<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-10721
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Yankee Energy System, Inc.
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(Exact name of registrant as specified in its charter)
Connecticut 06-1236430
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
599 Research Parkway, Meriden, CT 06450-1030
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 639-4000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, Par Value
$5 Per Share, and Common
Share Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant at December 1, 1997 was
$248,759,031.78 based on the closing price of $23.94 per share.
On December 1, 1997, the Company had 10,457,061 shares of common
stock outstanding.
Documents Incorporated by Reference Part of Form 10-K
- ----------------------------------- -----------------
Annual Report to Shareholders Part II
for the Fiscal Year Ended
September 30, 1997
Proxy Statement For Annual Part III
Shareholders' Meeting to be
Held on January 30, 1998
<PAGE>
PART I
------
ITEM 1. BUSINESS
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The Company
- -----------
Yankee Energy System, Inc. ("Yankee Energy" or the
"Company") is a public utility holding company incorporated in
Connecticut in 1989. The Company is primarily engaged in the
retail distribution of natural gas through its wholly-owned
subsidiary, Yankee Gas Services Company ("Yankee Gas"), a
Connecticut public service company. Yankee Gas serves
approximately 181,000 residential, commercial and industrial
customers in 68 cities and towns in Connecticut. The Company is
exempt from registration under the Public Utility Holding Company
Act of 1935.
The Company has four additional wholly-owned operating
subsidiaries which support the Company's core natural gas
distribution business or allow the Company to expand its business
of providing total energy services: NorConn Properties, Inc.
("NorConn"), which owns the Company's corporate office building
and another service building and leases both facilities to Yankee
Gas; R. M. Services, Inc. ("RMS") which provides
receivables management services to utilities and other
businesses; Yankee Energy Financial Services Company ("Yankee
Financial"), which provides energy equipment financing; and
Yankee Energy Services Company ("YESCo"), whose purpose is to
provide a full range of energy-related mechanical services for
its customers including consulting, development of on-site
generation and cogeneration systems, as well as heating,
ventilating and air-conditioning equipment services and automated
building control systems for the commercial and industrial
market.
Gas Markets and Competition
- ------------------------------------------------
General. Yankee Gas operates the largest natural gas
distribution system in Connecticut as measured by number of
customers and size of service territory. Total throughput (sales
and transportation) for fiscal 1997 was 48.9 billion cubic feet
("Bcf"). In fiscal 1997, total gas operating revenues were
comprised of the following: 44% residential; 30% commercial; 22%
industrial; and the remaining 4% other. Yankee Gas provides firm
gas sales service to customers who require a continuous gas
supply throughout the year, such as residential customers who
rely on gas for their heating, hot water, and cooking needs.
Yankee Gas also provides interruptible gas sales service to
certain commercial and industrial customers that have the
capability to switch from natural gas to an alternative fuel on
short notice. Yankee Gas can interrupt service to these
customers during peak demand periods. Yankee Gas offers firm and
interruptible transportation services to customers who purchase
gas from sources other than Yankee Gas. In addition, Yankee Gas
performs gas exchanges and capacity releases to marketers to
reduce its overall gas expense.
Firm Sales. In fiscal 1997, total firm gas sales of 31.4
Bcf accounted for approximately 82% of total throughput and
approximately 87% of the Company's total operating revenues.
Firm gas sales, particularly sales for residential space heating,
are highly seasonal. In fiscal 1997, about 60% of total firm
sales occurred in the five months from November through March.
The following tables set forth certain information with respect
to firm sales in fiscal 1997.
<TABLE>
<CAPTION>
FISCAL 1997 FIRM SALES
----------------------
Average Number Volumes
of Customers in Bcf
-------------- -------
<S> <C> <C>
Residential 159,541 12.4
Commercial 18,778 9.1
Industrial 1,911 9.9
------------ -------
180,230 31.4
</TABLE>
<TABLE>
<CAPTION>
Volumes as a
Percent of
Revenues Firm Sales
-------- -------------
<S> <C> <C>
Residential $140,417,320 40%
Commercial $ 86,004,367 29%
Industrial $ 49,877,315 31%
------------ ----
$276,299,002 100%
</TABLE>
Interruptible Sales. In fiscal 1997, total interruptible
gas sales of 6.6 Bcf accounted for approximately 17% of total
throughput and approximately 9% of the Company's total operating
revenues. The price charged for interruptible sales service is a
market price based on the cost of the customer's alternative
fuel, which is usually oil. Interruptible sales depend upon the
availability of gas supplies and, generally, have provided lower
margins than firm sales. Yankee Gas has the authorization from
the DPUC to engage in flexible pricing to meet market prices for
alternative fuels available to interruptible customers. The
following table sets forth certain information with respect to
interruptible sales in fiscal 1997.
<TABLE>
<CAPTION>
FISCAL 1997 INTERRUPTIBLE SALES
-------------------------------
Average Number Volumes
of Customers in Bcf Revenues
-------------- -------- -----------
<S> <C> <C> <C>
Commercial and
Industrial 246 6.6 $29,183,578
</TABLE>
Transportation Services. Yankee Gas offers firm and
interruptible transportation service to its industrial and
commercial customers. In fiscal 1997, total transportation sales
accounted for approximately 3% of the Company's total operating
revenues. These transportation services permit customers who
desire to purchase gas from sources other than Yankee Gas to do
so, provided they have made all the necessary arrangements with
the transmission pipelines to deliver their gas
to the Yankee Gas distribution system. Industrial and commercial
customers can purchase gas directly from producers and suppliers
and contract for transportation services rather than purchase gas
solely from the local distribution system. Generally,
interruptible transportation service is highly sensitive to
alternative fuel prices as well as to the availability of
interstate pipeline capacity into the region. Under existing
tariff structures, the financial condition of the Company is
unaffected by customers electing to use transportation service in
lieu of making gas purchases from Yankee Gas.
Market Expansion. Yankee Gas has increased efforts to
provide additional gas distribution service throughout its
service territory. Yankee Gas concentrates its marketing efforts
on increasing the number of residential households using natural
gas, increasing the uses of natural gas by existing Yankee Gas
customers, and increasing the overall number of both large and
small customers through expansion of Yankee Gas' distribution
system within its service territory. In the residential market,
Yankee Gas focuses marketing efforts on households along Yankee
Gas' existing mains because they present opportunities to
increase gas sales with little or no capital investment. In the
commercial and industrial markets, the Company seeks to expand
gas sales by increasing sales to existing customers for both
traditional and innovative uses, such as infrared heating,
cooling and electric generation. The Company also emphasizes
attracting new commercial and industrial customers within its
service territory.
The emergence of natural gas vehicles creates a potential
new market for the natural gas industry. The establishment of
natural gas vehicle fueling stations however is essential to the
development of this market. Yankee Gas, in cooperation with
various oil companies and gasoline retailers, has opened retail
public natural gas vehicle refueling stations in Windsor Locks,
Norwalk, and Meriden, Connecticut. Yankee Gas operates two
refueling stations for its own fleet of approximately 110 natural
gas vehicles.
Gas Supply
- ----------
In 1992, the Federal Energy Regulatory Commission ("the
FERC") issued Order No. 636, which required natural gas pipeline
companies to separate or "unbundle" their services. Prior to the
issuance of Order No. 636, natural gas pipeline companies sold
pipeline services, such as gas purchasing, storage and
transportation, as a package. In 1993, the interstate pipeline
companies that provided natural gas to Yankee Gas complied with
Order No. 636. As a result, Yankee Gas executed contracts with
interstate pipeline companies for services to transport gas from
production and underground storage areas to Yankee Gas' service
territory to replace the traditional merchant services previously
provided by the pipeline companies. Yankee Gas concurrently
replaced the gas supply traditionally obtained from the pipeline
companies' merchant services with firm purchases directly from
producers and/or marketing companies. The FERC continues to
regulate the rates charged by interstate pipeline companies for
transportation and storage of natural gas, but does not regulate
the price of natural gas purchased by the Company from producers
and marketing companies.
Interstate pipelines delivered over 99.9 percent of Yankee
Gas' 1997 fiscal year requirements to its distribution system.
Interstate pipeline capacity enabled Yankee Gas to meet its firm
customers' requirements with pipeline supplies for more than
95.6 percent of the year.
The following table sets forth sources of fiscal 1997 gas
supply (including purchases for storage injections).
<TABLE>
<CAPTION>
Percent of
Source Total Supply
------- ------------
<S> <C>
Alberta Northeast Gas, Limited 52.98
Direct Firm Purchases 38.37
Boundary Gas 8.32
Spot Market Purchase 0.24
Other (Peaking) 0.09
------
Total 100%
</TABLE>
Yankee Gas is entitled to purchase 59,000 thousand cubic
feet ("Mcf") per day of gas, or about 21.5 Bcf annually, from
Alberta Northeast Gas, Limited ("ANE"). Yankee Gas holds a 15.9
percent equity interest in ANE, an entity formed by several
utilities in the Northeast to aggregate the purchase of natural
gas from Western Canada and to facilitate its sale to local gas
distribution company ("LDC") owners at the United States-Canadian
Border. The sales contracts between Yankee Gas and ANE expire in
2006. The gas purchased from ANE is delivered in the United
States by the Iroquois Gas Transmission System, L.P. ("Iroquois")
pipeline and the transportation contract between Yankee Gas and
Iroquois expires in 2011.
Yankee Gas is also entitled to purchase 9,500 Mcf of gas per
day, or about 3.5 Bcf annually, from Boundary Gas, Inc.
("Boundary"). Yankee Gas owns a 10.4 percent equity interest in
Boundary, an LDC consortium which imports natural gas from
Canada. The sales contract between Yankee Gas and Boundary
expires in 2003.
Yankee Gas also holds pipeline transportation and storage
service contracts with Tennessee Gas Pipeline Company
("Tennessee"), Algonquin Gas Transmission Company ("Algonquin"),
Texas Eastern Transmission Corporation ("Texas Eastern"), CNG
Transmission Corporation ("CNG Transmission"), Transcontinental
Gas Pipe Line Company ("Transco"), and National Fuel Gas Supply
Corporation ("National Fuel") as summarized below:
Transportation Service Contracts:
- --------------------------------
<TABLE>
<CAPTION>
Annual Transport
Pipeline Quantity Expiration
- -------- ---------------- ----------
<S> <C> <C>
Tennessee 26.8 Bcf 2000-2017
Algonquin 38.4 Bcf 1999-2014
Texas Eastern 37 Bcf 2000-2014
CNG Transmission 2.7 Bcf 2003-2012
Transco 0.63 Bcf 2008
National Fuel 2.63 Bcf 1999-2003
</TABLE>
Storage Service Contracts:
- -------------------------
<TABLE>
<CAPTION>
Annual Storage
Pipeline Quantity Expiration
- -------- -------------- ----------
<S> <C> <C>
Tennessee 1.9 Bcf 2000
Texas Eastern 1.7 Bcf 2012-2013
CNG Transmission 1.4 Bcf 2003-2012
National Fuel 0.8 Bcf 1999
</TABLE>
Although several contracts are scheduled to terminate during
1999 and 2000, they may be continued on a year to year basis by
mutual consent of the parties.
Yankee Gas has multiple natural gas purchase agreements with
producers and marketers which back Yankee Gas' transportation and
storage contracts. These purchase agreements provide a variety
of term lengths, pricing provisions and flexibility options to
meet Yankee Gas' current and future supply requirements.
Yankee Gas does not have sufficient capacity entitlements on
the interstate pipelines to serve its firm customers with
pipeline-delivered gas at all times. During the winter,
therefore, whenever daily firm demand exceeds the amount of gas
delivered by the pipelines, service to interruptible customers is
curtailed. Yankee Gas supplements pipeline gas with a
propane-air mixture produced at facilities within Yankee Gas'
service territory and with contracted peaking gas supplies. In
fiscal 1997, such propane-air comprised 0.2 percent and the
purchased peaking gas supplies comprised 0.7 percent of Yankee
Gas' total supply. Although Yankee Gas anticipates continued
utilization of these relatively expensive supplemental gas
supplies, the quantities used are substantially decreased from
prior periods due to the addition of the ANE supplies transported
by Iroquois.
Regulation and Rates
- --------------------
Federal Regulation. Although Yankee Gas is not subject to
FERC jurisdiction, the FERC does regulate the interstate
pipelines serving Yankee Gas' service territory. Yankee Gas,
therefore, is directly and substantially affected by the FERC's
policies and actions. Accordingly, Yankee Gas closely follows
and, when appropriate, participates in proceedings before the
FERC.
Connecticut Regulation. Yankee Gas is subject to regulation
by the Connecticut Department DPUC, which, among other things,
has jurisdiction over rates, accounting procedures, certain
dispositions of property and plant, mergers and consolidations,
issuances of securities, standards of service, management
efficiency and construction and operation of distribution,
production and storage facilities.
The DPUC may, after a special public hearing, order an
interim rate decrease if it finds that Yankee Gas' return on
equity exceeds a reasonable rate of return and rates are more
than just, reasonable and adequate as determined by the DPUC.
The DPUC also is empowered to grant an interim rate increase
under compelling circumstances.
Yankee Gas sells gas to its retail customers under rate
schedules filed with and approved by the DPUC. Firm sales rates
are subject to monthly adjustments pursuant to a Purchased Gas
Adjustment ("PGA") clause approved by the DPUC. The PGA passes
through to customers most changes in the cost of gas purchased by
Yankee Gas. These adjustments are designed to collect or refund
differences in purchased gas costs from the costs included in the
base rates. In 1997, the DPUC conducted a review of the
Connecticut LDCs' PGA mechanism to determine if any
changes were warranted. The DPUC held that LDCs could pass on to
customers the costs of the Connecticut Gross Earnings Tax related
to PGA revenues.
Yankee Gas' rate order, effective for service
rendered on and after October 1, 1992, allowed a return on equity
(ROE) of 12.43 percent and provided for favorable accounting
treatment for environmental cleanup costs, post-retirement
benefits and certain other major items.
On August 25, 1996, Yankee Gas filed an application with the
DPUC relating to a Financial and Operation Review (Review) of
Yankee Gas. This Review was required to be undertaken by the
DPUC under Connecticut statutes if Yankee Gas had not undergone a
rate proceeding within the last four years. Because Yankee Gas'
last general rate application was approved on August 26, 1992,
this Review was necessary to comply with the statutes. The DPUC
issued a decision on July 9, 1997, concluding that the allowed
ROE be reduced from 12.43 percent to 11.15 percent and Yankee Gas
would over-earn during fiscal year 1998 based on the newly
authorized ROE. On October 1, 1997, the DPUC approved an
amendment to the settlement agreement between Yankee Gas and the
Connecticut Office of Consumer Counsel that, among other things,
requires Yankee Gas to credit $3.2 million to firm sales
customers through the PGA during the period from November 1997
through March 1998. In addition, Yankee Gas agreed that
statutory reviews of potential over-earnings would be triggered
by the 11.15 percent ROE determined in this proceeding, unless
the DPUC authorizes a different ROE. Additionally, the under-
recovery of gas costs for fiscal 1997 of $6.7 million (current
year deferred gas costs) will be added to the existing deferred
assets subject to the settlement agreement. This under recovery
will be funded with capacity release credits and excess
interruptible margin rather than direct billing to firm sales
customers through the PGA.
Pursuant to the settlement agreement with the Connecticut Office
of Consumer Counsel, Yankee Gas agreed not to apply for a rate
increase prior to October 1, 2000, except in the event of certain
circumstances that would have a significant adverse effect on
Yankee Gas' financial condition. If such an event arises, Yankee
Gas has the option to apply to the DPUC for a rate increase or to
retain up to 80% of any off system sales margin and excess
interruptible margin.
FERC Order No. 636. In implementing Order No. 636, the FERC
recognized that the restructuring of the pipelines' traditional
services would cause pipelines to incur transition costs in
several areas. The FERC has permitted certain transition costs
to be recovered by the pipeline companies from their customers.
In July 1994, the DPUC issued an order permitting the
recovery of transition costs billed by pipelines under Order No.
636 through various mechanisms authorized by the DPUC. Through
September 30, 1997, Yankee Gas has paid approximately $19.5
million of transition costs and an additional $3.5 million are
anticipated. To date, Yankee Gas has collected $44.2 million
through a combination of gas supplier refunds, deferred gas costs
credits and excess interruptible margins. The DPUC approved the
settlement agreement in January 1996 and an amendment thereto in
October 1997 between Yankee Gas and the Connecticut Office of
Consumer Counsel which permits Yankee Gas to retain
over-collected transition cost credits to offset certain deferred
regulatory assets. As of September 30, 1997, excess collections
of approximately $24.7 million were applied against the deferred
regulatory assets specified in the agreement.
In January 1996, the DPUC, in response to Order No. 636,
authorized the Connecticut LDCs to offer unbundled firm
transportation rates to its commercial and industrial customers.
The DPUC's decision permits Yankee Gas to offer a variety of
service options to its commercial and industrial firm
transportation customers. Yankee Gas implemented new firm
transportation rates and services in April 1996. As of September
30, 1997, Yankee Gas had 1,460 customers under the new firm
transportation service. The conversion by existing customers to
transportation service will result in decreased revenues for
Yankee Gas, as that portion of revenues representing gas costs
will be borne directly by these customers who will purchase their
own gas directly. Yankee Gas, however, does not expect customer
conversions to transportation services to affect its net income
because the cost of gas has traditionally been a pass through
item with no income impact. The DPUC's decision did not address
Yankee Gas' revenue requirement.
Order No. 636 also authorizes LDCs to make off system sales
or to release firm pipeline capacity and Yankee Gas has engaged
in these activities to maximize revenues and for effective gas
supply planning.
Energy Services
- ---------------
The Company has broadened its mission to diversify into
energy-related businesses. YESCo is engaged in the business of
providing a full range of energy-related services for customers,
including consulting, development of on-site
generation and cogeneration systems as well as heating,
ventilating and air-conditioning equipment services and automated
building control systems for the commercial and industrial
market. YESCo also offers consulting services to help commercial
and industrial customers solve complex new energy purchasing
problems brought about by deregulation of the energy industry.
Competition
- -----------
Yankee Gas' principal competitors are unregulated fuel-oil
retailers and regulated electric utilities. Natural gas competes
with oil and electricity in many commercial and industrial
applications and in residential space and water heating, clothes
drying and cooking. Demand for natural gas is affected by the
marketing and pricing of competing sources of energy.
Yankee Gas may also face competition from other LDCs. In
the past, LDCs did not directly compete with other LDCs for
retail customers because the territories they serve are fixed by
franchise. However, since 1993, LDCs began marketing efforts
within the service territory of other LDCs under blanket
certificates granted by the FERC. These certificates allow gas
to be sold, but not necessarily delivered, in the service
territory of another LDC. Within Yankee Gas' service territory,
Yankee makes available its transportation services to move other
parties' gas through its distribution system. The Company's
strategic plan focuses on its core business of gas distribution
and expansion of the development of its energy services business
through the efforts of its unregulated subsidiary, YESCo, to help
customers through changes brought about by deregulation in the
natural gas industry.
Federal regulation also permits customers within Yankee Gas'
distribution system to connect directly with transmission
pipelines and bypass Yankee Gas' distribution system. A
Connecticut statute currently prohibits an interstate pipeline
from bypassing an LDC without the DPUC's prior approval.
Although one potential customer bypassed Yankee Gas' distribution
system in fiscal 1997, the Company believes that Yankee Gas is
successfully addressing the threat of bypass by its industrial
customers by understanding what services they need and executing
market-competitive gas service agreements. There is, however, a
potential risk of loss of revenues from bypass of Yankee Gas'
distribution system.
Environmental Matters
- ---------------------
The Company is subject to federal and state environmental
regulation of its operations and properties and has an ongoing
monitoring program to review compliance with existing
environmental standards. Such regulation may result in future
environmental liabilities that may include significant expenses
to remove, contain or remediate contamination, including coal tar
deposits, caused by operations of former gas manufacturing
plants by Yankee Gas' predecessor companies in the mid-20th
century. Those predecessor companies disposed of the coal tar
deposits in accordance with the standard operating practices of
the time.
Fourteen sites containing coal tar became the property of
Yankee Gas at the time of divestiture from its former parent
company. Yankee Gas has reported the results of environmental
studies conducted at these sites to the Connecticut Department of
Environmental Protection ("DEP"). Eight of the fourteen sites
are currently listed on the Connecticut Inventory of Hazardous
Waste Sites. Inclusion of a site on this list is an indication
that remediation may be required in the future.
Significant remediation efforts have been conducted at three
of these properties. In addition, the Company has developed a
cost estimate for the remaining sites based on various factors
including the probability of clean-up. The Company recorded a
liability of $35 million in fiscal year 1993 for future
environmental cleanup.
Management does not believe that the Company's environmental
expenditures will have a material adverse effect on its
operations, liquidity or financial position, based on known facts
and existing laws and regulations and the anticipated period over
which expenditures will be made.
Recovery of remediation costs has been specifically allowed
by Yankee Gas' 1992 rate case decision. Currently, $325,000 is
allowed annually in rates and an additional $2.5 million annually
may be deferred. If costs are expected to exceed $2.5 million on
an annual basis, Yankee Gas is required to go to the DPUC for
review and additional authorization. The DPUC has stated that
"to the extent that coal tar remediation expenses are prudently
incurred, they should be allowed as proper operating expenses."
The Company has received funds from certain of its insurance
carriers in settlement of certain claims for actual or potential
contamination at certain sites that may give rise to
environmental liabilities. The terms of the aforementioned
settlements are subject to confidentiality provisions in
agreements between Yankee Gas and its insurance carriers. Yankee
Gas currently is actively pursuing additional claims against some
of its insurers.
Franchises
- ----------
Yankee Gas and its predecessors in interest have held valid
franchises to sell gas in the areas in which Yankee Gas supplies
gas service. Such franchises are perpetual but remain subject
to the power of alteration, amendment or repeal by the General
Assembly of the State of Connecticut, the power of revocation by
the DPUC and certain approvals, permits and consents of public
authorities and others prescribed by statute. Yankee Gas
franchises include, among other rights and powers, the rights and
powers to manufacture, generate, purchase, transmit and
distribute gas, to sell gas at wholesale to other utility
companies and municipalities and to erect and maintain certain
facilities on public highways and grounds, all subject to such
consents and approvals of public authorities and others as may be
required by law. The franchises include the power of eminent
domain.
Self-generation and Cogeneration
- --------------------------------
With the current industry deregulation, two expanding gas
markets in Connecticut and elsewhere are self-generation and
cogeneration of electricity. Self-generation is the generation
of some or all of a user's electricity requirements, typically
for commercial or industrial purposes. Cogeneration involves
sequential production of electricity and thermal or mechanical
energy.
Under an agreement between Yankee Gas and The Dexter
Corporation ("Dexter"), Yankee Gas' largest customer, Dexter has
a contract to purchase annually approximately 3.9 Bcf of natural
gas sales service for use in its 56-megawatt cogeneration
facility for an initial term of 20 years (1989-2009).
Employees
- ---------
Yankee Energy and its subsidiaries employ approximately 703
people.
Forward-Looking Statements
- --------------------------
This report contains statements which, to the extent they are not
recitations of historical fact, constitute "forward-looking
statements" within the meaning of the Securities Litigation
Reform Act of 1995. Such forward-looking statements involve
risks and uncertainties. Actual results may differ materially
from such forward-looking statements for reasons including, but
not limited to, changes to and developments in the legislative
and regulatory environments affecting the Company's business, the
impact of competitive products and services, changes in the
natural gas industry caused by deregulation and other factors,
and certain environmental matters.
ITEM 2. PROPERTIES
----------
Yankee Gas' property consists primarily of its gas
distribution facilities including, distribution lines (mains and
services), meters, pumps, valves and pressure and flow
controllers. Yankee Gas owns various propane facilities with a
combined storage capacity equivalent to approximately 238,000 Mcf
and seven gas storage holders with a total capacity of
approximately 5.8 Bcf. In the opinion of management, Yankee Gas'
distribution system is in good condition. Virtually all of the
gas properties are subject to the lien of the Yankee Gas first
mortgage bond indenture. Yankee Gas also owns service facilities
in Meriden, Waterbury, Torrington, Mystic, Bristol, Shelton,
Bethel and Danielson, Connecticut.
NorConn owns the Company's headquarters building in Meriden,
Connecticut and currently leases it to Yankee Gas. This is the
site of the Company's corporate administrative and staff
functions including the Customer Service Center. NorConn also
owns and leases to Yankee Gas a service building in East Windsor.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Municipal Tax Assessment. In November 1995, Yankee Gas
received revised tax bills for the years 1991 through 1994 from
the City of Meriden, Connecticut (the "City"). The City is
asserting a claim for the payment of approximately $5.0 million
of back taxes and interest resulting from a retroactive
reassessment and revaluation of Yankee Gas' personal property
filings. The City did not locate or identify any property which
Yankee Gas omitted from its filings. The tax bills reflect a
reassessment of property at higher rates than those previously
accepted by the City. Yankee Gas is currently
contesting this retroactive reassessment. On November 17, 1995,
Yankee Gas filed a lawsuit in Connecticut Superior Court against
the City and certain City officials alleging that the Connecticut
state statutes prohibit the City from retroactively reassessing
personal property after grand lists are filed and requesting that
the City's order to pay additional taxes be invalidated.
Although no assurances can be given and no determination can be
made at this time as to the outcome of the City's claim or Yankee
Gas' lawsuit, the Company does not anticipate that the outcome of
this matter will have a material adverse effect on the Company's
consolidated results of operations or financial position.
Licensing Issue. In November 1995, The Connecticut Heating
and Cooling Contractors Association, Inc. and others filed a
suit against Yankee Gas and Connecticut's two other
LDCs, Connecticut Natural Gas Corporation and The Southern
Connecticut Gas Company, claiming the LDCs engaged in unfair
trade practices. The action alleges that the LDCs unfairly
competed with licensed plumbers and contractors by performing
customer service work using customer service employees who did
not possess Connecticut state trade licenses. The plaintiffs are
attempting to have the action certified as a "class action" and
are seeking injunctive relief and unspecified punitive and actual
damages. Yankee Gas is currently vigorously contesting this
lawsuit.
The LDCs have asserted that such licenses are not required
for this work based on a statutory exemption enacted in 1965 and
amended in 1967. However, in a separate proceeding, a
Connecticut Superior Court has upheld an administrative ruling
against the LDCs' position which was affirmed on appeal.
In 1995, the Connecticut General Assembly enacted legislation
that established prospectively a separate procedure for State
certification of gas service employees. While the ultimate
results of the suit cannot be determined, management
does not expect that it will have a material adverse effect on
the Company's consolidated results of operations or financial
position.
Other legal proceedings involving the Company and its
subsidiaries are litigation incidental to the conduct of the
Company's business which, in management's opinion, will not have
a material impact on the Company's financial condition or results
of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There was no matter submitted to a vote of security holders
during the fourth quarter of 1997.
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
Position and Business Experience
Name Age During Past Five Years
- ---- --- ---------------------------------
Branko Terzic 50 Chairman, President and Chief Executive
Officer of the Company and Chairman and
Chief Executive Officer of its direct
subsidiaries. Mr. Terzic became
Chairman in August 1995, Chief Executive
Officer in March 1995 and President in
September 1994. 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.
Charles E. Gooley 44 Executive Vice President of the Company
and its direct subsidiaries, NorConn,
and Yankee Financial, since July 1994,
and President of Yankee Gas since May
1997. Previously, he served as Vice
President, General Counsel and Assistant
Secretary of the Company from July 1989
to July 1994.
James M. Sepanski 40 Vice President and Chief Financial
Officer of the Company and its direct
subsidiaries, Yankee Gas, NorConn, and
Yankee Financial, since July 1997. From
1989 to June 1997, he was a partner at
Arthur Andersen LLP.
Michael E. Bielonko 45 Vice President of the Company since 1989
and President of YESCo since December
1996. He also served as President of
RMS, a subsidiary of the Company, from
December 1996 to October 1997.
Previously, he served as Vice President
of the Company's direct subsidiaries
from July 1989 to December 1996, and as
Chief Financial Officer of the Company
from July 1990 to July 1997. From July
1989 to July 1990 and from September
1992 to May 1995, he also served as
Treasurer of the Company.
Thomas J. Houde 50 Vice President of the Company and its
direct subsidiary, Yankee Gas, since
January 1992. Previously, he served as
Director, Corporate Planning, Rates and
Economic Analysis of Yankee Gas from
March 1990 to December 1991.
Mary J. Healey 46 Vice President, General Counsel and
Secretary of the Company and its direct
subsidiaries since January 1995.
Previously, she served as Secretary and
Assistant General Counsel of the Company
from January 1992 to January 1995 and as
Secretary and Counsel of the Company
from July 1989 to January 1992.
J. Kingsley Fink 45 Vice President-Operations of Yankee Gas
since October 1997. Previously, he was
President of his own consulting company
from 1996 to 1997. Prior thereto he
served in various operating positions at
Florida Power and Light Company over a
14 year period.
Ellen J. Quinn 41 Vice President of the Company and its
direct subsidiaries, Yankee Gas and
RMS, since May 1995. Previously, she
served as Director, Corporate and
Environmental Planning from October 1992
to May 1995, and as Manager, Corporate
and Environmental Planning from March
1990 to October 1992.
Steven P. Laden 49 Vice President of the Company and its
direct subsidiaries, Yankee Gas, YESCo,
and Yankee Financial, since July 1996.
From October 1991 to July 1996,he served
as Vice President of Marketing of
Southern Union Company, a company
engaged in various aspects of the energy
business including the distribution of
natural gas in Texas and Missouri.
All executive officers are elected annually by the Company's
Board of Directors. There are no family relationships among the
executive officers and directors nor are there any arrangements
or understandings between any executive officer and any other
person pursuant to which the officer was selected.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
--------------------------------------
Yankee Energy declared and paid regular quarterly cash
dividends in 1997. The dividend paid for the first two quarters
of 1997 was $.325 per share and $.335 per share in the last two
quarters of 1997. Other information required by this item is
incorporated herein by reference to Yankee Energy's 1997 Annual
Report to Shareholders ("1997 Annual Report"), on the inside back
cover, subsections entitled "Market for Common Stock", and
"Dividends".
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Information required by this item is incorporated herein by
reference to the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
-------------------------------------------------
Information required by this item is incorporated herein by
reference to the 1997 Annual Report.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
-----------------------------------------------------
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Consolidated Financial Statements of Yankee Energy and
the Notes thereto, together with the report thereon of the
Company's Management and of Arthur Andersen LLP are incorporated
herein by reference to the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
-------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
Information regarding Yankee Energy's directors is
incorporated herein by reference to the Company's Proxy Statement
for its Annual Meeting of Shareholders to be held on January 30,
1998 (the "1998 Proxy Statement").
Information regarding the Company's executive officers
follows Item 4 in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information regarding compensation of Yankee Energy's
executive officers, except the Report of the Organization and
Compensation Committee and the Stock Performance Graph, is
incorporated herein by reference to the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
-----------------------------------------------
Information regarding the beneficial ownership of shares of
Common Stock of the Company by certain persons is incorporated
herein by reference to the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain transactions of the Company is
incorporated herein by reference to the 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
---------------------------------------------------
(a) 1. Financial Statements:
The following Consolidated Financial Statements of
Yankee Energy are incorporated herein by reference to the
Company's 1997 Annual Report in response to Item 8 hereof:
(i) Report of Independent Public Accountants
(ii) Consolidated Statements of Income for the years
ended September 30, 1997, 1996 and 1995.
(iii) Consolidated Balance Sheets at September 30, 1997
and 1996.
(iv) Consolidated Statements of Cash Flows for the
years ended September 30, 1997, 1996 and 1995.
(v) Consolidated Statements of Capitalization at
September 30, 1997 and 1996.
(vi) Consolidated Statements of Common Shareholders'
Equity for the years ended September 30, 1997,
1996 and 1995.
(vii) Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
The following schedules of the Company are included on
the attached pages as indicated:
Page
----
Report of Independent Public Accountants on Schedules...S-1
Schedule II Valuation and Qualifying Accounts and
Reserves for the years ended September
30, 1997, 1996 and 1995..................S-2
3. Exhibits:
Exhibits for Yankee Energy are listed in the Index
to Exhibits........................................E-1
(b)Reports on Form 8-K:
On July 22, 1997, the Company filed a Current Report on Form
8-K dated July 9, 1997, reporting in Item 5 thereof the issuance
by the DPUC of a decision in its Financial and Operations Review
of Yankee Gas.
On October 29, 1997, the Company filed a Current Report on
Form 8-K dated October 1, 1997 reporting in Item 5 thereof the
DPUC's final approval in its Financial and Operations Review of
Yankee Gas of an amendment to the settlement agreement between
Yankee Gas and the Connecticut Office of Consumer Counsel.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
YANKEE ENERGY SYSTEM, INC.
--------------------------
(Registrant)
Date: December 10, 1997 By /s/ Branko Terzic
-----------------------
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date Title Signature
- ---- ----- ---------
December 10, 1997 Chairman, President /s/Branko Terzic
and Chief Executive Branko Terzic
Officer
December 10, 1997 Vice President /s/James M. Sepanski
and Chief Financial James M. Sepanski
Officer
December 10, 1997 Controller /s/Nicholas A. Rinaldi
Nicholas A. Rinaldi
December 10, 1997 Director /s/Sanford Cloud, Jr.
Sanford Cloud, Jr.
