<PAGE>
(YANKEE ENERGY LETTERHEAD)
YANKEE ENERGY SYSTEM, INC.
Notice of Annual Meeting of Shareholders
February 23, 1996
Meriden, CT
January 5, 1996
To the Shareholders:
The Annual Meeting of Shareholders of Yankee Energy System,
Inc., a Connecticut corporation, will be held at the Ramada Plaza
Hotel, 275 Research Parkway, Meriden, Connecticut (see map on
back cover) on Friday, February 23, 1996 at 10:30 a.m. for the
following purposes:
1. To elect two directors for terms to expire at the 1999
Annual Meeting of Shareholders;
2. To act on a proposal to approve the Non-Employee
Director Deferred Compensation Plan;
3. To ratify the appointment of Arthur Andersen LLP as
independent auditors for the year 1996; and
4. To transact any other business which may properly come
before the meeting.
Only shareholders of record at the close of business on
December 15, 1995 will be entitled to notice of and to vote at
the meeting or any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the
Board of Directors,
/s/ Mary J. Healey
Mary J. Healey
Vice President, General
Counsel and Secretary
<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 23, 1996 and at any
adjournment(s) thereof (the "1996 Annual Meeting") for the
purposes set forth in the accompanying Notice of Annual Meeting
of Shareholders (the "Notice"). This Proxy Statement, the
Notice, the related proxy card and the 1995 Annual Report to
Shareholders are being mailed to shareholders beginning on or
about January 5, 1996. Yankee Energy's principal place of
business is 599 Research Parkway, Meriden, Connecticut 06450-
1030.
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 for
the election of directors and in favor of the other proposals set
forth in the Notice. The proxy card also confers discretionary
authority on the proxies to vote on any other matter not
currently 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
1996 Annual Meeting.
VOTING STOCK
- - -------------
The record date for the determination of shareholders
entitled to notice of and to vote at the 1996 Annual Meeting was
the close of business on December 15, 1995. On such date there
were 10,403,686 shares of Common Stock outstanding and entitled
to vote. Each share of Common Stock is entitled to one vote.
1
<PAGE>
The presence, in person or by proxy, of holders of a majority of
the outstanding shares of Common Stock entitled to vote shall
constitute a quorum at the 1996 Annual Meeting. Votes will be
totaled at the 1996 Annual Meeting by two inspectors of election
appointed by the Board.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
- - ---------------------------------------
The following table sets forth certain information with
respect to the beneficial ownership of the Common Stock of the
Company as of November 30, 1995 by (i) each director and nominee
for director of the Company, (ii) each executive officer named in
the Summary Compensation Table, and (iii) all directors and
executive officers as a group. Except as indicated by footnote,
the persons named in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by
them.
<TABLE>
<CAPTION>
<S> <C>
Name of Shares Beneficially
Beneficial Owner Owned (1)
- - ----------------- ------------
Philip T. Ashton(2) 17,467
Michael E. Bielonko(3) 3,815
Sanford Cloud, Jr. 320
Charles E. Gooley(4) 3,611
Mary J. Healey(5) 2,194
Thomas J. Houde(6) 2,693
Eileen S. Kraus 2,586
Frederick M. Lowther(7) 3,576
Thomas H. O'Brien(8) 3,930
Leonard A. O'Connor 3,331
Emery G. Olcott 4,136
Branko Terzic(9) 6,131
Nicholas L. Trivisonno(10) 3,644
Directors and Executive
Officers As a Group
(14 persons)(11) 59,085
</TABLE>
- - --------------------
(1) As of November 30, 1995, each of the directors and executive
officers identified above and all directors and executive
officers of the Company as a group beneficially owned less than
one percent of the outstanding Common Stock of the Company. The
number of shares shown includes 450 shares of restricted stock
held by Ms. Kraus, 300 shares of restricted stock held by each of
Messrs. Lowther, O'Connor and Olcott and 150 shares of restricted
stock held by each of Messrs. Cloud, O'Brien and Trivisonno
granted under the Company's Non-Employee Directors' Restricted
2
<PAGE>
Stock Plan, which shares had not vested by November 30, 1995.
The number of shares shown also includes 423 shares of restricted
stock held by Mr. Bielonko, 441 shares of restricted stock held
by Mr. Gooley, 545 shares of restricted stock held by Ms. Healey,
777 shares of restricted stock held by Mr. Houde and 3,600 shares
of restricted stock held by Mr. Terzic granted under the
Company's 1991 Long-Term Incentive Compensation Plan, which
shares had not vested by November 30, 1995. Pursuant to the
terms of each plan, such individuals have the power to vote and
receive dividends with respect to such shares but do not have
dispositive power with respect to such shares until such shares
are vested.
(2) Includes 850 shares owned by Mr. Ashton's spouse.
(3) Includes 150 shares owned by Mr. Bielonko's children and
1,200 shares subject to currently exercisable stock options.
(4) Includes 1,500 shares subject to currently exercisable stock
options.
(5) Includes 420 shares subject to currently exercisable stock
options.
(6) Includes 500 shares subject to currently exercisable stock
options.
(7) Includes 325 shares owned by Mr. Lowther's spouse.
(8) Includes 100 shares owned by Mr. O'Brien's spouse.
(9) Includes 2,000 shares subject to currently exercisable stock
options.
(10) Includes 3,494 shares held jointly with Mr. Trivisonno's
spouse, with whom he shares voting and investment power.
(11) Includes an aggregate of 8,070 shares of non-vested
restricted stock held by directors and executive officers and an
aggregate of 6,000 shares subject to currently exercisable stock
options held by executive officers.
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's executive officers and directors
and persons who beneficially own more than ten percent of the
Common Stock of the Company to file reports of ownership and
changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Based solely on reports and
other information submitted by the executive officers and
directors, the Company believes that during the fiscal year ended
September 30, 1995, all such reports were timely filed except for
one Form 3 each for Sanford Cloud, Jr. and Ellen J. Quinn which
3
<PAGE>
were filed late and one Form 5 for each of the following
individuals were filed late with respect to the number of
transactions following each named individual: Philip T. Ashton
(2); Sanford Cloud, Jr. (2); Charles E. Gooley (14); Mary J.
Healey (14); Thomas J. Houde (14); Thomas H. O'Brien (3); Ellen
J. Quinn (2); Nicholas A. Rinaldi (14); Sarah K. Sanders (14) and
Branko Terzic (14). Almost all of these transactions involved
non-volitional acquisitions pursuant to the Company's various
employee benefit plans.
1. ELECTION OF DIRECTORS
---------------------
The Company's Restated Certificate of Incorporation provides
that the directors of the Company shall be divided into three
classes, as nearly equal in number as possible, with each class
having a three-year term. The Board, pursuant to the Company's
Restated Certificate of Incorporation, has fixed the number of
directorships at nine. The Board has nominated Sanford Cloud,
Jr. and Nicholas L. Trivisonno for election to serve as directors
of the Company until the 1999 Annual Meeting of Shareholders of
the Company and until their successors are elected and qualified.
Each nominee is currently a director of the Company. In the
event either of the nominees becomes unavailable for election to
the Board, an event which the Board does not expect, the shares
represented by a proxy may be voted for a substitute nominee to
be designated by the Board or a committee thereof, unless the
proxy withholds authority to vote for all nominees.
Mr. Thomas H. O'Brien has completed his term as director and
will not be standing for reelection at the 1996 Annual Meeting.
Mr. O'Brien has served the Company as a director since 1990 and
has served as Chairman of the Finance Committee and as a member
of the Long-Range Planning Committee and the Committee on
Directors. His friends and colleagues on the Board and at the
Company thank him for his many contributions to the Company and
wish him well in the years to come.
Effective August 1, 1995, Mr. Philip T. Ashton, who had
served as a director of the Company since its formation in 1989
and as Chairman since February 1994, resigned as Chairman and a
director pursuant to Board policy in order to run for the Office
of Mayor of the City of Meriden, Connecticut. Mr. Ashton
previously retired as Chief Executive Officer of the Company
effective March 1, 1995. Mr. Ashton's friends and colleagues on
the Board and at the Company again wish to express their
appreciation for his years of service to the Company and wish him
success in future endeavors.
