545
Houde 0 34,007 86,182
Terzic 0 134,426 340,662
</TABLE>
- - -------------------------
(14) No tandem or freestanding stock appreciation rights
("SARs") were granted in 1994. Incentive stock options become
cumulatively exercisable in equal annual installments of 20% on
the first, second, third, fourth and fifth anniversaries of the
grant date.
(15) The five and ten percent rates are hypothetical rates
set by the Securities and Exchange Commission and, therefore, are
18
<PAGE>
not intended to forecast possible future appreciation, if any, of
any of the Company's share price. No gain to the optionees is
possible without an increase in share price, which will benefit
all shareholders commensurately. A zero percent increase in
share price will result in zero dollars for the optionee. Based
on the April 28 and September 15, 1994 grant price and at an
annual hypothetical appreciation of five percent for ten years,
Yankee Energy's common stock would be valued at $35.23 and $34.82
per share, respectively. At the hypothetical ten percent annual
appreciation rate, Yankee Energy's common stock would be valued
at $56.10 and $55.44 per share, respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
- - ------------------------------------------
The following table provides a summary of exercises of stock
options during the fiscal year by each of the named executive
officers and the fiscal year-end value of unexercised stock
options held by such persons.
<TABLE>
<CAPTION>
Shares Value
Acquired on Realized
Exercise (#) ($)
------------------------------------------------------
<S> <C> <C>
Ashton 0 0
Bielonko 0 0
Gooley 0 0
Houde 0 0
Terzic 0 0
</TABLE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal Year End (#) At Fiscal
Exercisable/Unexercisable Year-End ($)(16)
------------------------------------------------------
<S> <C> <C>
Ashton 0 / 18,000 0
Bielonko 0 / 6,000 0
Gooley 0 / 7,500 0
Houde 0 / 2,500 0
Terzic 0 / 10,000 1,250
</TABLE>
- - --------------------
19
<PAGE>
(16) "The Value of Unexercised in-the-Money Options at Fiscal
Year End" is equal to the fair market value of the shares
underlying the options at the close of business on September 30,
1994, which was $21.50 per share, less the exercise price, times
the number of options.
EMPLOYMENT AGREEMENTS
- - ---------------------
The Company has employment agreements (the "Agreements")
with each of the executive officers referred to in the Summary
Compensation Table. The Agreements provide for an annual base
salary and for a lump sum payment equal to three times current
respective annual base salaries after a termination other than
for cause or resignation for good reason following a change in
control of the Company as defined in the Agreements. The
Agreements also provide that the lump sum payments shall include
amounts sufficient to reimburse the above individuals for any
federal excise tax that may be imposed. These Agreements expire
on December 31, 1994. Mr. Terzic's Agreement also includes
provisions for a grant of 4,000 shares of restricted stock, a
$25,000 signing bonus and residential relocation expenses, which
are noted in the Summary Compensation Table, and additional
credited years of service under the Supplemental Executive
Retirement Plan, described below.
RETIREMENT PLAN
- - ---------------
Employees of the Company, including the executive officers
referred to in the Summary Compensation Table, are entitled to
participate in the Yankee Energy System, Inc. Retirement Plan,
which is a non-contributory, defined benefit retirement plan.
Retirement benefits are computed on the basis of a specified
percentage of an employee's final average earnings multiplied by
the employee's years of credited service. The Plan provides for
several optional forms of benefit payments, including a straight
life annuity option, a contingent annuitant option, a ten-year
certain and life option and a level income option. Retirement
benefits under the Plan are not reduced by the employee's Social
Security benefits. Contributions, which are actuarially
determined, are made to the Plan by the Company for the benefit
of all employees covered by the Plan. The Plan provides for
continued benefit accruals for employees who work beyond age 65.
As of September 30, 1994, the following executive officers
of the Company had the following years of credited service for
retirement compensation purposes: Mr. Ashton -- 37, Mr. Bielonko
- - -- 17, Mr. Gooley -- 13 and Mr. Houde -- 15. Mr. Terzic was
employed on September 15, 1994 and, therefore, had no credited
service. The following table shows the estimated annual
retirement benefits(17) payable assuming that retirement occurs
20
<PAGE>
at age 65, which, for the officers listed above would occur with
42, 40, 37, 33 and 17 years of credited service, respectively.