December 10, 1997 Director /s/Eileen S. Kraus
Eileen S. Kraus
December 10, 1997 Director /s/Frederick M. Lowther
Frederick M. Lowther
December 10, 1997 Director /s/Emery G. Olcott
Emery G. Olcott
December 10, 1997 Director /s/John Rando
John Rando
December 10, 1997 Director /s/Nicholas L. Trivisonno
Nicholas L. Trivisonno
December 10, 1997 Director /s/Patricia M. Worthy
Patricia M. Worthy
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Yankee Energy System, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in Yankee Energy
System, Inc.'s annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon
dated November 7, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The
schedule listed in the index of financial statements is presented
for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Hartford, Connecticut
November 7, 1997
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULE
II Valuation and Qualifying Accounts and Reserves
for Years Ended September 30, 1997, 1996 and 1995
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED SEPTEMBER 30, 1997
SCHEDULE II
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
__________
(1) (2)
Charged
Balance Charged to Balance
at to other at end
beginning costs and accounts Deductions of
Descrip. of period expenses describe describe period
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
<S> <C> <C> <C> <C> <C>
Reserves
for
uncol-
lectible
accounts $7,259 $4,673 $ - $4,219(a) $7,713
RESERVES NOT APPLIED
AGAINST ASSETS:
Injuries and
damages(b) $1,510 $1,230 $ - $1,702 $1,038
Medical(d) 1,118 2,385 $ - 2,461 1,042
_____ ______ ____ _______ _______
Total $2,628 $3,615 $ - $4,163 $2,080
______ ______ ____ ______ ______
______ ______ ____ ______ ______
</TABLE>
(a) Amounts charged off as uncollectible after deducting
customers' deposits and recoveries of accounts previously charged
off.
(b) Provided to cover claims for injuries to employees, for
workmen's compensation, for bodily injury to others and property
damage.
(c) Principally payments for various injuries and damages and
expenses in connection therewith.
(d) Provided to cover employee medical claims.
(e) Principally payments for various employee medical expenses
and expenses in connection therewith.
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED SEPTEMBER 30, 1996
SCHEDULE II
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
__________
(1) (2)
Charged
Balance Charged to Balance
at to other at end
beginning costs and accounts Deductions of
Descrip. of period expenses describe describe period
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
<S> <C> <C> <C> <C> <C>
Reserves
for
uncol-
lectible
accounts $5,481 $5,608 $ - $3,830(a) $7,259
RESERVES NOT APPLIED
AGAINST ASSETS:
Injuries and
damages(b)$ 801 $1,462 $ - $ 753(c) $1,510
Medical(d) 1,273 2,227 - 2,382 1,118
___ ______ ____ _______ _______
Total $2,074 $3,689 $ - $3,135 $2,628
______ ______ ____ ______ ______
______ ______ ____ ______ ______
</TABLE>
(a) Amounts charged off as uncollectible after deducting
customers' deposits and recoveries of accounts previously charged
off.
(b) Provided to cover claims for injuries to employees for
workmen's compensation, for bodily injury to others and property
damage.
(c) Principally payments for various injuries and damages and
expenses in connection therewith.
(d) Provided to cover employee medical claims.
(e) Principally payments for various employee medical expenses
and expenses in connection therewith.
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED SEPTEMBER 30, 1995
SCHEDULE II
(Thousands of Dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
__________
(1) (2)
Charged
Balance Charged to Balance
at to other at end
beginning costs and accounts Deductions of
Descrip. of period expenses describe describe period
RESERVES DEDUCTED FROM ASSETS
TO WHICH THEY APPLY:
<S> <C> <C> <C> <C> <C>
Reserves
for
uncol-
lectible
accounts $5,444 $3,475 $ - $3,438(a) $5,481
RESERVES NOT APPLIED
AGAINST ASSETS:
Injuries and
damages(b) $1,031 $ 803 $ - $1,033(c) $ 801
Medical(d) 1,085 3,675 - 3,487 1,273
___ ______ ____ _______ _______
Total $2,116 $4,478 $ - $4,520 $2,074
______ ______ ____ ______ ______
______ ______ ____ ______ ______
</TABLE>
(a) Amounts charged off as uncollectible after deducting
customers' deposits and recoveries of accounts previously charged
off.
(b) Provided to cover claims for injuries to employees for
workmen's compensation, for bodily injury to others and property
damage.
(c) Principally payments for various injuries and damages and
expenses in connection therewith.
(d) Provided to cover employee medical claims.
(e) Principally payments for various employee medical expenses
and expenses in connection therewith.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C>
Exhibit
Number Description of Exhibit
- ------- ----------------------
(3)
3.1 Restated Certificate of Incorporation of Yankee
Energy System, Inc. (the "Company") (Incorporated
by reference to Form 10 Registration Statement
dated April 14, 1989 and amendments thereto, File
No. 0-17605 ("Form 10")).
3.2 Amended Bylaws of the Company (Incorporated by
reference to Form 10).
(4)
4.1 Specimen of the Company's Common Stock
(Incorporated by reference to Form 10).
4.2 Rights Agreement between the Company and The
Connecticut Bank and Trust Company, N.A., as
Rights Agent, dated November 20, 1989
(Incorporated by reference to Form 8-A
Registration Statement dated December 7, 1989,
File No. 0-17605).
4.3 Amendment to Rights Agreement dated May 10, 1990
(Incorporated by reference to Form 8 dated May 30,
1990, File No. 0-17605).
4.4 Amendment to Rights Agreement dated January 23,
1991 (Incorporated by reference to Form 8 dated
January 31, 1991, File No. 0-17605).
4.5 Term Loan Agreement between NorConn Properties,
Inc. and Fleet Bank dated as of January 31, 1996.
(To be submitted to the Commission upon request.)
4.6 Bond Purchase Agreement dated July 1, 1989 between
Yankee Gas and the Purchasers identified therein
(Incorporated by reference to Form 10).
4.7 Indenture of Mortgage and Deed of Trust dated July
1, 1989 between Yankee Gas and The Connecticut
National Bank, as Trustee (Incorporated by
reference to Form 10).
4.8 Guaranty of the Company with Term Loan Agreement
dated July 20, 1989 between United Bank & Trust
Company, as Trustee of the Trust of the Company's
401(k) Employee Stock Ownership Plan and The First
National Bank of Boston (Incorporated by reference
to Form 10-K for the fiscal year ended December
31, 1989, File No. 0-17605 ("1989 Form 10-K")).
4.9 First Supplemental Indenture of Mortgage and Deed
of Trust dated April 1, 1992 between Yankee Gas
and The Connecticut National Bank, as Trustee
(Incorporated by reference to Form S-3
Registration Statement #33- 52750 dated October 2,
1992 ("Form S-3")).
4.10 Second Supplemental Indenture of Mortgage and Deed
of Trust dated December 1, 1992 between Yankee Gas
and The Connecticut National Bank, as Trustee
(Incorporated by reference to Form 10-K for the
fiscal year ended September 30, 1992, File No. 0-
17605 ("1992 Form 10-K")).
4.11 Bond Purchase Agreement dated April 1, 1992
between Yankee Gas and the Purchasers identified
therein (Incorporated by reference to Form S-3).
4.12 Bond Purchase Agreement dated December 1, 1992
between Yankee Gas and Purchaser identified
therein (Incorporated by reference to 1992 Form
10-K).
4.13 Third Supplemental Indenture of Mortgage and Deed
of Trust dated June 1, 1995 between Yankee Gas and
Shawmut Bank Connecticut, N.A., as Trustee.
(Incorporated by reference to Form 10-K for the
fiscal year ended September 30, 1995, File No.
0-10721 ("1995 Form 10-K")).
4.14 Bond Purchase Agreement dated June 22, 1995
between Yankee Gas and Purchaser identified
therein. (Incorporated by reference to 1995 Form
10-K).
4.15* Fourth Supplemental Indenture of Mortgage and Deed
of Trust dated April 1, 1997 between Yankee Gas
and Fleet National Bank, as Trustee.
4.16* Bond Purchase Agreement dated April 1, 1997
between Yankee Gas and Purchaser.
(10)
10.1 Asset Transfer Agreement among Northeast Utilities
Service Company ("NUSCO"), The Connecticut Light
and Power Company ("CL&P"), the Company, Yankee
Gas and Housatonic Corporation dated June 30, 1989
(Incorporated by reference to Form 10).
10.2 Environmental Liability Sharing and Indemnity
Agreement dated June 30, 1989 between Yankee Gas
and CL&P (Incorporated by reference to Form 10).
10.3 Rate Case Decision dated August 26, 1992
(Incorporated by reference to 1992 Form 10-K).
10.4 Lease Agreement between Yankee Gas and NorConn
Properties, Inc. dated October 1, 1990
(Incorporated by reference to Form S-1
Registration Statement #33-40758 dated May 22,
1991 and amendment thereto dated June 18, 1991
("Form S-1")).
10.5 Non-Employee Director Deferred Compensation
Plan dated December 7, 1995. (Incorporated by
reference to Form 10-K for the fiscal year ended
September 30, 1996, File No. 0-10721 ("1996 Form
10-K")).
10.6+ Long-Term Incentive Compensation Plan adopted
December 5, 1990 (Incorporated by reference
to Proxy Statement dated December 24, 1990).
10.7+ Annual Incentive Compensation Plan adopted
December 5, 1990 (Incorporated by reference
to Form 10-K for the fiscal year ended
September 30, 1991, File No. 0-17605 ("1991
Form 10-K")).
10.8+ Non-Employee Directors' Stock Compensation
Plan adopted March 21, 1991 (Incorporated by
reference to 1991 Form 10-K).
10.9 Severance Pay Plan adopted October 17,
1991(Incorporated by reference to 1991 Form
10-K).
10.10 Service Agreement #800308 dated June 1, 1993,
applicable to Rate Schedule FT-1 (Firm
Transportation) between Texas Eastern
Transmission Company ("Texas Eastern") and
Yankee Gas (Incorporated by reference to Form
10-K for the fiscal year ended September 30,
1993, File No. 0-17605 ("1993 Form 10-K")).
10.11 Service Agreement #1596 dated September 1,
1993, applicable to Rate Schedule FT-A (Firm
Transportation) between Tennessee Gas
Pipeline ("Tennessee") and Yankee Gas
(Incorporated by reference to 1993 Form 10-K).
10.12 Service Agreement #333 dated September 1,
1993, applicable to Rate Schedule FT-A (Firm
Transportation) between Tennessee and Yankee
Gas (Incorporated by reference to 1993 Form
10-K).
10.13 Transportation Agreement dated February 7,
1991 between Iroquois Gas Transmission
System, L.P. ("Iroquois") and Yankee Gas for
transportation of Canadian gas purchased
(Incorporated by reference to Form S-1).
10.14 Service Agreement dated February 7, 1991
between Alberta Northeast Gas Ltd. ("ANE")
and Yankee Gas for purchase of gas from ATCOR
Limited (Incorporated by reference to Form S-1).
10.15 Service Agreement dated February 7, 1991
between ANE and Yankee Gas for purchase of
gas from PROGAS Limited (Incorporated by
reference to Form S-1).
10.16 Service Agreement dated February 7, 1991
between ANE and Yankee Gas for purchase of
gas from AEC Oil and Gas Company
(Incorporated by reference to Form S-1).
10.17 Service Agreement dated February 7, 1991
between ANE and Yankee Gas for purchase of
gas from TransCanada Pipelines Limited
(Incorporated by reference to Form S-1).
10.18+ Employment Agreement between the Company and
Mr. Branko Terzic dated September 15, 1994
(Incorporated by reference to Form 10-K for
the fiscal year ended September 30,1994, File
No. 0-10721).
10.19+ Form of Change in Control Executive Severance
Agreement for Michael E. Bielonko, Charles E.
Gooley, Mary J. Healey, Thomas J. Houde, Steven P.
Laden, Ellen J. Quinn, James M. Sepanski, and J.
Kingsley Fink. (Incorporated by reference to 1995
Form 10-K).
10.20 $60 million Revolving Credit Agreement among
Yankee Gas and several banks dated February
2, 1995. (Incorporated by reference to 1995
Form 10-K).
10.21 Agreement for Systems Operations Services
among Yankee Gas and Integrated Systems
Solutions Corporation ("ISSC") dated August
12, 1991 (Incorporated by reference to 1992
Form 10-K).
10.22 Stipulation and Agreement dated January 3, 1996
between Yankee Gas and the Office of Consumer
Counsel. (Incorporated by reference to 1996 Form
10-K).
10.23*+ 1996 Long-Term Incentive Compensation Plan
(Incorporated by reference to Proxy Statement
dated December 13, 1996).
10.24* Amendment to Stipulation and Agreement dated
October 1, 1997 between Yankee Gas and Connecticut
Office of Consumer Counsel.
11* Statement re: Computation of per share earnings.
13* 1997 Annual Report to Shareholders.
21* Subsidiaries of the registrant.
23* Consent of Arthur Andersen LLP.
27* Financial date schedule pursuant to Article 5
of Regulation S-X for commercial/industrial
customers.
</TABLE>
* Filed herewith.
+ Management contract or compensatory plan.
<PAGE>
EXHIBIT 4.15
FOURTH SUPPLEMENTAL INDENTURE
from
YANKEE GAS SERVICES COMPANY
to
FLEET NATIONAL BANK
TRUSTEE
------------------------
Dated as of April 1, 1997
Supplemental to Indenture of Mortgage
and Deed of Trust from
Yankee Gas Services Company to
Fleet National Bank (formerly known as
The Connecticut National Bank), Trustee,
dated as of July 1, 1989
------------------------
<PAGE>
FOURTH SUPPLEMENTAL INDENTURE
- -----------------------------
FOURTH SUPPLEMENTAL INDENTURE, dated as of April 1, 1997
between YANKEE GAS SERVICES COMPANY, a specially chartered
Connecticut corporation (herein called the "Company"), and FLEET
NATIONAL BANK (formerly known as The Connecticut National Bank),
a national banking association, as Trustee (the "Trustee") under
the Indenture of Mortgage and Deed of Trust, dated as of July 1,
1989, executed and delivered by the Company (herein called the
"Original Indenture"; the Original Indenture and any and all
indentures and instruments supplemental thereto, including,
without limitation, this Fourth Supplemental Indenture, being
herein called the "Indenture");
WHEREAS, pursuant to Sections 13.01(C), 13.01(G), 3.03 and
Article Five of the Original Indenture, the Company desires to
provide for the issuance under the Indenture of a new series of
Bonds, which Bonds will be secured by and entitled to the
benefits of the Indenture, and to add to its covenants and
agreements contained in the Original Indenture certain other
covenants and agreements; and
WHEREAS, all acts and things necessary to make this Fourth
Supplemental Indenture a valid, binding and legal instrument have
been performed, and the issuance of the new series of Bonds,
subject to the terms of the Original Indenture, has been duly
authorized by the Board of Directors of the Company and approved
by the Connecticut Department of Public Utility Control, and the
Company has requested and hereby requests the Trustee to enter
into and join the Company in the execution and delivery of this
Fourth Supplemental Indenture;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH, that,
to secure the payment of the principal of (and premium, if any)
and interest on the Outstanding Secured Bonds, including the new
series of Bonds hereunder issued, and the performance of the
covenants therein and herein contained and to declare the terms
and conditions on which all such Outstanding Secured Bonds are
secured, and in consideration of the premises and of the purchase
of the Bonds by the Holders thereof, the Company by these
presents does grant, bargain, sell, alien, remise, release,
convey, assign, transfer, mortgage, hypothecate, pledge, set over
and confirm to the Trustee, all property, rights, privileges and
franchises of the Company of every kind and description, real,
personal or mixed, tangible and intangible, whether now owned or
hereafter acquired by the Company, wherever located, and grants a
security interest therein for the purposes herein expressed,
except any Excepted Property which is expressly excepted from the
lien hereof in the Original Indenture, and including, without
limitation, all and singular the following:
All property, rights, privileges and franchises particularly
described in the Original Indenture, and any and all indentures
and instruments supplemental thereto, including, without
limitation, the First Supplemental Indenture dated as of April 1,
1992, the Second Supplemental Indenture dated as of December 1,
1992, the Third Supplemental Indenture dated as of June 1, 1995,
and in addition, all the property, rights, privileges and
franchises particularly described in Schedule A annexed to this
Fourth Supplemental Indenture, which are hereby made a part of,
and deemed to be described herein, as fully as if set forth
herein at length.
TO HAVE AND TO HOLD all said property, rights, privileges and
franchises of every kind and description, real, personal or
mixed, hereby and hereafter (by supplemental indenture or
otherwise) granted, bargained, sold, aliened, remised, released,
conveyed, assigned, transferred, mortgaged, hypothecated,
pledged, set over or confirmed as aforesaid, or intended, agreed
or covenanted so to be, together with all the appurtenances
thereto appertaining (said properties, rights, privileges and
franchises, including any cash and securities hereafter deposited
or required to be deposited with the Trustee (other than any such
cash which is specifically stated herein not to be deemed part of
the Trust Estate), being herein collectively called "Trust
Estate") unto the Trustee and its successors and assigns forever.
SUBJECT, HOWEVER, to Permitted Encumbrances (as defined in
Section 1.01 of the Original Indenture).
BUT IN TRUST, NEVERTHELESS, for the proportionate and equal
benefit and security of the Holders from time to time of all the
Outstanding Secured Bonds without any preference or priority of
any such Bond over any other such Bond.
UPON CONDITION that, until the happening of an Event of
Default (as defined in Section 1.01 of the Original Indenture)
and subject to the provisions of Article Six of the Original
Indenture, the Company shall be permitted to possess and use the
Trust Estate, except cash, securities and other personal property
deposited and pledged, or required to be deposited and pledged,
with the Trustee, and to receive and use the rents, issues,
profits, revenues and other income of the Trust Estate.
AND IT IS HEREBY DECLARED that in order to set forth the terms
and provisions of the new series of Bonds and in consideration of
the premises and of the purchase and acceptance of such Bonds by
the holders thereof, and in consideration of the sum of One
Dollar ($1.00) to it duly paid by the Trustee, and of other good
and valuable consideration, the receipt whereof is hereby
acknowledged, and for the purpose of securing the faithful
performance and observance of all the covenants and conditions of
the Indenture, the Company hereby covenants and agrees with the
Trustee and provides as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Terms from the Original Indenture. All defined
terms used in this Fourth Supplemental Indenture and not
otherwise defined herein shall have the respective meanings
ascribed to them in the Original Indenture.
Section 1.02. References are to Fourth Supplemental
Indenture. Unless the context otherwise requires, all references
herein to "Articles," "Sections" and other subdivisions are to
the designated Articles, Sections and other subdivisions of this
Fourth Supplemental Indenture, and the words "herein," "hereof,"
"hereby," "hereunder" and words of similar import refer to this
Fourth Supplemental Indenture as a whole and not to any
particular Article, Section or other subdivision hereof or to the
Original Indenture.
ARTICLE II
SERIES E BONDS
Section 2.01 Specific Title, Terms and Forms. There is
hereby created and shall be outstanding under and secured by the
Indenture a series of Bonds entitled "First Mortgage Bonds, 7.19%
Series E, Due 2012" (herein called the "Series E Bonds"), limited
in aggregate principal amount at any one time outstanding to
Thirty Million Dollars ($30,000,000). The form of the Series E
Bonds shall be substantially as set forth in Exhibit A hereto
with such insertions, omissions, substitutions and variations as
may be determined by the officers executing the same as evidenced
by their execution thereof.
The Series E Bonds shall be issued as fully registered Bonds
in denominations of $250,000 or any amount in excess thereof
which is an integral multiple of $5,000. The Series E Bonds
shall be numbered E-1 and consecutively upwards, or in any other
manner deemed appropriate by the Trustee. The Series E Bonds
shall mature on April 1, 2012 and shall bear interest from the
date of issuance thereof (or from the most recent Interest
Payment Date to which interest has been paid or duly provided
for) at the rate of seven and nineteen one-hundredths percent
7.19% per annum (computed on the basis of a 360-day year of
twelve 30-day months). Interest Payment Dates for the Series E
Bonds shall be April 1 and October 1 of each year, commencing
October 1, 1997.
Notwithstanding the otherwise applicable provisions of the
Indenture, the principal and the Redemption Price of, the
premium, if any, and interest on, the Series E Bonds shall be
payable by wire transfer of immediately available funds so long
as required by Section 5.1 of the Bond Purchase Agreements, each
dated as of April 1, 1997, between the Company and the initial
purchasers of the Series E Bonds (the "Bond Purchase Agreements")
or, in the event Section 5.1 shall no longer be applicable, at
the office or agency of the Company in Hartford, Connecticut, in
such coin or currency of the United States of America as at the
time of payment is legal tender for public or private debts.
The Regular Record Date referred to in Section 3.09 of the
Original Indenture for the payment of the interest on the Series
E Bonds payable, and punctually paid or duly provided for, on any
Interest Payment Date shall be the 15th day (whether or not a
business day) of the calendar month next preceding such Interest
Payment Date.
Section 2.02 Sinking Fund Installments and Mandatory
Redemptions. The Company covenants that, to provide for the
retirement of the Series E Bonds, it will call for redemption
upon notice in accordance with Section 15.04 of the Original
Indenture and redeem $4,285,714 in principal amount of the Series
E Bonds on April 1, of each year from April 1 of 2006 to April 1,
2012, inclusive, in each case at 100% of the principal amount
thereof, together with accrued interest to the date of the
redemption. The principal amount of the Series E Bonds to be
redeemed upon any mandatory redemption pursuant to this Section
2.02 shall be applied pro rata to all such Series E Bonds
Outstanding on the Redemption Date. Any redemption of Series E
Bonds shall be made in the manner, subject to the requirements
and with the effect specified in Article Fifteen of the Original
Indenture.
Section 2.03 Optional Redemption. The Series E Bonds shall
be redeemable at the option of the Company in whole at any time
or in part from time to time prior to their Stated Maturity, at a
redemption price equal to the principal amount of the Series E
Bonds being prepaid plus accrued interest thereon to the date of
such redemption together with a premium equal to the then
applicable Make-Whole Amount.
The Company will give notice of any optional redemption of the
Series E Bonds pursuant to this Section 2.03 to each Holder
thereof not less than 30 days nor more than 60 days before the
date fixed for such optional redemption, specifying (a) such
date, (b) the principal amount of the Holder's Bond to be
redeemed on such date, (c) that a premium may be payable, (d) the
estimated premium, calculated as of the day such notice is given,
and (e) the accrued interest applicable to the redemption. Such
notice of redemption shall also certify all facts, if any, which
are conditions precedent to any such redemption. Notice of
redemption having been so given, the aggregate principal amount
of the Series E Bonds specified in such notice, together with
accrued interest thereon, and the premium, if any, payable with
respect thereto shall become due and payable on the redemption
date specified in such notice. Two Business Days prior to the
redemption date specified in such notice of optional redemption,
the Company shall provide each Holder of a Bond written notice of
whether or not any premium is payable in connection with such
redemption, the premium, if any, calculated as of the second
Business Day prior to the redemption date, and a reasonably
detailed computation of the Make-Whole Amount.
For purposes of this Section 2.03, the term "Make-Whole
Amount" shall mean in connection with any optional redemption of
the Series E Bonds the excess, if any, of (a) the aggregate
present value as of the date of such redemption of each dollar of
principal amount of Series E Bonds being redeemed and the amount
of interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of such
dollar if such redemption had not been made, determined by
discounting such amounts at the Reinvestment Rate from the
respective dates on which they would have been payable, over (b)
100% of the principal amount of the outstanding Series E Bonds
being redeemed.
The "Reinvestment Rate" means (1) the sum of .50% plus the
yield reported on page "USD" of the Bloomberg Financial Market
Services Screen (or, if not available, any other nationally
recognized trading screen reporting on-line intraday trading in
United States government securities) at 12:00 noon (New York
time) on such date for United States government securities having
a maturity rounded to the nearest month corresponding to the
remaining Weighted Average Life to Maturity of the principal
being redeemed, prepaid or paid or (2) in the event that no such
nationally recognized trading screen reporting on-line intraday
trading in United States government Securities is available,
Reinvestment Rate means .50 plus the arithmetic mean of the
yields under the respective headings "This Week" and "Last Week"
published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest
month) corresponding to the Weighted Average Life to Maturity of
the principal being redeemed. If no maturity exactly corresponds
to such Weighted Average Life to Maturity, yields for the two
published maturities most closely corresponding to such Weighted
Average Life to Maturity shall be calculated pursuant to the
immediately preceding sentence, and the Reinvestment Rate shall
be interpolated or extrapolated from such yields on a
straight-line basis, rounding in each of such relevant periods to
the nearest month. For purposes of calculating the Reinvestment
Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
For purposes of this Section 2.03, "Weighted Average Life to
Maturity" of the principal amount of the Series E Bonds being
redeemed shall mean, as of the time of any determination thereof,
the number of years obtained by dividing the then Remaining
Dollar-Years of such principal by the aggregate amount of such
principal. The term "Remaining Dollar-Years" of such principal
shall mean the amount obtained by multiplying the amount of
principal that would have become due at the Stated Maturity of
the Series E Bonds if such redemption had not been made by the
number of years (calculated to the nearest one-twelfth) which
will elapse between the date of determination and the Stated
Maturity of the Series E Bonds.
As used in this Section 2.03, "Statistical Release" shall mean
the then most recently published statistical release designated
"H.15(519)" or any successor publication which is published
weekly by the Federal Reserve System and which establishes yields
on actively traded United States government securities adjusted
to constant maturities or, if such statistical release is not
published at the time of any determination hereunder, then such
other reasonably comparable index which shall be designated by
the holders of 66-2/3% in aggregate principal amount of the
outstanding Series E Bonds.
The principal amount of any Series E Bonds redeemed pursuant
to this Section 2.03 shall be applied to reduce the principal
amount payable in respect of such Series E Bonds in the inverse
order of maturity thereof.
The principal amount, if any, of the Series E Bonds to be
redeemed pursuant to this Section 2.03 shall be selected on a pro
rata basis from all Series E Bonds Outstanding on the Redemption
Date.
The Series E Bonds shall not be redeemable at the option of
the Company prior to their Stated Maturity other than as provided
in this Section 2.03.
Section 2.04. Place of Payment. The principal and the
Redemption price of, and the premium, if any, and the interest
on, the Series E Bonds shall be payable at the principal
corporate trust office of Fleet National Bank, in Hartford,
Connecticut.
Section 2.05. Exchangeability. Subject to Section 3.07 of
the Indenture, all Series E Bonds shall be fully interchangeable,
and, upon surrender at the office or agency of the Company in a
Place of Payment therefor, shall be exchangeable for other Series
E Bonds of a different authorized denomination or denominations,
as requested by the Holder surrendering the same. The Company
will execute, and the Trustee shall authenticate and deliver,
Series E Bonds whenever the same are required for any such
exchange.
Section 2.06. Bond Purchase Agreements. Reference is made
to Sections 5 and 7 of the Bond Purchase Agreement for certain
provisions governing the rights and obligations of the Company,
the Trustee and the Holders of the Series E Bonds. Such
provisions are deemed to be incorporated in this Article II by
reference as if set forth herein at length.
Section 2.07. Restrictions on Transfer. All Series E Bonds
originally issued hereunder shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").
THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES
FOR THE BENEFIT OF YANKEE GAS SERVICES COMPANY (THE
"COMPANY") AND PRIOR HOLDERS THAT THIS SECURITY MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1) TO THE COMPANY (UPON REDEMPTION THEREOF OR
OTHERWISE), (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER,
WITHIN THE MEANING OF RULE 144A UNDER THE 1933 ACT, IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3)
IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION
S UNDER THE 1933 ACT, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION IN ACCORDANCE WITH RULE 144 (IF AVAILABLE)
UNDER THE 1933 ACT, (5) IN RELIANCE ON ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT,
SUBJECT TO THE RECEIPT BY THE COMPANY OF AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE 1933 ACT OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE 1933 ACT, SUBJECT (IN THE CASE OF CLAUSES (2), (3),
(4) AND (5)) TO THE RECEIPT BY THE COMPANY OF A
CERTIFICATION OF THE TRANSFEROR (WHICH, IN THE CASE OF
CLAUSE (4), MAY BE A COPY OF FORM 144 AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION) TO THE EFFECT THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE 1933 ACT, AND IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY JURISDICTION OF THE UNITED STATES. THE
HOLDER OF THIS SECURITY WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY
FROM IT OF THE RESALE RESTRICTIONS REFERRED TO HEREIN.
All Series E Bonds issued upon transfer or exchange thereof
shall bear such legend unless the Company shall have delivered to
the Trustee an Opinion of Counsel which states that the Series E
Bonds may be issued without such legend. All Series E Bonds
issued upon transfer or exchange of a Series E Bond or Bonds
which do not bear such legend shall be issued without such
legend. The Company may from time to time modify the foregoing
restrictions on resale and other transfers, without the consent
of but upon notice to the Holders, in order to reflect any
amendment to Rule 144A under the Securities Act of 1933 or change
in the interpretation thereof or practices thereunder.
Section 2.08. Authentication and Delivery. Upon the
execution of this Fourth Supplemental Indenture, the Series E
Bonds shall be executed by the Company and delivered to the
Trustee for authentication, and thereupon the same shall be
authenticated and delivered by the Trustee upon Company Request.
Section 2.09. Default. Pursuant to the Original Indenture
(and notwithstanding any provision of Section 9.22 thereof to the
contrary), for purposes of determining whether an Event of
Default exists with respect to the Series E Bonds, any default in
payment (whether due as a scheduled installment of principal or
interest, or at original maturity or earlier redemption or
acceleration, or otherwise) with respect to Bonds of any other
series which constitutes an Event of Default with respect to the
Bonds of such series shall also constitute an Event of Default
with respect to the Series E Bonds.
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Effectiveness and Ratification of Indenture.
The provisions of this Fourth Supplemental Indenture shall be
effective from and after the execution hereof; and the Indenture,
as hereby supplemented, shall remain in full force and effect.
Section 3.02. Titles. The titles of the several Articles
and Sections of this Fourth Supplemental Indenture shall not be
deemed to be any part thereof, are inserted for convenience only
and shall not affect any interpretation hereof.
Section 3.03. Successors and Assigns. All covenants,
provisions, stipulations and agreements in this Fourth
Supplemental Indenture contained are and shall be for the sole
and exclusive benefit of the parties hereto, their successors and
assigns, and (subject to the provisions of the Bond Purchase
Agreement) of the Holders and registered owners from time to time
of the Bonds issued and outstanding under and secured by the
Indenture (except that the provisions of Article II hereof are
and shall be for the sole and exclusive benefit of the Holders of
the Series E Bonds).
Section 3.04. Counterparts. This Fourth Supplemental
Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
Section 3.05. Governing Law. The laws of the State of
Connecticut shall govern this Fourth Supplemental Indenture and
the Series E Bonds, except to the extent that the validity or
perfection of the lien of the Indenture, or remedies thereunder,
are governed by the laws of a jurisdiction other than the State
of Connecticut.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Fourth Supplemental Indenture to be duly executed, sealed and
attested as of the day and year first above written.
YANKEE GAS SERVICES COMPANY
By
--------------------------
Its Vice President and
Chief Financial Officer
Attest:
-----------------------------
Mary J. Healey
Secretary and General Counsel
Executed, sealed and delivered by
YANKEE GAS SERVICES COMPANY
in the presence of:
----------------------------------
----------------------------------
FLEET NATIONAL BANK, as Trustee
By
-------------------------------
Attest:
-----------------------------------
Executed, sealed and delivered by
FLEET NATIONAL BANK, as Trustee,
in the presence of:
----------------------------------
----------------------------------
<PAGE>
STATE OF CONNECTICUT )
) ss.: Meriden
COUNTY OF NEW HAVEN )
On this ----- day of April, 1997, before me, ---------------
- ---------------, the undersigned officer, personally appeared
Michael E. Bielonko and Mary J. Healey, who acknowledged
themselves to be Vice President and Chief Financial Officer and
Secretary and General Counsel, respectively, of Yankee Gas
Services Company, a Connecticut corporation, and that they, as
such officers, being authorized so to do, executed the foregoing
instrument for the purpose therein contained, by signing the name
of the corporation by themselves as such officers, and as their
free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
STATE OF CONNECTICUT )
) ss.: Hartford
COUNTY OF HARTFORD )
On this ---- day of April, 1997, before me, -------------,
the undersigned officer, personally appeared -----------------
and ------------------, who acknowledged themselves to be -----
- ------------------- and -------------------, respectively, of
Fleet National Bank, a national banking association, and that
they, as such officers, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by
signing the name of the association by themselves as such
officers, and as their free act and deed.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
------------------------------
Notary Public
My commission expires:
--------
(SEAL)
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").
THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF YANKEE GAS SERVICES COMPANY
(THE "COMPANY") AND PRIOR HOLDERS THAT THIS SECURITY
MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (1) TO THE COMPANY (UPON REDEMPTION
THEREOF OR OTHERWISE), (2) SO LONG AS THIS SECURITY
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER, WITHIN THE MEANING OF
RULE 144A UNDER THE 1933 ACT, IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (3) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S
UNDER THE 1933 ACT, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION IN ACCORDANCE WITH RULE 144 (IF
AVAILABLE) UNDER THE 1933 ACT, (5) IN RELIANCE ON
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE 1933 ACT, SUBJECT TO THE RECEIPT BY THE
COMPANY OF AN OPINION OF COUNSEL TO THE EFFECT THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE 1933 ACT OR
(6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, SUBJECT (IN THE CASE OF CLAUSES
(2), (3), (4) AND (5)) TO THE RECEIPT BY THE COMPANY
OF A CERTIFICATION OF THE TRANSFEROR (WHICH, IN THE
CASE OF CLAUSE (4), MAY BE A COPY OF FORM 144 AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION) TO
THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT, AND IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY JURISDICTION OF THE UNITED
STATES. THE HOLDER OF THIS SECURITY WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO HEREIN.