If a quorum is present at the 1996 Annual Meeting, the
election of directors will require the affirmative vote of a
majority of the shares of Common Stock of the Company present in
4
<PAGE>
person or represented by proxy and entitled to vote. Abstentions
by holders of such shares will have the effect of a vote against
the Board's nominees. Broker non-votes, however, will not have
any effect.
The following information relates to the nominees named
above and to the other directors of the Company whose terms will
continue after the 1996 Annual Meeting.
<TABLE>
<CAPTION>
NOMINEES FOR TERMS EXPIRING IN 1999
<S> <C>
Principal Occupation and
Other Information
-------------------------
Sanford Cloud, Jr. President and Chief Executive Officer of
Age 51 The National Conference of Christians
Director since 1995 and Jews, New York, NY since April 1994.
Previously, he was a partner in the law
firm of Robinson & Cole, Hartford, CT
from January 1993 until March 1994 and
Vice President of Aetna Life and
Casualty Co. from December 1986 until
December 1992. Mr. Cloud is a director
of The Advest Group, Inc. He also
serves as Chairman of the Board of The
Christians and Jews of Connecticut.
- - -----------------------------------------------------------------
Nicholas L. Trivisonno Executive Vice President of Finance and
Age 48 Chief Financial Officer of The Dun and
Director since 1990 Bradstreet Corporation since September
1995. From October 1993 until July
1995, he served as Executive Vice
President-Strategic Planning and Group
President of GTE Corp., and served as
Senior Vice President-Finance from 1989
until October 1993. He is a director of
Rayonier Incorporated. He also serves
on the Boards of Junior Achievement and
St. Joseph's Medical Center, and is a
trustee and corporation member of Babson
College.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THESE NOMINEES
-----------
5
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
OTHER DIRECTORS
- - ---------------
<S> <C>
Terms Expiring Principal Occupation and
in 1997: Other Information
- - -------------- ------------------------
Frederick M. Lowther Partner in the law firm of Dickstein,
Age 52 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 69 Consultant of Yankee Energy System, Inc.
Director since 1989 and its subsidiaries from July 1990
to July 1991 and Vice President and
Chief Financial Officer from July
1989 to July 1990. From 1988 to June
1989, he was Vice President, Finance
and Accounting (Gas) of Northeast
Utilities Service Company.
- - -----------------------------------------------------------------
Emery G. Olcott President and Chief Executive Officer of
Age 57 Canberra Industries, Inc., Meriden, CT
Director since 1989 (manufacturer and distributor of
analytical instruments and chemicals) and
its wholly-owned subsidiary, Packard
Instrument Co., since 1971. He is a
director of North Castle Partners,
Stamford, CT and Ecoair, Inc., North
Haven, CT and a trustee of the Loomis
Chaffee School in Windsor, CT.
- - -----------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
OTHER DIRECTORS
- - ---------------
<S> <C>
Terms Expiring Principal Occupation and
in 1998: Other Information
- - -------------- -------------------------
Eileen S. Kraus Chairman, Fleet Bank, N.A.
Age 57 (Connecticut) since December 1, 1995.
Director since 1990 Previously, she was President of Shawmut
Bank of Connecticut, N.A. and Vice
Chairman of Shawmut National
Corporation from September 1992 until
December 1, 1995, Vice Chairman,
Consumer Banking and Marketing Groups of
The Connecticut National Bank and
Shawmut Bank, N.A. from 1990 until 1992
and Executive Vice President, Consumer
Banking and Marketing Groups of The
Connecticut National Bank and Shawmut
Bank, N.A., from 1988 to 1990. She is a
director of CPC International, Kaman
Corporation and The Stanley Works. She
is also a trustee and executive
committee member of Trinity College and
Kingswood-Oxford School, vice president
of Horace Bushnell Memorial Hall, and a
director and executive committee member
of the Connecticut Business and Industry
Association.
- - -----------------------------------------------------------------
Branko Terzic Chairman, President and Chief Executive
Age 48 Officer of Yankee Energy System, Inc.
Director since 1994 and its subsidiaries. Mr. Terzic became
Chairman in August 1995, Chief Executive
Officer in March 1995 and President in
September 1994. He was also Chief
Operating Officer from September 1994
to March 1995. From June 1993 to
September 1994, Mr. Terzic was Managing
Director of Arthur Andersen Economic
Consulting, Washington, D.C. From
October 1990 to May 1993, he served as a
Commissioner of the Federal Energy
Regulatory Commission.
</TABLE>
7
<PAGE>
Board Committees and Meetings
- - -----------------------------
Standing committees of the Board include the Executive
Committee, the Audit Committee, the Finance Committee, the
Organization and Compensation Committee and the Committee on
Directors.
The Executive Committee is currently composed of Branko
Terzic (Chairperson), Emery G. Olcott and Nicholas L. Trivisonno.
The Executive Committee has the full power and authority of the
Board in the management and control of the business of the
Company between meetings of the Board. The Executive Committee
did not meet during fiscal 1995.
The Audit Committee is currently composed of Nicholas L.
Trivisonno (Chairperson), Sanford Cloud, Jr., Eileen S. Kraus and
Leonard A. O'Connor. The Audit Committee oversees the Company's
internal accounting controls, recommends to the Board the
appointment of a firm of certified public accountants to conduct
the annual audit of the Company's financial statements, reviews
reports from the independent auditors and makes such
recommendations to the Board as it deems appropriate. The Audit
Committee met three times during fiscal 1995.
The Finance Committee is currently composed of Thomas H.
O'Brien (Chairperson), Sanford Cloud, Jr., Leonard A. O'Connor
and Nicholas L. Trivisonno. The Finance Committee met five times
during fiscal 1995 to review the financial plans and budgets of
the Company in order to determine whether they are fiscally sound
and consistent with the Company's overall business goals.
The Organization and Compensation Committee is currently
composed of Emery G. Olcott (Chairperson), Eileen S. Kraus and
Frederick M. Lowther. The Organization and Compensation
Committee is responsible for organization, succession and
executive compensation and administers the Company's Annual and
Long-Term Incentive Compensation Plans and the Non-Employee
Directors' Restricted Stock Plan. The Organization and
Compensation Committee met seven times during fiscal 1995.
The Committee on Directors is currently composed of Eileen
S. Kraus (Chairperson), Frederick M. Lowther, Thomas H. O'Brien
and Emery G. Olcott. The Committee on Directors recommends to
the Board criteria for the selection of candidates for director,
evaluates candidates and recommends nominees to fill vacancies on
the Board and seeks input from all non-employee directors on CEO
performance which forms the basis for a report to the
Organization and Compensation Committee on CEO performance and a
recommendation to the Board. The Committee on Directors also
reviews and makes recommendations to the Board on the
compensation program for all non-employee directors. The
8
<PAGE>
Committee on Directors will consider nominees for directors
recommended by shareholders holding at least five percent of the
voting power of the issued and outstanding Common Stock of the
Company if a written notice setting forth (i) the name, age,
business address and residence address of each person to be
nominated, (ii) the principal occupation or employment of each
such person, (iii) the number of shares of capital stock of the
Company which are beneficially owned by each such person, (iv) a
statement that each such person is willing to be nominated and
(v) such other information concerning each such person as would
be required under the rules of the Securities and Exchange
Commission to be included in a proxy statement soliciting proxies
for the election of such person as a director is submitted and
received by the Secretary of the Company not less than 90 days
prior to a meeting of shareholders called for election of
directors. The Committee on Directors met four times during
fiscal 1995.
The Board held eleven meetings during the fiscal year ended
September 30, 1995. Each director attended at least 75% of the
aggregate of (i) the total number of meetings of the Board, and
(ii) the total number of meetings held by all committees of the
Board on which such director served.
Director Compensation
- - ---------------------
Non-employee directors receive an annual retainer of $9,000,
a portion of which is paid in Common Stock of the Company as
described below. Chairpersons of Board committees receive an
additional annual retainer of $1,500. Non-employee directors
also receive $700 for each Board and committee meeting attended.
Committee chairpersons receive $800 for each Board committee
meeting attended. In addition, Mr. Ashton was paid $7,133 for
his services as Chairman of the Board from February through July
1995. Directors who are full-time employees of the Company or a
subsidiary receive no additional compensation for services as a
member of the Board or any committee of the Board.