Upon his retirement on March 1, 1995, Mr. Ashton will have 38
years of credited service. The years of credited service for the
executive officers listed above include prior service under the
Northeast Utilities Service Company Retirement Plan. The
benefits presented are based on straight life annuity and do not
take into account any reduction for joint and survivorship
annuity payments.
<TABLE>
<CAPTION>
Average Annual Earnings
for the Highest Consecutive
60 Months of Last 120 Months
Prior to Normal Retirement Years of Service
- - --------------------------- --------------------------------
<S> <C> <C> <C>
15 20 25
-- -- --
$ 75,000 $15,963 $21,284 $ 26,606
125,000 27,213 36,284 45,356
175,000 38,463 51,284 64,106
225,000 49,713 66,284 82,856
275,000 60,963 81,284 101,606
</TABLE>
<TABLE>
<CAPTION>
Average Annual Earnings
for the Highest Consecutive
60 Months of Last 120 Months
Prior to Normal Retirement Years of Service
- - --------------------------- --------------------------------
<S> <C> <C> <C>
30 35 40
-- -- --
$ 75,000 $ 31,927 $ 37,248 $ 39,998
125,000 54,427 63,498 66,623
175,000 76,927 89,748 94,123
225,000 99,427 115,998 121,623
275,000 121,927 142,248 149,123
</TABLE>
- - -------------------------
(17) Pursuant to provisions of the Internal Revenue Code,
compensation earned that is used in calculating retirement
benefits under the Retirement Plan is limited to a maximum of
$150,000, which is indexed for inflation after 1993. This
affects the benefit calculation for certain individuals and
effectively reduces their benefits under the Retirement Plan.
The Company's unfunded plans (Supplemental Executive Retirement
21
<PAGE>
Plan and Excess Benefit Plan, discussed below) provide benefits
not payable under the Retirement Plan due to the $150,000
limitation and includes awards under the Northeast Utilities
Executive Incentive Compensation Plan.
The maximum annual benefit that can be paid in 1994 to a
participant from a tax qualified benefit plan is $118,800.00.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
- - ---------------------------------------
The Company has a Supplemental Executive Retirement Plan
("SERP") that credits Mr. Terzic, the only participant, with two
years of service for each of the first five years of his
employment. Credit for succeeding years will be in accordance
with the provisions of the Retirement Plan.
EXCESS BENEFIT PLAN
- - -------------------
Each of the executives named in the Summary Compensation
Table is a participant in the Excess Benefit Plan ("EBP") adopted
by the Board of Directors on May 26, 1994. The EBP provides
these executives with the benefits that would have been provided
under the Retirement Plan if (i) certain awards under the
Northeast Utilities Executive Incentive Compensation Program or
the Yankee Gas Annual Incentive Plan were included in the benefit
calculations under the Retirement Plan, (ii) the benefits were
not subject to the limitations imposed by Section 415 of the
Internal Revenue Code of 1986, as amended (the "Code"), and (iii)
compensation was not limited to $150,000 by Section 401(a)(17) of
the Code (or such higher amount as adjusted by the Secretary of
the Treasury in accordance with Section 415(d) of the Code). The
EBP is an unfunded plan that is not intended to meet the
qualification requirements of Section 401 of the Code.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
---------------------------------------------------
The firm of Arthur Andersen LLP served as independent
auditors for the Company for the fiscal year ended September 30,
1994. Pursuant to the recommendation of the Audit Committee, the
Board has appointed that firm to continue in that capacity for
the fiscal year 1995, and recommends that a resolution be
presented to shareholders at the 1995 Annual Meeting to ratify
their appointment.
In the event the shareholders fail to ratify the appointment
of Arthur Andersen LLP, the Board will appoint other independent
public accountants as auditors. Representatives of Arthur
Andersen LLP will attend the 1995 Annual Meeting. They will have
22
<PAGE>
the opportunity to make a statement and respond to appropriate
questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
THIS PROPOSAL -----------
OTHER MATTERS
- - -------------
The Board does not know of any matters that will be
presented for action at the 1995 Annual Meeting other than those
described above and matters incident to the conduct of the
meeting. If, however, any other matters not presently known to
management should come before the 1995 Annual Meeting, it is
intended that the shares represented by the accompanying proxy
will be voted on such matters in accordance with the discretion
of the holders of such proxy.