<PAGE>
Yankee Gas Services Company
First Mortgage Bonds,
7.19% Series E, Due 2012
CUSIP Number 98477Y AB 9
No. E - 1
Principal Amount: $
Stated Maturity of Principal: April 1, 2012
Applicable Rate: 7.19%
Interest Payment Dates: April 1 and October 1
commencing October 1, 1997
Yankee Gas Services Company, a specially chartered
Connecticut corporation (hereinafter called the "Company", which
term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to
pay to [--------------], or registered assigns, at the Stated
Maturity set forth above, the Principal Amount set forth above
(or so much thereof as shall not have been paid upon prior
redemption) and to pay interest (computed on the basis of a 360-
day year of twelve 30-day months) thereon from the date of
issuance hereof or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, on each
Interest Payment Date set forth above in each year at the
Applicable Rate set forth above. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment
Date will, as provided in said Indenture, be paid to the Person
in whose name this Bond (or one or more Predecessor Bonds, as
defined in said Indenture) is registered at the close of business
on the Regular Record Date for such interest, which shall be the
15th day (whether or not a business day) of the calendar month
next preceding such Interest Payment Date. Any such interest not
so punctually paid or duly provided for shall be paid to the
Person in whose name this Bond is registered on the Business Day
immediately preceding the date of such payment. If all or any
portion of the principal of, or the premium (if any) or interest
on, this Bond shall not be paid when due, the amount not so paid
shall bear interest at the lesser of (x) the highest rate allowed
by applicable law or (y) the greater of (i) the Prime Rate or
(ii) 8.19% (the Applicable Rate plus 1% per annum).
The principal and the Redemption Price of, and the premium,
if any, and the interest on, this Bond shall be payable at the
principal corporate trust office of Fleet National Bank, in
Hartford, Connecticut. All such payments shall be made in such
coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private
debts.
This Bond is one of a duly authorized issue of Bonds of the
Company designated as its "First Mortgage Bonds" (herein called
the "Bonds"), issued and to be issued in one or more series
under, and all equally and ratably secured by, an Indenture of
Mortgage and Deed of Trust, dated as of July 1, 1989, (herein,
together with any indenture or instruments supplemental thereto,
including the First Supplemental Indenture dated as of April 1,
1992, the Second Supplemental Indenture dated as of December 1,
1992, the Third Supplemental Indenture dated as of June 1, 1995,
and the Fourth Supplemental Indenture dated as of April 1, 1997
called the "Indenture"), between the Company and Fleet National
Bank (formerly known as The Connecticut National Bank), as
Trustee (herein called the "Trustee," which term includes any
successor Trustee under the Indenture). Reference is hereby made
to the Indenture for a description of the properties thereby
mortgaged, pledged and assigned, the nature and extent of the
security, the respective rights thereunder of the Holders of the
Bonds, the Trustee and the Company, and the terms upon which the
Bonds are, and are to be, authenticated and delivered. All
capitalized terms used in this Bond which are not defined herein
shall have the respective meanings ascribed thereto in the
Indenture. Reference is also made to the Bond Purchase
Agreements, as defined in the Fourth Supplemental Indenture, for
a further description of the respective rights of the Holders of
the Series E Bonds, the Company and the Trustee, and the terms
applicable to the Series E Bonds.
As provided in the Indenture, the Bonds are issuable in
series which may vary as in the Indenture provided or permitted.
This Bond is one of the series specified in its title.
As provided in the Indenture, the Company covenants that to
provide for the retirement of the Series E Bonds, it will call
for redemption upon notice in accordance with Section 15.04 of
the Original Indenture and redeem $4,285,714 in principal amount
of the Series E Bonds on April 1, of each year from April 1 of
2006 to April 1, 2012, inclusive, in each case at 100% of the
principal amount thereof, together with accrued interest to the
date of the redemption.
As provided in the Indenture, at the option of the Company,
the Series E Bonds shall be redeemable in whole at any time or in
part from time to time, prior to their Stated Maturity, at a
redemption price equal to the principal amount of the Series E
Bonds being prepaid plus accrued interest thereon to the date of
such redemption together with a premium equal to the then
applicable Make-Whole Amount.
The Company will give notice of any optional redemption of
the Series E Bonds pursuant to Section 2.03 of the Fourth
Supplemental Indenture to each Holder thereof not less than 30
days nor more than 60 days before the date fixed for such
optional redemption, specifying (a) such date, (b) the principal
amount of the Holder's Bond to be redeemed on such date, (c) that
a premium may be payable, (d) the estimated premium, calculated
as of the day such notice is given and (e) the accrued interest
applicable to the redemption. Notice of redemption having been
so given, the aggregate principal amount of the Series E Bonds
specified in such notice, together with accrued interest thereon,
and the premium, if any, payable with respect thereto shall
become due and payable on the redemption date specified in such
notice. Two Business Days prior to the redemption date specified
in such notice of optional redemption, the Company shall provide
each Holder of a Bond written notice of whether or not any
premium is payable in connection with such redemption, the
premium, if any, calculated as of the second Business Day prior
to the redemption date, and a reasonably detailed computation of
the Make-Whole Amount.
Bonds (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall
thereupon cease to be entitled to the lien of the Indenture and
shall cease to bear interest from and after the date fixed for
redemption (in each event, so long as the payment due on any such
date shall be made). The principal amount of the Series E Bonds
to be redeemed upon any optional redemption thereof shall be
applied pro rata to all such Series E Bonds Outstanding on the
Redemption Date.
If an Event of Default, as defined in the Indenture, shall
occur, the principal of the Series E Bonds may become or be
declared due and payable in the manner and with the effect
provided in the Indenture and the Bond Purchase Agreements.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the
rights and obligations of the Company and the rights of the
Holders of the Bonds under the Indenture at any time by the
Company with the consent of the Holders of a majority in
aggregate principal amount of the Bonds of all series at the time
Outstanding affected by such modification. The Indenture also
contains provisions permitting the Holders of specified
percentages in principal amount of Bonds at the time Outstanding
on behalf of the Holders of all the Bonds, to waive compliance by
the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any
such consent or waiver agreed to as set forth above by the Holder
of this Bond shall be conclusive and binding upon such Holder and
upon all future Holders of this Bond and of any Bond issued upon
the transfer hereof or in exchange hereof or in lieu hereof,
whether or not notation of such consent or waiver is made upon
this Bond.
No reference herein to the Indenture and no provision of
this Bond or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of (and premium, if any) and interest on
this Bond at the times, places and rates, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, this Bond is transferable on the
Bond Register of the Company, upon surrender of this Bond for
transfer at the office or agency of the Company in Hartford,
Connecticut, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and
the Bond Registrar, duly executed by the Registered Holder hereof
or by his attorney duly authorized in writing, and thereupon one
or more new Bonds of the same series, or authorized denominations
and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
All Bonds of this series shall be fully interchangeable,
and, upon surrender at the office or agency of the Company in a
Place of Payment therefor, shall be exchangeable for other Bonds
of this series of a different authorized denomination or
denominations, as requested by the Holder surrendering the same.
No service charge shall be made for any transfer or exchange
hereinbefore referred to, but the Company may require payment of
a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Bond is
registered as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or
not this Bond is overdue, and neither the Company, the Trustee
nor any such agent shall be affected by notice to the contrary.
Unless the certificate of authentication hereon has been
executed by the Trustee or Authenticating Agent by manual
signature, this Bond shall not be entitled to any benefit under
the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Bond to be
duly executed under its corporate seal.
Dated: YANKEE GAS SERVICES COMPANY
---------------
By
--------------------------
Attest:
- -----------------------
This is one of the Bonds of the series
designated therein referred to in the
within-mentioned Indenture.
FLEET NATIONAL BANK,
as Trustee
By -----------------------------
Authorized Officer
<PAGE>
Exhibit 4.16
YANKEE GAS SERVICES COMPANY
599 Research Parkway
Meriden, Connecticut 06450-1030
-----------------------------
BOND PURCHASE AGREEMENT
------------------------------
April 1, 1997
Re: $30,000,000 aggregate principal amount of First
Mortgage Bonds, 7.19% Series E, Due 2012
-----------------------------------------------
To the Purchaser named in Schedule I
hereto and which is a signatory
of this Agreement
Ladies and Gentlemen:
The undersigned, YANKEE GAS SERVICES COMPANY, a specially
chartered Connecticut corporation (the "Company"), hereby agrees
with you as follows:
SECTION 1. ISSUANCE OF BONDS.
Section 1.1. Issue of Bonds and Security. The Company has
duly authorized the issuance and delivery of $30,000,000 in
aggregate principal amount of its First Mortgage Bonds, 7.19%
Series E, Due 2012 (collectively, the "Bonds"), to be issued
under and secured by that certain Indenture of Mortgage and Deed
of Trust dated as of July 1, 1989 (the "Original Indenture") by
and between the Company and Fleet National Bank (formerly known
as The Connecticut National Bank), as Trustee (the "Trustee"), as
supplemented and amended and as to be supplemented and amended by
a Fourth Supplemental Indenture dated as of April 1, 1997 (the
"Supplemental Indenture") which will be substantially in the form
attached hereto as Exhibit A, but with such changes therein, if
any, as may be agreed upon by you and the Company, and will be
entitled to the benefits thereof. The Original Indenture, as
heretofore supplemented and amended including, without
limitation, by the Supplemental Indenture, is hereinafter
referred to as the "Indenture." The terms of the Bonds shall be
substantially as set forth in Exhibit A to the Supplemental
Indenture and will be dated the date of issuance thereof; will be
in the amount of $250,000 or any amount in excess thereof that is
an integral multiple of $5,000; will bear interest on the unpaid
principal balance thereof from the date of the Bonds at the rate
of 7.19% per annum, payable semiannually on the first day of each
April 1 and October 1 in each year, commencing on October 1,
1997, until the principal amount thereof becomes due and payable;
and will bear interest on overdue principal (including any
optional prepayment of principal) and premium, if any, and (to
the extent legally enforceable) on any overdue installment of
interest at a rate equal to the lesser of (a) the highest rate
allowed by applicable law or (b) the higher of (i) the Prime Rate
or (ii) 8.19% per annum after the due date, whether by
acceleration or otherwise, until paid; and will be expressed to
mature on April 1, 2012. Interest on the Bonds shall be computed
on the basis of a 360-day year of twelve 30-day months. The
Bonds are not subject to prepayment or redemption prior to their
expressed maturity date except on the terms and conditions and in
the amounts and with the premium, if any, set forth in Section
2.02 of the Supplemental Indenture (Sinking Fund Installments and
Mandatory Redemptions) and in Section 2.03 of the Supplemental
Indenture (Optional Redemption).
The Indenture creates and will create a first mortgage Lien
on and a first security interest in the Property of the Company
described therein as being subjected to the Lien thereof
(excluding Excepted Property and subject to Permitted
Encumbrances as therein defined), except such Property as may
have been released from the Lien thereof in accordance with the
terms thereof (such Property not so released being hereinafter
defined as the "Trust Estate").
The terms used in this Agreement and not defined at the
point at which they are first used are defined in Section 8.1
(Definitions) hereof.
Section 1.2. Sale of Bonds. The Company agrees to sell to
you, and, subject to the terms and conditions herein set forth,
you agree to purchase from the Company, Bonds in the principal
amount set forth opposite your name on Schedule I hereto on the
Closing Date (as defined below) at a purchase price equal to 100%
of the principal amount thereof. The Bonds will be sold and
delivered at one closing to be held at the principal offices of
Shipman & Goodwin LLP, One American Row, Hartford, Connecticut
06103-2819, at 10:00 a.m. Hartford, Connecticut time, on April 1,
1997, or such other date as shall be mutually agreed upon between
you and the Company (the date and time for such closing being
hereinafter referred to as the "Closing Date"). On the Closing
Date, the Company will deliver to you one duly authenticated Bond
(or such other number of Bonds in such denominations of not less
than $250,000 as you may designate by notice prior to the Closing
Date), dated the Closing Date, in the full principal amount of
your purchase and registered in your name (or in such nominee
name as you shall designate to the Company prior to the Closing
Date), against payment to the Company by wire transfer of
immediately available funds to the Company in the amount of the
purchase price referred to above pursuant to wire transfer
instructions set forth in Schedule V attached hereto.
Section 1.3. Purchase for Investment. You represent and
warrant to the Company that (a) you are an Accredited Investor
and (b) you are purchasing your Bonds for your own account for
investment and not with a view to the distribution thereof, and
that you have no present intention of distributing your Bonds or
any part thereof; provided, however, that the disposition of your
Property shall at all times be within your control and that your
right at all times to sell or otherwise dispose of all or any
part of your Bonds pursuant to applicable state securities laws
and to an effective registration statement under the Securities
Act or in accordance with an exemption from such registration
available under the Securities Act shall not be prejudiced. You
covenant and agree that you will only sell or otherwise dispose
of all or any part of your Bonds in compliance with applicable
Federal and state securities laws and Section 1.4 (Restrictions
on Transfer; Legend) of this Agreement. Your acquisition of your
Bonds hereunder shall constitute a reaffirmation by you, as of
the Closing Date, of your representations set forth in this
Section 1.3.
Section 1.4. Restrictions on Transfer; Legend. The Bonds
are subject to restrictions on transfer as described in the
private placement memorandum prepared by the Company and dated
January 1997, (including the Exhibits thereto and the documents
incorporated by reference therein, the "Private Placement
Memorandum") and the legend to be endorsed on each certificate
for the Bonds. You covenant and agree when effecting resales of
the Bonds pursuant to Rule 144A under the Securities Act to make
offers and sales only to persons whom you reasonably believe to
be Qualified Institutional Buyers. The legend on the Bonds will
be substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").
THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES
FOR THE BENEFIT OF YANKEE GAS SERVICES COMPANY (THE
"COMPANY") AND PRIOR HOLDERS THAT THIS SECURITY MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1) TO THE COMPANY (UPON REDEMPTION THEREOF OR
OTHERWISE), (2) SO LONG AS THIS SECURITY IS ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER, WITHIN THE MEANING OF RULE 144A UNDER THE 1933
ACT, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
REGULATION S UNDER THE 1933 ACT, (4) PURSUANT TO AN
EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE
144A (IF AVAILABLE) UNDER THE 1933 ACT, (5) IN RELIANCE
ON ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE 1933 ACT, SUBJECT TO THE RECEIPT BY THE COMPANY
OF AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH
TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE 1933 ACT OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, SUBJECT (IN
THE CASE OF CLAUSES (2), (3), (4) AND (5)) TO THE
RECEIPT BY THE COMPANY OF A CERTIFICATION OF THE
TRANSFEROR (WHICH, IN THE CASE OF CLAUSE (4), MAY BE A
COPY OF FORM 144 AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION) TO THE EFFECT THAT SUCH TRANSFER
IS IN COMPLIANCE WITH THE 1933 ACT, AND IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
JURISDICTION OF THE UNITED STATES. THE HOLDER OF THIS
SECURITY WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF
THE RESALE RESTRICTIONS REFERRED TO HEREIN.
Section 1.5. Source of Funds; ERISA. You further represent
and warrant that either: (a) no part of the funds to be used by
you to purchase the Bonds constitutes assets allocated to any
separate account maintained by you; or (b) no part of the funds
to be used by you to purchase the Bonds constitutes assets
allocated to any separate account maintained by you such that the
application of such funds constitutes a prohibited transaction
under Section 406 of ERISA; or (c) all or part of such funds
constitute assets of one or more separate accounts maintained by
you, and you have disclosed to the Company the names of such
employee benefit plans, whose assets in such separate account or
accounts exceed 10% of the total assets or are expected to exceed
10% of the total assets of such account or accounts as of the
date of such purchase, and the Company has advised you in writing
(and in making the representations set forth in this clause (c)
you are relying on such advice) that the Company is not a party-
in-interest nor are the Bonds employer securities with respect to
the particular employee benefit plans disclosed to the Company by
you as aforesaid (for the purpose of this clause (c), all
employee benefit plans maintained by the same employer or
employee organization are deemed to be a single plan). As used
in this Section 1.5, the terms "separate account," "party-in-
interest," "employer securities" and "employee benefit plan"
shall have the respective meanings assigned to them in ERISA.
If, as contemplated in the foregoing clause (c), you are
purchasing Bonds for one or more separate accounts maintained by
you, and if it is intended that any of such accounts shall be
deemed to be a separate holder of the Bonds allocated to such
account, you have identified each such account in Schedule I and
the principal amount of Bonds allocated to each such account, and
the Company acknowledges and agrees that for all purposes of this
Agreement, each such account shall be deemed to be a separate
holder of the Bonds allocated to such account as aforesaid.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
To induce you to enter into this Agreement and to purchase
the Bonds listed on Schedule I to this Agreement opposite your
name, the Company warrants, represents and undertakes as follows:
Section 2.1. Subsidiaries. The Company has no
Subsidiaries. Each of the Company's corporate or joint venture
Affiliates and the nature of the affiliation are disclosed in the
Private Placement Memorandum.
Section 2.2. Corporate Organization and Authority. The
Company:
(a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Connecticut;
(b) has all requisite power and authority (corporate and
other) and all necessary licenses, permits and rights to own and
operate its Properties and to carry on its business substantially
as now conducted (except where the absence of any such license,
permit, or right would not, individually or in the aggregate,
have a material adverse effect on the Company's business,
prospects, Properties or condition (financial or otherwise)); and
(c) has no Properties and carries on no activities in any
jurisdiction which would require qualification, licensing or
authorization to do business as a foreign corporation in such
jurisdiction.
Section 2.3. Business, Property and Indebtedness.
(a) Nature of Business; Properties. The Private Placement
Memorandum which previously has been delivered to you, correctly
describes the general nature of the business and principal
Properties of the Company.
(b) Indebtedness. Schedule II to this Agreement correctly
lists all outstanding Indebtedness for borrowed money (including,
without limitation, purchase money obligations, capital leases
and contingent liabilities under guarantees) of the Company as of
December 31, 1996 (provided that short-term Indebtedness may be
expressed as an aggregate amount).
(c) Real Property. The Company does not own or lease real
Property or operate a sales or business office (or both) or have
any employees located in any jurisdiction other than the State of
Connecticut.
Section 2.4. Financial Statements; Material Adverse Change.
(a) Financial Statements. The financial statements of the
Parent and its Subsidiaries as of September 30, 1996, contained
in the Private Placement Memorandum and the unaudited
consolidated balance sheet of the Parent and its subsidiaries as
of December 31, 1996, and the related consolidated statements of
income and cash flows for the three (3) months ended on such date
have been prepared in accordance with generally accepted
accounting principles consistently applied, and present fairly
the financial position of the Parent and its Subsidiaries as of
such dates and the results of their operations for such periods.
(b) Material Adverse Change. Since September 30, 1996,
there has been no change in the business, prospects, Properties
or condition (financial or otherwise) of the Company, except
changes in the ordinary course of business, none of which, either
individually or in the aggregate, has been materially adverse.
Section 2.5. Full Disclosure. The financial statements
referred to in Section 2.4 (Financial Statements; Material
Adverse Change), as of their respective dates and for the periods
presented, and the Private Placement Memorandum, as of the date
hereof, do not, nor does this Agreement or any written statement
furnished by or on behalf of the Company to you in connection
with the negotiation of the sale of the Bonds, contain any untrue
statement of a material fact or omit a material fact necessary to
make the statements contained therein or herein not misleading.
There is no fact which the Company has not disclosed to you in
writing which materially affects adversely nor, so far as the
Company can now reasonably foresee, shall materially affect
adversely the business, prospects, Properties or condition
(financial or otherwise) of the Company or the ability of the
Company to perform its obligations set forth in this Agreement,
the Indenture or the Bonds.
Section 2.6. Pending Litigation. There is no action at
law, suit in equity or other proceeding or investigation (whether
or not purportedly on behalf of the Company) in any court or by
or before any other governmental or public authority or agency or
any arbitrator, or, to the best knowledge of the Company,
threatened against, the Company or any of its Properties
(including, without limitation, any such action, suit, proceeding
or investigation relating to any action or omission of the
Company) which, if determined adversely to the Company, involves
the reasonable possibility of materially and adversely affecting
the business, prospects, Properties or condition (financial or
other) of the Company, or the ability of the Company to perform
its obligations under this Agreement, the Indenture or the Bonds.
To the best of its knowledge after due inquiry, the Company is
not in default in any material respect with respect to any
judgment, order, writ, injunction, rule or regulation or decree
or demand of any court or other governmental or public authority
or agency, or with respect to the award of any arbitrator.
Section 2.7. Title to Properties; Power of Eminent Domain.
(a) Title to Properties. The Trust Estate constitutes
substantially all the Property of the Company, other than the
Excepted Property (as defined in the Indenture). The Company has
such title (or may obtain such title by the exercise of its power
to condemn property) to its Property as is necessary to engage in
its business, and substantially all such Property is in good
repair, is properly maintained and is suitable for the use for
which it is intended. All real Property which constitutes Trust
Estate is located in the State of Connecticut. There is no
outstanding Indebtedness of the Company or of any other Person
for the purchase price or construction of, or for services,
materials and supplies rendered or delivered in connection with
the construction of, any Property, or for current operations,
which has or could become the basis of a Lien prior to the Lien
of the Indenture upon any portion or all of the Trust Estate,
other than a Permitted Encumbrance.
(b) Power of Eminent Domain. The Company has the power of
eminent domain which it may exercise, subject to the requirements
of law, in order to acquire any additional Property that is
necessary for it to perform its responsibilities as a public
service company.
Section 2.8. Leases. The Company has the right to, and
does, enjoy peaceful and undisturbed possession under all
material leases to which it is a party or under which it is
operating. All such leases are valid, subsisting and in full
force and effect, and the Company is not in default under any
such lease, and no event has occurred and is continuing, and no
condition exists, that, after notice or the passage of time or
both, could become a material default under any such lease. All
material leases to which the Company is a party or under which
the Company is operating are situated on real Property located in
the State of Connecticut.
Section 2.9. Patents, Trademarks, Licenses, Etc. The
Company holds all material franchises, patents, trademarks,
service marks, trade names, copyrights, certificates, permits,
licenses, rights-of-way, easements, consents and other rights,
and holds, or holds in effect by acquiescence and is in
compliance in all material respects with the terms of, all
material franchises, patents, trademarks, service marks, trade
names, and copyrights for its business and operations as
currently conducted and (except for such franchises, patents,
trademarks, service marks, trade names, copyrights, certificates,
permits, licenses, rights-of-way, easements, consents and other
rights as may be required to be obtained in the future) as
currently proposed to be conducted, without, after due inquiry,
any known conflicts with the rights of others, which either
individually or in the aggregate could reasonably be expected to
materially adversely affect or materially interfere with the
operations of the Company's business.
Section 2.10. Sale is Legal and Authorized; Bonds are
Enforceable.
(a) Sale is Legal and Authorized. Each of the sale of the
Bonds by the Company and compliance by the Company with all of
the provisions of this Agreement, the Indenture and the Bonds;
(i) is within the corporate powers of the Company; and
(ii) is legal and does not conflict with, result in any
breach of any of the provisions of, constitute a default
under, or result in the creation of any Lien (other than the
Lien created by the Indenture) upon any Property of the
Company under the provisions of any agreement, charter
instrument, bylaw or other instrument to which it is a party
or by which it or any of its Property may be bound.
(b) Bonds are Enforceable. The obligations of the Company
under this Agreement, the Indenture and the Bonds have been duly
authorized by proper corporate action on the part of the Company
(no action by the shareholders of the Company being required by
law, any charter instrument or bylaws of the Company or
otherwise), and this Agreement, the Indenture and the Bonds have
been executed and delivered by the Company and are valid, binding
and enforceable in accordance with the terms of this Agreement,
the Indenture and the Bonds, except to the extent that
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws of general application relating to or affecting the
enforcement of the rights of creditors or by equitable
principles, regardless of whether enforcement is sought in equity
or at law.
Section 2.11. No Defaults. No event has occurred and no
condition exists which, upon the issue of the Bonds, would
constitute a Default or an Event of Default. The Company is not
in violation in any respect of any term of any charter instrument
or bylaw and is, to the best of its knowledge after due inquiry,
not in violation in any material respect of any term in any
agreement or other instrument to which it is a party or by which
it or any of its Property may be bound.
Section 2.12. Regulation; Status under Holding Company Act;
Investment Company Act; and Foreign or Enemy Status. (a) The
Company is subject to the jurisdiction of the DPUC and various
other state, Federal and local governmental departments and
regulatory and environmental commissions, agencies, authorities
and bodies with respect to its business operations. Neither the
Company nor the Parent is directly subject to the jurisdiction of
the FERC. The nature and extent of such regulation are generally
described in the Private Placement Memorandum.
(b) The Company is exempt from the requirements of the
Public Utility Holding Company Act of 1935 (except Section
9(a)(2) thereof) pursuant to Section 3(a)(1) thereof. The Parent
has filed all necessary exemption statements with the SEC as of
the date of this Agreement.
(c) The Company is not, and is not directly or indirectly
controlled by, or acting on behalf of any Person which is, an
"investment company" within the meaning of the Investment Company
Act of 1940.
Section 2.13. Regulatory Approval Required. Assuming the
Bonds are offered and sold as described in the Private Placement
Memorandum and that the representations set forth in Section 1.3
(Purchase for Investment) of this Agreement are correct, no
consent of, approval or authorization by, filing or registration
with, or notice to any governmental or public authority or agency
is required for the issuance, sale or delivery of the Bonds or
the execution, delivery or performance of this Agreement or the
Indenture by the Company, other than (a) the authorization of the
DPUC, which authorization has been duly obtained, is in full
force and effect, and has not been appealed, abrogated, modified,
stayed or suspended and no subsequent appeal would, under
applicable law, affect the validity or enforceability of the
Bonds and (b) the recordings or filings, in respect of the Lien
of the Indenture, required under the Indenture. The Company has
furnished to your special counsel true, correct and complete
copies of (i) said authorization and (ii) as requested by you,
all applications, petitions, reports and other papers, and any
amendments and supplements thereto (hereinafter in this Section
2.13 referred to collectively as "applications"), heretofore
filed with or submitted to the DPUC by the Company in connection
with its action to obtain said authorization. The applications
did not contain, as of the respective dates of filing or
submission thereof, any untrue or incorrect statements of
material fact or omit to state any material fact necessary to
make the statements contained therein not misleading. Prior to
the Closing Date, the Company will furnish to your special
counsel all subsequent applications, if any.
Section 2.14. Consents. Neither the creation,
authorization, issuance or sale of the Bonds, nor the execution,
delivery or performance of this Agreement or the Supplemental
Indenture, will require any vote, consent or approval in any
manner of any creditor of, or investor in, the Company.
Section 2.15. Taxes. All Federal, state and other tax
returns of the Company required by law to be filed have been duly
filed and all Federal, state and other taxes, assessments, fees
and other governmental charges upon the Company or upon any of
its respective Properties or assets that are due and payable have
been paid, other than those not yet delinquent and except for
those being contested in good faith by appropriate proceedings.
There are no material Liens on any Properties or assets of the
Company imposed or arising as a result of the delinquent payment
or nonpayment of any such tax, assessment, fee or other
governmental charge. The charges, accruals and reserves on the
books of the Company in respect of Federal and state income taxes
for all fiscal years since December 31, 1989, and in respect of
other taxes for all outstanding periods, are adequate and the
Company does not know of any additional assessments for such
years or any basis therefor. There are no applicable taxes, fees
or other governmental charges payable by the Company in
connection with the execution and delivery of this Agreement or
the offer, issuance, sale or delivery of the Bonds by the
Company.
Section 2.16. Use of Proceeds; No Margin Regulation
Violation.
(a) Use of Proceeds. The net proceeds from the sale of the
Bonds will be applied to and used to provide for the scheduled
retirement of $30,000,000 aggregate principal amount of the First
Mortgage Bonds, Series A of the Company.
(b) No Margin Regulation Violation. The Company does not
own, directly or indirectly, and does not have the present
intention of acquiring or owning, any "margin stock" (as such
term is defined in Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R., Part 207, as amended)). The
Company will not use any part of the proceeds from the sale of
the Bonds, directly or indirectly, to "purchase or carry" (within
the meaning of said Regulation G) any "security" (as defined in
Section 3(10) of the Exchange Act) or to reduce or retire any
indebtedness originally incurred to "purchase or carry" any such
"security." None of the transactions contemplated by this
Agreement (including, without limitation, the direct or indirect
use of the proceeds from the sale of the Bonds) will violate or
result in a violation of Section 7 of the Exchange Act or any
regulations issued pursuant thereto, including, without
limitation, said Regulation G, Regulation T (12 C.F.R., Part 220,
as amended) and Regulation X (12 C.F.R., Part 224, as amended) of
said Board of Governors.
Section 2.17. Private Offering. Neither the Company nor
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the only
Person authorized or employed by the Company as agent, broker,
dealer or otherwise in connection with the offering or sale of
the Bonds or any similar Security of the Company) has offered any
of the Bonds or any similar Security of the Company for sale to,
or solicited offers to buy any thereof from, or otherwise
approached or negotiated with respect thereto with, any
prospective purchaser, other than you and 116 other institutional
investors, each of whom was offered all or a portion of the Bonds
at private sale for investment.
Section 2.18. Compliance with Law. The Company:
(a) is not, to the best of its knowledge after due inquiry,
in violation of any laws, ordinances or governmental rules or
regulations to which it is subject, the violation of which,
either individually or in the aggregate, could reasonably be
expected to materially and adversely affect the business,
prospects, Properties or condition (financial or other) of the
Company, or
(b) has not failed to obtain any licenses, permits,
franchises or other governmental authorizations necessary to the
ownership of its Property or to the conduct of its business,
which violation or failure could, either individually or in the
aggregate, reasonably be expected to materially and adversely
affect the business, prospects, Properties or condition
(financial or other) of the Company.
Neither the execution, delivery or performance of this Agreement
or the Supplemental Indenture, nor the performance of the
Indenture, nor the offer, issuance, sale or delivery of the
Bonds, will cause the Company to be in violation of any law or
any order, rule or regulation of any Federal, state, county,
municipal or other governmental or public authority or agency
having jurisdiction over the Company or over its Properties, or
the award of any arbitrator.
Section 2.19. ERISA. (a) The Company has not, with
respect to any of the "employee benefit plans" established or
maintained, or to which contributions have been made, by the
Company (the "Plans"), engaged in a "prohibited transaction"
which could subject the Company to a tax or penalty on prohibited
transactions. No Plan which is subject to Part 3 of Subtitle B
of Title I of ERISA or Section 412 of the Code had an
"accumulated funding deficiency," whether or not waived, as of
the last day of the most recent fiscal year of such Plan ended
prior to the date hereof. No liability to the PBGC has been or
is expected by the Company to be incurred by the Company with
respect to any Plan. There has been no "reportable event" with
respect to any Plan (including any Plan termination) since the
effective date of Section 4043 of ERISA for which a timely notice
to the PBGC, not otherwise waived by the PBGC, was not furnished,
and since such date no event or condition has occurred which
presents a material risk of termination of any Plan by the PBGC.
As of January 1, 1996, the most recent valuation date, the
actuarially determined present value of all "accrued benefits"
under each Plan that is subject to Part 3 of Subtitle B of Title
I of ERISA did not exceed the then current value of the assets of
the respective Plan allocable to such benefits. Insofar as the
representations and warranties of the Company contained in the
preceding sentences of this subsection (a) relate to any Plan
that is a "multi-employer plan," such representations and
warranties are made to the best knowledge of the Company after
due inquiry.
(b) The execution and delivery of this Agreement and the
Supplemental Indenture, and the issuance and sale by the Company,
and the purchase by you hereunder, of the Bonds, will not involve
any prohibited transaction. This representation and warranty is
made in reliance on your representations in Section 1.5 (Source
of Funds; ERISA) hereof as to the source of the funds for your
purchase of the Bonds. The Private Placement Memorandum
discloses all employee benefit plans with respect to which the
Company is a "party in interest" or with respect to which any of
the securities of the Company are "employer securities." If, at
any time before the Closing Date, the Company becomes a party in
interest with respect to any other employee benefit plan or if
its securities become employer securities with respect to any
such employee benefit plan, then the Company will notify you in
writing of any such employee benefit plan within 15 days after it
becomes a party in interest or its securities become employer
securities with respect to any such employee benefit plan (but in
any event not later than the Closing Date).
(c) As used in this Section 2.19, the terms "accrued
benefits," "employee benefit plans," and "party in interest"
shall have the respective meanings assigned to such terms in
Section 3 of ERISA; the term "accumulated funding deficiency"
shall have the meaning assigned to such term in Section 302 of
ERISA and Section 412 of the Code; the term "employer security"
shall have the meaning assigned to it in Section 407(d)(1) of
ERISA; the term "multi-employer plan" shall have the meaning
assigned to such term in Section 4001 of ERISA; the term
"prohibited transaction" shall have the meaning assigned to such
term in Section 4975 of the Code and Section 406 of ERISA; and
the term "reportable event" shall have the meaning assigned to
such term in Section 4043 of ERISA.
Section 2.20. MGP Sites. The Company has conducted a
thorough investigation of all MGP Sites currently owned by it for
which it could accrue liabilities or have responsibilities
pursuant to Environmental Laws. The scope of its investigation
included all real Properties (i) for which the Company, to its
knowledge as of the date hereof, has responsibilities pursuant to
the Environmental Liability Sharing and Indemnity Agreement,
dated July 1, 1989, between the Company and Connecticut Light &
Power Company, and (ii) set forth in Schedule III (hereafter, the
"Disclosed MGP Sites"). As of the date hereof, the Company knows
of no MGP Sites other than the Disclosed MGP Sites for which it
could accrue liabilities or have responsibilities pursuant to
Environmental Laws. Based upon the present knowledge of the
Company, the Company does not believe that the Disclosed MGP
Sites, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the business,
prospects, Properties or conditions (financial or otherwise) of
the Company.
Section 2.21. Application of Other Laws. The issuance and
purchase of the Bonds and the security interest granted by the
Indenture and contemplated by this Agreement, are not subject to
the provisions of Connecticut's Hazardous Waste Establishment
Law, Conn. Gen. Stat. Section 22a-134 et seq.