A part of each non-employee director's annual retainer is
paid in shares of Common Stock of the Company 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
June, September and December meeting. In 1995, each non-employee
director received 168 shares of Common Stock of the Company based
on a fair market value of $21.50 per share on the date of
purchase.
9
<PAGE>
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 are subject
to the plan's provisions on forfeiture and restrictions on
disposition. In February 1995, Ms. Kraus received 450 shares
upon election to a three-year term, and 150 shares vested for all
non-employee directors upon completion of a year of their
respective terms.
In addition, the Company is presenting for approval by
shareholders a Non-Employee Director Deferred Compensation Plan
which is described under Item 2 beginning on page 21.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
- - -----------------------------------------------------------
The Organization and Compensation Committee of the Board
(the "Committee"), which is comprised of three non-employee
directors, is responsible for recommending to the Board the
Company's executive compensation policies and the annual
compensation of the Company's executive officers and other
members of senior management. In connection with these
responsibilities, the Committee has exclusive authority to
administer the Company's Long-Term Incentive Compensation Plan,
including the grant of stock options and other awards, and
oversees the Non-Employee Directors' Restricted Stock Plan.
Executive Compensation Policies
- - -------------------------------
The Company's executive compensation policies are designed
to attract and retain high quality executives critical to the
long-term success of the Company, motivate and reward achievement
of performance goals and to align the interest of executive
officers with the interest of the Company's other shareholders.
Consistent with this philosophy, the Company has established a
competitive and appropriate total compensation package for
executive officers and other members of senior management
consisting primarily of base salary, annual cash bonus pursuant
to the Company's Annual Incentive Compensation Plan and stock
options, restricted stock grants and stock appreciation rights
10
<PAGE>
pursuant to the Company's Long-Term Incentive Compensation Plan.
Executive officers' salaries are positioned to be consistent with
the competitive practice of a peer group (the "Peer Group") of
investor-owned gas utilities located throughout the United States
with annual revenues and operating characteristics similar to
Yankee Gas Services Company, the Company's principal operating
subsidiary. The Company's incentive plans are designed so that
the total executive compensation package is competitive with the
Peer Group. The Board intends to generally ensure that
compensation expenses are deductible under Section 162(m) of the
Internal Revenue Code. Section 162(m) generally disallows a tax
deduction for public companies for compensation, other than
qualifying performance-based compensation, over $1 million paid
to certain executive officers.
Elements of Executive Compensation
- - ----------------------------------
Base Salary. The Company maintains formal salary grades and
ranges for its executive officers. Positions are graded based
upon responsibility level. Salary ranges at each position are
established at the market average of the Peer Group. In 1995,
salary increases were determined based on individual performance,
the location of the individual's salary in the position's salary
range and a competitive increase budget.
Annual Incentive Compensation Plan. Executive officers are
eligible to receive an annual performance-based cash award
pursuant to the Company's Annual Incentive Compensation Plan.
The Board established this plan to enhance the Company's
financial and operating performance, customer service, employee
safety and corporate efficiency. Each year, the Committee
establishes corporate and individual performance goals for the
Chief Executive Officer ("CEO") and other executive officers
based upon strategic priorities. The 1995 performance goals were
based on customer service satisfaction, profitability and
enhancement of shareholder value, expansion of markets and market
growth, and public and employee safety. The goals are weighted
relative to their importance to the Company and the relative
impact each executive officer will have upon their results. Each
executive has a threshold, target and maximum incentive amount
expressed as a percentage of base salary. In 1995, these amounts
were 15 percent, 30 percent and 45 percent, respectively, of base
salary for the CEO, and 10 percent, 20 percent and 30 percent,
respectively, for the other executive officers. The Committee
may adjust the incentive cash award amount by an index or
"modifier" determined by the Committee. The modifier is based on
the Company's actual profit performance and serves to maintain a
correlation between an executive officer's incentive cash award
and the returns realized by the Company's shareholders. The
index may modify award amounts by as much as 50%. In 1995,
incentive cash awards were reduced by 20% to reflect the
11
<PAGE>
modifier. The plan is intended to pay fully competitive annual
cash compensation when performance against goals matches the
target level.
At the end of each fiscal year, the Committee reviews a
management report on results versus goals and meets with the CEO
to evaluate the performance of the other executive officers. The
Committee also meets in the absence of the CEO to evaluate his
performance. As part of the process, beginning this year, the
Committee receives a report from the Committee on Directors on
CEO performance which is developed from input received from all
non-employee directors. This performance, expressed as a
percentage with attainment of all goals rated as 100 percent,
determines annual cash bonus amounts. The Committee has the
authority to modify the mechanical results of applying the terms
of the plan when the Committee, exercising sound business
judgment, deems it prudent to do so.
Long-Term Incentive Compensation Plan. Pursuant to the
terms of the Long-Term Incentive Compensation Plan, the Committee
has the authority to award to executive officers and other key
employees restricted stock, stock options and stock appreciation
rights. The ability to grant a variety of awards enables the
Committee to respond to changing strategic, competitive,
regulatory, tax and accounting forces in an efficient manner.
Over time and through the use of the grant of awards, the
Committee intends to achieve the objective of causing the
executive officers and other senior management to be significant
shareholders of the Company so that their interests are aligned
with the interests of the Company's other shareholders.
In prior years, the Committee has made awards of non-
qualified stock options and restricted stock to executive
officers and senior management and intends to make additional
awards in the future. Stock options are granted at market price,
and as a result, the value of such options is wholly dependent
upon an increase in the Company's stock price. Stock options,
therefore, provide executive officers additional performance
incentives. Shares of restricted stock granted under the plan
vest in varying percentages over five years from the date of
grant. The Committee did not make any awards under the plan to
executive officers in 1995.
CEO Compensation
- - ----------------
The 1995 compensation for Mr. Terzic, the Company's CEO, was
determined substantially in conformance with the policies applied
to all other executive officers of the Company. Beginning this
year, however, the Committee receives a report on CEO performance
from the Committee on Directors which is based on input from all
non-employee directors. The Committee then evaluates the
12
<PAGE>
performance of the CEO and reports its compensation
recommendation to the Board. For 1995, the base salary of Mr.
Terzic was established by an employment agreement he entered into
upon joining the Company in September 1994. Incentive cash
compensation for Mr. Terzic was based on performance against a
series of five stated goals, reflecting a combination of both
corporate and individual objectives. The five goals, in summary,
were (i) enhance Company stock performance relative to the Peer
Group; (ii) develop and implement a strategic corporate business
development plan; (iii) implement the Company's business
transformation project; (iv) improve marketing and initiatives;
and (v) identify, energize and exercise leadership for the new
management team. The Committee on Directors reported to the
Committee the views of the five non-employee directors not on the
Committee that Mr. Terzic had achieved either target or maximum
levels for all his goals. The Committee concurred in that
assessment and quantified Mr. Terzic's goal related performance
at 115% of target. Mr. Terzic's incentive cash award of $72,500
was derived by applying a factor of 1.15 times Mr. Terzic's
target bonus of 30% of base pay, which was then reduced by 20% to
reflect the modifier for overall Company performance.
EMERY G. OLCOTT (Chairman)
EILEEN S. KRAUS
FREDERICK M. LOWTHER
EXECUTIVE COMPENSATION
- - ----------------------
Summary Compensation Table
- - --------------------------
The following table sets forth certain information regarding
the compensation paid by the Company and its subsidiaries to the
five most highly compensated executive officers of the Company at
the end of the last fiscal year and one other individual who
served as Chief Executive Officer of the Company during the last
fiscal year for services rendered in all capacities to the
Company and its subsidiaries.