COST OF SOLICITATION
- - ---------------------
The cost of soliciting proxies will be borne by the Company.
Proxies may be solicited by directors, officers or regular
employees of the Company in person, by telephone or telegram.
The Company has retained Morrow & Company, Inc., New York, to
assist in the solicitation and sending of proxy material. The
Company will pay approximately $6,000.00 for these services.
SHAREHOLDER PROPOSALS FOR 1995
- - ------------------------------
Pursuant to Securities and Exchange Commission regulations,
shareholder proposals submitted for next year's proxy statement
must be received by the Company no later than the close of
business on September 7, 1995 to be considered. Proposals should
be addressed to Mary J. Healey, Secretary and Assistant General
Counsel, Yankee Energy System, Inc., 599 Research Parkway,
Meriden, CT 06450-1030.
GENERAL
- - -------
Upon written request, the Company will provide shareholders
with a copy of its Annual Report on Form 10-K to the Securities
and Exchange Commission (including financial statements and
schedules thereto) for the fiscal year ended September 30, 1994,
without charge. Please direct written requests to: Sarah K.
Sanders, Assistant Treasurer, Yankee Energy System, Inc., 599
Research Parkway, Meriden, CT 06450-1030.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
23
<PAGE>
APPENDIX
---------
Shown on pages 6 through 8 are photographs of the Yankee
Energy directors.
The graph on page 13 specifically shows the growth in a $100
initial investment in Yankee Energy, the S&P 500 and the S&P
Utilities from fiscal years 1989 through 1994. Year-end values
are shown for each investment in the corresponding table
underneath the graph. For the five years ended September 30,
1994, a $100 investment in Yankee Energy grew to $205; a $100
investment in the S&P 500 grew to $155; and a $100 investment in
the S&P Utilities grew to $142.
Shown on the back cover is a map which provides directions to
the location of the Company's Annual Meeting.
<PAGE>
PROXY YANKEE ENERGY SYSTEM, INC. PROXY
Proxy for Annual Meeting of Shareholders--February 24, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Frederick M. Lowther,
Leonard A. O'Connor and Emery G. Olcott or any one of them, each
with full power of substitution, proxies of the undersigned, to
act for and to vote, as and to the extent specified, all shares
of common stock of Yankee Energy System, Inc. held by the
undersigned at the Annual Meeting to be held on February 24, 1995
and any adjournment thereof upon the matters set forth below and
upon such other business that may properly come before the
meeting or any adjournment thereof.
THIS PROXY FORM, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE
VOTED AS AND TO THE EXTENT SPECIFIED BY THE UNDERSIGNED. WHERE
NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1
AND 2.
(Continued on reverse side)
<PAGE>
The Board of Directors recommends a Vote FOR Proposals 1 & 2.
I plan to attend the meeting
- - -----
1. Election of Directors: PHILIP T. ASHTON, EILEEN S. KRAUS
and BRANKO TERZIC
FOR all WITHHOLD To vote for all nominees,
nominees AUTHORITY mark "FOR" box. To withhold
listed above to vote for authority to vote for any
(except as marked all nominees individual nominee, cross out
to the contrary) listed above that nominee's name.
2. Ratification of Arthur If you receive more than one
Andersen LLP as copy of the annual report and
independent auditors of do not wish to receive a copy
Yankee Energy System, Inc. for this account in the
for its fiscal year ended future, check this box.
September 30, 1995. -------
FOR AGAINST ABSTAIN
---- ------- ------- The undersigned hereby also
acknowledge(s) receipt of
notice of said meeting and the
related proxy statement.
Date:
--------------------,1995
Signed
-------------------------
Signed
-------------------------
Please sign this Proxy exactly as
your name appears hereon. When
shares are held by joint tenants,
both should sign. When signing as
an attorney, executor,
administrator, or guardian, please
give full title as such. If a
corporation, please sign in full
corporate name by president or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