Section 2.22. Compliance with Environmental Laws. The
Company is not in violation of applicable Environmental Laws,
which violation could reasonably be expected to have a material
adverse effect on the business, prospects, Properties or
condition (financial or otherwise) of the Company. The Company
has not received notification from any party that the Company has
any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C.
Section 9601 et seq.), or the Resource Conservation and Recovery
Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).
SECTION 3. CONDITIONS OF OBLIGATION TO PURCHASE BONDS.
Your obligation to purchase and pay for the Bonds to be
purchased by you on the Closing Date shall be subject to the
satisfaction, prior to or concurrently with such purchase and
payment, of the following conditions:
Section 3.1. Opinion of Your Special Counsel. You shall
have received from Winthrop, Stimson, Putnam & Roberts, who are
acting as special counsel for you in connection with the
transactions contemplated by this Agreement, an opinion, dated
the Closing Date, in form and substance satisfactory to you, to
the effect specified in Schedule IV-A hereof.
Section 3.2. Opinions of Counsel for the Company. You
shall have received from Shipman & Goodwin LLP, counsel for the
Company, and Mary J. Healey, Esq., Secretary and General Counsel
of the Company, opinions, each dated the Closing Date in form and
substance satisfactory to you and your special counsel, to the
effect specified in Schedule IV-B and Schedule IV-C,
respectively, hereof.
Section 3.3. Opinion of Counsel for the Trustee. You shall
have received from LeBoeuf, Lamb, Greene & MacRae, counsel for
the Trustee, an opinion, dated the Closing Date, in form and
substance satisfactory to you and your special counsel, to the
effect specified in Schedule IV-D hereof.
Section 3.4. Letter of Acknowledgment. You shall have
received a letter from, or acknowledged and accepted by, the
Trustee, in form and substance reasonably satisfactory to you and
your special counsel, acknowledging and accepting the terms of
Sections 5.1 (Direct Payment) and 5.3 (Indemnity for Destroyed,
Lost, or Stolen Bonds) hereof.
Section 3.5. Documents Required by Indenture; Basis for
Authentication. The Company shall have furnished to the Trustee
the resolutions, certificates and other instruments and cash, if
any, required to be delivered prior to or upon the issuance of
the Bonds pursuant to the provisions of the Indenture. The
Company shall have requested the Trustee to and the Trustee shall
have authenticated the Bonds pursuant to Article Five
(Authentication and Delivery of Additional Bonds) of the
Indenture. The Company shall be able to comply with all other
conditions with respect to the authentication of the Bonds
imposed by the Indenture.
Section 3.6. Recordings. On or prior to the Closing Date,
the Supplemental Indenture shall have been duly authorized,
executed and delivered by the Company and the Trustee,
substantially in the form of Exhibit A hereof (with such changes
therein as shall be agreed upon by you and the Company), and
shall be in full force and effect, and the Indenture (including
the Supplemental Indenture) and all other documents, including,
without limitation, Uniform Commercial Code financing statements
(the "Financing Statements") and lien certificates pursuant to
Section 49-5 of the Connecticut General Statutes, shall have been
duly executed and properly recorded or filed in such manner and
in each jurisdiction in which recording is required to establish
the mortgage Lien and security interest created by the Indenture
as a first mortgage Lien on and/or a first security interest in
the Trust Estate, subject only to Permitted Encumbrances.
Section 3.7. Representations and Warranties True. The
representations and warranties of the Company contained in
Section 2 (Representations and Warranties) hereof shall be true
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the
Closing Date, and you shall have received an Officers'
Certificate, dated the Closing Date, to that effect.
Section 3.8. Performance of the Company's Obligations. The
Company shall have performed all of its obligations to be
performed hereunder and under the Indenture prior to or on the
Closing Date and you shall have received an Officers'
Certificate, dated the Closing Date, to that effect.
Section 3.9. No Pending Proceedings. The requisite
authorization of the DPUC referred to in Section 2.13 (Regulatory
Approval Required) hereof shall be in full force and effect and
shall not have been appealed, revoked, amended, stayed or
suspended and there shall not be pending or, to the Company's
best knowledge, contemplated any proceedings before or action of
the DPUC to abrogate or modify such authorization, and you shall
have received an Officers' Certificate, dated the Closing Date,
to that effect. Such authorization shall be legally sufficient
to authorize the offer, issuance, sale and delivery of the Bonds
and the execution, delivery and performance of this Agreement and
the Supplemental Indenture by the Company, and there can be no
abrogation or modification of such authorization after the
delivery of the Bonds which would invalidate the Bonds or alter,
diminish or void the obligations of the Company under this
Agreement, the Indenture or the Bonds.
Section 3.10. No Default. No event shall have occurred,
and no condition shall exist, which shall constitute a Default,
or, after notice or the passage of time or both, could become a
Default, and you shall have received an Officers' Certificate,
dated the Closing Date, to that effect.
Section 3.11. Legality. The Bonds shall qualify as a legal
investment for life insurance companies under the provisions of
the insurance law of any jurisdiction to which you are subject,
without reference to any so-called "basket" clause of such laws
(or any clause that imposes limitations on particular
investments, whether in the aggregate or individually), and you
shall have received from the Company such information or evidence
as you may reasonably request to enable you to determine whether
such purchase is so permitted.
Section 3.12. Private Placement Number. On or prior to the
Closing Date, your special counsel shall have duly made the
appropriate filings with Standard & Poor's CUSIP Service Bureau,
as agent for the National Association of Insurance Commissioners,
in order to obtain a private placement number for the Bonds.
Section 3.13. Proceedings, Instruments, Etc. All
proceedings and actions taken on or prior to the Closing Date in
connection with the transactions contemplated by this Agreement,
and all instruments incident thereto, shall be satisfactory in
form and substance to you and your special counsel, and you and
your special counsel shall have received copies of all such
documents that you or they may reasonably have requested in
connection with such proceedings, actions and transactions
(including, without limitation, evidence of the correctness of
representations and warranties contained herein and in the
Supplemental Indenture, and evidence of compliance with the terms
and the fulfillment of the conditions of this Agreement and the
Indenture), in form and substance satisfactory to you and your
special counsel.
SECTION 4. EXPENSES.
Whether or not the Bonds shall be sold or this Agreement
shall be terminated, the Company will pay, and will save you
harmless against liability for, all costs and expenses relating
to this Agreement, the Supplemental Indenture or the Bonds, to
any modification, amendment or alteration of this Agreement, the
Indenture or the Bonds (whether or not the same shall have become
effective), or to any enforcement of this Agreement, the
Indenture or the Bonds, including, without limitation:
(a) the cost of printing, preparing and reproducing this
Agreement, the Supplemental Indenture, the Bonds and every
instrument of modification, amendment or alteration, the cost of
all recordings and filings of or in respect of the foregoing, and
the cost of obtaining a private placement number from Standard
and Poor's CUSIP Service Bureau for the Bonds;
(b) the fees and disbursements of your special counsel, of
your local counsel, if any, of all counsel for the Company and of
the Trustee and counsel for the Trustee;
(c) your reasonable out-of-pocket expenses;
(d) the cost of delivering to your home office, insured to
your satisfaction, the Bonds purchased by you on the Closing
Date;
(e) all costs and expenses (including, without limitation,
legal fees and disbursements) relating to any amendments,
waivers
or consents involving the provisions hereof, of the Indenture or
of the Bonds (whether or not the same shall have become
effective), including, without limitation, any amendments,
waivers or consents resulting from any work-out, renegotiation or
restructuring relating to the enforcement of this Agreement, the
Indenture or the Bonds;
(f) the broker's or finder's fees of any Person retained by
the Company in connection with the sale of the Bonds, it being
represented and warranted by the Company that: (i) Merrill
Lynch, Pierce, Fenner & Smith Incorporated is the only Person
authorized by the Company to act as agent on its behalf in
connection with the sale of the Bonds, and (ii) such Person acted
solely as agent for the Company and not as agent for you; and
(g) all taxes in connection with the issuance and original
sale by the Company of the Bonds and in connection with any
modification of the Bonds at the request of the Company, and will
save you and any subsequent holder of the Bonds harmless without
limitation as to time against any and all liabilities with
respect to all such taxes, including any interest or penalty for
nonpayment or delay in payment thereof and any income taxes paid
by you in connection with any reimbursement by the Company
therefor.
The obligations of the Company under this Section 4 shall
survive the payment of the Bonds and the termination of this
Agreement.
SECTION 5. CERTAIN SPECIAL RIGHTS.
In the event of any conflict between any provisions set
forth below and the Indenture, the provisions set forth below
shall control.
Section 5.1. Direct Payment. Notwithstanding anything to
the contrary contained in this Agreement, the Indenture or the
Bonds, the Company shall pay all amounts with respect to each
Bond held by each Institutional Holder of Bonds (without any
presentment of such Bond and without any notation of such payment
being made thereon) by crediting before 12:00 noon, New York
time, by Federal funds bank wire transfer, the account of such
Institutional Holder, in any bank in the United States of America
as may be designated in writing by such Institutional Holder, or
in such other lawful manner as may be directed or to such other
address in the United States of America as may be designated in
writing by such Institutional Holder. Your address on Schedule I
to this Agreement shall be deemed to constitute notice, direction
or designation (as appropriate) to the Company with respect to
direct payments as aforesaid.
Section 5.2. Delivery Expenses. If you surrender any Bond
to the Company or the Trustee pursuant to this Agreement or the
Indenture, or if the Company shall issue any new Bond pursuant to
this Agreement or the Indenture (other than pursuant to requests
of Bond holders for exchanges), the Company will pay the cost of
delivering to or from your office from or to the Company or the
Trustee, insured to your satisfaction, the surrendered Bond or
Bonds and any Bond or Bonds issued in substitution or replacement
for the surrendered Bond or Bonds, in each case insured to your
satisfaction.
Section 5.3. Indemnity for Destroyed, Lost, or Stolen
Bonds. The Company and the Trustee acknowledge that any holder
of Bonds that is an Institutional Holder may satisfy its
obligation to deliver security or indemnity in respect of
destroyed, lost, or stolen Bonds, as set forth in Section 3.08
(Mutilated, destroyed, lost and stolen Bonds) of the Indenture,
by delivering its own unsecured letter of indemnity in respect
thereof.
Section 5.4. Late Payments of Interest. The provisions
of Section 3.09 (Payment of interest on Bonds; interest rights
preserved) (other than the first and last paragraphs thereof) of
the Indenture shall not apply to the Bonds. Interest on any
Bond, other than that paid in accordance with first sentence of
such Section 3.09, shall be paid to the Person in whose name that
Bond (or one or more Predecessor Bonds (as defined in the
Indenture)) is registered at the close of business on the day
before such payment.
Section 5.5. No Presentation of Bonds. Notwithstanding
any provisions of the Indenture to the contrary, no holder of
Bonds shall be required to present or surrender such Bonds to the
Company, the Trustee or any other Person prior to, or as a
condition of, receiving any payment in respect thereof. You
agree that you will deliver to the Company all Bonds registered
in your name, at the time of final payment in full of all amounts
due in respect thereof, within a reasonable period after such
final payment.
SECTION 6. INFORMATION TO BE FURNISHED TO BONDHOLDERS.
Section 6.1. Financial and Other Statements. The Company
shall deliver to you, if at the time you or your nominee holds
any Bonds (or if you are obligated to purchase any Bonds), and to
each other Institutional Holder of the then outstanding Bonds
(and, in the case of the financial statements delivered pursuant
to Section 6.1(b) hereof, to the Securities Valuation Office,
National Association of Insurance Commissioners, 195 Broadway,
New York, New York 10007, provided that failure to do so shall
not constitute a Default or an Event of Default):
(a) Company Quarterly Statements as soon as practicable
after the end of each quarterly fiscal period in each fiscal year
of the Company, and in any event within 45 days thereafter,
duplicate copies of:
(i) a balance sheet of the Company as at the end of
such quarter, and
(ii) a statement of income of the Company for such
quarter and (in the case of the second and third quarters)
for the portion of the fiscal year ending with such quarter,
and a statement of cash flows of the Company for the portion
of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year, all in
reasonable detail and certified as complete and correct, subject
to changes resulting from year-end adjustments, by a principal
financial officer of the Company; if the Company shall at any
time have any Subsidiaries, all of the foregoing financial
statements shall be prepared on a consolidated basis;
(b) Company Annual Statements as soon as practicable
after the end of each fiscal year of the Company, and in any
event within 90 days thereafter, duplicate copies of:
(i) a balance sheet of the Company as at the end of
such year, and
(ii) statements of income, changes in shareholders'
equity and cash flows of the Company for such year,
setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail, certified and
accompanied by a report thereon of Arthur Andersen LLP or other
independent public accountants of recognized national standing
selected by the Company, or other independent public accountants
acceptable to the holders of a majority in principal amount of
the Bonds then outstanding, which report shall state that such
financial statements fairly present the financial condition of
the companies being reported upon and have been prepared in
accordance with generally accepted accounting principles
consistently applied (except for changes in application in which
such accountants concur) and that the examination of such
accountants in connection with such financial statements shall
have been made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting
records and such other auditing procedures as were considered
necessary in the circumstances; if the Company shall at any time
have any Subsidiaries, all of the foregoing financial statements
shall be prepared on a consolidated basis.
(c) Parent Quarterly Statements as soon as practicable
after the end of each quarterly fiscal period in each fiscal year
of the Parent, and in any event within 45 days thereafter,
duplicate copies of:
(i) a consolidated balance sheet of the Parent and its
Subsidiaries as at the end of such quarter, and
(ii) a consolidated statement of income of the Parent
and its Subsidiaries for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal
year ending with such quarter, and a consolidated statement
of cash flows of the Parent and its Subsidiaries for the
portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year, all in
reasonable detail and certified as complete and correct, subject
to changes resulting from year-end adjustments, by a principal
financial officer of the Parent;
(d) Parent Annual Statements as soon as practicable after
the end of each fiscal year of the Parent, and if any event
within 90 days thereafter, duplicate copies of:
(i) a consolidated balance sheet of the Parent and its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Parent and
its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail, certified and
accompanied by a report thereon of Arthur Andersen LLP, or other
independent public accountants of recognized national standing
selected by the Parent, or other independent public accountants
acceptable to the holders of a majority in principal amount of
the Bonds then outstanding, which report shall state that such
financial statements fairly present the financial condition of
the companies being reported upon and have been prepared in
accordance with generally accepted accounting principles
consistently applied (except for changes in application in which
such accountants concur) and that the examination of such
accountants in connection with such financial statements shall
have been made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting
records and such other auditing procedures as were considered
necessary in the circumstances;
(e) Audit Reports promptly upon receipt thereof, a copy
of each other report submitted to the Company or any Subsidiary
of the Company by independent accountants in connection with any
annual, interim or special audit made by them of the books of the
Company or any Subsidiary of the Company;
(f) SEC and Other Reports promptly upon their becoming
available one (1) copy of each financial statement, report,
notice or proxy statement sent by the Parent, the Company or any
Subsidiary of the Company to stockholders generally or holders or
trustees of its publicly-traded debt securities, and of each
regular or periodic report and any registration statement or
prospectus filed by the Parent, the Company or any Subsidiary of
the Company with the National Association of Securities Dealers,
any securities exchange or the SEC;
(g) ERISA promptly after becoming aware of the occurrence
of any (i) "reportable event" (as such term is defined in Section
4043 of ERISA), other than reportable events with respect to
which the 30-day notice period has been waived by applicable
regulation, or (ii) "prohibited transaction" (as such term is
defined in Section 406 or Section 4975 of the Code) in connection
with any Pension Plan or any trust created thereunder, a written
notice specifying the nature thereof, what action the Company is
taking or proposes to take with respect thereto, and, when known,
any action taken by the IRS, the Department of Labor or the PBGC
with respect thereto;
(h) ERISA Waivers prompt written notice of and a
description of any request pursuant to Section 303 of ERISA or
Section 412 of the Code for, or notice of the granting pursuant
to said Section 303 or Section 412 of, a waiver in respect of all
or part of the minimum funding standard set forth in ERISA or the
Code, as the case may be, of any Pension Plan, and, in connection
with the granting of any such waiver, the amount of any waived
funding deficiency (as such term is defined in said Section 303
or said Section 412) and the terms of such waiver;
(i) Other ERISA Notices prompt written notice of and,
where applicable, a description of (i) any notice from the PBGC
in respect of the commencement of any proceedings pursuant to
Section 4042 of ERISA to terminate any Pension Plan or for the
appointment of a trustee to administer any Pension Plan, (ii) any
distress termination notice delivered to the PBGC under Section
4041 of ERISA in respect of any Pension Plan, and any
determination of the PBGC in respect thereof, (iii) the placement
of any Multiemployer Pension Plan in reorganization status under
Title IV of ERISA, (iv) any Multiemployer Pension Plan becoming
"insolvent" (as such term is defined in Section 4245 of ERISA
under Title IV of ERISA), (v) the whole or partial withdrawal of
the Company or any ERISA Affiliate from any Multiemployer Pension
Plan and the withdrawal liability incurred in connection
therewith, and (vi) the withdrawal of the Company or any ERISA
Affiliate from any Pension Plan with respect to which it is a
"substantial employer" under, and as defined in, ERISA and the
withdrawal liability under ERISA incurred in connection
therewith;
(j) Notice of Default or Event of Default immediately
upon a Designated Officer becoming aware of the existence of any
condition or event which constitutes a Default or an Event of
Default, a written notice specifying the nature and period of
existence thereof and what action the Company is taking or
proposes to take with respect thereto;
(k) Notice of Claimed Default immediately upon becoming
aware of the existence of a Default in respect of any Bond, or
any default in respect of any evidence of indebtedness or other
Security of the Company or any Subsidiary of the Company in an
outstanding principal amount of at least $1,000,000, a written
notice specifying any notice given or action taken by any holder
thereof and the nature of the claimed Default or default and what
action the Company is taking or proposes to take with respect
thereto;
(l) Notice of Environmental Matters - (i) The Company shall
provide written notice to any holder of the Bonds within thirty
(30) days of the Company obtaining knowledge of:
(1) any proceeding, litigation, judgment or order by a
governmental authority involving any Disclosed MGP Site or
other MGP Site for which the Company is or is alleged to be
responsible; or,
(2) any of the following, which, individually or in
the aggregate, could reasonably be expected to have a
material adverse effect on the business, prospects,
Properties (taken as a whole) or condition (financial or
otherwise) of the Company:
(A) the violation of any Environmental Law;
(B) any claim, demand, investigation, proceeding, cost
recovery action, litigation, judgment, order or lien arising
pursuant to any Environmental Law or from the release or
disposal of any Hazardous Substance; or,
(C) any other environmental, health or safety
condition or occurrence.
(ii) The Company shall deliver to any holder of the
Bonds any such documents or records regarding the above
matters which may be reasonably requested by any such holder
and which may be obtained without need to initiate legal
proceedings, except if such documents or records were
generated by the Company for litigation and are protected
from discovery or are otherwise protected from discovery or
if such documents or records are covered by a written
confidentiality agreement entered into by the Company for
the purpose of maintaining the confidentiality of
information provided to the Company by any Person other than
an Affiliate.
(m) Requested Information with reasonable promptness,
such other data and information as from time to time may be
reasonably requested, including, without limitation, such
financial or other information as may reasonably be requested to
permit the holders of the Bonds to comply with the requirements
of Rule 144A promulgated under the Securities Act in connection
with a resale of the Bonds, provided that the transferee agrees
to be bound by the confidentiality provisions contained in
Section 6.3 (Inspection) of this Agreement.
You may supply copies of any financial statements or reports
furnished pursuant to this Section 6.1 to any regulatory
authority having jurisdiction over you. The Company agrees to
supply a reasonable number of additional copies of any of the
materials referred to in this Section 6.1 upon written request.
Section 6.2. Officers' Certificates. Each set of financial
statements delivered to you or any other holder of the Bonds
pursuant to Section 6.1(b) (Financial and Other Statements
(Company Annual Statements)) hereof shall be accompanied by a
certificate of the President or a Vice-President and the
Treasurer or an Assistant Treasurer of the Company setting forth
that the signers have reviewed the relevant terms of this
Agreement and the Indenture and have made, or caused to be made
under their supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning
of the accounting period covered by the income statements being
delivered therewith to the date of the certificate and that such
review shall have not disclosed the existence during such period
of any condition or event which constitutes a Default or an Event
of Default or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what
action the Company shall have taken or proposes to take with
respect thereto.
Section 6.3. Inspection. The Company shall permit any of
your representatives, while you or your nominee shall hold any
Bond, or the representatives of any other Institutional Holder of
the Bonds, at your or such holder's expense (unless a Default or
an Event of Default has occurred and is continuing, in which case
at the Company's expense), to visit and inspect any of the
Properties of the Company or any Subsidiary of the Company, to
examine all their respective books of account, records, reports
and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with
their respective officers, employees and, if you shall reasonably
believe that a Default or an Event of Default exists, with
independent public accountants (and by this provision the Company
authorizes said accountants to discuss the finances and affairs
of the Company and its Subsidiaries) provided that prior notice
of the request by you for such discussions is given to the
Company (unless a Default has occurred, in which case no prior
notice shall be required) all at such reasonable times and as
often as may be reasonably requested.
All information which is furnished to or obtained by any
holder of Bonds pursuant to Section 6.1 (Financial and Other
Statements) hereof, Section 6.2 (Officers' Certificates) hereof,
or this Section 6.3 shall be received and held in confidence
unless or until the same has been publicly disclosed (other than
by or on behalf of any Bond holder); provided, however, that any
holder of Bonds shall not in any way be inhibited in the use of
such information in order to determine and enforce compliance
with the terms and conditions of this Agreement or the Indenture
or take any lawful action which it deems necessary to protect its
interests herein and in the Bonds or the Indenture, and provided,
further, that any holder of Bonds may furnish any such
information in compliance with any court order or the
requirements of any regulatory body, agency, authority or
commission to whose jurisdiction such holder may be subject, to
its independent accountants, attorneys or to any Person to whom
such holder owes any duty of disclosure, to the National
Association of Insurance Commissioners, rating agencies and to
any Institutional Holder to whom such holder is considering
selling any Bonds. It is understood that no Bond holder shall be
liable to the Company or to any other Person in damages for
failure to comply with the undertaking contained in this
paragraph except in any case involving gross negligence or
willful misconduct by such holder.
SECTION 7. COVENANTS.
In the event of any conflict between any provisions set
forth below and the Indenture, the provisions set forth below
shall control.
Section 7.1. Purchase of the Bonds. The Company shall
not, nor shall it permit any of its Subsidiaries or Affiliates
to, directly or indirectly, acquire or make any offer to acquire
any Bonds unless the Company or any such Subsidiary or Affiliate
shall have offered to acquire Bonds, pro rata, from all holders
of Bonds, upon the same terms.
Section 7.2. Bondholder Expenses on Acceleration. So long
as any Bond shall be outstanding, upon the rescission and
annulment of a declaration of acceleration and its consequences,
as provided for in Section 9.02 (Acceleration of maturity;
rescission and annulment) of the Indenture, the Company shall pay
the reasonable expenses, disbursements and advances of each
holder of Bonds (including, without limitation, the reasonable
fees and disbursements of its counsel).
Section 7.3. Transmission of Funds. The Trustee shall
transmit to each holder of Bonds, by wire transfer of immediately
available funds as provided in Schedule I hereto, or in such
other manner as may be directed or to such other address in the
United States of America as may be designated in writing by such
holder, all funds received by it (whether by means of foreclosure
on the Trust Estate or otherwise) that are payable in respect of
the Bonds. (Nothing in this Section 7.3 shall be deemed to affect
the Company's obligation to make payments in the manner provided
in Section 5.1 (Direct Payment) of this Agreement.) Such wire
transmissions shall be made on the same day as the Trustee shall
receive collected funds if such receipt shall occur prior to
12:00 noon Hartford, Connecticut time on such day and, in all
other cases, on the next succeeding Business Day.
Section 7.4. Compensation and Reimbursement. The Company
agrees to indemnify any holder of Bonds that has made a payment
to the Trustee as the result of any security or indemnity given
to the Trustee by such holder pursuant to Section 10.03(E)
(Certain rights of Trustee) of the Indenture in circumstances
where the Company would otherwise have been obligated under the
terms of the Indenture or this Agreement to reimburse the Trustee
or any holder of the Bonds for, or indemnify the Trustee or any
holder of the Bonds against, the costs, expenses and/or
liabilities for which such payment was made.
Section 7.5. Defaults and Acceleration. (a) Pursuant to
the Indenture, for purposes of determining whether a Default or
Event of Default exists with respect to the Bonds, but only with
respect to the Bonds, the following shall also constitute Events
of Default under the Indenture:
(i) default in the performance, or breach, of any
covenant or warranty in this Agreement (other than (1)
Section 6.1(l) (Financial and Other Statements (Notice of
Environmental Matters)) hereof or (2) a covenant or warranty
a default in the performance or breach of which is
specifically dealt with elsewhere in this Agreement), and
continuance of such default or breach for a period of 30
days after notice has been given in accordance with the
procedures described in Section 9.01C (Events of Default) of
the Indenture; or
(ii) default in any representation or warranty made by
the Company herein, or made by the Company in any statement
or certificate furnished by the Company in connection with
the consummation of the issuance and delivery of the Bonds
is untrue in any material respect as of the date of the
issuance or making thereof; or
(iii) the Company or any of its Subsidiaries defaults in
any payment, beyond any period of grace provided with
respect thereto, of principal of, or premium or interest on,
any obligation for borrowed money having an outstanding
principal amount of $10,000,000 or more; or
(iv) a final, non-appealable judgment in an amount in
excess of $10,000,000 above available insurance coverage (so
long as the insurer shall have agreed, in writing at the
time such judgment shall become final, that it is
responsible for payment of such judgment up to the limit of
available coverage) is rendered against the Company or any
of its Subsidiaries and, within 60 days after entry thereof,
such judgment is not discharged.
(b) In addition to the sums stated to be payable pursuant to
Section 9.06 (Covenant to pay Trustee amounts due on Bonds and
right of Trustee to judgment) of the Indenture upon the
occurrence of the defaults referred to therein, upon the
occurrence of an acceleration pursuant to Section 9.02
(Acceleration of Maturity; Rescission and Annulment) of the
Indenture, the Company shall pay the Make Whole Amount,
calculated as of the time of such payment, to each holder of
Bonds in respect of the Bonds held by such holder.
"Make-Whole Amount" shall mean in connection with any
redemption or prepayment or acceleration of the Bonds, the
excess, if any, of (a) the aggregate present value as of the date
of such redemption or prepayment of each dollar of principal
being redeemed or prepaid and the amount of interest (exclusive
of interest accrued to the date of redemption or prepayment) that
would have been payable in respect of such dollar if such
redemption or prepayment or acceleration had not been made,
determined by discounting such amounts at the Reinvestment Rate
from the respective dates on which they would have been payable,
over (b) 100% of the principal amount of the outstanding Bonds
being redeemed, prepaid or paid. If the Reinvestment Rate is
equal to or higher than 7.19%, the Make-Whole Amount shall be
zero. For purposes of any determination of Make-Whole Amount:
"Reinvestment Rate" shall mean (1) the sum of .50
plus the yield reported on page "USD" of the
Bloomberg Financial Market Services Screen (or, if
not available, any other nationally recognized
trading screen reporting on-line intraday trading in
United States government Securities) at 12:00 noon
(New York time) on such date for United States
government Securities having a maturity rounded to
the nearest month) corresponding to the remaining
Weighted Average Life to Maturity of the principal
being redeemed, prepaid or paid or (2) in the event
that no such nationally recognized trading screen
reporting on-line intraday trading in United States
government Securities is available, Reinvestment
Rate shall mean .50 plus the arithmetic mean of the
yields under the respective headings "This Week" and
"Last Week" published in the Statistical Release
under the caption "Treasury Constant Maturities" for
the maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to
Maturity of the principal being redeemed, prepaid or
paid. If no maturity exactly corresponds to such
Weighted Average Life to Maturity, yields for the
two published maturities most closely corresponding
to such Weighted Average Life to Maturity shall be
calculated pursuant to the immediately preceding
sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a
straight-line basis, rounding in each of such
relevant periods to the nearest month. For the
purposes of calculating the Reinvestment Rate, the
most recent Statistical Release published prior to
the date of determination of the Make-Whole Amount
shall be used.
"Statistical Release" shall mean the then most
recently published statistical release designated
"H.15(519)" or any successor publication which is
published weekly by the Federal Reserve System and
which establishes yields on actively traded U.S.
Government Securities adjusted to constant
maturities or, if such statistical release is not
published at the time of any determination
hereunder, then such other reasonably comparable
index which shall be designated by the holders of
66-2/3% in aggregate principal amount of the
outstanding Bonds.
"Weighted Average Life to Maturity" of the principal
amount of the Bonds being redeemed, prepaid or paid
shall mean, as of the time of any determination
thereof, the number of years obtained by dividing
the then Remaining Dollar-Years of such principal by
the aggregate amount of such principal. The term
'Remaining Dollar-Years" of such principal shall
mean the amount obtained by (1) multiplying the
amount of principal that would have become due at
the stated maturity of the Bonds if such redemption,
prepayment or payment had not been made by the
number of years (calculated to the nearest one-
twelfth) which will elapse between the date of
determination and such stated maturity date of the
Bonds.
SECTION 8. INTERPRETATION OF AGREEMENT.
Section 8.1. Definitions. Except as the context shall
otherwise require, the following terms shall have the following
meanings for all purposes of this Agreement (the definitions to
be applicable to both the singular and the plural forms of the
terms defined, where either such form is used in this Agreement):
The term "Accredited Investor" shall have the meaning
ascribed to such term in Section 2(15) or Rule 501(a) under the
Securities Act.
The term "Affiliate" with respect to any Person shall mean a
Person (a) which, directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such Person, (b) which, directly or indirectly,
beneficially owns or holds of record 10% or more of the shares of
any class of capital stock of or interest in such Person, (c) 10%
or more of the shares of any class of capital stock of or
interests in which is, directly or indirectly, beneficially owned
or held of record by such Person, or (d) who is an officer or
director of (or an individual performing similar management or
supervisory functions for) such Person. The term "control"
(including the related terms "controlled by" and "under common
control with") shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of capital
stock, by contract or otherwise.
The term "Bonds" shall have the meaning assigned thereto in
Section 1.1 (Issue of Bonds and Security) hereof.
The term "Business Day" shall mean a day other than a
Saturday, Sunday or legal holiday or the equivalent for banking
institutions generally (other than a moratorium) in Hartford,
Connecticut or New York, New York.
The term "Closing Date" shall have the meaning assigned
thereto in Section 1.2 (Sale of Bonds) hereof.
The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
The term "Company" shall mean Yankee Gas Services Company, a
specially chartered Connecticut corporation, and its successors
and assigns.
The term "Default" shall mean any event or condition, the
occurrence of which would, with the lapse of time or the giving
of notice, or both, constitute an Event of Default.
The term "Designated Officer" shall mean any officer of the
Company who may sign an Officers' Certificate under the
Indenture.
The term "Disclosed MGP Site" shall have the meaning set
forth in Section 2.20 (MGP Sites) hereof.
The term "DPUC" shall mean the Department of Public Utility
Control of the State of Connecticut.
The term "Environmental Law" shall mean any federal, state
or local, statute, law, regulation, ordinance, order, consent
decree, judgment, permit, license, code, common law or other
legal requirement now or, for purposes of Section 6.1(l)
(Financial and Other Statements (Notice of Environmental
Matters)), hereafter enacted pertaining to protection of the
environment, health or safety of persons, natural resources,
conservation, wildlife, waste management, any Hazardous
Substance, and pollution (including, without limitation,
regulation of releases and disposals to air, land, water and
groundwater), and includes, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Action
of 1986, 42 U.S.C. Section 9601 et seq., Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of
1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
Section et seq., Federal Water Pollution Control Act, as amended
by the Clean Water Act of 1977, 33 U.S.C. Section 1251 et seq.,
Clean Air Act of 1966, as amended, 42 U.S.C. Section 7401 et
seq., Toxic Substances Control Act of 1976, 15 U.S.C. Section
2601 et seq., Occupational Safety and Health Act of 1970, as
amended, 29 U.S.C. Section 651 et seq., Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et
seq., National Environmental Policy Act of 1975, 42 U.S.C.
Section 4321 et. seq., Safe Drinking Water Act of 1974,
as amended, 42 U.S.C. Section 300(f) et seq., and any similar or
implementing state law, and all amendments, rules, regulations
and publications promulgated thereunder.
The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, amended.
The term "ERISA Affiliate" shall mean any corporation or
trade or business that (i) is a member of the same controlled
group of corporations (within the meaning of Section 414(b) of
the Code) as the Company or (ii) is under common control (within
the meaning of Section 414(c) of the Code) with the Company.
The term "Event of Default" shall mean one of the "events of
default" enumerated in Section 7.5(a) hereof or Article Nine
(Remedies) of the Indenture.
The term "Exchange Act" shall mean the Securities Exchange
Act of 1934.
The term "FERC" shall mean the Federal Energy Regulatory
Commission.
The term "Hazardous Substance" shall mean any hazardous or
toxic chemical, waste, byproduct, pollutant, contaminant,
product, material or substance, including without limitation,
asbestos, polychlorinated biphenyls, petroleum (including crude
oil or any fraction thereof) and any substance defined as a
hazardous substance or waste pursuant to an Environmental Law.
The term "hereof", "herein," "hereunder" and other words of
similar import shall be construed to refer to this Agreement as a
whole and not to any particular Section or other subdivision.
The term "heretofore" shall be construed to refer to the
time prior to the date of original execution and delivery by the
Company of this Agreement.
The term "holder" (with respect to any Bond) shall mean the
Person in whose name a bond is registered in the register of
Bonds maintained pursuant to the Indenture.