13
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-----------------------
<S> <C> <C> <C>
Name and
Principal Fiscal
Position Year Salary($) Bonus($)
- - ------------- ----- --------- --------
Branko Terzic(3) 1995 257,292 72,500
Chairman, 1994 11,494 0
President and
Chief Executive
Officer
Charles E. Gooley(4) 1995 162,671 29,900
Executive 1994 143,500 36,000
Vice President 1993 129,167 32,000
Michael E. Bielonko 1995 133,708 21,900
Vice President 1994 127,125 30,000
and Chief 1993 118,750 30,000
Financial Officer
Mary J. Healey(5) 1995 107,850 12,200
Vice President, 1994 94,962 15,000
General Counsel 1993 89,933 0
and Secretary
Thomas J. Houde(6) 1995 100,958 17,100
Vice President 1994 99,583 22,000
1993 92,917 22,000
Philip T. Ashton(7) 1995 114,583 0
Former Chairman 1994 250,000 80,000
and Chief 1993 235,417 83,000
Executive Officer
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (continued)
Long Term Compensation
----------------------
Awards
----------------------
<S> <C> <C> <C>
Name and Restricted Securities
Principal Fiscal Stock Underlying
Position Year Awards($)(1) Options/SARs(#)
- - ------------- ------ --------- -------------
Branko Terzic(3) 1995 0 0
Chairman, 1994 83,880 10,000
President and
Chief Executive
Officer
Charles E. Gooley(4) 1995 0 0
Executive 1994 0 7,500
Vice President 1993 0 0
Michael E. Bielonko 1995 0 0
Vice President 1994 0 6,000
and Chief 1993 0 0
Financial Officer
Mary J. Healey(5) 1995 0 0
Vice President, 1994 0 2,100
General Counsel 1993 0 0
and Secretary
Thomas J. Houde(6) 1995 0 0
Vice President 1994 0 7,500
1993 0 0
Philip T. Ashton(7) 1995 0 18,000
Former Chairman 1994 0 18,000
and Chief 1993 0 0
Executive Officer
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (continued)
<S> <C> <C>
Name and
Principal Fiscal All Other
Position Year Compensation($)(2)
- - --------- ------ ----------------
Branko Terzic(3) 1995 0
Chairman, 1994 86,669
President and
Chief Executive
Officer
Charles E. Gooley(4) 1995 0
Executive 1994 1,980
Vice President 1993 3,379
Michael E. Bielonko 1995 0
Vice President 1994 1,980
and Chief 1993 2,739
Financial Officer
Mary J. Healey(5) 1995 1,200
Vice President, 1994 1,980
General Counsel 1993 1,323
and Secretary
Thomas J. Houde(6) 1995 0
Vice President 1994 1,980
1993 2,739
Philip T. Ashton(7) 1995 22,629
Former Chairman 1994 1,980
and Chief 1993 2,239
Executive Officer
</TABLE>
- - --------------------
(1) The amount shown represents the value of the restricted
stock award, calculated by multiplying the closing market price
of the Company's Common Stock on the date of grant by the number
of shares awarded. Restricted stock holdings as of September 29,
1995, and their value on such date, based on the value of an
equivalent number of unrestricted shares were: Mr. Terzic, 3,600
shares ($76,950); Mr. Gooley, 441 shares ($9,426); Mr. Bielonko,
423 shares ($9,042); Ms. Healey, 545 shares, ($11,649); and Mr.
Houde 777 shares ($16,608). The restrictions on these shares
lapse on an annual basis in accordance with the following
schedule: 10 percent in the first year, 15 percent in the second
year and 25 percent in each of the following three years.
Dividends are paid on these shares.
(2) This compensation includes the dollar value of the Company's
match under the Company's 401(k) Plan.
Mr. Terzic received a $25,000 signing bonus when he was
elected President and Chief Operating Officer in September 1994
and was paid $2,106 for per diem expenses and $59,563 for
residential relocation expenses.
In December 1994, Ms. Healey received a $1,200 payment in
lieu of participating in the Company's medical insurance plan.
Upon his retirement as Chief Executive Officer in March
1995, Mr. Ashton received a $22,629 payment for accrued but
unused vacation days.
In January 1993, the Board approved payments to the officers
for their efforts during the October 21, 1992 to January 4, 1993
work stoppage. Mr. Gooley received $1,500 and Messrs. Bielonko
and Houde and Ms. Healey each received $500.
(3) Mr. Terzic was elected President and Chief Operating Officer
as of September 15, 1994, Chief Executive Officer as of March 1,
1995 and Chairman as of August 22, 1995.
(4) Mr. Gooley was elected Executive Vice President as of July
1, 1994. Prior to that date, he served as Vice President and
General Counsel.
(5) Ms. Healey was elected Vice President, General Counsel and
Secretary as of January 1, 1995. Prior to that date, she served
as Secretary and Assistant General Counsel.
(6) Mr. Houde was elected Vice President as of January 1, 1992.
(7) Mr. Ashton retired as Chief Executive Officer as of
March 1, 1995 and resigned as Chairman as of August 1, 1995.
14
<PAGE>
SAR Grants in Last Fiscal Year
- - ------------------------------
The following table sets forth certain information with
respect to grants of Stock Appreciation Rights ("SARs") made to
the individuals named in the Summary Compensation Table during
the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
SAR GRANTS IN LAST FISCAL YEAR
------------------------------
Individual Grants
------------------------------------------------------
<S> <C> <C>
Number of Percent
Securities of Total
Underlying SARs Granted
SARs to Employees
Granted (#) in Fiscal Year
-------------------------------------------------------
Branko Terzic 0 -
Charles E. Gooley 0 -
Michael E. Bielonko 0 -
Mary J. Healey 0 -
Thomas J. Houde 0 -
Philip T. Ashton 18,000 100%
</TABLE>
<TABLE>
<CAPTION>
Individual Grants
------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Exercise Price Appreciation
or Base for SAR Term(1)
Price Expiration ---------------------
($/Sh) Date 5% 10%
-------------------------------------------------------
<S> <C> <C> <C> <C>
Branko Terzic - - - -
Charles E. Gooley - - - -
Michael E. Bielonko - - - -
Mary J. Healey - - - -
Thomas J. Houde - - - -
Philip T. Ashton $21.63 12/24/00 $107,567 $237,696
</TABLE>
- - -------------------
(1) The dollar amounts under these columns are the result of
calculations at the 5% and 10% rates set by the Securities and
Exchange Commission and, therefore, are not intended to forecast
any possible future appreciation, if any, of the Company's stock
price.
15
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-end Option/SAR Values
- - ---------------------------------------------------
The following table sets forth certain information with
respect to the individuals named in the Summary Compensation
Table regarding options and SARs held as of September 30, 1995.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
-------------------------------------------------
<S> <C> <C>
Shares Value
Acquired on Realized
Exercise (#) ($)
------------------------------------
Branko Terzic 0 0
Charles E. Gooley 0 0
Michael E. Bielonko 0 0
Mary J. Healey 0 0
Thomas J. Houde 0 0
Philip T. Ashton 0 0
</TABLE>
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying in-the-Money
Unexercised Options/SARs
Options/SARs at At Fiscal
Fiscal Year End (#) Year-End($)(1)
Exercisable/ Exercisable/
Unexercisable Unexercisable
------------------------------------------------------
<S> <C> <C>
Branko Terzic 2,000 / 8,000 0
Charles E. Gooley 1,500 / 6,000 0
Michael E. Bielonko 1,200 / 4,800 0
Mary J. Healey 420 / 1,680 0
Thomas J. Houde 500 / 2,000 0
Philip T. Ashton 0 / 18,000 0
</TABLE>
- - --------------------
(1) The fair market value of the Company's Common Stock as of
September 29, 1995 ($21.375) was less than or equal to the
exercise prices of the options and SARs.
16
<PAGE>
Executive Agreements
- - ---------------------
Effective September 14, 1994, the Company entered into an
employment agreement with Branko Terzic, the Company's Chairman,
President and Chief Executive Officer. The agreement provides
that Mr. Terzic shall receive a base salary of at least $250,000
a year. Pursuant to the terms of the agreement, Mr. Terzic has
received 4,000 shares of restricted Common Stock of the Company,
non-qualified stock options to purchase 10,000 shares of the
Company's Common Stock and a $25,000 signing bonus. In addition,
the agreement provides that if, after a "change in control" of
the Company, (i) Mr. Terzic terminates his employment with the
Company by reason of (a) a material reduction in his authority,
duties or responsibilities or (b) a reduction in his total
compensation in violation of the terms of the agreement, or (ii)
the Company terminates Mr. Terzic's employment for a reason other
than death or disability or cause, Mr. Terzic will be entitled to
a severance payment. The amount payable to Mr. Terzic upon the
occurrence of any of the foregoing events is equal to three times
Mr. Terzic's base salary then in effect. Such amount is
immediately due and payable upon his termination. A "change in
control" is deemed to have occurred if any person becomes the
beneficial owner, directly or indirectly, of 25% or more of the
Company's Common Stock or there is a change in the majority of
the members of the Board in connection with certain transactions,
including any tender offer or merger of the Company. The
agreement will be automatically renewed on each successive
January 1, unless not later than December 15 of the preceding
year, one of the parties notifies the other of the desire not to
extend the agreement.
The Company also has entered into Change in Control
Executive Severance Agreements with each of Messrs. Gooley,
Bielonko, Houde and Ms. Healey. The intent of the agreements is
to assure continuity in the management of the operations of the
Company in the event of a "change in control". A change in
control is defined as occurring when (i) any person becomes the
beneficial owner, directly or indirectly, of 25% or more of the
Company's Common Stock, (ii) there is a change in the majority of
the Board during a 25-month period, (iii) a consolidation or
merger of the Company is consummated in which the Company is not
the continuing or surviving corporation or pursuant to which the
Company's Common Stock would be converted into cash, securities
or other property, other than a merger of the Company in which
the holders of the Company's Common Stock have the same
17
<PAGE>
proportionate ownership of Common Stock of the surviving
corporation, (iv) the consummation of any sale, lease, exchange
or other transfer of a majority of the Company's assets, (v) the
Company's shareholders approve any plan or proposal for the
liquidation or dissolution of the Company, or (vi) the Board
determines that a change in control has occurred. These
agreements provide that in the event that the executive officer's
employment is terminated within two years of a change in control
either by (i) the Company for reasons other than for disability,
death or cause, or (ii) the executive officer due to (a) material
diminution in status, position, duties or responsibilities, (b) a
reduction in total compensation, or (c) assignment to a location
more than 50 miles from the executive officer's current place of
employment, the executive officer is entitled to a severance
payment. The amount payable upon the occurrence of any of the
foregoing events is two times the sum of the executive officer's
annual base salary at the date of the change in control plus the
average annual incentive compensation paid to the executive
officer in the two fiscal years prior to the fiscal year in which
the change in control occurs. In addition, the executive officer
shall be entitled to participate in all benefit plans in which
such officer participated in prior to the termination, and if the
executive officer is age 55 or older on the date of termination
of employment, such officer shall be entitled to receive service
credit under the Company's pension plans until his or her normal
retirement date. The agreements will be automatically renewed on
each successive January 1, unless not later than December 1 of
the preceding year, one of the parties notifies the other that he
or she does not wish to extend the agreement, except that the
agreement shall be automatically extended for 24 months after any
change in control.
Retirement Plans
- - ----------------
The following table sets forth the annual pension benefits
payable upon normal retirement at age 65, pursuant to the
Company's non-contributory, defined benefit retirement plan,
based upon the average annual earnings and years of service
indicated.
18
<PAGE>
<TABLE>
<CAPTION>
Average Annual Earnings
for the Highest Consecutive
60 Months of Last 120 Months
Prior to Normal Retirement Years of Service
- - --------------------------- ----------------------------------
15 20 25
-- -- --
<S> <C> <C> <C>
$ 75,000 $15,903 $21,204 $ 26,505
125,000 27,153 36,204 45,255
175,000 38,403 51,204 64,005
225,000 49,653 66,204 82,755
275,000 60,903 81,204 101,505
</TABLE>
<TABLE>
<CAPTION>
Average Annual Earnings
for the Highest Consecutive
60 Months of Last 120 Months
Prior to Normal Retirement Years of Service
- - --------------------------- ----------------------------------
30 35 40
-- -- --
<S> <C> <C> <C>
$ 75,000 $ 31,806 $ 37,107 $ 38,982
125,000 54,306 63,357 66,482
175,000 76,806 89,607 93,982
225,000 99,306 115,857 121,482
275,000 121,806 142,107 148,982
</TABLE>
- - -------------------------
Pursuant to provisions of the Internal Revenue Code,
compensation earned that is used in calculating retirement
benefits under the Yankee Energy System, Inc. Retirement Plan
(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
Plan, Supplemental Benefit Plan and Excess Benefit Plan, discussed
below) provide benefits not payable under the Retirement Plan due
to the $150,000 limitation. The maximum annual benefit that can
be paid in 1995 to a participant from a tax qualified benefit
plan is $120,000.00.
All employees of the Company, including the executive
officers named in the Summary Compensation Table, are entitled to
participate in the Retirement Plan, which is a non-contributory, defined
benefit retirement plan. Retirement benefits are based on years
of credited service and the employee's average annual earnings,
which is the average of an employee's five highest years of
earnings during the last ten years of employment. The benefits
presented are based on straight life annuity and do not take into
account any reduction for joint and survivorship annuity
payments. The Retirement 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 Retirement
Plan are not reduced by the employee's Social Security benefits.
Contributions, which are actuarially determined, are made to the
Retirement Plan by the Company for the benefit of all employees covered
19
<PAGE>
by the Retirement Plan. The Retirement Plan provides for continued benefit
accruals for employees who work beyond age 65.
As of September 30, 1995, the years of credited service
under the Retirement Plan for Messrs. Terzic, Gooley, Bielonko,
Houde and Ms. Healey were 2, 14, 18, 16 and 6, respectively. The
years of credited service for the executive officers named above
include prior service under the Northeast Utilities Service
Company Retirement Plan. Mr. Ashton retired on March 1, 1995
with 38 years of credited service.
Under federal law, an employee's benefits under a qualified
pension plan, such as the Retirement Plan, are limited to certain
amounts. The Company has adopted the Excess Benefit Plan ("EBP")
in which all of the executive officers named in the Summary
Compensation Table participate. The EBP supplements the benefits
of a participant in the Retirement Plan in an amount by which
such participant's benefits under the Retirement Plan are limited
by law. The EBP also provides for the payment of additional
retirement benefits in the same manner as under the Retirement
Plan on renumeration paid under certain management incentive
plans. The EBP is an unfunded plan that is not intended to meet
the qualification requirements of Section 401 of the Internal
Revenue Code.
In addition, the Company also has a Supplemental Executive
Retirement Plan 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. The Company also has
established a Supplemental Benefit Plan ("SBP") for the benefit
of Mr. Ashton. The SBP supplements the retirement benefits
payable to Mr. Ashton under the Retirement Plan and the EBP to
ensure that Mr. Ashton will receive a total monthly pension
benefit of $17,310.
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]
20
<PAGE>
<TABLE>
<CAPTION>
TOTAL SHAREHOLDER RETURNS
<S> <C> <C> <C>
FISCAL YANKEE S&P S&P
YEAR ENERGY 500 UTILITIES
- - ------ ------ ---- ---------
1990 100 100 100
1991 143 131 109
1992 182 146 127
1993 250 164 161
1994 214 171 133
1995 225 221 161
</TABLE>
2. APPROVAL OF NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
------------------------------------------------------------
On December 7, 1995 the Board adopted the Yankee Energy
System, Inc. Non-Employee Director Deferred Compensation Plan
(the "Plan"), subject to approval by the Company's shareholders
at the 1996 Annual Meeting. Such approval will require the
affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote.
Abstentions by holders of such shares will have the effect of a
vote against the Plan. Broker non-votes, however, will not have
any effect.
The following constitutes a brief description of the Plan
and is qualified by reference to the complete text of the Plan
which is set forth in Exhibit A to this Proxy Statement.
Purpose
- - -------
The purpose of the Plan is to aid the Company in attracting
and retaining non-employee directors capable of furthering the
future success of the Company and to further align their
interests with the Company's other shareholders by increasing
their proprietary interest in the Company.
Effective Date
- - --------------
The Plan became effective upon adoption by the Board,
subject to approval by the shareholders at the 1996 Annual
Meeting.
Participants
- - ------------
Each member of the Board who is not an employee of the
Company or any subsidiary of the Company is eligible.