The term "Indebtedness" with respect to any Person shall
mean all items (other than capital stock and surplus) which, in
accordance with generally accepted accounting principles, would
be shown on the liability side of a balance sheet of such Person
as of the date on which indebtedness is to be determined. The
term "Indebtedness" shall also include, whether or not so
reflected, (a) debt, obligations and liabilities secured by any
Lien existing on Property owned by such Person if such Property
shall be subject to such Lien, whether or not the debt,
obligations or liabilities secured thereby shall have been
assumed; (b) debt which has been removed in substance from the
balance sheet of the Company as a result of the in-substance
defeasance thereof; (c) obligations of such Person under any
lease which is required under generally accepted accounting
principles prevailing on the date of determination to be shown on
the liability side of a balance sheet of such Person or which,
whether or not required to be so shown, contains terms that
require the payment of lease rentals whether or not the Property
leased thereunder shall exist or can be used for the purpose for
which it shall have been leased, or provides for a termination
payment calculated to be sufficient to retire any debt,
obligations or liabilities secured by a Lien on such lease or on
the Property leased thereunder; (d) all obligations of such
Person guaranteeing or in effect guaranteeing any indebtedness,
dividend or other obligation of any other Person and (e) all
obligations of such Person to purchase any materials, supplies or
other Property, or to obtain the services of any other Person, if
the relevant contract or other related document requires that
payment for such materials, supplies or other Property, or for
such services, shall be made regardless of whether or not
delivery of such materials, supplies or other Property is ever
made or tendered or such services are ever performed or tendered.
The term "Indenture" shall have the meaning assigned thereto
in Section 1.1 (Issue of Bonds and Security) hereof.
The term "IRS" shall mean the Internal Revenue Service and
any successor agency.
The term "Institutional Holder" shall mean (a) you and any
of your Affiliates or nominees, and (b) any insurance company,
bank, savings and loan association, trust company, investment
company, charitable foundation, employee benefit plan (as defined
in ERISA) or other institutional investor or financial
institution which is the record or beneficial owner of not less
than $250,000 in aggregate principal amount of the Bonds
outstanding, provided that this limitation shall not be
applicable in the event that the aggregate principal amount of
the outstanding Bonds is less than $250,000.
The term "Lien" shall mean any interest in Property securing
an obligation owed to, or a claim by, any Person other than the
owner of the Property, whether such interest shall be based on
the common law, statute or contract, and including the Lien or
security interest arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt, or from a lease, consignment
or bailment for security purposes. The term "Lien" shall also
include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and
other title exceptions and encumbrances affecting Property. For
purposes of this Agreement, a Person shall be deemed to be the
owner of any Property that it shall have acquired or shall hold
subject to a conditional sale agreement or other arrangement
(including a leasing arrangement) pursuant to which title to the
Property shall have been retained by or vested in some other
Person for security purposes.
The term "MGP Site" shall mean any real property upon which
a manufactured gas plant or facility manufacturing gas from coal
or petroleum is or was located.
The term "Multiemployer Pension Plan" shall mean any
"multiemployer pension plan" (as defined in Section 3(37) of
ERISA) in respect of which the Company or any ERISA Affiliate is
an "employer" (as such term is defined in Section 3 of ERISA).
The term "Multiple Employer Pension Plan" shall mean any
employee benefit plan within the meaning of Section 3(3) of ERISA
other than a Multiemployer Pension Plan, subject to Title IV of
ERISA, to which the Company or any ERISA Affiliate and an
"employer" (as such term is defined in Section 3 of ERISA) other
than an ERISA Affiliate or the Company contribute.
The term "Officers' Certificate" shall mean a certificate
executed on behalf of the Company by the Chairman of the Board,
the President, any Vice President, the Treasurer, the Controller
or the chief financial officer of the Company.
The term "Original Indenture" shall have the meaning
assigned thereto in Section 1.1 (Issue of Bonds and Security)
hereof.
The term "Parent" shall mean Yankee Energy System, Inc., a
Connecticut corporation, and its successors and assigns.
The term "PBGC" shall mean the Pension Benefit Guaranty
Corporation and any successor corporation or governmental agency.
The term "Pension Plan" shall mean any "employee pension
benefit plan" (as such term is defined in Section 3 of ERISA)
maintained by the Company or any ERISA Affiliate for employees of
the Company or such ERISA Affiliate, excluding any Multiemployer
Pension Plan, but including, without limitation, any Multiple
Employer Pension Plan.
The term "Permitted Encumbrances" shall have the meaning
assigned thereto in Section 1.01 (Definitions) of the Indenture.
The term "Person" shall mean an individual, corporation,
partnership, trust, estate, unincorporated organization or
government or an agency or political subdivision thereof.
The term "Prime Rate" shall mean the prime rate of interest
as publicly announced from time to time by Fleet National Bank,
Hartford Connecticut.
The term "Private Placement Memorandum" shall have the
meaning assigned thereto in Section 1.4 (Restrictions on
Transfer; Legend) hereof.
The term "Property" shall mean any interest in any kind of
property or asset, whether real, personal or mixed, and whether
tangible or intangible.
The term "Purchasers" shall mean and include each of the
purchasers of the Bonds named in Schedule I to this Agreement.
The term "Qualified Institutional Buyer" shall have the
meaning assigned thereto in Rule 144A under the Securities Act.
The term "SEC" shall mean the Securities and Exchange
Commission.
The term "Security" shall have the same meaning as in
Section 2(1) of the Securities Act of 1933.
The term "Securities Act" shall mean the Securities Act of
1933.
The term "Subsidiary" shall mean any corporation of which
more than 50% of the Voting Stock is at the time directly or
indirectly owned by the Company or the Parent, as the case may
be.
The term "Supplemental Indenture" shall have the meaning
assigned thereto in Section 1.1 (Issue of Bonds and Security)
hereof.
The term "this Agreement" shall mean this Bond Purchase
Agreement (including the annexed Schedules and Exhibits), as it
may from time to time be amended, supplemented or modified, in
accordance with its terms.
The term "Trustee" shall mean Fleet National Bank and its
successors and assigns.
The term "Voting Stock" shall mean the stock of any class or
classes of a corporation the holders of which are ordinarily, in
the absence of contingencies, entitled to elect a majority of the
corporate directors (or persons performing similar functions).
Section 8.2. Directly or Indirectly. Any provision in this
Agreement referring to action which any Person is prohibited from
taking shall be applicable whether such action is taken directly
or indirectly by such Person.
Section 8.3. Accounting Terms. All accounting terms used
herein which are not otherwise expressly defined herein or in the
Indenture shall have the meanings respectively given to them in
accordance with generally accepted accounting principles
applicable to a company in the same business as the Company,
including applicable accounting rules imposed by an regulatory
agency with jurisdiction over the Company.
Section 8.4. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Connecticut.
Section 8.5. Headings. The headings of the Sections and
other subdivisions of this Agreement have been inserted for
convenience only and shall not be deemed to constitute a part
hereof.
SECTION 9. MISCELLANEOUS.
Section 9.1. Notices. (a) Unless otherwise expressly
specified by the terms hereof, all notices and other
communications under this Agreement shall be in writing and shall
be mailed by first class mail, postage prepaid, or by prepaid
overnight courier (i) if to you, to you at your address shown in
Schedule I to this Agreement, marked for attention as there
indicated, or at such other address as you may have furnished to
the Company in writing, (ii) if to any other holder of a Bond, to
it at the address listed in the books for the registration and
registration of transfer of Bonds, or at such other address as
such holder may have furnished to the Company in writing and
(iii) if to the Company, to it at its address shown at the head
of this Agreement, or at such other address as it may have
furnished in writing to you and all other holders of the Bonds at
the time outstanding.
(b) Any written communication so addressed and mailed by
registered or certified mail (in each case, with return receipt
requested) or prepaid overnight courier shall be deemed to have
been given when so mailed. All other written communications
shall be deemed to have been given upon receipt thereof.
Section 9.2. Reproduction of Documents. This Agreement and
all documents relating hereto, including, without limitation, (a)
consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the closing of your
purchase of the Bonds (including specimens of the Bonds but not
the Bonds themselves) and (c) financial statements, certificates
and other information previously or hereafter furnished to you,
may be reproduced by you by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar
process and you may destroy any original documents so reproduced.
The Company agrees and stipulates that it will not object to the
admission in evidence of such reproduction as the original itself
in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was
made by you in the regular course of business) on the grounds
that it is a reproduction and that any enlargement, facsimile or
further reproduction of such reproduction shall have the benefit
of this Section 9.2.
Section 9.3. Survival; Severability.
(a) Survival. All representations, warranties, and covenants
made by the Company herein or in any certificate or other
instrument delivered by it or on its behalf under this Agreement
on or prior to the Closing Date shall be considered to have been
relied upon by you and shall survive the delivery to you of the
Bonds purchased by you, regardless of any investigation made by
you or on your behalf, and shall survive the final payment at
maturity of the Bonds with respect to causes of action accruing
after said date of final payment and maturity. All statements in
any such certificate or other instrument shall constitute
representations and warranties as of the Closing Date by the
Company hereunder.
(b) Severability. If any provision of this Agreement is
invalid or unenforceable under applicable law, such provision is
and shall be ineffective, to the extent to which it is contrary
to applicable law, but the remaining provisions of this Agreement
shall remain in effect and shall not be affected thereby.
Section 9.4. Successors and Assigns. This Agreement
shall inure to the benefit of and shall be binding upon the
successors and assignees of each of the parties (including each
subsequent holder of the Bonds, unless otherwise provided
herein). The provisions of this Agreement are intended to be for
your benefit and for the benefit of all holders from time to time
of the Bonds and shall be enforceable by you and any other such
holder, whether or not an express assignment to such holder of
rights under this Agreement shall have been made by you or your
successors or assigns.
Section 9.5. Amendment and Waiver. This Agreement may be
amended, and the observance of any term of this Agreement may be
waived, with (and only with) the written consent of the Company
and holders of more than fifty percent (50%) in aggregate unpaid
principal amount of the Bonds at the time outstanding (exclusive
of Bonds then owned or held by the Company or any Subsidiary or
other Affiliate thereof); provided, however, that no such
amendment or waiver shall, without the written consent of the
holders of all the Bonds at the time outstanding (exclusive of
Bonds then owned or held by the Company or any Subsidiary or
other Affiliate thereof), (a) amend this Section 9.5 or (b) amend
Section 7.5 hereof. Nothing herein shall be deemed to amend
Article Thirteen (Supplemental Indentures) of the Indenture.
Section 9.6. Amendment of DPUC Authorization. The
Company hereby covenants that, without the prior written consent
of the holders of all the Bonds at the time outstanding, it will
not petition or otherwise request that the DPUC revoke or amend
the authorization of the DPUC referred to in Section 2.13
(Regulatory Approval Required) hereof with respect to the
issuance of the Bonds in any manner which would invalidate the
Bonds or alter, diminish or void the obligations of the Company
under this Agreement, the Indenture or the Bonds.
Section 9.7. Duplicate Originals; Execution and
Counterpart. Two or more duplicate originals of this Agreement
may be signed by the parties, each of which shall be an original
but all of which together shall constitute one and the same
instrument. This Agreement may be executed in one or more
counterparts and shall be effective when at least one counterpart
shall have been executed by each party hereto, and each set of
counterpart which, collectively, show execution by each party
hereto shall constitute one duplicate original.
<PAGE>
If the foregoing is satisfactory to you, please sign the
form of acceptance on the enclosed counterpart or counterparts
hereof and return the same to the Company, whereupon this letter,
as so accepted, shall become a binding contract between you and
the Company.
Very truly yours,
YANKEE GAS SERVICES COMPANY
By
------------------------
Name:
------------------------
Title:
------------------------
The foregoing Agreement is hereby
accepted:
The Security Mutual Life Insurance Company
of Lincoln, Nebraska
By
--------------------------
Name:
--------------------------
Title:
--------------------------
<PAGE>
YANKEE GAS SERVICES COMPANY
$30,000,000 in Aggregate Principal Amount
of
First Mortgage Bonds, 7.19% Series E, Due 2012
BOND PURCHASE AGREEMENT
Dated as of April 1, 1997
<PAGE>
SCHEDULE I
Name and Address of Purchaser and Amount of Commitment
Register securities in the name of: Aid Association for Lutherans
Instructions for Delivery of All Notices and Correspondence
Investment Department
Aid Association for Lutherans
4321 N Ballard Rd.
Appleton, WI 54919
All Payment Notices to the Above Address and to:
Income Collection and Disbursement
Ref Account # 846647
Citicorp Services Inc.
1410 N Westshore Blvd
4th Floor
Tampa, FL 33607
Instructions for Wire Transfer Payments
Citibank, NYC/CUST.
ABA #021-000-089
DDA #36112805
ATTN: John Colavito
REF ACCOUNT # 846647
AID ASSOCIATION FOR LUTHERANS CUSTODY ACCOUNT
Include description of security, CUSIP number, maturity date,
payable date, principal and interest breakdown, and interest rate
if variable rate.
Taxpayer ID Number: 39-0123480
Amount of Commitment of Aid Association for Lutherans: $5,000,000
<PAGE>
SCHEDULE I
Name and Address of Purchaser and Amount of Commitment
Instructions for Delivery of All Notices and Correspondence
Berkshire Life Insurance Company
Attn: Securities Department
700 South Street
Pittsfield, MA 01201
telephone: (413) 499-4321
fax: (413) 443-9397
Instructions for Wire Transfer Payments
Berkshire Life Insurance Company
Account Number 002-4-020877
The Chase Manhattan Bank, N.A.
ABA #021000021
with sufficient information (including issuer, PPN number,
interest rate, maturity and whether payment is of principal,
premium or interest) to identify the source and application of
such funds.
Taxpayer ID Number: 04-1083480
Amount of Commitment of Berkshire Life Insurance Company:
$1,000,000
<PAGE>
SCHEDULE I
Name and Address of Purchaser and Amount of Commitment
Instructions for Delivery of All Notices and Correspondence
All notices of payment and written confirmation of wire transfers
are to be sent to:
Knights of Columbus
Attn: Accounting Departmemt
P.O. Box 2016
New Haven, CT 06521-2016
All other communications are to be sent to:
Knights of Columbus
Attn: Investment Department
One Columbus Plaza
New Haven, CT 06510-3326
Instructions for Wire Transfer Payments
BK OF NYC/CUST
A/C #8900300825
KNIGHTS OF COLUMBUS GENERAL ACCOUNT
ABA #021000018
with sufficient information to identify the source and
application of such funds.
Taxpayer ID Number: 06-0416470
Amount of Commitment of Knights of Columbus: $5,000,000
<PAGE>
SCHEDULE I
Name and Address of Purchaser and Amount of Commitment
Register securities in the name of: Security First Life Insurance
Company
Instructions for Delivery of All Notices and Correspondence
Security First Life Insurance Company
c/o London Life
255 Dufferin Avenue
London, Ontario N6A 4K1
Canada
Attn: Manager U.S. Fixed Income (Private Placements)
Securities Department
Instructions for Wire Transfer Payments
Bank of New York
1 Wall Street
New York, N.Y. 10286
Account Name: Security First Group Corporate Bond Account
Account #328175
ABA #021000018
Security First Life Insurance Company Tax ID # 540696644
Amount of Commitment of Security First Life Insurance Company:
$3,000,000
<PAGE>
SCHEDULE I
Name and Address of Purchaser and Amount of Commitment
Instructions for Delivery of All Notices and Correspondence
MSI Insurance Co.
Attn: Investment Dept.
Two Pine Tree Drive
Arden Hills, MN 55112
Instructions for Wire Transfer Payments
Norwest Bank Minnesota
ABA #091000019
Trust Clearing Account #08-40-245
Attn: Sara Corcoran
For Credit to: Mutual Service Life Insurance Company Account
#13109900
Taxpayer ID Number: 410203970
Amount of Commitment of Mutual Service Life Insurance Company:
$1,000,000
<PAGE>
SCHEDULE I
Name and Address of Purchaser and Amount of Commitment
Instructions for Delivery of All Notices and Correspondence
New York Life Insurance Company
51 Madison Avenue
New York, NY 10010
Attn: Investment Department
Private Finance Group
Room 206
Fax: (212) 447-4160
with a copy of any notices regarding defaults or Events of
Defaults under the operative documents to:
Attn: Office of General Counsel
Investment Section, Room 1104
Fax: (212) 576-8340
Instructions for Wire Transfer Payments
Morgan Guaranty Trust Company of New York
New York, New York 10015
ABA #021-000-238
For the account of New York Life Insurance Company
General Account #810-00-000
With sufficient information (including issuer, Private Placement
Number, interest rate, maturity and whether payment is of
principal, premium, or interest) to identify the source and
application of such funds.
With advice of such payments to:
New York Life Insurance Company
51 Madison Avenue
New York, New York 10010-1603
Attn: Treasury Department
Securities Income Section
Room 209
Fax: (212) 447-4160
Taxpayer ID Number: 13-5582869
Amount of Commitment of New York Life Insurance Company:
$14,000,000
<PAGE>
SCHEDULE I
Name and Address of Purchaser and Amount of Commitment
Instructions for Delivery of Payment Notices and Confirmation of
Wire Transfers
The Security Mutual Life Insurance Company of Lincoln, Nebraska
200 Centennial Mall North
Lincoln, NE 68508
Attention: Investment Division
telephone: (402) 434-9500
fax: (402) 434-9599
All Other Correspondence to:
The Security Mutual Life Insurance Company of Lincoln, Nebraska
200 Centennial Mall North
Lincoln, NE 68508
Instructions for Wire Transfer Payments
National Bank of Commerce
13th and O Street
Lincoln, NE
ABA #1040-00045
Account of: Security Mutual Life
Account of: 40-797-624
Each such wire transfer shall set forth the name of the issuer,
the full title of the Notes (including the rate and final
redemption to maturity date) and application of such funds among
principal, premium and interest, if applicable.
Taxpayer ID Number: 47-0293990
Amount of Commitment of The Security Mutual Life Insurance
Company of Lincoln, Nebraska: $1,000,000
<PAGE>
SCHEDULE V
Wire Transfer Instructions for
Yankee Gas Services Company
Yankee Gas Services Company
599 Research Parkway
P.O. Box 1030
Meriden, CT 06450
Fleet National Bank of Connecticut
777 Main Street
Hartford, CT 06115
ABA #011500010
Account #6608-5840
Bank contact for verification of receipt of funds is Mr. Thomas
Rose, telephone number (617) 346-0572.
<PAGE>
EXHIBIT 10.23
YANKEE ENERGY SYSTEM, INC.
1996 LONG-TERM INCENTIVE COMPENSATION PLAN
SECTION 1. Purpose.
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The purposes of the 1996 Long-Term Incentive Compensation
Plan (the "Plan") are (i) to attract and retain outstanding
executives in key management portions of Yankee Energy System,
Inc. (the "Company") and any subsidiaries of the Company
(collectively the "Related Corporations"), (ii) to promote the
achievement of long-term corporate goals through the use of
performance-based incentives, (iii) to create parallel interests
between executives and shareholders by providing for some portion
of executive compensation in the form of common stock, and (iv)
to reward performance and to foster Company identification on the
part of key middle managers.
The Plan will provide a means whereby officers, executive
and managerial employees of the Company and any Related
Corporations may (a) purchase stock in the Company pursuant to
options which qualify as "incentive stock options" ("Incentive
Stock Options") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), (b) purchase stock in the Company
pursuant to options granted hereunder which do not qualify as
Incentive Stock Options ("Non-Qualified Options"); (c) may be
awarded stock in the Company ("Awards"); and (d) may receive
stock appreciation rights ("SARs"). Both Incentive Stock Options
and Non-Qualified Options are referred to hereafter individually
as an "Option" and collectively as "Options." As used herein,
the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation" as those terms are defined in Section
424 of the Code. Options, Awards and SARs are referred to
hereafter individually as a "Plan Benefit" and collectively as
"Plan Benefits." Officers, executive and managerial employees of
the Company and any Related Corporations are referred to herein
as "Participants."
SECTION 2. Administration.
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2.1 Board of Directors and the Committee. The Plan will be
administered by the Board of Directors of the Company whose
construction and interpretation of the terms and provisions
hereof shall be final and conclusive. The Board of Directors may
in its sole discretion grant Options, issue shares upon exercise
of such Options, grant Awards and grant SARs all as provided in
the Plan. The Board of Directors shall have authority, subject
to the express provisions of the Plan, to construe the Plan and
its related agreements, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and
provisions of the respective Option, Award and SAR agreements,
which need not be identical, and to make all other determinations
in the judgment of the Board of Directors necessary or desirable
for the administration of the Plan. The Board of Directors may
correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any related agreement in the
manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such
expediency. No director shall be liable for any action or
determination made in good faith. The Board of Directors may
delegate any or all of its powers under the Plan to the
Organization and Compensation Committee or other Committee (the
"Committee") appointed by the Board of Directors consisting of at
least two members of the Board of Directors, who shall serve at
the discretion of the Board of Directors. If Plan Benefits are
to be approved solely by a Committee, the members of the
Committee shall at all times be: (i) "outside directors" as that
term is defined in Treas. Reg. Section 1.162-27(e)(3) (or any
successor regulation); and (ii) "non-employee directors" within
the meaning of Rule 16b-3 (or any successor rule) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as such terms are interpreted from time to time. If the
Committee is so appointed, all references to the Board of
Directors herein shall mean and relate to such Committee, unless
the context otherwise requires.
2.2 Compliance with Section 162(m) of the Code. Section
162(m) of the Code generally limits the tax deductibility to
publicly held companies of compensation in excess of $1,000,000
paid to certain "covered employees" ("Covered Employees"). It is
the Company's intention to preserve the deductibility of such
compensation to the extent it is reasonably practicable and to
the extent it is consistent with the Company's compensation
objectives. For purposes of this Plan, Covered Employees of the
Company shall be those employees of the Company described in
Section 162(m)(3) of the Code.
SECTION 3. Eligibility.
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3.1 Incentive Stock Options. Participants shall be
eligible to receive Incentive Stock Options pursuant to the Plan;
provided that no Participant shall be granted any Incentive Stock
Option under the Plan who, at the time such Option is granted,
owns, directly or indirectly, Common Stock of the Company
possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its Related
Corporations, unless the requirements of Section 6.6(b) hereof
are satisfied. In determining whether this 10% threshold has
been reached, the stock attribution rules of Section 424(d) of
the Code shall apply.
3.2 Non-Qualified Options, Awards and SARs. Non-Qualified
Options, Awards and SARs may be granted to any Participant.
3.3 Generally. The Board of Directors may take into
consideration a Participant's individual circumstances in
determining whether to grant Plan Benefits. Granting of Plan
Benefits for any individual shall neither entitle that individual
to, nor disqualify that individual from, participation in any
other grant of Plan Benefits.
SECTION 4. Stock Subject to Plan.
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Subject to adjustment as provided in Sections 9 and 10
hereof, the stock to be offered under the Plan shall consist of
shares of the Company's Common Stock, $5.00 par value, and the
maximum number of shares which will be reserved for issuance, and
in respect of which Plan Benefits may be granted pursuant to the
provisions of the Plan, shall not exceed in the aggregate five
hundred twenty-three thousand (523,000) shares, except that this
number of shares will be increased by that number of shares as to
which awards granted under the Company's 1991 Long-Term Incentive
Compensation Plan may lapse, expire, terminate or be cancelled.
Such shares may be authorized and unissued shares, treasury
shares or shares purchased on the open market. If an Option or
SAR granted hereunder shall expire or terminate for any reason
without having been exercised in full, or if the Company shall
reacquire any unvested shares issued pursuant to Awards, any such
shares so reacquired shall again be available for subsequent
grants of Plan Benefits under the Plan. Stock issued pursuant to
the Plan may be subject to such restrictions on transfer,
repurchase rights or other restrictions as shall be determined by
the Board of Directors.
SECTION 5. Granting of Plan Benefits.
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Plan Benefits may be granted under the Plan at any time
after adoption of the Plan by the Board of Directors and prior to
October 22, 2006; provided, however, that nothing in the Plan
shall be construed to obligate the Company to grant Plan Benefits
to a Participant or anyone claiming under or through a
Participant. The date of grant of Plan Benefits under the Plan
will be the date specified by the Board of Directors at the time
the Board of Directors grants such Plan Benefits; provided,
however, that such date shall not be prior to the date on which
the Board of Directors takes such action. The Board of Directors
shall have the right, with the consent of a Participant, to
convert an Incentive Stock Option granted under the Plan to a
Non-Qualified Option pursuant to Section 6.7. Plan Benefits may
be granted alone or in addition to other grants under the Plan.
SECTION 6. Special Provisions Applicable to Options and SARs.
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6.1 Purchase Price and Shares Subject to Options and SARs.
(a) The purchase price per share of Common Stock
deliverable upon the exercise of an Option shall be
determined by the Board of Directors; provided, however,
that the exercise price shall not be less than 100% of the
fair market value of such Common Stock on the day the Option
is granted (except as modified in Section 6.6(b) hereof in
the case of an Incentive Stock Option).
(b) Options granted under the Plan may provide for the
payment of the exercise price by delivery of (i) cash or a
check payable to the order of the Company in an amount equal
to the exercise price of such Options, (ii) shares of Common
Stock of the Company owned by the Participant having a fair
market value equal in amount to the exercise price of the
Options being exercised, or (iii) any combination of (i) and
(ii). The fair market value of any shares of the Company's
Common Stock which may be delivered upon exercise of an
Option shall be determined by the Board of Directors. The
Board of Directors may also permit Participants, either on a
selective or aggregate basis, to simultaneously exercise
Options and sell the shares of Common Stock thereby
acquired, pursuant to a brokerage or similar arrangement,
approved in advance by the Board of Directors, and to use
the proceeds from such sale as payment of the purchase price
of such shares.
(c) If, at the time an Option is granted under the
Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business
day for which the prices or quotes discussed in this
sentence are available prior to the date such Option is
granted (the "Determination Date") and shall mean (i) the
average (on the Determination Date) of the high and low
prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if
such Common Stock is then traded on a national securities
exchange; (ii) the last reported sale price (on the
Determination Date) of the Common Stock on The Nasdaq Stock
Market if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on the Determination
Date) by an established quotation service for over-the-
counter securities, if the Common Stock is not reported on
The Nasdaq Stock Market. However, if the Common Stock is
not publicly traded at the time an Option is granted under
the Plan, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Board of
Directors after taking into consideration all factors which
it deems appropriate, including, without limitation, recent
sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
(d) The maximum number of shares with respect to which
Options or SARs may be granted to any employee, including
any cancellations or repricings which may occur, shall be
limited to 50,000 shares in any calendar year.
6.2 Duration of Options and SARs. Subject to Section
6.6(b) hereof, each Option and SAR and all rights thereunder
shall be expressed to expire on such date as the Board of
Directors may determine, but in no event later than ten years
from the day on which the Option or SAR is granted and shall be
subject to earlier termination as provided herein.
6.3 Exercise of Options and SARs.
(a) Subject to Section 6.6(b) hereof, each Option and
SAR granted under the Plan shall be exercisable at such time
or times and during such period as shall be set forth in the
instrument evidencing such Option or SAR. To the extent
that an Option or SAR is not exercised by a Participant when
it becomes initially exercisable, it shall not expire but
shall be carried forward and shall be exercisable, on a
cumulative basis, until the expiration of the exercise
period. No partial exercise may be for less than ten (10)
full shares of Common Stock (or its equivalent).
(b) The Board of Directors shall have the right to
accelerate the date of exercise of any installments of any
Option or SAR; provided that the Board of Directors shall
not accelerate the exercise date of any installment of any
Option granted to a Participant as an Incentive Stock Option
(and not previously converted into a Non-Qualified Option
pursuant to Section 6.7) if such acceleration would violate
the annual vesting limitation contained in Section 422(d)(1)
of the Code, which provides generally that the aggregate
fair market value (determined at the time the Option is
granted) of the stock with respect to which Incentive Stock
Options granted to any Participant are exercisable for the
first time by such Participant during any calendar year
(under all plans of the Company and any Related
Corporations) shall not exceed $100,000.
6.4 Nontransferability of Options and SARs.
No Option or SAR granted under the Plan shall be assignable
or transferable by the Participant, either voluntarily or by
operation of law, except by will or the laws of descent and
distribution or, with respect to Non-Qualified Options and SARs,
pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security
Act ("ERISA") or the rules promulgated thereunder. During the
life of the Participant, the Option or SAR shall be exercisable
only by him or her. If any Participant should attempt to dispose
of or encumber his or her Options or SARs, other than in
accordance with the applicable terms of a Non-Qualified Stock
Option Agreement or SAR Agreement, his or her interest in such
Options or SARs shall terminate.
6.5 Effect of Termination of Employment or Death on Options
and SARs.
(a) If a Participant ceases to be employed by the
Company or a Related Corporation for any reason, including
retirement but other than death, any Option or SAR granted
to such Participant under the Plan shall immediately
terminate; provided, however, that in the case of a
Participant who terminates employment as the result of
permanent and total disability, normal retirement as defined
in the Company's pension plan or early retirement with
approval of the Board of Directors, any portion of such
Option or SAR which was otherwise exercisable on the date of
termination of the Participant's employment may be exercised
within a one-year period following the date on which the
Participant ceased to be so employed, or within the three-
month period following such date in the case of an Incentive
Stock Option, but in no event after the expiration of the
exercise period. Any such exercise may be made only to the
extent of the number of shares subject to the Option or SAR
which were purchasable or exercisable on the date of such
termination of employment. If the Participant dies during
the applicable one-year or three-month period, the Option or
SAR shall be exercisable by the Participant's personal
representatives, heirs or legatees to the same extent and
during the same period that the Participant could have
exercised the Option or SAR on the date of his or her death.
(b) If the Participant dies while an employee of the
Company or any Related Corporation, any Option or SAR
granted to such Participant under the Plan shall be
exercisable by the Participant's personal representatives,
heirs or legatees, for the purchase of or exercise relative
to that number of shares and to the same extent that the
Participant could have exercised the Option or SAR on the
date of his or her death. The Option or SAR or any
unexercised portion thereof shall terminate unless so
exercised prior to the earlier of the expiration of one year
from the date of such death or the expiration of the
exercise period.
6.6 Designation of Incentive Stock Options; Limitations.
Options granted under the Plan which are intended to be
Incentive Stock Options qualifying under Section 422 of the Code
shall be designated as Incentive Stock Options and shall be
subject to the following additional terms and conditions:
(a) Dollar Limitation. The aggregate fair market
value (determined at the time the option is granted) of the
Common Stock for which Incentive Stock Options are
exercisable for the first time during any calendar year by
any person under the Plan (and all other incentive stock
option plans of the Company and any Related Corporations)
shall not exceed $100,000. In the event that Section
422(d)(1) of the Code is amended to alter the limitation set
forth therein so that following such amendment such
limitation shall differ from the limitation set forth in
this Section 6.6(a), the limitation of this Section 6.6(a)
shall be automatically adjusted accordingly.
(b) 10% Shareholder. If any Participant to whom an
Incentive Stock Option is to be granted pursuant to the
provisions of the Plan is on the date of grant the owner of
stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Related
Corporations, then the following special provisions shall be
applicable to the Incentive Stock Option granted to such
individual:
(i) The option price per share of the Common
Stock subject to such Incentive Stock Option shall not
be less than 110% of the fair market value of one share
of Common Stock on the date of grant; and
(ii) The option exercise period shall not exceed
five years from the date of grant.
In determining whether the 10% threshold has been reached,
the stock attribution rules of Section 424(d) of the Code
shall apply.
(c) Except as modified by the preceding provisions of
this Section 6.6, all of the provisions of the Plan shall be
applicable to Incentive Stock Options granted hereunder.
6.7 Conversion of Incentive Stock Options into Non-
Qualified Options; Termination of Incentive Stock Options.
The Board of Directors, at the written request of any
Participant, may in its discretion take such actions as may be
necessary to convert such Participant's Incentive Stock Options
(or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-
Qualified Options at any time prior to the expiration of such
Incentive Stock Options, regardless of whether the Participant is
an employee of the Company or a Related Corporation at the time
of such conversion. Such actions may include, but not be limited
to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of
such conversion, the Board of Directors (with the consent of the
Participant) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Board of Directors in its
discretion may determine, provided that such conditions shall not
be inconsistent with the Plan. Nothing in the Plan shall be
deemed to give any Participant the right to have such
Participant's Incentive Stock Options converted into Non-
Qualified Options, and no such conversion shall occur until and
unless the Board of Directors takes appropriate action. The
Board of Directors, with the consent of the Participant, may also
terminate any portion of any Incentive Stock Option that has not
been exercised at the time of such termination.
6.8 Stock Appreciation Rights.
An SAR is the right to receive, without payment by the
participant, an amount equal to the excess, if any, of the fair
market value of a share of Common Stock on the date of exercise
over the grant price, which amount will be multiplied by the
number of shares with respect to which the SARs shall have been
exercised. The grant of SARs under the Plan shall be subject to
the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the
express terms of the Plan, as the Board of Directors shall deem
desirable:
(a) Grant. SARs may be granted in tandem with, in
addition to or completely independent of any Plan Benefit.
(b) Grant Price. The grant price of an SAR may be the
fair market value of a share of Common Stock on the date of
grant or such other price as the Board of Directors may
determine.
(c) Exercise. An SAR may be exercised by a
Participant in accordance with procedures established by the
Board of Directors or as otherwise provided in any agreement
evidencing any SARs. The Board of Directors may provide
that an SAR shall be automatically exercised on one or more
specified dates.
(d) Form of Payment. Payment by the Company upon
exercise of an SAR may be made in cash, in shares of Common
Stock or any combination thereof, as the Board of Directors
shall determine, provided, however, that any SAR exercised
upon or subsequent to the occurrence of a Change in Control
(as defined in Section 10(b) hereof) shall be paid in cash.
(e) Fair Market Value. Fair market value shall be
determined in accordance with Section 6.1(c) with the
"Determination Date" being determined by reference to the
date of grant or the date of exercise of an SAR, as
applicable.
6.9 Rights as a Shareholder.
The holder of an Option or SAR shall have no rights as a
shareholder with respect to any shares covered by the Option or
SAR until the date of issue of a stock certificate to him or her
for such shares. Except as otherwise expressly provided in the
Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock
certificate is issued.
6.10 Special Provisions Applicable to Non-Qualified Options
and SARs Granted to Covered Employees.
In order for the full value of Non-Qualified Options or SARs
granted to Covered Employees to be deductible by the Company for
federal income tax purposes, the Company may intend for such Non-
Qualified Options or SARs to be treated as "qualified
performance-based compensation" as described in Treas. Reg.
Section 1.162-27(e) (or any successor regulation). In such case,
Non-Qualified Options or SARs granted to Covered Employees shall
be subject to the following additional requirements:
(a) such options and rights shall be granted only by
the Committee; and
(b) the exercise price of such Options and the grant
price of such SARs granted shall in no event be less than
the fair market value of the Common Stock as of the date of
grant of such Options or SARs.
SECTION 7. Special Provisions Applicable to Awards.
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7.1 Grants of Awards.
The Board of Directors may grant a Participant an Award
subject to such terms and conditions as the Board of Directors
deems appropriate, including, without limitation: restrictions on
the pledging, sale, assignment, transfer or other disposition of
such shares; the requirement that the Participant forfeit all or
a portion of such shares back to the Company upon voluntary or
other termination (for any reason other than death, permanent and
total disability, normal retirement as defined in the Company's
pension plan or early retirement with the approval of the Board);
and provisions disallowing a Participant receiving an Award from
making, in connection with such Award, the election permitted
under Section 83(b) of the Code.
7.2 Conditions. Approvals of Awards may be subject to the
following conditions:
(a) Each Participant receiving an Award shall enter
into an agreement (a "Stock Restriction Agreement") with the
Company, if required by the Board of Directors, in a form
specified by the Board of Directors agreeing to such terms
and conditions of the Award as the Board of Directors deems
appropriate.
(b) Shares issued and transferred to a Participant
pursuant to an Award may, if required by the Board of
Directors, be deposited with the Treasurer or other officer
of the Company designated by the Board of Directors to be
held until the lapse of the restrictions upon such shares,
and each Participant shall execute and deliver to the
Company stock powers enabling the Company to exercise its
rights hereunder.
(c) Certificates for shares issued pursuant to an
Award shall, if the Company shall deem it advisable, bear a
legend to the effect that they are issued subject to
specified restrictions.
(d) Certificates representing the shares issued
pursuant to an Award shall be registered in the name of the
Participant and shall be owned by such Participant. Such
Participant shall be the holder of record of such shares for
all purposes, including voting and receipt of dividends paid
with respect to such shares.
7.3 Nontransferability.
Shares issued pursuant to an Award may not be sold,
assigned, transferred, alienated, commuted, anticipated, or
otherwise disposed of (except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order
as defined by the Code or Title I of ERISA or the rules
promulgated thereunder), or pledged or hypothecated as collateral
for a loan or as security for the performance of any obligation,
or be otherwise encumbered, and are not subject to attachment,
garnishment, execution or other legal or equitable process, prior
to the lapse of restrictions on such shares, and any attempt at
action in contravention of this Section shall be null and void.
If any Participant should attempt to dispose of or encumber his
or her shares issued pursuant to an Award prior to the lapse of
the restrictions imposed on such shares, his or her interest in
such shares awarded to him or her shall terminate.
7.4 Effect of Termination of Employment or Death on Awards.
If, prior to the lapse of restrictions applicable to Awards,
the Participant ceases to be an employee of the Company or the
Related Corporations for any reason other than death, permanent
and total disability, normal retirement or early retirement with
the approval of the Board of Directors, Awards to such
Participant, as to which restrictions have not lapsed, shall be
forfeited to the Company, effective on the date of the
Participant's termination of employment. The Board of Directors
shall have the sole power to decide in each case whether leaves
of absence shall be deemed a termination of employment.
SECTION 8. Requirements of Law.
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8.1 Violations of Law. No shares shall be issued and
delivered upon exercise of any Option or the making of any Award
or the payment of any SAR unless and until, in the opinion of
counsel for the Company, any applicable registration requirements
of the Securities Act of 1933, any applicable listing
requirements of any national securities exchange on which stock
of the same class is then listed, and any other requirements of
law or of any regulatory bodies having jurisdiction over such
issuance and delivery, shall have been fully complied with. Each
Participant may, by accepting Plan Benefits, be required to
represent and agree in writing, for himself or herself and for
his or her transferees by will or the laws of descent and
distribution, that the stock acquired by him, her or them is
being acquired for investment. The requirement for any such
representation may be waived at any time by the Board of
Directors.
8.2 Compliance with Rule 16b-3. The intent of this Plan is
to qualify for the exemption provided by Rule 16b-3 under the
Exchange Act. To the extent any provision of the Plan does not
comply with the requirements of Rule 16b-3, it shall be deemed
inoperative to the extent permitted by law and deemed advisable
by the Board of Directors and shall not affect the validity of
the Plan. In the event Rule 16b-3 is revised or replaced, the
Board of Directors may exercise discretion to modify this Plan in
any respect necessary to satisfy the requirements of the revised
exemption or its replacement.
SECTION 9. Recapitalization.
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In the event that dividends are payable in Common Stock of
the Company or in the event there are splits, sub-divisions or
combinations of shares of Common Stock of the Company, the number
of shares available under the Plan shall be increased or
decreased proportionately, as the case may be, and the number of
shares deliverable upon the exercise thereafter of any Option
previously granted shall be increased or decreased
proportionately, as the case may be, without change in the
aggregate purchase price, the number of shares subject to Awards
as to which restrictions have not lapsed shall be increased or
decreased proportionately, as the case may be, and the number of
shares to which granted SARs relate shall be increased or
decreased proportionately, as the case may be, and the grant
price of such SARs shall be decreased or increased
proportionately, as the case may be.
SECTION 10. Change in Control and Reorganization.
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(a) For purposes of this Plan, a Change in Control
shall mean (i) the acquisition by a third person, including
a "person" as defined in Section 13(d)(3) of the Exchange
Act, of beneficial ownership (as defined in Rule 13d-3 under
the Exchange Act) directly or indirectly, of securities of
the Company representing twenty-five percent (25%) or more
of the total number of votes that may be cast for the
election of the directors of the Company; or (ii) as the
result of, or in connection with, any tender or exchange
offer, merger, consolidation or other business combination,
sale of assets or one or more contested elections, or any
combination of the foregoing transactions, the persons who
were directors of the Company shall cease to constitute a
majority of the Board of the Company. In the event of a
Change of Control of the Company, except as the Board of
Directors may expressly provide otherwise, all restrictions
and conditions applicable to Awards then outstanding shall
be deemed satisfied as of the date of the Change of Control
and all Options awarded at least six (6) months prior to the
Change of Control shall be exercisable as of such date. Any
SAR exercised upon or subsequent to the occurrence of a
Change in Control shall be paid in cash.
(b) In the case of any tender or exchange offer,
merger, consolidation or other business combination or sale
of all or substantially all of the assets of the Company,
which does not constitute a Change in Control, or in the
case of a reorganization or liquidation of the Company, the
Board of Directors of the Company, or the board of directors
of any corporation assuming the obligations of the Company
hereunder shall, as to outstanding Plan Benefits, (i) make
appropriate provision for the protection of any such
outstanding Plan Benefits by the substitution on an
equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized
corporation which will be issuable in respect of the shares
of Common Stock of the Company; provided only that the
excess of the aggregate fair market value of the shares
subject to the Plan Benefits immediately after such
substitution over the purchase price thereof is not more
than the excess of the aggregate fair market value of the
shares subject to such Plan Benefits immediately before such
substitution over the purchase price thereof, (ii) upon
written notice to the Participants, provide that all
unexercised Plan Benefits must be exercised within a
specified number of days of the date of such notice or such
Plan Benefits will be terminated, or (iii) upon written
notice to the Participants, provide that the Company or the
merged, consolidated or otherwise reorganized corporation
shall have the right, upon the effective date of any such
merger, consolidation, sale of assets or reorganization, to
purchase all Plan Benefits held by each Participant and
unexercised as of that date at an amount equal to the
aggregate fair market value on such date of the shares
subject to the Plan Benefits held by such Participant over
the aggregate purchase or grant price therefor, such amount
to be paid in cash or, if stock of the merged, consolidated
or otherwise reorganized corporation is issuable in respect
of the shares of the Common Stock of the Company, then, in
the discretion of the Board of Directors, in stock of such
merged, consolidated or otherwise reorganized corporation
equal in fair market value to the aforesaid amount. In any
such case the Board of Directors shall, in good faith,
determine fair market value and may, in its discretion,
advance the lapse of any waiting or installment periods and
exercise dates.
SECTION 11. No Special Employment Rights.
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Nothing contained in the Plan or in any Plan Benefit
documentation shall confer upon any Participant receiving a grant
of any Plan Benefit any right with respect to the continuation of
his or her employment by the Company (or any Related Corporation)
or interfere in any way with the right of the Company (or any
Related Corporation), subject to the terms of any separate
employment agreement to the contrary, at any time to terminate
such employment or to increase or decrease the compensation of
the Participant from the rate in existence at the time of the
grant of any Plan Benefit. Whether an authorized leave of
absence or absence in military or government service shall
constitute termination of employment shall be determined by the
Board of Directors in accordance with applicable law.
SECTION 12. Amendment of the Plan.
- ----------- ----------------------
The Board of Directors may at any time and from time to time
suspend or terminate all or any portion of the Plan or modify or
amend the Plan in any respect. The termination or any
modification or amendment of the Plan shall not, without the
consent of a recipient of any Plan Benefit, affect his or her
rights under any Plan Benefit previously granted. With the
consent of the affected Participant, the Board of Directors may
amend outstanding agreements relating to any Plan Benefit in a
manner not inconsistent with the Plan. The Board of Directors
hereby reserves the right to amend or modify the terms and
provisions of the Plan and of any outstanding Options to the
extent necessary to qualify any or all Options under the Plan for
such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock
options under Section 422 of the Code, provided, however, that
the consent of a Participant is required if such amendment or
modification would cause unfavorable income tax treatment for
such Participant.
SECTION 13. Withholding.
- ----------- ------------
The Company's obligation to deliver shares of stock upon the
exercise of any Option or SAR or the granting of an Award and to
make payment upon exercise of any SAR shall be subject to the
satisfaction by the Participant of all applicable federal, state
and local income and employment tax withholding requirements.
SECTION 14. Effective Date and Duration of the Plan.
- ----------- ----------------------------------------
14.1 Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no Incentive Stock Option
granted under the Plan shall become exercisable unless and until
the Plan shall have been approved by the Company's shareholders.
If such shareholder approval is not obtained within 12 months
after the date of the Board's adoption of the Plan, then any
Incentive Stock Options previously granted under the Plan shall
terminate and no further Incentive Stock Options shall be
granted. Subject to such limitation, Options, SARs and Awards
may be granted under the Plan at any time after the effective
date and before the date fixed herein for termination of the
Plan.
14.2 Duration. Unless sooner terminated in accordance with
Section 10 hereof, the Plan shall terminate upon the earlier of
(i) the tenth anniversary of the date of its adoption by the
Board of Directors or (ii) the date on which all shares available
for issuance under the Plan shall have been issued pursuant to
any Awards or the exercise or cancellation of Options and SARs
granted hereunder. If the date of termination is determined
under (i) above, then Plan Benefits outstanding on such date
shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such Plan Benefits.
SECTION 15. Governing Law.
- ----------- --------------
The Plan and all actions taken thereunder shall be governed
by the laws of the State of Connecticut.
<PAGE>
EXHIBIT 10.24
STATE OF CONNECTICUT
DEPARTMENT OF PUBLIC UTILITY CONTROL
TEN FRANKLIN SQUARE
NEW BRITAIN, CT 06051
DOCKET NO. 92-02-19 APPLICATION OF THE YANKEE GAS SERVICES
COMPANY FOR AN INCREASE IN RATES - REOPEN 11
October 1, 1997
By the following Commissioners:
John W. Betkoski, III
Jack R. Goldberg
Glenn Arthur
DECISION
1. INTRODUCTION
By letter dated September 2, 1997, Yankee Gas Services
Company (Company) and the Office of Consumer Counsel (OCC)
jointly filed a proposal in response to the Department of Public
Utility Control's (Department) Order No. 1 in the Decision dated
July 9, 1997, in Docket No. 96-08-05, DPUC Financial and
Operational Review of Yankee Gas Services Company. Order No. 1
stated that ". . . the Company shall, if it chooses, submit for
the Department's consideration a proposal indicating to which
items the total over-earning dollars [$3,191,000] should be
allocated." The Company and the OCC met to discuss the Company's
response to Order No. 1. As a result of those meetings, the
Company and OCC requested that the Department reopen Docket No.
92-02-19, Application of Yankee Gas Services Company for an
Increase in Rates Reopen II, and approve an amendment to the
settlement accepted by the Department in the Decision in that
docket dated January 3, 1996 (Settlement).
By letter dated September 15, 1997, the Department
advised the Company and OCC that it has certain concerns
regarding the proposal. On September 17, 1997, the Company
requested a Technical meeting to resolve the Department's
concerns and filed supplemental information on September 22,
1997. Pursuant to a Notice of Technical Meeting dated September
19, 1997, the Department held a technical meeting to discuss the
Settlement filed in response to Order No. 1.
II. DECISION TO REOPEN
The Department hereby reopens the January 3, 1996
Decision in Docket No. 92-02-19 for the limited purpose of
considering the Company's and OCC's proposal to amend the
Settlement accepted by the Department in that Decision.
111. DEPARTMENT ANALYSIS OF THE COMPANY AND OCC PROPOSAL
The Company and OCC are currently bound by the
Settlement, which is due to expire on September 11, 1998. In
response to Order No. 1 in the Decision dated July 9, 1997, in
Docket No. 96-08-05, the Company and OCC submitted a three point
proposal to amend the Settlement. Except as provided below, all
terms and conditions of the Settlement would remain unchanged.
In summary, the Company and OCC propose to:
1. Extend the Settlement term. The Settlement would be
extended two years and expire on September 30, 2000.
2. Defer allowable 1997 Deferred Gas Costs. Past
under-recovery of gas costs allowable for recovery during the
current year (1997 Deferred Gas Costs) would be added to existing
deferred assets defined in the Stipulation and Agreement. 1997
Deferred Gas Costs of approximately $6 million would be funded by
capacity release credits and excess interruptible margin rather
than billing firm sales customers directly through the Purchased
Gas Adjustment (PGA).
3. Refund $3,190,000 to customers through the PGA. The
$3,190,000 of fiscal year 1998 over-earnings identified by the
Department in the Decision in Docket No. 96-08-05 would be
credited to firm sales customers through the PGA over the period
November 1997 through March 1998.
Further, the Company proposes that for purposes of
General Statutes of Connecticut Section 16-19(g), which states
that if a public service company has for six consecutive months
earned a return on equity which exceeds the return authorized by
the Department by at least one percentage point, the Department
shall hold a special public hearing on the need for an interim
rate decrease, the Company's return on equity (ROE) would be set
at 11.15% for the term of the Settlement, unless the Department
authorizes a different ROE.
The Department has reviewed the Settlement proposal and
finds it to be in the public interest. The Department hereby
approves the amended Settlement. While we applaud the Company
and OCC's efforts to reduce rates, the Department is concerned
that there is no mention of funding cast iron replacement, which
was discussed in the July 9, 1997, Decision in Docket No.
96-08-05. Rates and quality of service are equally important
issues. The Department expects the Company to monitor its
infrastructure closely and, if needed, augment funding
unilaterally. The Department suggests that the conservation
collaborative group consider allocating unspent funding to
address distribution plant quality.
DPUC ELECTRONIC LIBRARY LOCATION K:\FINL-DECTILED UNDER UTILITY
TYPE, DOCKET NO., DATE
<PAGE>
DOCKET NO. 92-02-19 APPLICATION OF THE YANKEE GAS SERVICES
COMPANY FOR AN INCREASE IN RATES - REOPEN 11
This Decision is adopted by the following Commissioners:
John W. Betkoski, III
Jack R. Goldberg
Glenn Arthur
CERTIFICATE OF SERVICE
The foregoing is a true and correct copy of the Decision
issued by the Department of Public Utility Control, State of
Connecticut, and was forwarded by Certified Mail to all parties
of record in this proceeding on the date indicated.
OCT 17 1997
Robert J. Murphy
Executive Secretary
Department of Public Utility Control
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Earnings Per Share Computation
For the Years Ended September 30
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
(Thousands of Dollars, Except Share Data)
Net Income $16,957 $21,919 $12,358
------- ------- -------
Average Common
Shares
Outstanding 10,451,165 10,435,196 10,332,447
---------- ---------- ----------
Earnings Per
Share $1.62(b) $2.10(b) $1.20(b)
-------- -------- -----------
</TABLE>
(a) Exclusive of an $0.08 per share charge resulting from
an early redemption premium on the Company's preferred stock.
(b) Earnings per share information is the same on both a
primary and fully diluted basis as Yankee Energy System, Inc. has
a simple capital structure.
<PAGE>
Exhibit 13
Cover:
Background: Photo featuring Martha Stewart standing at
stove cooking
Across Top: The Energy Magazine for Today's Investors
Top Left: YES
Yankee Energy System 1997 Annual Report
Left Center: Yankee Gas
Heats Up
YESCo
Takes shape
Service
Wows customers
The Environment
Gets Greener
Conversions
Make the switch
Bottom right: Martha Stewart
Warms up to natural gas
<PAGE>
Inside Front Cover:
Left two-thirds of page:
Company Profile
Yankee Energy System, Inc. (YES or the Company), headquartered in
Meriden, Connecticut, is a diversified company specializing in
the distribution, conversion and control of energy to meet our
customers needs. Our principle operating subsidiary is Yankee
Gas Services Company (Yankee Gas).
Yankee Gas provides natural gas to a service area of 68 cities
and towns in Connecticut. The Company s other operating
subsidiaries support our core business in natural gas, or allow
us to expand our growing businesses in energy-related services.
Yankee Energy Services Company (YESCo) provides comprehensive
energy-related services through three principle divisions. YESCo
Power designs, builds and maintains on-site facilities for the
production of thermal and/or electric power. YESCo Controls is in
the business of engineering, installing, and maintaining building
control systems. YESCo Services provides comprehensive HVAC,
boiler and refrigeration equipment services and installation.
Other subsidiaries support the operations of Yankee Gas and
YESCo. NorConn Properties, Inc. (NorConn) owns selected system
real estate which it leases to Yankee Gas. Yankee Energy
Financial Services (Yankee Financial) provides energy equipment
financing. R.M. Services, Inc. (RMS) provides receivables
management services.
Right margin:
Yankee Stats
68 Towns
Yankee s service area covers approximately half of
Connecticut s land area.
$325+ Million
Gross annual revenue is on the rise for Yankee, and now
exceeds the $325 million mark.
181,000 customers
And growing. In 1997, Yankee added 22,000 more customers --
residential, commercial and industrial -- to its base.
Key characteristics
Strong management, attractive yield, low-risk
diversification strategy, and secure opportunities in basic
natural gas business.
Service Area
Graphic - Map of Connecticut highlighting Yankee Gas Service
Areas
End of Company Profile page
<PAGE>
Top center: Yankee Energy System 1997 Annual Report
Contents
Left two-thirds: Photo inset background of sky and clouds with
text:
Yankee Gas
Imaginative Energy
Solutions
For Natural Gas
Three small photo insets of machinery parts
A - Absorption Process
E - Engine Driven
D - Desiccant Process
Photo inset of business man talking on
telephone
Cover Stories and Features
A Letter from Branko Terzic
1997. A year of transition, preparation, and action. Yankee
Energy System s CEO shares his news and views with
shareholders.
Yankee Gas
More people are using natural gas, and relying on Yankee for
gas-related services. Charles Gooley shares good news from
his side of the Company.
YESCo
The definition of YESCo is straightforward: Technicians and
trucks who go on-site to solve problems for industrial and
commercial clients. YESCo President Mike Bielonko lays the
groundwork.
Right margin:
"Wow"
A new customer service system. A record number of service
contracts. Improved dispatch and installation. Customers are
finding out that Yankee means service.
The switch is On
Natural gas conversions just keep on coming. Neighborhoods.
Multi-unit apartment buildings. And a rather high-profile
customer known for domestic perfection.
Doing Business Better
Online gas procurement and a dedication to transportation
services are two improvements moving Yankee closer to
customers.
New Applications, New Markets
The cost efficiencies of new natural gas applications open
up new markets. And natural gas vehicles keep on rolling.
Energy Experts
The 1997 Yankee management team is stronger and deeper than
ever.
Yankee by the numbers
Financial data in detail.
Bottom right:
Photo inset of man in hard hat checking equipment
Photo inset of Big Mo - Yankee Gas Mobile Office Vehicle
Bottom center: YES 1997
Bottom right: 1
<PAGE>
Top half of page: Photo inset of Branko Terzic wearing hard
hat, job site in background
Chairman's Letter:
A Letter from Branko
This year -- a year of transition for your company, Yankee Energy
System, Inc. -- earnings from our regulated subsidiary, Yankee
Gas Services Company, were strong (despite the warm weather). Yet
losses from last year s startup diversification effort in Yankee
Energy Services Company (YESCo) meant our total earnings for the
year were less than anticipated.
The earnings for 1997 of $1.62 a share were down from the
previous year s earnings of $2.10, based on warmer weather and
other variables. The prior year s figure benefited from a $0.24
per share gain on the sale of our interest in the Iroquois
Pipeline. As an additional point of reference, 1995 earnings were
$1.20 per share (this included a one-time charge of $0.30 per
share related to the company s business re-engineering efforts).
Focused strategy, improved management
I take responsibility for our results and wish to inform you that
Yankee Energy is applying the lessons learned from our experience
this past year. As we begin a new fiscal year, strategic focus
has been sharpened, managerial improvements have been made, and
operating performance has improved. Our strategy to increase
shareholder wealth has not deviated from its path. We will
continue to improve the efficiency and sales effectiveness of
Yankee Gas Services Company while creating new earnings in our
YESCo subsidiary by focusing on energy-related mechanical
services, first in Connecticut and then in the rest of New
England.
This strategy fits well with the changes now driving the energy
sector of the U.S. economy. As I reported in last year s letter,
all indicators point to increased competition in the energy
industry. Thus, Yankee Energy s prospects continue to be
influenced by often unpredictable changes in state and federal
regulation of natural gas and electricity.
Deregulation and increased opportunities
Last year, competition was introduced in Connecticut by a
Department of Public Utility Control (DPUC) decision allowing
commercial and industrial customers to purchase commodity gas on
the market. This year, the DPUC has opened a proceeding to take
evidence and testimony on the issue of residential customer
choice in gas purchased from other marketers. Since Yankee Gas
has successfully implemented transportation services to
commercial and industrial customers, we are well-positioned to
provide residential gas transportation services. This new service
will be boosted by use of our automatic meter reading capability
and new informational technology investments.
Bottom left: 2
Bottom center: YES 1997
<PAGE>
Changes in electric regulation -- particularly new laws
facilitating distributed electric generation -- will present a
number of opportunities for Yankee Energy subsidiaries. As the
largest gas distribution system in Connecticut, Yankee Gas is
ready to provide gas sales or gas delivery services to newly
constructed gas-fired electric generation facilities. Any new
construction of small distributed power plants also creates a
market for YESCo, which can provide installation, operation and
maintenance services for these types of energy conversion
technologies.
Diversification moves Yankee closer to customers
In contrast to the strategies of many other utilities, Yankee
Energy System has chosen to offer "technicians and trucks"
through our YESCo subsidiary. Many national companies advertising
"energy services" through telemarketing or direct mail are not
able to provide these capabilities. Yankee Energy System s
diversification strategy is to extend services beyond gas
delivery. This means we will offer services on the customer s
side of the meter for energy conversion, control, and gas-using
devices. Thus, YESCo revenues will increase by providing highly
trained and well-equipped field personnel to meet customers
needs on-site.
YESCo has chosen as its initial service area a region that will
benefit from the proximity of Yankee Gas Services. YESCo has
chosen as its market segment industrial and commercial targets
whose need for mechanical and energy-related services will,
within a short time, enable YESCo to become a regional market
leader. To enhance our competitive position further, YESCo
customers will have the convenience of one-stop financing from
its affiliate, Yankee Financial Services Company.
Our mission is to increase shareholder value. Yankee Energy will
accomplish that mission by the creation of service offerings that
will provide our customers with "imaginative and responsive
energy solutions."
Everyone at Yankee Energy clearly understands that mission. We
believe our plan to be well-designed with an appropriate balance
of risk and growth. Recent additions to management have
strengthened our organization and increased our prospects for
financial success even more.
I am keenly aware of your expectations as shareholders and of my
own responsibilities as Chief Executive Officer of your company.
Please feel free to contact me at any time with your critiques,
comments, or suggestions concerning your company s performance.
Branko Terzic Signature
Branko Terzic
Chairman, President and Chief Executive Officer
Caption Center Page: This was a year of transition and action
Bottom Right: Photo inset Branko Terzic and customer reading
blueprints
Caption: Terzic, a professional engineer, reviews plans for
the new Midstate Medical Center with Engineering
Services Manager Guenther Ohler.
<PAGE>
Upper Left: Yankee Gas
Photo inset: Charles E. Gooley
Upper Right: We're closer to customers, and our sales show it.
Growth is the principal indicator of the health of any business,
and 1997 sales results clearly show the strength of our anchor
company, Yankee Gas, and the improved economic conditions in the
areas we serve. We have reorganized our sales force under
experienced sales and marketing professionals and doubled our
historic rate of customer growth, adding more than 2,300 new
customers. We exceeded our sales growth projections by more than
52 percent. Even as we meet the growing demands of almost 160,000
residential energy customers, we added 30 percent more
appliance-service customers in 1997.
Yankee Gas also was Connecticut s leader in promoting firm
transportation services, making our infrastructure available to
customers who choose to buy their own gas, and rely upon our
distribution system to deliver it. We identified gas-fired
electricity generation opportunities and effectively marketed
them to businesses throughout the state. Our gas cooling, air
compression, infrared heating and natural gas vehicle programs
all moved forward.
As we grew the business, we tightly controlled operating,
maintenance, and capital expenditures. Aggressive goals set for
all areas of operations were mostly met or exceeded.
That was last year. To succeed in 1998 and the longer term, we
need to have a clear understanding of what we are and must be to
our customers. We are a quality provider of natural gas
distribution and utilization services. We sell gas to those
customers who want to buy from us, and we deliver gas for other
customers who want to buy their own gas. We provide appliance and
equipment installation, maintenance and service directly to our
residential customers.
To prosper in the future, Yankee Gas must consistently be named
by customers as one of the top service companies with which they
do business. We no longer compare ourselves only to public
utilities, because our customers ceased doing that long ago. We
are now compared to the package delivery company, the lawn
service, and the local building contractor. Our service must
rival that of the "best in its class" of any type of company
serving consumers.
Because the price of energy is a primary customer concern, we
must keep our prices competitive with those of other energy
providers. We will do this through aggressive cost management and
sales efforts focused in areas where we already have distribution
facilities. Yankee Financial will continue to support our ability
to make natural gas an affordable option.
As changes in regulation require our customers to make choices,
we will be the source for clear, reliable information. Technology
does and will continue to play a major role in our customer
interactions, as is evidenced by our comprehensive Web site and a
new customer information system, scheduled for completion next
Fall. But technology will not replace the motivated,
well-trained, and courteous employees who have come to exemplify
Yankee Gas. Rather, it will enable them to delight our customers.
Customer delight, not customer satisfaction, is the new target at
which we are aiming.
Charles E. Gooley signature
Charles E. Gooley
President, Yankee Gas Services Company
Bottom left: Photo inset of people standing around gas grill
Bottom left: 4
Bottom Center: YES 1997
<PAGE>
Upper left: YESCo
Upper left: We're prepared to supply a full range of energy
services.
Upper right: Photo inset of Michael E. Bielonko
Yankee Energy Services Company (YESCo) is being positioned in the
marketplace to provide a full range of energy equipment
mechanical services to commercial, industrial, and institutional
customers through YESCo s three divisions: Power, Controls, and
Services.
YESCo s Power division designs, builds and maintains on-site
facilities for the production of thermal and/or electric power.
This includes fuel cells, of which YESCo Power installed two in
the fourth quarter of fiscal 1997, and began its third
installation in the first quarter of 1998. YESCo Controls
specializes in the engineering, installation, and maintenance of
building control systems. Controls is an authorized installer of
Andover Controls, a leading building controls product that we are
now installing in major projects for customers such as Southern
New England Telecommunications (SNET) and the University of
Connecticut. YESCo Services now operates out of three locations,
two in Connecticut and one in Massachusetts, to provide
comprehensive HVAC, boiler, and refrigeration equipment services
and installation.
In fiscal 1997, YESCo incurred startup costs at new locations
associated with building a sales and marketing infrastructure,
and initiated negotiations that led to acquisitions just after
the end of the fiscal year. Several on-site energy generation
projects expected to begin in fiscal 1997 were also delayed to
early 1998. Nonetheless, our identity as a provider of
comprehensive energy-related mechanical services is taking shape
as we continue to provide excellent service.
Substantial progress was made against our aggressive multi-year
business plan. In the third quarter we established two additional
operations service centers, one in southern Connecticut and one
in eastern Massachusetts. Late in the fourth quarter we completed
two acquisitions that enhance our technical capabilities in both
our Controls and Services divisions.
Our goal is to become the largest provider of comprehensive
mechanical services in Connecticut and adjacent markets. In
fiscal 1998 we plan continued growth internally through targeted
sales efforts and acquisitions. All the necessary managerial,
financial, and cultural components are in place to enable us to
create real shareholder value and continue our acquisitions
program.
Our strategy of "technicians and trucks" dispatched to provide
on-site solutions for customers remains sound. In keeping with
the character of Yankee Energy System, YESCo is set for
long-term, steady growth.
Michael E. Bielonko signature
Michael E. Bielonko
President, YESCo
Bottom right: Photo inset YESCo installation
Bottom Center: YES 1997
Bottom right: 5
<PAGE>
Top left: Customers
New system speeds customer service
Top right: Photo inset of family
Caption across page(s): Making 'em say "Wow"
(across pages 6 and 7)
Thanks to a state-of-the-art Microsoft NT-based client/server
system, more customer information will be at the fingertips of
Yankee Gas service personnel, helping them serve customers more
quickly and accurately. The system, created by IBM Global
Services, is a first in the natural gas industry and will provide
fast access to data on customer billing, sales, credit, repairs
and maintenance. Yankee believes the system will enhance the
company s growth strategies.
Charles Gooley, president of Yankee Gas, pointed out that
"utility customers will compare their utility providers' service
to all other service providers. The IBM-CSS system will help us
provide the service that will distinguish us from everyone else."
The installation is scheduled for completion in late 1998.
Word in background beneath copy: Satisfaction
Bottom center: Photo inset of person operating fork lift
inside Federal Paper Board facility.
Caption: Federal Paper Board in Sprague, Connecticut,
is one of Yankee's more than 20,000
commercial and industrial customers. And,
like almost 1,400 of those customers, Federal
Paper Board uses a marketer to supply their
natural gas while relying on Yankee to
transport it to their factory. We're proud
to serve these transportation customers.
Bottom left: 6
Bottom center: YES 1997
<PAGE>
Top center: Service contracts soar
Word in background beneath copy: Growth
The growth of gas-appliance service contracts sold by Yankee Gas
skyrocketed this past year, exceeding all expectations. "We
marketed more aggressively than ever," said Yankee Vice President
of Marketing Steve Laden. "Seasonal specials and add-on contracts
for installations, conversion projects and new homeowners
resulted in thousands of new service contract customers."
Laden added that service contracts do more than provide another
revenue stream. "Having a contractual relationship with customers
encourages them to communicate with us," he said. "It s another
way of listening to them and staying in touch with what they
want."
Caption across page(s): Making 'em say "Wow"
(across pages 6 and 7)
Center left: Photo inset of business man talking to couple
Caption: Rebates, incentives, and financing programs enable
industrial, commercial, and residential customers
to purchase, install, or convert to natural gas
equipment more easily.
Center bottom: Photo inset of Big Mo - Yankee Gas Mobile Office
Vehicle
Caption: Big Mo is Yankee s mobile customer education and
outreach center. It s equipped with a clean,
natural gas-burning engine, two offices, and a
mainframe interface with Yankee headquarters. It s
another way Yankee is focused on customer service.
And that s Big.
Right margin:
CAD keeps Yankee Service running on time
When a request for service comes in to Yankee Gas, vehicles are
responding more efficiently because of Computer Aided Dispatch
(CAD). The system, installed last summer, coordinates a fast
response by linking service headquarters to computer terminals in
service vehicles. Yankee personnel are directed to the customer
and already informed about the nature of the problem when they
arrive. As the Yankee customer base expands in number and in
geographic distribution, CAD will keep Yankee service pointed in
the right direction.
Yankee OnCall completes customer service loop
Graphic of Yankee OnCall logo
Yankee Gas has traditionally provided natural gas to its
customers and provided service or repair work when needed. But
when residential customers wanted to buy and install natural-gas
equipment, Yankee could only recommend a contractor.
Yankee OnCall changes all that. Yankee OnCall is an
equipment-acquisition and installation service for residential
customers. "The customer benefits from better, more competitive
service through Yankee," said David Ferrante, director of
customer service. "And we re now able to provide energy solutions
seamlessly, from acquisition to installation, delivery, service,
and repairs."