21
<PAGE>
Deferred Compensation
- - ---------------------
The terms of the Plan permit a non-employee director to
defer all or a portion of total fees for all services as a
director which would otherwise be payable by the Company,
including stock retainers and restricted stock awards. The Plan
does not grant any additional compensation for the non-employee
directors but rather provides them with additional flexibility
regarding the timing and form of payment regarding compensation
to which they are already entitled. At the election of the
participant, deferred compensation will be credited to the
account of the participant in either cash or stock units. If a
participant elects to defer compensation to his or her account in
cash, the participant's account will be credited on a monthly
basis with interest at an annual rate equal to Yankee Gas
Services Company's rate of return on rate base for the average
rolling 12 month period, as filed with the Connecticut Department
of Public Utility Control. This interest factor specifically
aligns the directors' interests with the Company's performance
and provides them with added incentive to provide excellent
service in furtherance of the Company's best interests. If a
participant elects to defer compensation to his or her account in
stock units, the participant's account will be credited initially
as a dollar amount which shall be converted into stock units on a
quarterly basis by dividing the dollar amount by the last
reported sales price per share of the Company's Common Stock on
the New York Stock Exchange on the last trading day of each
quarter. Stock units previously credited to a participant's
account are further credited with an amount equal to the
dividends which would have been paid if the stock represented had
been outstanding. The Plan further provides that stock units
credited to a participant's account are subject to equitable
adjustment in the case of reorganization, recapitalization, stock
dividend or stock split. These stock units will further align
the interests of non-employee directors with the Company's
shareholders.
Payment of Benefits
- - -------------------
A participant may elect to receive payment on deferred
compensation at a specified future date or after the date on
which the participant ceases to be a director for any reason.
Benefits under the Plan are payable to the participant or to his
or her beneficiary over periods ranging from a single lump sum to
a fixed period of years at the participant's option. Accounts
credited to a participant in cash are distributed in cash.
Accounts credited in stock units are distributed in cash or
shares of the Company's Common Stock based on the election of the
participant at the time he or she elected to defer compensation
pursuant to the Plan. Any shares of stock so delivered may be
22
<PAGE>
previously issued and reacquired by the Company or authorized but
unissued shares.
Administration
- - --------------
The Plan will be administered by the Organization and
Compensation Committee of the Board.
Amendment
- - ---------
The Plan may be amended or terminated by the Board, except
that shareholder approval of such action would be required if
necessary in order to ensure compliance with Rule 16b-3 under the
Securities and Exchange Act of 1934, as amended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL
-----------
3. 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,
1995. Pursuant to the recommendation of the Audit Committee, the
Board has appointed that firm to continue in that capacity for
the fiscal year 1996, and recommends that a resolution be
presented to shareholders at the 1996 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 1996 Annual Meeting. They will have
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 1996 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 1996 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.
23
<PAGE>
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 for these services.
SHAREHOLDER PROPOSALS FOR 1997
- - ------------------------------
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 9, 1996 to be considered. Proposals should
be addressed to Mary J. Healey, Vice President, General Counsel
and Secretary, Yankee Energy System, Inc., 599 Research Parkway,
Meriden, CT 06450-1030.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
24
<PAGE>
APPENDIX
---------
Shown on pages 5 through 7 are photographs of the Yankee
Energy directors.
The graph on page 21 specifically shows the growth in a $100
initial investment in Yankee Energy, the S&P 500 and the S&P
Utilities from fiscal years 1990 through 1995. Year-end values
are shown for each investment in the corresponding table
underneath the graph. For the five years ended September 30,
1995, a $100 investment in Yankee Energy grew to $225; a $100
investment in the S&P 500 grew to $221; and a $100 investment in
the S&P Utilities grew to $161.
Shown on the last page is a map which provides directions to
the location of the Company's Annual Meeting.
25
<PAGE>
PROXY YANKEE ENERGY SYSTEM, INC. PROXY
Proxy for Annual Meeting of Shareholders--February 23, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Eileen S. Kraus and Branko
Terzic or either 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 23, 1996 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,
2 AND 3.
(Continued on reverse side)
<PAGE>
The Board of Directors recommends a Vote FOR Proposals 1, 2 & 3.
I plan to attend the meeting
- - -----
1. Election of Directors: SANFORD CLOUD, JR. and NICHOLAS L.
TRIVISONNO
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. Approval of the Non-Employee Director Deferred Compensation
Plan.
FOR AGAINST ABSTAIN
---- ------- -------
3. Ratification of Arthur Andersen LLP as independent auditors
of Yankee Energy System, Inc. for its fiscal year ended
September 30, 1996.
FOR AGAINST ABSTAIN
---- ------- -------
The undersigned hereby also
acknowledge(s) receipt of
notice of said meeting and the
related proxy statement.
If you receive more than
one copy of the annual Date:___________________,1996
report and do not wish to
a copy for this account Signed_______________________
in the future, please
check this box _________. 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.
<PAGE>
EXHIBIT A
YANKEE ENERGY SYSTEM, INC. NON-EMPLOYEE DIRECTOR
DEFERRED COMPENSATION PLAN
PREAMBLE
WHEREAS, Yankee Energy System, Inc. (the "Company") desires to
establish an unfunded plan for the deferral of Fees and
Restricted Stock for non-employee directors; and
WHEREAS, the Company recognizes the unique qualifications of its
key directors and the valuable services that they have provided
to or for the Company;
NOW, THEREFORE, the Company hereby establishes the Yankee Energy
System, Inc. Non-Employee Director Deferred Compensation Plan
(the "Plan") as hereinafter provided:
ARTICLE I
GENERAL
Section 1.1 Effective Date. The provisions of the Plan shall be
effective as of the date on which the Plan is adopted by the
Board of Directors of the Company, subject to the approval of the
Plan by the holders of a majority of the shares of Common Stock
present or represented and entitled to vote at the annual meeting
of the Company's shareholders to be held on February 23, 1996 or
at any adjournment thereof. The rights, if any, of any person who
is no longer a Director of the Company shall be determined
pursuant to the Plan as in effect on the date such Director
terminated, unless a subsequently adopted provision of the Plan
is made specifically applicable to such person.
Section 1.2 Purpose. The purpose of the Plan is to aid the
Company in attracting and retaining Non-Employee Directors
capable of furthering the future success of the Company and to
further align their interests with the Company's other
shareholders by increasing their proprietary interest in the
Company.
Section 1.3 Participation. All Non-Employee Directors shall be
eligible to participate in the Plan.
Section 1.4 Plan Not Funded. The obligation of the Company to
make payments under this Plan constitutes nothing more than an
unsecured promise of the Company to make such payments. More
specifically, until benefits are distributed in accordance with
Article V herein, all amounts of Fees and Restricted Stock
1
<PAGE>
deferred under the Plan, all property and rights purchased with
such amounts, and all income attributed to such amounts,
property, or rights shall remain solely the property and rights
of the Company subject only to claims of the Company's general
creditors.
ARTICLE II
DEFINITIONS AND USAGE
Section 2.1 Definitions. Wherever used in the Plan, the
following words and phrases shall have the meaning set forth
below unless the context plainly requires a different meaning:
- - - "Account" means the account established on behalf of the
Participant as described in Section 4.1.
- - - "Change in Control" means:
(a) A change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A as in effect on the date hereof pursuant to the
Securities Exchange Act of 1934, as amended, herein referred to
as the "Exchange Act"; provided that, without limitation, such a
change in control shall be deemed to have occurred at such time
as any Person hereafter becomes the "Beneficial Owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 25 percent or more of the combined voting power of
the Company's Voting Securities. As used herein, "Person" means
any individual, corporation, partnership, group, association, or
other "person" as such term is used in Section 14(d) of the
Exchange Act, other than the Company, Yankee Gas Services Company
or any employee benefit plan or plans sponsored by either, and "Voting
Securities" means the Company's issued and outstanding securities
ordinarily having the right to vote at elections of the Board of
Directors of the Company.
(b) The occurrence of a change during any 25 consecutive
calendar months in the composition of the Board of Directors so
that the Continuing Directors (as hereafter defined) cease for
any reason to constitute a majority of the Board of Directors. As
used herein, "Continuing Directors" means the individuals who
were directors at the beginning of the 25-month period or whose
nomination for election or appointment to the Board of Directors
was approved by a vote of at least a majority of the then
Continuing Directors; or
c) There shall be consummated (i) any consolidation or
merger of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which Voting Securities
(other than fractional shares) would be converted into cash,
securities, or other property, other than a merger of the Company
in which the holders of Voting Securities immediately prior to
the merger have the same proportionate ownership of common stock
of the surviving corporation immediately after the merger, (ii)
any sale, lease, exchange, or other transfer (in one transaction
or series of related transactions) of a majority (by value) of
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the assets of the Company, provided that any such consolidation,
merger, sale, lease, exchange, or other transfer consummated at
the insistence of an appropriate public utility regulatory agency
shall not constitute a change in control; or
(d) Approval by the shareholders of the Company of any plan
or proposal for the liquidation or dissolution of the Company; or
(e) Determination by the Board of Directors that a change
in control has occurred for purposes of this Plan.
- - - "Code" means the Internal Revenue Service Code of 1986, as
amended from time to time.
- - - "Committee" means the Organization and Compensation
Committee of the Board of Directors.
- - - "Common Stock" means the Common Stock, $5.00 par value per
share, of the Company.
- - - "Deferral Agreement" means an agreement between the Company
and a Participant to defer Fees and Restricted Stock, which is
executed pursuant to Section 3.1.
- - - "Director" means a member of the Board of Directors of the
Company.
- - - "Disability" means, as determined by a licensed physician
chosen by the Committee, permanent and total disability, mental
or physical, which prevents a Participant from discharging the
duties and obligations of a Director or from otherwise providing
the services for which Fees are paid by the Company.
- - - "Fees" means the total fees paid to a Director for service
on the Board of Directors of the Company including board
retainers, meeting fees, chair retainers, quarterly retainers
paid in the form of Common Stock and committee fees.
- - - "Interest Factor" means the annual rate of interest
applicable for each month during the deferral period based upon
100% of the rate of Return on Rate Base for the average rolling
12 month period, as filed on a monthly basis with the Connecticut
Department of Public Utility Control. The Interest Factor for
each month shall be credited as of the last day of each such
month and shall be compounded monthly.
- - - "Non-Employee Director" means a Director who is not an
employee of the Company or any subsidiary thereof.
- - - "Participant" means any Non-Employee Director who has
executed a Deferral Agreement as described in Article III.
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- - - "Plan Year" means the twelve month period ended December 31.
- - - "Restricted Stock" means restricted shares of the Company's
Common Stock awarded under the terms of the Non-Employee
Directors' Restricted Stock Plan, established by the Company in
1991.
- - - "Retirement" means the date of a Participant's actual
retirement as a Director.
Section 2.2 Usage. Except where otherwise indicated by the
context, any masculine terminology used herein shall also
included the feminine and vice versa, and the definition of any
term herein in the singular shall also included the plural and
vice versa.
ARTICLE III
ELECTIONS
Section 3.1 Election to Defer Fees. Each Non-Employee Director
shall be permitted to elect to defer all or a portion of his Fees
for a Plan Year which would otherwise be payable by the Company,
by executing an irrevocable agreement to defer the receipt of
such Fees until the commencement of benefits in accordance with
Section 5.2. Such election must be made by the Director prior to
the first day of each Plan Year and shall apply only with respect
to Fees received for services performed as a Director for the
Company after the election is made. Any Fees deferred under this
Section 3.1 as well as any earnings attributable thereto shall be
paid to each Participant in accordance with Section 5.2.
Section 3.2 Election to Defer Restricted Stock. Each Non-
Employee Director shall be permitted to elect to defer all or a
portion of the Restricted Stock awarded to him in consideration
for his services as a Director, by executing an irrevocable
agreement to defer the receipt of the restricted stock until the
commencement of benefits in accordance with Section 5.2. Such
election must be made by the Director prior to the first day of
the Plan Year in which the Restricted Stock becomes vested. Any
Restricted Stock deferred under this Section 3.2 shall be paid to
the Director in accordance with Section 5.2.
Section 3.3 Election Procedure. Any election to defer Fees and
Restricted Stock under Sections 3.1 and 3.2 shall be made by
executing a Deferral Agreement.
ARTICLE IV
PARTICIPANTS' ACCOUNTS
Section 4.1 Establishment of Account. The Company will establish
and maintain Accounts for each Participant with respect to each
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Deferral Agreement made pursuant to Article III by the
Participant. Each Account shall initially contain zero dollars
($0).
Section 4.2 Credits to the Accounts. Each Participant's Account
will be credited for the amount each Participant agrees to defer
pursuant to Article III and the Deferral Agreement. Deferred Fees
will be credited as a dollar amount to the Participant's Account
on the date they would otherwise be payable. All amounts credited
to each Account are credited solely for accounting and
computation purposes. The amounts credited to the Accounts are at
all times the assets of the Company subject to the claims of the
Company's general creditors. Participants shall not have any
right to receive any current or accumulated deferred Fees or
earnings until such time as determined under Article V of this
Plan. To the extent that any person, including a Participant,
acquires a right to receive payments from the Company under the
Plan such right shall be no greater than the right of any
unsecured general creditor of the Company. Furthermore, such
right may not be pledged, transferred or assigned in whole or in
part.
Section 4.3 Determination of Account Value. Each Participant may
elect one of the following options with respect to crediting of
earnings on his Account:
Option A: If this option is selected, the Participant's
Account will be credited monthly with the Interest Factor for
that month. For purposes of crediting the Interest Factor to the
Account, the balance of the Account shall include any Fees
credited in accordance with Section 4.2. Amounts withdrawn prior
to the last day of the Plan year shall be credited with the
Interest Factor calculated to the date of withdrawal.
Option B: If this option is selected, the Participant's
Account will be deemed to be invested in Common Stock of the
Company. In addition, the quarterly retainer Fees payable in the
form of Common Stock and the Restricted Stock that a Participant
elects to defer pursuant to Section 3.2 shall be deemed to be
invested in accordance with this Option B. The following
provisions will govern the crediting of the Account:
(a) For each Participant electing to participate in
Option B, the Company shall maintain a deferred money account
("Deferred Money Account") which shall periodically be converted
into a stock unit account ("Stock Unit Account") for each such
Participant.
(b) Deferred Fees of each Participant that are payable
in cash shall be credited as a dollar amount to the Participant's
Deferred Money Account on the date they otherwise would be
payable in accordance with Section 4.2 and shall be converted
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into stock units quarterly at March 31, June 30, September 30 and
December 31 in each year by dividing the dollar balance of such
Deferred Money Account as of the end of each such quarter by the
last reported sales price per share of the Company's Common Stock
on the New York Stock Exchange on the last day upon which such
stock was traded during each such quarter. The number of stock
units for full shares so determined shall be credited to the
Participant's Stock Unit Account and the aggregate value thereof
at said closing price shall be charged to the Participant's
Deferred Money Account. Any cash balance remaining in the
Participant's Deferred Money Account after such charge shall be
used together with other subsequent credits thereto at the next
stock conversion period. Quarterly retainer Fees payable in the
form of Common Stock and Restricted Stock that a Participant
elects to defer pursuant to Section 3.2 shall be credited
directly to the Participant's Stock Unit Account.
(c) Additional credits will be made to each
Participant's Deferred Money Account in dollar amounts equal to
the cash dividends (or the fair market value of dividends paid in
property) the Participant would have received from time to time
had he been the owner on the record dates with respect thereto of
the number of shares of the Company's Common Stock equal to the
number of stock units in his Stock Unit Account on such dates.
Such credits shall be converted into stock units quarterly in the
same manner as deferred Fees are converted pursuant to Section
4.3(b). In the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other changes in
corporate structure or capitalization affecting the Common Stock,
such appropriate adjustment shall be made in the number of stock
units in each Participant's Stock Unit Account to prevent
dilution or enlargement of the rights of Participants.
Section 4.4 Decreases in Account. A Participant's Account shall
be reduced by the amount of any benefits distributed to or on
behalf of a Participant pursuant to Article V. Further, a
Participant's Account shall be reduced for any penalties,
withdrawal charges or similar assessments or charges actually
assessed against the value of any investment held in such Account
as a result of early withdrawal or payment under such investment.
Section 4.5 Statement of Account. A statement will be furnished
to each Participant stating the value of his Account following
the end of each calendar quarter.