Bottom center: YES 1997
Bottom right: 7
<PAGE>
Top left: Conversions
Top center: the switch is on
Text in background: on
Yankee helps Martha Stewart feel right at home
Center left: Photo inset of Martha Stewart cooking at stove
Center right:
When it comes to the quest for the perfect home, one woman leads
the way. Martha Stewart has the last word on how to address
domestic dilemmas, from making artichoke dip to baking zucchini
bread. And she wouldn't cook with anything but natural gas.
"For precision cooking, nothing comes close to natural gas," she
said from her studio in Norwalk, where Yankee recently completed
a conversion that enabled the construction of two
commercial-grade kitchens. With gas now on-line for her new daily
television show, "Martha Stewart Living," the star will saute,
bake, broil, and boil with the accuracy for which she s known.
"We worked closely with our customer on this project," said
Yankee Gas Sales Representative Mike Collins. "We designed
subfloor lines to suit the studio layout. Once it was done, we
convinced Ms. Stewart to make her heating system natural gas,
too, and converted the whole building." Look for Martha
Stewart s new syndicated television show, and look for the Yankee
Gas name when the credits roll.
Yankee answers the need for cleaner power
The problem at the Laurel Gardens apartments wasn't that oil heat
was costly. It was that oil heat created maintenance problems and
environmental issues for the community.
Enter Rick Hughes, the Yankee Gas sales representative who called
the Director of Danbury's Housing Authority last February. He
showed the Director how natural gas could help improve air
quality, and today has converted 90 units in five apartment
buildings. "The tenants get cleaner heat. And Yankee gets more
satisfied customers on-line," said Hughes. Yankee Gas is now
focused on similar properties in Danbury -- and the other 67
towns in the service area -- that could use cleaner energy.
Bottom left background text: air quality
Bottom right:
Stonegate finds a cure for the common cold
Stonegate was a cold neighborhood. Ninety single-family Stamford
homes, all with poor insulation, all heated by electric heat
pumps. Each winter, kids got sick and the electric bills soared.
Yankee Gas Sales Representative Greta Mead connected with a
resident who wanted to sell his home, but because of the electric
heat, couldn't get the price he wanted. Together, they attended
neighborhood meetings, stuffed flyers in mailboxes, and
discovered a market ripe for natural gas.
"It was a domino effect," said Mead. "Momentum built on word of
mouth, and eventually we converted 60 of the 90 homes to natural
gas." Now natural gas furnaces, fireplaces, and water heaters are
getting hot. And kids are staying warmer.
Bottom right: Inset photo of Stonegate housing development
Bottom left: 8
Bottom center: YES 1997
<PAGE>
Top left: Operations
Doing business better
Photo inset composite of man in front of computer,
women with headset and computer screen
Transportation Services keeps Yankee right in the middle of
things
As Yankee Gas "unbundles," separating its gas supply and gas
delivery services, more of Yankee s commercial and industrial
customers will purchase natural gas on the open market. The move
is expected to reduce Yankee s role as seller of natural gas, and
open up new sales opportunities in gas transportation. Hence the
formation of a new department: Transportation Services.
Transportation Services makes Yankee a partner with customers who
need gas and with those who supply gas, by providing the
infrastructure that enables gas to arrive at its destination. No
matter where customers buy their gas, Yankee gets it there.
The new department will also coordinate with Sales to identify
transportation-related business opportunities. "We can
communicate with people who need gas, and people who supply it,"
said Richard Tardif, manager of Transportation Services. "This
will keep our sales staff supplied with the market information
they need, and administer customer requests more effectively."
Bottom left: Illustration of virtual reality
Caption: Imaginative Energy Solutions
Virtual Reality technology brings customers into a
3-D world of natural gas cooling technology
solutions, making a persuasive -- and very cool --
case for absorption, engine-driven, and desiccant
technologies.
Right margin:
Background photo: Closeup of computer keyboard
EBB and flow.
On-line natural gas ordering heats up.
Now that marketers are opening up natural gas sales, they rely on
Yankee Gas more than ever for timely delivery of the product. For
this reason, Yankee has established an Electronic Bulletin Board,
operational since last summer.
The EBB keeps communications with marketers constant, current,
and paperless. Orders for natural gas arrive instantly. Marketers
receive daily summaries of account activity. The database
information is entered once (instead of twice, under the previous
faxing method). And, since EBB uses the Internet, no additional
hardware or software is required. Bottom line: Customers get the
gas they need at competitive prices when they need it.
Bottom right margin: Graphic of globe with text:
Come visit us at the web
http://www.yankegas.com
Bottom center: YES 1997
Bottom right: 9
<PAGE>
Top left: Technology
Background copy across pages 10 and 11: Technology
Environment
Economics
Top center: Natural Advantages
Top center: Schematic of infrared
Two markets open up for natural gas.
Infrared heats up; air compression performs under pressure.
Background text: infrared
Owners of large facilities like warehouses, garages, and airplane
hangars have traditionally paid a premium to keep their vast
space warm enough to work in during cold, drafty winter months.
Until recently, that is.
Natural gas-based infrared heating is now replacing older, colder
convection heating systems by putting warm air into cold work
areas. Infrared heaters heat buildings the same way the sun heats
the Earth s surface. Ceiling-mounted units radiate heat that
warms walls, floors, equipment and people. Comfort is increased
and heat loss is minimized. This explains why infrared heat is
now warming an Air National Guard hangar, a large auto-service
garage, and a manufacturing facility, all in Connecticut.
Other firms are recognizing the benefits of natural gas as a
power source for air compression, important in many manufacturing
processes. Natural gas-fired air compression is cheaper than
electricity, and more reliable, too, since it keeps manufacturers
going during power outages. These are just a few reasons why
Yankee Gas sees great potential in both these technologies, and
will market them aggressively in 1998.
Bottom right background text: air compression
Bottom left: 10
Bottom center: YES 1997
<PAGE>
Top left: Environment
Background copy across pages 10 and 11: Technology
Environment
Economics
NGV's hit the road
Natural Gas fleets expand
United Parcel Service and the U.S. Postal Service have added
natural gas-powered trucks to their Connecticut fleets, leading
the movement toward more fuel-efficient vehicles on our roads and
providing Yankee Gas Services sustained growth in the business of
engine conversions and fuel supply.
Federal laws mandate that certain fleets begin using alternative
fuels, so companies like UPS and the Postal Service are preparing
for the future. Ford, GM, and Chrysler all have plans for natural
gas vehicle (NGV) production as well.
For many companies, the reasons go beyond federal law. Natural
gas is less expensive -- about 90 cents a gallon -- and
cleaner-burning than gasoline, emitting approximately 90 percent
less carbon monoxide. Maintenance costs are lower and safety is
higher, since natural gas combusts at twice the temperature of
gasoline. That s smart driving.
NGVs are especially well-suited to fleet service, since such
vehicles rely on central fueling stations, of which Yankee now
has five in Connecticut. The latest, at Danby's Exxon station in
Meriden, was constructed by Yankee Gas Services last year, adding
a critical centrally located link in the state s natural gas fuel
network. Check out our web site for other locations.
Top right: Photo inset of man fueling UPS vehicle
Bottom third: Fuel cells power up.
Natural gas goes in, premium AC power comes out.
Fuel cells first caught the attention of NASA, which is always
looking for new ways to supply power in outer space. Back here on
Earth, YESCo is marketing fuel cell technologies for business,
highlighting the company s drive to fill the demands for
non-traditional, reliable, premium power generation. Fuel cells
are currently operating at the Naval Submarine Base in Groton as
well as Yankee s corporate headquarters.
Fuel cells create AC power by separating the hydrogen and oxygen
in natural gas. Thermal energy is also produced, and can be
recovered and re-used. The power output from one fuel cell can
reach 200 kilowatts at 85 percent efficiency, enough power for
about 150 homes.
Right now the up-front cost of fuel cells is steep, but the
federal government subsidizes their development, making them more
affordable. Still, the appeal of fuel cells remains high. They
ensure clean, high-quality power even during power outages,
eliminate the need for expensive backup systems, and because the
current is steady, fuel cells extend the life of the equipment
they power. Natural gas fuel cells produce no emissions, so
they re easy on Mother Nature.
As the demand for fuel cells in the premium power market grows,
YESCo will be there to meet it.
Bottom third right: Photo inset of fuel cell ribbon cutting
ceremony
Caption: Branko Terzic cuts the ribbon on
Yankee's natural gas-fired fuel cell.
Bottom center: YES 1997
Bottom right: 11
<PAGE>
Left margin: Energy Experts
Background text: Experts
Charles Gooley was promoted in 1997 to President of Yankee Gas
Services from his former position as Executive Vice President of
Operations. While he was Director of Legal and External Affairs
at Northeast Utilities, Chuck led the effort that split Yankee
Gas from the NU System in 1989. He joined Yankee that year as
Vice President and General Counsel.
James Sepanski was a former partner and 15-year member of Arthur
Anderson, LLP, New York City, and joined Yankee Energy System in
July as its Chief Financial Officer. Jim s specialization has
long been with utilities, and he has been involved with
innovative financing, acquisitions and mergers. He will oversee
financial operations for Yankee Energy and its subsidiaries.
Michael Bielonko has taken the helm as the new President of
YESCo, after a successful tenure as Yankee Energy s CFO. Mike
brings with him more than 20 years of financial and utility
management experience with Yankee Energy and Northeast Utilities.
He began with Yankee in 1989, as Vice President and Treasurer. He
will direct the strategy to make YESCo a major provider of
mechanical energy services in the Northeast.
Kingsley Fink has joined Yankee Gas Services as Vice President,
Operations. Kingsley brings 15 years of experience in the Florida
utility industry where, as General Manager of Florida Power and
Light, he oversaw customer service, collections, meter reading,
billing, and remittance processing.
Dale Hedman has been promoted to Vice President for YESCo and now
leads the Power division. He has held three previous positions at
Yankee, including Director of Finance at YESCo, and Manager of
Financial Planning at Yankee Gas. Dale s extensive experience
with Yankee has made his transition to his new post a smooth one.
Eric Grondahl has been promoted to Vice President for YESCo and
now leads YESCo s Service division. Prior to joining YESCo in
late 1996, Eric, an engineer by training, previously worked at
Combustion Engineering and Northeast Utilities.
Right two-thirds of page:
Directors and Officers
Board of Directors
Photo inset: Branko Terzic
Caption: Branko Terzic (1)
Chairman, President and Chief Executive Officer
Yankee Energy System, Inc.
Meriden, CT
Photo inset: Sanford Cloud, Jr.
Caption: Sanford Cloud, Jr. (2), (3)
President and Chief Executive Officer
The National Conference of Christians and
Jews, Inc.
New York, NY
Photo inset: Eileen S. Kraus
Caption: Eileen S. Kraus (2), (4), (5)
Chairman
Connecticut Fleet National Bank
Hartford, CT
Photo inset: Frederick M. Lowther
Caption: Frederick M. Lowther (4), (5),
Partner
Dickstein Shapiro Morin & Oshinsky, LLP
Washington, D.C
Photo inset: Emery G. Olcott
Caption: Emery G. Olcott (1), (4), (5)
Chairman, President and Chief Executive Officer
Packard BioScience
Meriden, CT
Photo inset: John J. Rando
Caption: John J. Rando (2), (3)
Senior Vice President and General Manager
Digital Equipment Corporation
Stow, MA
Photo inset: Nicholas L. Trivisonno
Caption: Nicholas L. Trivisonno (1), (2), (3)
Chairman and Chief Executive Officer
ACNielsen
Stamford, CT
Photo inset: Patricia M. Worthy
Caption: Patricia M. Worthy (2), (3)
Professor
Howard University School of Law
Washington, D.C.
Committees of the Board
(1) Executive
(2) Audit
(3) Finance
(4) Organization and Compensation
(5) Committee on Board Affairs
Officers
Photo inset: Charles E. Gooley
Caption: Charles E. Gooley
Executive Vice President, YES
Photo inset: Mary J. Healey
Caption: Mary J. Healey
Vice President, General Counsel and Secretary, YES
Photo inset: Thomas J. Houde
Caption: Thomas J. Houde
Vice President, YES
Photo inset: Ellen J. Quinn
Caption: Ellen J. Quinn
Vice President, YES
Photo inset: Steven P. Laden
Caption: Steven P. Laden
Vice President, YES
Photo inset: Nicholas A. Rinaldi
Caption: Nicholas A. Rinaldi
Vice President, YES
Photo inset: James M. Sepanski
Caption: James M. Sepanski
Vice President and Chief Financial Officer, YES
Photo inset: Michael E. Bielonko
Caption: Michael E. Bielonko
Vice President, YES
Bottom left: 12
Bottom center: YES 1997
<PAGE>
Background graphic: Contents
Columns of numbers
<PAGE>
FINANCIAL INFORMATION
Contents
Management's Discussion and Analysis
Management and Independent Public Accountants Reports
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Capitalization
Consolidated Statements of Common Shareholders' Equity
Notes to Consolidated Financial Statements
Selected Financial and Operating Data
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
OVERVIEW
Yankee Energy System, Inc. (YES or the Company) headquartered in
Meriden, Connecticut, is a diversified company specializing in
the distribution, conversion, and control of energy to meet our
customers' needs. Our principal operating subsidiary is Yankee
Gas Services Company (Yankee Gas). Yankee Gas provides retail
distribution of natural gas to a service area of 68 cities and
towns in Connecticut. The Company's other operating subsidiaries
support our core business in natural gas, or allow us to expand
our growing businesses in energy-related services. Yankee Energy
Services Company (YESCo) provides comprehensive energy-related
services through three principle divisions. YESCo Power designs,
builds and maintains on-site facilities for the production of
thermal and/or electric power. YESCo Controls is in the business
of engineering, installing, and maintaining building control
systems. YESCo Services provides comprehensive HVAC, boiler and
refrigeration equipment services and installation. Other
subsidiaries support the operations of Yankee Gas and YESCo.
NorConn Properties, Inc. (NorConn) owns selected system real
estate, which it leases to Yankee Gas. Yankee Energy Financial
Services (Yankee Financial) provides energy equipment financing.
R.M. Services, Inc. (RMS) provides receivables management
services.
The Company reported consolidated net income of $16.9 million, or
earnings per share of $1.62, for its fiscal year ended September
30, 1997. This compares with consolidated net income of $21.9
million and $12.4 million, reflecting earnings per share of $2.10
and $1.20, respectively, for fiscal years ended September 30,
1996 and 1995. Fiscal 1996 earnings include a gain of $2.5
million or an after-tax effect of $0.24 per share resulting from
the Company's sale of its Iroquois Gas Transmission System
(Iroquois) investment. Fiscal 1995 earnings reflect a one-time
operating charge of $5.4 million related to the Company's
business transformation efforts, or an after-tax effect of $0.30
per share. Earnings for fiscal year 1997 decreased primarily due
to operating losses incurred by the Company's non-regulated
subsidiaries. Delays in bringing new business on line and
integrating these companies into the Yankee Energy organization
have contributed to losses which are expected to be eliminated in
the next fiscal year. These losses were partially offset by
strong operating performance at Yankee Gas during the fiscal year
due primarily to a reduction in Operation and Maintenance expense
principally as a result of cost controls implemented by the
Company. The increase in 1996 earnings from fiscal 1995 was due
primarily to colder weather in fiscal 1996, the gain realized on
the sale of the Company's 10.5 percent equity interest in
Iroquois, and lower expenses relating to the Company's business
transformation.
Earnings on the Company's investment in Iroquois for the first
six months of fiscal 1996 were approximately $1.5 million and
contributed $0.14 to earnings per share as compared to $0.4
million in fiscal 1995, or $0.04 per share. On April 30, 1996,
the Company announced the sale of its entire 10.5 percent
interest in Iroquois. Earnings for fiscal 1996 reflect a $2.5
million net after-tax gain from the sale, or $0.24 per common
share, realized in the third quarter of fiscal year 1996. Thus,
total earnings related to the investment in Iroquois, including
the gain on sale, were $0.38 per common share.
The Company increased dividends paid per share to $1.32 in 1997,
up 3.1 percent from the $1.28 per share in 1996, the seventh
straight year the Company has increased its dividend.
Fiscal 1997 earnings per share are based on 10,451,165 weighted
average common shares outstanding. Earnings per share were based
on 10,435,231 and 10,322,447 weighted average common shares
outstanding for fiscal years 1996 and 1995. During fiscal 1997,
the Company issued 4,860 new shares of common stock under its
Long-term Incentive Plan. In fiscal 1996, the Company issued
52,212 new shares under its Shareholder Investment Plan and 820
shares under its Long-term Incentive Plan.
REGULATORY MATTERS
On August 25, 1996, Yankee Gas filed an application with the
Connecticut Department of Public Utility Control (DPUC) for a
Financial and Operational Review (Review). This Review was
required under Connecticut statute since Yankee Gas had not
undergone a rate proceeding within the previous four years.
Yankee Gas' last rate approval was on August 26, 1992, and this
Review was necessary to comply with the statute. On July 9,
1997, the DPUC issued its decision in Docket No. 96-08-05. The
DPUC decision, which is not a rate order, called for a lowering
of Yankee Gas' authorized Return on Equity (ROE) from 12.43
percent to 11.15 percent. The DPUC believed that lower current
interest rates and recently allowed rates of return for other
Connecticut utilities justified a lower ROE for Yankee Gas. On
October 1, 1997, the DPUC approved a settlement whereby Yankee
Gas will credit approximately $3.2 million to firm sales
customers through the Purchased Gas Adjustment Clause (PGA),
during the period November 1997 through March 1998. The
settlement also allows Yankee Gas to maintain its base rates
until the end of fiscal year 2000, resulting in an eight-year
period in which Yankee Gas will have gone without an increase to
its base rates.
On January 3, 1996, the DPUC issued a Final Decision in reopened
Docket No. 92-02-19 to approve a rate agreement Yankee Gas
reached with the Office of Consumer Counsel (OCC). The
agreement states that Yankee Gas may apply a portion of credits
received from pipeline refunds, excess interruptible margin,
deferred gas costs, capacity release agreements and off-system
sales margin to reduce or eliminate certain deferred regulatory
assets. These credits are provided by a mechanism established by
the DPUC for the Connecticut Local Distribution Companies (LDCs)
to recover the gas supply transition costs relating to Federal
Energy Regulatory Commission (FERC) Order No. 636.
Through September 30, 1997, Yankee Gas has paid approximately
$19.5 million of gas supply transition costs and an additional
$3.5 million are anticipated. To date, Yankee Gas has collected
$44.2 million through a combination of credits received from
pipeline refunds, capacity release agreements, deferred gas
costs, off-system sales margin, and excess interruptible margin.
These excess collections of approximately $24.7 million have been
applied against certain regulatory assets in accordance with the
January 3, 1996 DPUC decision.
On August 2, 1995, the DPUC issued a Final Decision in Docket No.
94-11-12, DPUC Review of Connecticut Local Distribution
Companies' Cost of Service Study Methodologies. The DPUC
investigated the issues surrounding the development of firm
transportation (FT) rates at the state level in response to FERC
Order No. 636. The Decision provided guidelines for the
development of FT rates to be offered by the state's three LDCs.
On January 24, 1996, the DPUC issued a Final Decision on Docket
No. 92-02-19 Reopen I. This Decision enabled Yankee Gas to
implement FT rates and services as contemplated in the DPUC
August 2, 1995 decision referenced above. The Decision allows
Yankee Gas to offer a broad array of service options to
commercial and industrial FT customers. Yankee Gas implemented
these new FT rates and services on April 1, 1996, and as of
September 30, 1997, Yankee Gas had approximately 1,460 customers
under the new FT service. Existing customers who switch to
transportation tariffs will result in decreased revenues for
Yankee Gas as that portion of revenues representing gas costs
will now be borne directly by those customers who buy their gas
directly. Yankee Gas does not expect customer conversions to
transportation services to affect its net income because the cost
of gas has traditionally been a pass through item with no income
impact.
FORWARD-LOOKING STATEMENTS
This report contains statements which, to the extent they are not
recitations of historical fact, constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
involve risks and uncertainties. Actual results may differ
materially from such forward-looking statements for reasons
including, but not limited to, changes to and developments in the
legislative and regulatory environments affecting the Company's
business, the impact of competitive products and services,
changes in the natural gas industry caused by deregulation and
other factors, and certain environmental matters, as well as
such other factors as set forth in the Company's Form 10-K for
the year ended September 30, 1997.
RESULTS OF OPERATIONS
OPERATING REVENUES
Operating revenues decreased $14.9 million from 1996 to 1997 and
increased $45.9 million from 1995 to 1996. The components of the
change in operating revenues for the past two years are provided
in the following table:
<TABLE>
<CAPTION>
(Millions of Dollars)
Increase/(Decrease)
Years Ended September 30, 1997 vs 1996 1996 vs 1995
<S> <C> <C>
Firm sales and other $ (9.0) $12.7
Firm transportation 7.2 (0.4)
____ ____
Subtotal firm sales,
transportation and other
(excluding gas
cost recoveries) (1.8) 12.3
Interruptible/off-system sales
and transportation (excluding
gas cost recoveries) (1.4) 0.2
____ ____
Total (excluding gas cost
recoveries) $ (3.2) $12.5
Gas cost recoveries (16.9) 32.5
_____ _____
Total change in utility
revenues $ (20.1) $45.0
_____ _____
_____ _____
Nonutility revenues 5.2 0.9
Total change in operating
revenues $ (14.9) $45.9
_____ _____
_____ _____
</TABLE>
The corresponding changes in Yankee Gas throughput were as
follows:
<TABLE>
<CAPTION>
(Mcf-thousands)
Increase/(Decrease)
Years Ended September 30, 1997 vs 1996 1996 vs 1995
<S> <C> <C>
Firm sales (3,692) 4,485
Firm transportation 3,881 (411)
Interruptible/off-system sales (2,937) (342)
Interruptible transportation 4,409 (1,210)
_____ _____
Total change in throughput 1,661 2,522
_____ _____
_____ _____
</TABLE>
The change in operating revenues primarily reflects a decrease in
firm sales volumes of approximately 10.5 percent in fiscal 1997
compared to fiscal 1996. This change primarily related to the
shift of firm sales to firm transportation and a decrease in
residential sales volumes related to warmer weather. Firm
transportation increased approximately $7.2 million from 1996 to
1997. The increase in firm and other revenues from 1995 to 1996
was due primarily to weather that was 13 percent colder in 1996,
partially offset by an 11.5 percent decrease in off-system sales,
interruptible sales and transportation from 1995 to 1996.
Revenues from non-regulated operations increased $5.2 million
from 1996 to 1997 and $0.9 million from 1995 to 1996 due to the
growth of nonutility subsidiaries during those years.
Gas cost recoveries decreased in fiscal 1997 compared to fiscal
1996 due to lower firm sales, offset by higher per-unit gas
costs. Gas cost recoveries increased in fiscal 1996 compared to
fiscal 1995 due to higher firm sales and higher per-unit gas
costs.
OPERATING EXPENSES
Total operating expenses decreased $11.2 million in 1997 compared
to 1996 and increased $34.1 million in 1996 compared to 1995 as a
result of the following items:
Cost of gas decreased $16.4 million in 1997 compared to 1996
and increased $33.8 million in 1996 compared to 1995.
Yankee Gas defers differences between actual purchased gas
costs and the current cost recovery and recovers or refunds
such differences in future periods. This deferral results
in an increase or decrease to gas costs in each fiscal year.
The 1997 decrease was due primarily to lower firm sales as a
result of the warmer weather, partially offset by higher
per-unit gas costs. The 1996 increase was primarily due to
higher volumes of gas purchased as a result of the colder
weather and full recovery of the prior year undercollection
of gas costs. Cost of goods sold increased $3.6 million in
1997 compared to 1996, due to increased YESCo activity.
Operation and maintenance expense increased $0.1 million in
1997 compared to 1996 and decreased $0.6 million in 1996
compared to 1995. The 1997 increase was primarily due to
increased expenses related to nonutility operations,
partially offset by a decrease in Yankee Gas operation and
maintenance expense.
Depreciation expense increased $0.9 million in 1997
compared to 1996 and increased $0.1 million in 1996 from
1995 levels. The 1997 increase was primarily due to
additions in plant assets.
Taxes other than income taxes increased $0.6 million in
1997 compared to 1996 and increased $0.5 million in 1996
compared to 1995. The 1997 increase was primarily due
to higher Connecticut unemployment taxes and municipal
taxes, partially offset by lower gross earnings taxes
resulting from lower revenues in 1997 compared to 1996. The
1996 increase was primarily due to higher gross earnings
taxes which resulted from higher revenues in 1996 compared
to 1995, and higher municipal taxes, partially offset by a
reduction in Connecticut state unemployment taxes. The
1997 increase and 1996 decrease in Connecticut unemployment
taxes was due to a decision by the Connecticut Supreme
Court concerning the Company's 1992 work stoppage which
allowed the Company to reverse, in fiscal 1996, an accrual
for unemployment tax expense associated with claims paid to
Yankee Gas bargaining unit employees in 1992.
Other income decreased $5.4 million in 1997 compared to 1996 and
increased $2.7 million in 1996 compared to 1995. The 1997
decrease was primarily due to the absence of earnings associated
with the Company's interest in Iroquois, while the 1996 increase
was primarily due to the gain on the sale of the Company's
interest in Iroquois.
Interest expense in 1997 decreased $2.1 million as compared to
1996 primarily due to lower levels of debt and lower interest
expense on Yankee Gas' deferred fuel balance. Interest expense
in 1996 decreased $0.2 million as compared to 1995 primarily due
to lower debt, offset by higher interest on Yankee Gas' deferred
fuel balance.
Federal and state income taxes decreased $2.0 million in 1997
compared to 1996, and increased $5.2 million in 1996 compared to
1995. The 1997 decrease was primarily due to lower taxable
income as a result of operating losses incurred by Yankee
Energy's nonutility subsidiaries. The 1996 increase was
primarily due to increased earnings from operations over fiscal
1995. Please refer to Note 2 to the Consolidated Financial
Statements for additional information concerning the components
of federal and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures for plant, property and investments totaled $35.2
million in 1997 reflecting a $5.2 million increase from 1996, and
was funded primarily through cash generated from current
operations and short-term borrowings.
Cash flow (defined as net income adjusted for non-cash items such
as depreciation, deferred income taxes and the Company's non-cash
equity earnings from investments) represents the cash generated
from operations available for capital expenditures, dividends and
other needs. Cash flows from operating activities decreased $7.8
million in fiscal 1997 compared to fiscal 1996 primarily due to
lower net income and changes in working capital, and decreased
$2.1 million in fiscal 1996 compared to fiscal 1995.
The seasonal nature of gas revenues, inventory purchases and
construction expenditures create a need for short-term borrowing
to supplement internally generated funds. Yankee Gas has
arranged a $60 million revolving line of credit with a group of
four banks whereby funds may be borrowed on a short-term
revolving basis using either fixed or variable rate loans.
Yankee Gas also has an additional $27 million of credit lines
available on an uncommitted basis. Yankee Gas had $36.3 million
outstanding under its agreements at September 30, 1997 and $20.3
million outstanding at September 30, 1996. In addition, Yankee
Energy had $2.7 million outstanding as of September 30, 1997 and
no amounts outstanding at September 30, 1996 on a $15 million
line of credit, which is available to fund the development of the
Company's unregulated businesses. The weighted average interest
rates on short-term borrowings at September 30, 1997 and 1996
were 6.0 percent and 5.6 percent, respectively.
The long-term credit needs of Yankee Gas are being met by a first
mortgage bond indenture that provides for the issuance of bonds
from time to time as the need arises, subject to certain
restrictions. At September 30, 1997, indenture requirements,
including the required coverage ratio, would allow for the
issuance of an additional $216 million of bonds at an assumed
interest rate of 7.4 percent.
On February 1, 1996, the Company's system real estate subsidiary,
NorConn, secured a $6 million bank term loan to refinance two
existing real estate loans. Under the agreement, the interest
rate is fixed at 6.24 percent for the seven-year term of the loan
and requires an annual $250,000 sinking fund payment.
On April 1, 1997, Yankee Gas redeemed all $30 million Series A
Tranche C First Mortgage Bonds which matured on that date.
Yankee Gas used cash on hand and the issuance of a $30 million
principal amount of Series E First Mortgage Bonds on April 1,
1997, through a private placement. The bonds were sold by the
initial purchaser to "qualified institutional buyers" as defined
in and pursuant to Rule 144A under the Securities Act of 1933.
The bonds will mature April 1, 2012 and interest is payable at an
annual rate of 7.19 percent.
On November 4, 1994, Yankee Energy filed a Form S-3 registration
statement with the Securities and Exchange Commission to issue up
to 1,200,000 shares of common stock under its proposed
Shareholder Investment Plan (Plan). The Plan, which became
effective January 25, 1995, provides existing shareholders and
their family members the ability to acquire shares of common
stock through dividend reinvestment or voluntary cash purchases.
The Plan provides the Company the option to use new shares of
common stock or market purchases. The Company issued 52,212 new
shares which provided approximately $1.0 million of new equity
funding in fiscal 1996. No shares were issued under the Plan
during fiscal 1997. The new equity was used primarily to provide
capital contributions to the Company's nonregulated subsidiaries.
The Company's estimated capital expenditures for the fiscal years
1998 through 2002 are $194 million, including $55 million for
1998. Approximately $54 million, including $15 million for 1998
is for capital expenditures in nonutility operations. The 1998
utility capital expenditures, including the installation of a new
customer information system, are expected to be financed by a
combination of internally generated funds and short-term
borrowings. For Yankee Gas, long-term debt maturities and
sinking fund requirements will total $3.4 million in 1998.
The Company is currently implementing new systems and enhancing
existing systems to address year 2000 issues. Management
believes that all system changes will be installed and tested
prior to the manifestation of year 2000 issues. Currently, all
such charges associated with system enhancements have and will
continue be expensed and the costs of new systems will be
capitalized as appropriate. Expenditures are expected to
continue through the next two fiscal years.
In addition, Yankee Gas expects to incur expenditures for coal
tar remediation efforts, which is more fully discussed in Note 9
to the Consolidated Financial Statements. Yankee Gas expects to
finance such expenditures through a combination of internally
generated funds, short-term debt, and through insurance
settlements, which have totaled $9.6 million as of September 30,
1997.
<PAGE>
MANAGEMENT REPORT
The consolidated financial statements of Yankee Energy System,
Inc. and subsidiaries and other sections of this Annual Report
were prepared by management, which is responsible for their
integrity and objectivity. These financial statements, which
were audited by Arthur Andersen LLP, were prepared in accordance
with generally accepted accounting principles using estimates and
judgement, where required, and giving consideration to
materiality.
The Company maintains a system of internal controls over
financial reporting, which is designed to provide reasonable
assurance to the Company's management and Board of Directors
regarding the preparation of reliable published financial
statements. The system contains self-monitoring mechanisms, and
actions are taken to correct deficiencies as they are identified.
Even an effective internal control system, no matter how well
designed, has inherent limitations, including the possibility of
the circumvention or overriding of controls, and such systems can
provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions,
internal control system effectiveness may vary over time.
Through established programs, the Company regularly emphasizes to
its management employees their internal control responsibilities
and policies prohibiting conflicts of interest. The Audit
Committee of the Board of Directors is composed entirely of
outside directors. This Committee meets periodically with
management, the internal auditors and the independent auditors to
review the activities of each and to discuss audit matters,
financial reporting and the adequacy of internal controls.
Management believes that its system of internal accounting
controls and control environment provide reasonable assurance
that its assets are safeguarded from loss or unauthorized use and
that its financial records, which are the basis for the
preparation of all financial statements, are reliable.
Branko Terzic
Chairman, President and
Chief Executive Officer
James M. Sepanski
Vice President,
Chief Financial Officer and Treasurer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Yankee Energy
System, Inc.:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Yankee Energy
System, Inc. (a Connecticut corporation) and subsidiaries (the
Company) as of September 30, 1997 and 1996, and the related
consolidated statements of income, common shareholders' equity
and cash flows, for each of the three years in the period ended
September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Yankee Energy System, Inc. and subsidiaries as of September
30, 1997 and 1996 and the results of their operations and their
cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted
accounting principles.