ARTICLE V
DISTRIBUTION OF BENEFITS
Section 5.1 General. The value of each Account, as determined
under Article IV, shall determine and constitute the basis for
the value of the benefits payable to a Participant under this
Plan.
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Section 5.2 Commencement of Benefit Payments. Except as provided
in Article VI, a Participant may elect on the Deferral Agreement
to receive payment of the amounts deferred under the Plan at (a)
a specified date in the future at least six months after the date
of such election or (b) after the date on which the Participant
ceases to be a Director for any reason including, but not limited
to, Disability, resignation, removal or Retirement. Provided,
however, that in no event may a Participant receive a
distribution of Common Stock unless at least six months have
passed since the last date on which the Director executed a
Deferral Agreement pursuant to Article III.
Section 5.3 Form of Benefit Payments. Except as provided in
Article VI, a Participant's benefit shall be paid in the form
provided under the Deferral Agreement. If the Participant's
Deferral Agreement does not provide for a form of payment, then
the Participant's benefit shall be paid in a single lump-sum cash
payment.
ARTICLE VI
DEATH BENEFITS
Section 6.1 Death Prior to Benefit Commencement. If a
Participant should die before payment of benefits has commenced
under the Plan, then the benefits otherwise payable with respect
to the Participant shall be paid to the Participant's estate in a
single sum payment as soon as administratively feasible following
the death of the Participant.
Section 6.2 Death Following Benefit Commencement. If a
Participant dies after the date payment of benefits has commenced
under the Plan, the Participant's estate shall be entitled to
payment of the remaining benefits in the form of a single sum
payment which shall be paid as soon as administratively feasible
following the death of the Participant.
ARTICLE VII
ADMINISTRATIVE COMMITTEE
Section 7.1 General. Except where otherwise specifically
indicated, responsibility for administration of this Plan shall
be that of the Organization and Compensation Committee of the
Board of Directors (the "Committee").
Section 7.2 Duties. The Committee shall have the following
rights and duties:
(a) No member of the Committee shall have any right to vote
or decide upon any matter relating to himself or to any of his
rights or benefits under any part of the Plan.
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(b) The decision of the Committee in matters concerning the
Plan shall be final, binding and conclusive upon the Company and
upon any other person affected by such decision, subject to the
claims procedure hereinafter set forth.
(c) The Committee shall have the discretionary fiduciary
authority to interpret and construe the provisions of the Plan,
to decide any dispute which may arise regarding the rights of
Directors, whether or not they are Participants under the terms
of the Plan (see the claims procedure hereinafter set forth) and
whether or not such Participants are eligible for benefits, which
determinations and rules shall apply uniformly to all Directors
similarly situated.
(d) The Committee shall have the sole authority to
determine those individuals eligible to become Participants in
accordance with the provisions of the Plan.
(e) The Committee shall maintain full and complete records
of its deliberations and decisions. Its records shall contain all
relevant data pertaining to individual Participants and their
rights under the Plan. It has the duty to carry into effect all
such rights and benefits.
(f) The Committee shall cause the principal provisions of
the Plan to be communicated to each Participant, and a copy of
the Plan and other documents shall be available at the principal
office of the Company for inspection by each Participant at
reasonable times determined by the Committee.
ARTICLE VIII
CLAIMS PROCEDURE
Section 8.1 General. Any claim for benefits under the Plan shall
be filed by a Participant or his estate (claimant) of this Plan
by written communication which is made by the claimant, or by the
claimant's authorized representative which is reasonably
calculated to bring the claim to the attention of the Committee.
Section 8.2 Denials. If a claim for a Plan benefit is wholly or
partially denied, notice of the decision shall be furnished to
the claimant by the Committee within a reasonable period of time
after receipt of the claim by the Committee.
Section 8.3 Notice. Any claimant who is denied a claim for
benefits shall be furnished written notice setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent Plan or Deferral
Agreement provision upon which the denial is based;
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(c) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of the Plan's claim review procedure;
(d) An explanation of the Plan's claim review procedure.
Section 8.4 Appeals Procedure. In order that a claimant may
appeal the denial of a claim, a claimant or his duly authorized
representative:
(a) Must request a review by written application to the
Company's Board of Directors, or its designate, not later than
sixty (60) days after receipt by the claimant of written
notification of denial of a claim;
(b) May review pertinent documents; and
(c) May submit issues and comments in writing.
Section 8.5 Review. A decision on review of a denied claim
shall be made not later than sixty (60) days after receipt of a
request for review, unless special circumstances require an
extension of time for processing, in which case a decision shall
be rendered within a reasonable period of time, but not later
than 120 days after receipt of a request for review. The decision
on review shall be in writing and shall include the specific
reason(s) for the decision and the specific reference(s) to the
pertinent Plan or Trust Agreement provisions on which the
decision is based.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment of Plan. The Company reserves the right to
amend the Plan in any manner that it deems advisable, by a
written instrument signed by any authorized representative of the
Company. Provided, however, that any amendment which affects a
Participant's existing Account must be agreed to, in writing, by
the Participant to be effective, and provided further that if
shareholder approval of any amendment is necessary in order to
ensure compliance with Rule 16b-3 under the Exchange Act, such
amendment shall be subject to approval by the shareholders by the
vote and in the manner required by Rule 16b-3 of the Exchange Act.
Section 9.2 Termination of Plan. The Company reserves the right
to terminate this Plan at any time, provided that such
termination is prospective in effect or is otherwise agreed to in
writing by the Participant.
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Section 9.3 No Assignment. The Participant shall not have the
power to transfer, assign, anticipate, mortgage or otherwise
encumber or dispose of in advance any interest in amounts payable
hereunder or any of the payments provided for herein, nor shall
any interest in amounts payable hereunder or in any payments be
subject to seizure for payment of any debts, judgments, alimony
or separate maintenance, or be reached or transferred by
operation of law in the event of bankruptcy, insolvency or
otherwise.
Section 9.4 Successors and Assigns. The provisions of this Plan
are binding upon and inure to the benefit of the Company, its
successors and assigns, and the Participant, his beneficiaries,
heirs, legal representatives and assigns.
Section 9.5 Governing Law. This Plan shall be subject to and
construed in accordance with the laws of the State of Connecticut
to the extent not preempted by the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
ARTICLE X
TRUST
Section 10.1 Trust. The Trust under the Yankee Energy System,
Inc. Non-Employee Director Deferred Compensation Plan (the
"Trust") has been established by the execution of a Trust
Agreement with the Trustee thereunder and is intended to be
maintained as a "grantor trust" under Section 677 of the Code.
The assets of the Trust will be held, invested and disposed of by
the Trustee, in accordance with the terms of the Trust Agreement,
for the exclusive purpose of providing benefits for the
Participants and their beneficiaries. Notwithstanding any
provision of the Plan or the Trust Agreement to the contrary, the
assets of the Trust shall at all times be subject to the claims
of the Company's general creditors in the event of insolvency as
defined in the Trust Agreement or bankruptcy.
Section 10.2 Contributions and Expenses. The Company, from time
to time, shall make contributions to the Trust. All benefits
under the Plan shall be paid by the Trust. All expenses
chargeable to the Plan shall be paid by the Company. In the event
of a Change in Control, the Company shall make an irrevocable
contribution to the Trust in an amount sufficient to pay each
Participant or beneficiary the benefits to which Participants
or their beneficiaries would be entitled pursuant to the terms
of the Plan as of the date on which the Change in Control occurred.
Section 10.3 Trustee Duties. The powers, duties and
responsibilities of the Trustee shall be as set forth in the
Trust Agreement and nothing contained in the Plan, either
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expressly or by implication, shall impose any additional powers,
duties or responsibilities upon the Trustee.
Section 10.4 Reversion to the Company. The Company shall have no
beneficial interest in the Trust and no part of the Trust shall
ever revert or be repaid to the Company, directly or indirectly,
except as otherwise provided in Section 10.1 above or in the
Trust Agreement.
IN WITNESS WHEREOF, the Company, by its duly authorized officers,
hereby adopts this Plan on this 7th day of December, 1995.
ATTEST/WITNESS YANKEE ENERGY SYSTEM, INC. (Company Seal)
____________________ By:___________________________
___________________ ______________________________
Print Name Print Name and Title
Date:____________________
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