Hartford, Connecticut Arthur Andersen LLP
November 7, 1997
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Thousands of Dollars, except share information)
<CAPTION>
For the Years Ended September 30, 1997 1996 1995
<S> <C> <C> <C>
Revenues:
Utility revenues $318,954 $339,045 $293,983
Nonutility revenues 6,087 895 39
________ ________ ________
Total Revenues 325,041 339,940 294,022
________ ________ ________
Operating Expenses:
Cost of gas/goods sold 176,757 189,504 155,404
Operations 58,569 58,375 59,222
Maintenance 6,382 6,477 6,251
Depreciation 17,521 16,649 16,520
Taxes other than income taxes 22,519 21,949 21,444
________ _______ _______
Total Operating Expenses 281,748 292,954 258,841
________ ________ _______
Operating Income 43,293 46,986 35,181
Other Income(Expense):
Other income, net 309 5,674 2,960
Interest charges, net (13,222) (15,290) (15,505)
________ _______ ________
Income Before Income Taxes 30,380 37,370 22,636
Provision for Income Taxes 13,423 15,451 10,278
________ ________ ________
Net Income $16,957 $21,919 $12,358
________ ________ ________
________ ________ ________
Earnings per Common Share $1.62 $2.10 $1.20
_____ _____ _____
_____ _____ _____
Weighted Average Common
Shares Outstanding 10,451,165 10,435,231 10,332,447
__________ _________ _________
__________ _________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of Dollars)
<CAPTION>
At September 30, 1997 1996
ASSETS
<S> <C> <C>
Utility Plant, at original cost $524,221 $499,446
Less: Accumulated provision for depreciation 192,506 177,943
_______ _______
331,715 321,503
Construction work in progress 19,150 13,985
_______ _______
Total Net Utility Plant 350,865 335,488
_______ _______
Other Property and Investments 19,311 14,894
_______ _______
Current Assets:
Cash and temporary cash investments 2,239 7,853
Accounts receivable, less accumulated
provision for uncollectible accounts of
$7,713 in 1997 and $7,259 in 1996 27,002 25,623
Fuel supplies 10,370 11,465
Other materials and supplies 2,186 1,706
Accrued utility revenues 4,667 5,775
Prepaid taxes 8,031 2,925
Deferred gas costs, current portion 2,034 -
Other 5,901 4,373
_______ _______
Total Current Assets 62,430 59,720
_______ _______
Deferred Gas Costs 8,364 3,948
Recoverable Environmental Cleanup Costs 31,667 34,370
Recoverable Income Taxes 11,038 14,559
Recoverable Postretirement Benefits Costs 1,515 1,861
Other Deferred Debits 15,174 13,909
________ ________
Total Assets $500,364 $478,749
________ ________
________ ________
</TABLE>
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
Capitalization (see accompanying statements):
Common shareholders' equity $165,706 $162,066
Long-term debt, net of current portion 135,265 109,282
_______ _______
Total Capitalization 300,971 271,348
_______ _______
Current Liabilities:
Notes payable to banks 39,000 20,300
Long-term debt, current portion 4,017 34,017
Accounts payable 22,741 22,571
Accrued interest 2,008 3,494
Pipeline transition costs payable 3,538 422
Other 6,480 7,411
_______ _______
Total Current Liabilities 77,784 88,215
_______ _______
Accumulated Deferred Income Taxes 68,205 64,422
Accumulated Deferred Investment Tax Credits 8,703 9,080
Reserve for Environmental Cleanup Costs 35,000 35,000
Postretirement Benefits Obligation 2,840 3,361
Other Deferred Credits 6,861 7,323
Commitments and Contingencies (Note 9)
________ ________
Total Capitalization and Liabilities $500,364 $478,749
________ ________
________ ________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands of Dollars)
<CAPTION>
For the Years Ended September 30, 1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $16,957 $21,919 $12,358
Adjusted for the following:
Depreciation 17,521 16,649 16,520
Equity earnings from investments (105) (2,766) (2,552)
Gain on sale of investment in Iroquois - (2,688) -
Deferred income taxes, net 6,927 9,267 (1,545)
Deferred gas costs activity and other
non-cash items (4,398) (3,740) 10,609
Changes in working capital:
Accounts receivable and
accrued utility revenues (271) (4,668) (519)
Accounts payable 170 4,271 495
Prepaid taxes (5,106) (2,644) 3,071
Other working capital (excludes cash) (3,089) 787 20
______ _______ _______
Net cash provided by
operating activities 28,606 36,387 38,457
_______ _______ _______
Cash Flows From Financing Activities:
Net proceeds from common
stock issuance 105 1,216 2,308
Issuance of long-term debt 30,000 2,150 20,000
Retirement of long-term debt (34,017) (5,817) (26,667)
Increase (decrease) in
short-term debt 18,700 (8,225) 3,925
Cash dividends-common stock (13,797)(13,357) (12,808)
_______ _______ _______
Net cash provided by (used for)
financing activities 991 (24,033) (13,242)
_______ _______ _______
Investment In Plant And Other:
Utility Plant (31,320)(25,663) (25,311)
Other property and investments (3,891) (4,380) (1,251)
Iroquois distribution - 2,625 1,470
Proceeds from Iroquois sale - 22,192 -
_______ _______ _______
Net cash used for plant and
other investments (35,211) (5,226) (25,092)
_______ _______ _______
Net (Decrease) Increase In Cash and
Temporary Cash Investments
For The Period (5,614) 7,128 123
Cash and Temporary Cash Investments,
beginning of period 7,853 725 602
_______ _______ _______
Cash and Temporary Cash Investments,
end of period $2,239 $7,853 $ 725
_______ _______ _______
_______ _______ _______
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $14,203 $13,484 $14,412
Income taxes $12,140 $14,213 $ 8,681
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Capitalization
(Thousands of Dollars)
<CAPTION>
At September 30, 1997 1996
<S> <C> <C>
Common Shareholders' Equity:
Common shares - $5 par value, authorized
20,000,000 shares; 10,454,414 and
10,449,554 shares outstanding at
September 30, 1997 and 1996 $52,272 $52,248
Capital surplus, paid in 88,151 88,086
Unearned compensation-restricted
stock awards (a) (148) (139)
Retained earnings 26,431 23,271
Employee stock ownership plan guarantee (b) (1,000) (1,400)
_______ _______
Total Common Shareholders' Equity 165,706 162,066
_______ _______
Long-term Debt:
First Mortgage Bonds (c)
Maturity Interest Rates
1997 9.90% - 30,000
2004 10.03% 23,532 26,899
2005 6.75% 20,000 20,000
2012 7.19% 30,000 -
2019 10.07% 19,000 19,000
2022 8.48% 20,000 20,000
2023 8.63% 20,000 20,000
_______ _______
Total First Mortgage Bonds 132,532 135,899
Term Loan Agreement, 6.24%
due February, 2003 (c) 5,750 6,000
Guarantee of Employee Stock Ownership Plan
Term Loan Agreement, 10.38%,
due July, 1999 (b) 1,000 1,400
_______ _______
Total Long-term Debt 139,282 143,299
Less amounts due within one year (b)(c) 4,017 34,017
_______ _______
Long-term Debt, Net 135,265 109,282
_______ _______
Total Capitalization $300,971 $271,348
________ ________
________ ________
</TABLE>
(a) Consistent with the terms of the Non-Employee Directors'
Restricted Stock Plan, incentive awards of 3,817 shares and 900
shares of restricted common stock were granted to Directors
during 1997 and 1996, respectively. Under the Long-term Incentive
Compensation Plan the market value of the restricted stock awards
has been recorded as unearned compensation and is shown as a
separate component of shareholders' equity. The earned
compensation is charged to administrative and general expense as
shares become vested. Earned compensation was approximately
$66,000 for fiscal 1997 and $117,000 for fiscal 1996.
(b) On July 20, 1989, Yankee Energy became guarantor of a term
loan agreement between the Trustee for the Company's 401(k)
Employee Stock Ownership Plan (ESOP), and a commercial bank, in
the amount of $4,000,000. The proceeds were used by the Trustee
exclusively to acquire outstanding shares of Yankee Energy common
stock pursuant to the terms of the Company's ESOP. The final
maturity date of the agreement is July 1, 1999 with sinking fund
requirements of $400,000 for the fiscal year 1998 and $600,000
for the 1999 fiscal year.
(c) Long-term debt maturities and cash sinking fund requirements
on debt outstanding at September 30, 1997 for each of the fiscal
years 1998 through 2002 (excluding the ESOP sinking fund
requirement) are $3,617,000, $3,617,000, $4,567,000, $4,567,000,
and $4,567,000 respectively.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Consolidated Statements of Common Shareholders' Equity
(Thousands of Dollars)
<CAPTION>
Employee
Stock
Capital (a) Ownership
Common Surplus, Retained Plan
Shares Paid In Earnings Guarantee Total
<S> <C> <C> <C> <C> <C>
Balance at
September
30, 1994 $51,438 $85,150 $15,159 $(2,200) $149,547
Net Income 12,358 12,358
Issuance of
108,839 common
shares - $5
par value 544 1,764 2,308
Cash dividends
on common
shares - $1.24
per share (12,808) (12,808)
Employee stock
ownership plan
loan repayment 400 400
Common stock
issuance expenses (92) (92)
Unearned
compensation-
restricted
stock awards (b) 40 40
_____ ______ ______ ______ _______
Balance at
September
30, 1995 $51,982 $86,862 $14,709 $(1,800) $151,753
Net Income 21,919 21,919
Issuance of
53,032 common
shares - $5
par value 266 973 1,239
Cash dividends on
common shares -
$1.28 per share (13,357) (13,357)
Employee stock
ownership plan
loan repayment 400 400
Unearned compensation-
restricted stock
awards (b) 112 112
_____ _______ _______ _______ _______
Balance at
September
30, 1996 $52,248 $87,947 $23,271 $(1,400) $162,066
Net Income 16,957 16,957
Issuance of
4,860
common shares -
$5 par value 24 81 105
Cash dividends
on common shares -
$1.32 per share (13,797) (13,797)
Employee stock
ownership plan
loan repayment 400 400
Unearned
compensation-
restricted stock
awards (b) (25) (25)
_______ _______ _______ _______ ________
Balance at
September
30, 1997 $52,272 $88,003 $26,431 $(1,000) $165,706
_______ _______ _______ _______ ________
_______ _______ _______ _______ ________
</TABLE>
(a) Yankee Gas has dividend restrictions imposed by its Bond
Purchase Agreements. At September 30, 1997, retained earnings
available for common dividends under the terms of the Series A
Agreement totaled approximately $36.5 million and $46.9 million
under the terms of the Series B and C Agreements.
(b) See note (a) of the Consolidated Statements of
Capitalization.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1) Summary of Significant Accounting Policies
The Company: Yankee Energy System, Inc. (YES or the Company)
headquartered in Meriden, Connecticut, is a diversified company
specializing in the distribution, conversion, and control of
energy to meet our customers' needs. Our principal operating
subsidiary is Yankee Gas Services Company (Yankee Gas). Yankee
Gas provides retail distribution of natural gas to a service area
of 68 cities and towns in Connecticut. The Company's other
operating subsidiaries support our core business in natural gas,
or allow us to expand our growing businesses in energy-related
services. Yankee Energy Services Company (YESCo) provides
comprehensive energy-related services through three principle
divisions. YESCo Power designs, builds and maintains on-site
facilities for the production of thermal and/or electric power.
YESCo Controls is in the business of engineering, installing, and
maintaining building control systems. YESCo Services provides
comprehensive HVAC, boiler and refrigeration equipment services
and installation. Other subsidiaries support the operations of
Yankee Gas and YESCo. NorConn Properties, Inc. (NorConn) owns
selected system real estate, which it leases to Yankee Gas.
Yankee Energy Financial Services (Yankee Financial) provides
energy equipment financing. R.M. Services, Inc. (RMS) provides
receivables management services.
Principles of Consolidation: The consolidated financial
statements of Yankee Energy include the accounts of all
subsidiaries. Intercompany transactions have been eliminated in
consolidation.
Public Utility Regulation: Yankee Gas is subject to regulation
for rates and other matters by the Connecticut Department of
Public Utility Control (DPUC) and follows accounting policies
prescribed by the DPUC. The Company prepares its financial
statements in accordance with generally accepted accounting
principles which include the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," (FAS 71). FAS 71
requires a cost-based, rate-regulated enterprise such as Yankee
Gas to reflect the impact of regulatory decisions in its
financial statements. The DPUC, through the rate regulation
process, can create regulatory assets that result when costs are
allowed for ratemaking purposes in a period other than the period
in which the costs would be charged to expense by an unregulated
enterprise.
Following the provisions of FAS 71, the Company has recorded
regulatory assets or liabilities as appropriate primarily related
to deferred gas costs, pipeline transition costs, hardship
customer receivables, environmental cleanup costs, income taxes
and postretirement benefits costs. The specific amounts related
to these items are disclosed in the consolidated balance sheets.
Yankee Gas continues to be subject to cost-of-service-based rate
regulation by the DPUC. Based upon current regulation and recent
regulatory decisions, the Company believes that its use of
regulatory accounting is appropriate and in accordance with the
provisions of FAS 71.
Revenues: Utility revenues are based on authorized rates applied
to each customer's use of gas. Rates can be changed only through
a formal proceeding before the DPUC. At the end of each
accounting period, a revenue estimate for the amount of gas
delivered but unbilled is accrued.
Depreciation: The provision for utility depreciation is
calculated using the straight-line method based on estimated
remaining useful lives of depreciable utility plant in service,
adjusted for net salvage value and removal costs as approved by
the DPUC. The depreciation rates for the several classes of
plant in service are equivalent to an overall composite rate of
3.3 percent in fiscal year 1997, 3.3 percent in fiscal year 1996
and 3.4 percent in fiscal year 1995.
Purchased Gas Adjustment Clause (PGA): The DPUC-approved rates
include an adjustment clause under which gas costs above or below
base rate levels are charged or credited to customers. As
prescribed by the DPUC, differences between the actual purchased
gas costs and the current cost recovery are deferred and
recovered or refunded over future periods.
Equity Accounting: The Company accounts for YESCo's investments
in energy production facilities using the equity method,
recording their proportionate share of earnings (losses) with
corresponding increases (decreases) in their investment.
Distributions received reduce the carrying amount of these
investments.
Income Taxes: Differences exist between the periods in which
transactions affect income in the financial statements and the
periods in which they affect the determination of income subject
to tax. The tax effect of such timing differences is accounted
for in accordance with the ratemaking treatment required by the
DPUC.
Additionally, in accordance with FAS 71, as of September 30,
1997, the Company has a deferred tax liability and a
corresponding regulatory asset of approximately $11.0 million,
due to the effect of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes".
Reclassifications: Certain prior year amounts have been
reclassified to conform with current year classifications.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Impairment of Long-Lived Assets: Yankee Energy adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (FAS 121), in fiscal 1997. The implementation of
FAS 121 did not have a material adverse effect on the
consolidated financial statements of Yankee Energy.
Earnings per Share: Earnings per share is computed based on the
weighted average number of common shares outstanding during each
year. The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share"
(FAS 128). FAS 128 specifies the computation, presentation and
disclosure requirements for basic and diluted earnings per share.
Yankee Energy will adopt FAS 128 in fiscal 1998, and the Company
expects that this statement will have no material effect on
earnings per share.
Note 2) Income Tax Expense
<TABLE>
<CAPTION>
The components of the federal and state income tax provisions
are:
Years Ended September 30, 1997 1996 1995
(Thousands of Dollars)
Charged to income:
<S> <C> <C> <C>
Current income taxes:
Federal $ 4,509 $ 5,297 $ 8,733
State 1,979 894 3,090
________ _______ _______
Total current 6,488 6,191 11,823
________ _______ _______
Deferred income taxes, net:
Investment tax credits (377) (377) (377)
Federal 6,004 8,158 (108)
State 1,308 1,479 (1,060)
________ _______ _______
Total deferred 6,935 9,260 (1,545)
________ _______ _______
Total income tax expense $13,423 $15,451 $10,278
_______ _______ _______
_______ _______ _______
</TABLE>
Deferred income tax liabilities (assets) are comprised of the
following:
<TABLE>
<CAPTION>
At September 30, 1997 1996
<S> <C> <C>
Depreciation $70,428 $70,118
Other (2,223) (5,696)
_______ ______
Net deferred income tax
liability $68,205 $64,422
_______ _______
_______ _______
</TABLE>
In accordance with required regulatory treatment, deferred income
taxes are not provided for certain timing differences. This
treatment, along with other items, causes differences between the
statutory income tax rate and the effective income tax rate. The
differences between the effective income tax rate recorded by the
Company and the statutory federal tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal statutory income
tax rate 35.0% 35.0% 35.0%
Tax effect of differences:
Depreciation 5.1 3.7 5.6
State income taxes net
of federal benefit 6.9 3.9 6.1
Effective tax rate
adjustment (0.5) (3.0) (1.8)
Federal tax credits (1.5) (1.0) (1.7)
Bad debt reserve and
amortization 0.3 1.7 (1.9)
Litigation reserve - (2.0) 3.3
Remediation costs - 1.4 -
Miscellaneous (1.1) 1.6 0.8
____ ____ ____
Effective income tax rate 44.2% 41.3% 45.4%
____ ____ ____
____ ____ ____
</TABLE>
Note 3) Leases
Yankee Gas has entered into operating lease agreements for the
use of office equipment, vehicles and buildings. For fiscal
1997, 1996 and 1995, these rental payments were $2,064,000,
$1,939,000 and $1,751,000, respectively.
Future minimum rental payments, excluding associated costs
such as property taxes, state use taxes, insurance and
maintenance, under long-term noncancelable leases as of September
30, 1997, are approximately:
<TABLE>
<CAPTION>
Year (Thousands of Dollars)
<S> <C>
1998 $1,791
1999 1,615
2000 1,343
2001 1,056
2002 637
After 2002 586
______
Future minimum lease
payments $7,028
______
______
</TABLE>
Note 4) Postretirement Benefits
The Company has a noncontributory defined benefit retirement plan
covering employees of Yankee Gas, YESCo, and RMS. Benefits are
based on years of service and employees' highest consecutive 60
months of compensation during the last 120 months of employment.
It is the Company's policy to fund annually an amount at least
equal to that which will satisfy the requirements of the Employee
Retirement Income Security Act and the Internal Revenue Code. No
contributions were required or made in fiscal 1997 and fiscal
1996. Pension assets are invested primarily in equity securities
and investment grade bonds.
The components of net pension cost (credit) were:
<TABLE>
<CAPTION>
Years Ended September 30, 1997 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost $1,992 $1,890 $1,817
Interest cost 4,522 4,216 3,715
Net amortization 13,128 4,373 4,969
Less: Return on plan assets 20,147 10,577 10,524
______ ______ ______
Net pension credit $ (505) $ (98) $ (23)
______ ______ ______
______ ______ ______
</TABLE>
In addition, in fiscal 1995 a cost of $2,734,000 was recognized
as a result of special termination benefits under the pension
plan and is included in the Company's 1995 Statement of Income
under the Operations category.
Total pension cost resulted in income of $420,000 for the year
ended September 30, 1997, income of $13,000 for the year ended
September 30, 1996 and expense of $62,000 for the year ended
September 30, 1995. Pension cost for 1997, 1996, and 1995
includes $85,000 in cost of living increases each year for
Northeast Utilities (NU) retirees who were previously employed in
the gas business operated by The Connecticut Light and Power
Company (CL&P), a subsidiary of NU. These payments were agreed
to at the time of divestiture from NU.
For calculating the plan's cost and year-end funded status, the
following assumptions were used:
<TABLE>
<CAPTION>
Years Ended September 30, 1997 1996 1995
<S> <C> <C> <C>
Discount rate 7.50% 7.75% 7.75%
Expected long-term rate
of return 9.00% 9.00% 9.00%
Compensation/progression rate 4.50% 4.50% 4.50%
</TABLE>
The following table represents the plan's funded status
reconciled to the consolidated balance sheets:
<TABLE>
<CAPTION>
At September 30, 1997 1996
(Thousands of Dollars)
<S> <C> <C>
Accumulated benefit obligation,
including $50,045 of vested benefits
at September 30, 1997 and $46,113 at
September 30, 1996 $51,210 $47,220
_______ _______
_______ _______
Projected benefit obligation $64,845 $60,053
Less: Market value of plan assets 89,966 72,969
_______ _______
Plan surplus 25,121 12,916
Unrecognized transition amount (703) (789)
Unrecognized prior service costs (26) (28)
Unrecognized net gain (27,728) (15,940)
________ ________
Accrued pension liability $(3,336) $(3,841)
________ ________
________ ________
</TABLE>
During fiscal 1994, the Company adopted an Excess Benefit Plan
(EBP) that provides retirement benefits to executive officers and
other key management staff. The EBP recognizes total
compensation and service that would otherwise be disregarded due
to Internal Revenue Code limitations on compensation in
determining benefits under the regular retirement plan. The EBP
is not funded and benefits are paid when due from general
corporate assets.
Note 5) Postretirement Benefits Other Than Pensions
The Company provides certain health care and life insurance
benefits to its retired Yankee Gas, YESCo, and RMS employees. On
July 1, 1990, in accordance with terms of the divestiture, Yankee
Gas began compensating the NU System for a portion of the NU
System's liability for certain health care and life insurance
expenses of retirees or surviving spouses. Yankee Gas and the NU
System will share costs in a defined manner until June 30, 2005.
The cost of providing those benefits for NU retirees was
approximately $1,103,000 for the fiscal year ended September 30,
1997 and $1,104,000 and $1,070,000 for the comparable periods in
1996 and 1995, respectively.
Yankee Gas has established two Internal Revenue Code Section
501(c)(9) Voluntary Employee Beneficiary Association (VEBA)
Trusts, one for union employees and one for non-union employees,
to fund its future liabilities for retiree health care and life
insurance benefits. Contributions to the VEBA Trusts totaled
$1.728 million for both fiscal 1997 and fiscal 1996. Assets of
the VEBA Trusts are invested primarily in equity securities and
investment grade bonds.
The Company recognizes the cost of postretirement benefits over
the employment period that encompasses eligibility to receive
such benefits.
The components of net postretirement benefits costs were:
<TABLE>
<CAPTION>
Years Ended September 30, 1997 1996
(Thousands of Dollars)
<S> <C> <C>
Service cost $ 913 $ 937
Interest cost 1,685 1,644
Net transition amortization 875 875
Net other deferrals 1,055 (28)
Less: Return on assets 1,646 729
______ ______
Net postretirement benefits costs $2,882 $2,699
______ ______
______ ______
</TABLE>
For Yankee Gas, the DPUC is allowing $1.728 million of associated
expenses to be recovered in rates and up to an additional $1.5
million annually which is being collected through the rate
settlement process further described under Note 9, as part of
the DPUC re-opened Docket No. 92-02-19.
For calculating the plan's year-end funded status, as well as the
ensuing year's postretirement benefits costs, the following
assumptions were used:
<TABLE>
<CAPTION>
Years Ended September 30, 1997 1996
<S> <C> <C>
Discount rate 7.50% 7.75%
Expected long-term rate of return 9.00% 9.00%
Health care cost trend rate
- First year 8.00% 9.00%
- Ultimate 5.00% 5.00%
</TABLE>
Trend rates are assumed to decrease one percent per year until
they reach the ultimate rate. A one percent increase in the
weighted average trend rate assumption of health care claims
would result in a 16 percent increase in accumulated benefit
obligations and a 35 percent increase in net periodic
postretirement benefits costs.
The following table represents the postretirement benefit plan's
funded status reconciled to the consolidated balance sheets:
<TABLE>
<CAPTION>
At September 30, 1997 1996
(Thousands of Dollars)
<S> <C> <C>
Accumulated benefit obligation $21,803 $22,156
Less: Market value of assets 10,790 6,613
______ ______
Accumulated benefit obligation
(greater than) plan assets (11,013) (15,543)
Unrecognized transition amount 13,607 14,483
Unrecognized net gain (6,730) (3,597)
______ ______
Accrued postretirement benefit
liability $(4,136) $(4,657)
________ ________
________ ________
</TABLE>
Note 6) Stock-Based Compensation
Yankee Energy established Long-term Incentive Compensation Plans,
in 1991 and 1996. Options on 65,600 shares of common stock were
granted under the 1991 plan and options on 63,800 shares of
common stock were granted under the 1996 plan. Under the terms
of the options granted, the exercise price of any option may not
be less than 100 percent of the fair market value of the common
stock on the date of grant. The stock options vest over a five
year period, with 20 percent becoming exercisable on each of the
first five anniversaries of the grant. All stock options expire
ten years from the date of grant.
The Company accounts for stock options in accordance with
Accounting Principles Board Opinion No. 25, under which no
compensation costs have been recognized for stock option awards.
Had compensation costs of option awards been determined under a
fair value alternative method as stated in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company would have been required to value such
options and record such amount in the financial statements as
compensation expense. Proforma net income and net income per
share for fiscal 1997 and fiscal 1996 would have been $16,919,000
and $1.62 and $21,881,000 and $2.10, respectively. Yankee Gas
arrived at the fair value of the stock grants at the date of the
grant by using the Black Scholes option pricing model with the
following weighted average assumptions: risk-free interest rate
of 5.375 percent, expected life of 5.0 years, expected volatility
of 18.0 percent and a dividend yield of 5.7 percent.
The following summarizes stock option transactions for the fiscal
years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted Number
Option Prices Average Price of Shares
<S> <C> <C> <C>
Outstanding Options
September 30, 1995 $21.375-$21.63 $21.59 61,120
Granted $23.69 $23.69 63,800
Exercised $21.63 $21.63 (820)
Canceled $21.63 -$23.69 $21.92 (9,100)
______
Outstanding Options
September 30, 1996 $21.375-$23.69 $22.73 115,000
Exercised $21.63 -$23.69 $21.73 (4,860)
Canceled $21.63 -$23.69 $22.97 (8,980)
_______
Outstanding Options
September 30, 1997 $21.375-$23.69 $22.75 101,160
</TABLE>
At September 30, 1997 and 1996 there were exercisable 38,136
options and 21,000 options, respectively, which have weighted
average exercise prices of $22.20 per share and $21.58 per share,
respectively.
Note 7) Short-Term Debt
Yankee Gas has arranged a $60 million revolving line of credit
with a group of four banks whereby funds may be borrowed on a
short-term revolving basis using either fixed or variable rate
loans. Yankee Gas also has an additional $27 million of credit
lines available on an uncommitted basis. Yankee Gas had $36.3
million and $20.3 million outstanding under its agreements at
September 30, 1997 and 1996, respectively. In addition, Yankee
Energy had $2.7 million outstanding at September 30, 1997 and no
amounts outstanding at September 30, 1996 on a $15 million line
of credit. The weighted average interest rates on short-term
debt at September 30, 1997 and 1996 were 6.0 percent and 5.6
percent, respectively.
Note 8) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each of the following financial instruments:
Cash and Temporary Cash Investments: The carrying amount
approximates fair value.
First Mortgage Bonds: The fair value of the Company's fixed rate
long-term debt is based upon borrowing rates currently available
to the Company. Adjustable rate securities are assumed to have a
fair value equal to their carrying value.
The carrying amount of the Company's financial instruments and
the estimated fair value at September 30, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
September 30, 1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
<S> <C> <C> <C> <C>
First mortgage
bonds $132,532 $142,896 $135,899 $146,663
________ ________ ________ ________
</TABLE>
The fair values shown above have been reported to meet the
disclosure requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Values of Financial
Instruments," and do not purport to represent the amounts at
which those obligations would be settled.
Note 9) Commitments and Contingencies
Construction Program: The Company's estimated capital
expenditures for the fiscal years 1998 through 2002 are $194
million, including $55 million for fiscal 1998. The Company
intends to use $140 million over this period, including $39
million for fiscal 1998, of these estimated expenditures to
maintain the reliability of the distribution system and in
projects that will generate or support gas sales and
transportation activities, including the installation of a new
customer information system. The remaining $54 million,
including $15 million for fiscal 1998, is expected to be invested
in energy related projects and businesses.
Environmental Matters: Fourteen sites containing coal tar became
the property of Yankee Gas at divestiture from Northeast
Utilities. Contamination at these sites was caused by operations
of former manufactured gas plants at those locations. Yankee Gas
has reported the results of its environmental studies to the
Connecticut Department of Environmental Protection (DEP). The
DEP has not required that any remedial action be undertaken to
date. However, of the fourteen, eight sites are presently listed
on the Connecticut Inventory of Hazardous Waste Sites. Inclusion
of a site on this list indicates that remediation may be required
in the future.
Remediation has been conducted at three of these properties. In
addition, Yankee Gas has developed a cost estimate for the
remaining sites based on various factors including the
probability of clean-up. As a result of this effort, Yankee Gas
recorded a liability of $35 million in fiscal 1993 for future
environmental clean-up.
Recovery of remediation costs has been specifically allowed by
Yankee Gas' 1992 rate case decision. Presently, $325,000 is
allowed annually in rates. If costs are expected to exceed $2.5
million on an annual basis, Yankee Gas is required to go to the
DPUC for review. The DPUC has stated that "to the extent that
coal tar remediation expenses are prudently incurred, they should
be allowed as proper operating expenses."
Yankee Gas has received funds from certain of its insurance
carriers in settlement of certain claims for actual or potential
contamination at certain sites that may give rise to
environmental liabilities. The terms of the aforementioned
settlements are subject to confidentiality provisions in
agreements between Yankee Gas and its insurance carriers. The
proceeds are being reflected as reductions in the regulatory
asset associated with recoverable environmental clean-up costs,
as shown in the accompanying balance sheets.
Transition Costs-Order No. 636: On April 8, 1992, the FERC
issued Order No. 636 on pipeline restructuring. In essence, the
FERC found that absent the unbundling of traditional merchant
services, pipelines would not be able to achieve the FERC's long-
term goal of open access and provide transportation services that
are indifferent to the seller of the gas. Order No. 636,
therefore, required all pipelines to implement restructuring of
their services by the winter of 1993-94. The three major
pipeline systems serving Yankee Gas (Iroquois, Tennessee Gas
Pipeline Company and Algonquin Gas Transmission Company and its
affiliate, Texas Eastern Transmission Company), have all
restructured pursuant to the FERC directive. Yankee Gas has
concurrently replaced the gas supply traditionally obtained from
the pipeline companies' merchant services with firm purchases
directly from producers and/or marketing companies. Yankee Gas
present annual capacity commitment is approximately $82.7
million.
Order No. 636 acknowledges that the restructuring of the
pipelines' traditional services will cause pipelines to incur
transition costs in several areas and provides mechanisms for the
pipelines to fully recover prudently incurred transition costs
attributable to the implementation of Order No. 636.
On July 8, 1994, the DPUC issued a decision on the implementation
of FERC Order No. 636 by the Connecticut Local Distribution
Companies (LDCs). The DPUC is allowing the LDCs to offset the
transition costs billed by pipelines under Order No. 636 with
recoveries from capacity release activity, refunds of deferred
gas costs for the 1992-93 period and all subsequent annual
deferred gas costs, gas supplier refunds, off-system sales margin
and interruptible margin earned in excess of target amounts.
Through September 30, 1997, Yankee Gas has paid approximately
$19.5 million of transition costs and an additional $3.5 million
are anticipated. To date, Yankee Gas has collected $44.2 million
through a combination of credits received from gas supplier
refunds, deferred gas costs, excess interruptible margin, off-
system sales margin, and capacity release agreements.
On January 3, 1996, the DPUC issued a Final Decision in reopened
Docket No. 92-02-19. The Docket allows for recovery of certain
deferred regulatory assets with the stipulation that Yankee Gas
would not increase its rates before October 1, 1998, except in
the event of certain circumstances which would adversely affect
Yankee Gas' financial condition. Yankee Gas may apply a portion
of excess transition credits received from pipeline refunds,
interruptible excess margin, deferred gas costs, capacity release
activity, and off-system sales margin to certain regulatory
assets. As of September 30, 1997, excess collections of
approximately $24.7 million were applied against the deferred
regulatory assets specified in the decision.
Firm Transportation: On August 2, 1995, the DPUC issued a Final
Decision in Docket No. 94-11-12, DPUC Review of Connecticut Local
Distribution Companies' Cost of Service Study Methodologies. The
docket was intended to investigate the issues surrounding the
development of firm transportation (FT) rates at the state level
in response to FERC Order No. 636. The Decision provides
guidelines for the development of FT rates to be offered by the
State's three LDCs, one of which is Yankee Gas.
On January 24, 1996, the DPUC issued a Final Decision on Docket
No. 92-02-19 Reopen I. This decision enabled Yankee Gas to
implement FT rates and services as contemplated in the August 2,
1995 decision referenced above. The Decision allows Yankee Gas
to offer a broad array of service options to commercial and
industrial FT customers. Yankee Gas implemented these new FT
rates and services on April 1, 1996, and as of September 30, 1997
had approximately 1,460 customers under the new FT service. A
switch by existing sales customers to transportation tariffs will
result in decreased revenues for Yankee Gas as the portion of
revenues representing gas costs will now be borne directly by
those customers. Yankee Gas, however, does not expect customer
conversions to transportation services to affect its net income
because the cost of gas has traditionally been a pass through
item with no income impact. This Decision did not address Yankee
Gas' revenue requirement; Yankee Gas has maintained the existing
margin recovery and rates of return established in the last rate
case decision issued for Yankee Gas in 1992.
Rate Review: On August 25, 1996, Yankee Gas filed an application
with the DPUC for a Financial and Operational Review (Review).
This Review was required under Connecticut statute since Yankee
Gas had not undergone a rate proceeding within the last four
years. Yankee Gas' last rate application was approved on August
26, 1992, and this Review was necessary to comply with the
statute. On July 9, 1997, the DPUC issued its decision in Docket
No. 96-08-05. The DPUC decision, which is not a rate order,
called for a lowering of Yankee Gas' authorized Return on Equity
(ROE) from 12.43 percent to 11.15 percent. The DPUC believed
that lower current interest rates and recently allowed rates of
return for other Connecticut utilities justified a lower ROE for
Yankee Gas. On October 1, 1997, the DPUC approved a settlement
whereby Yankee Gas will credit approximately $3.2 million to
firm sales customers through the PGA during the period November
1997 through March 1998. The settlement also allows Yankee Gas to
maintain its base rates until the end of fiscal year 2000,
resulting in an eight-year period in which Yankee Gas will have
gone without an increase in its base rates.
Gas Supply Hedging Activities: Yankee Gas has gas service
agreements with two customers to supply gas at fixed prices.
Because Yankee Gas purchases gas on a variable price basis, it
has found it necessary to hedge gas prices with derivatives to
respond to customers' needs for fixed pricing. Both agreements
are similar in structure in that Yankee Gas executed a commodity
swap contract with a commodity trading firm. Under a master
commodity swap agreement, the price of a specified quantity of
gas is fixed over the term of the gas service agreement with the
customer. In both cases, Yankee Gas is acting as an agent using
its credit to provide fixed pricing to its customers using a
commodity swap. Yankee Gas' results of operations are unaffected
by the hedge transaction given that it passes through the cost of
the hedge to either the commodity trading firm or its customer
depending on the difference in the fixed and floating prices for
gas. Also, the customers are accountable for all costs incurred
by Yankee Gas to execute and maintain the commodity swap
contract.
Of the two gas service hedging agreements currently in force,
only one is material relative to the significance of gas volumes
being hedged. This agreement has a ten-year term and requires
Yankee Gas to supply approximately one BCF of gas per year, with
relatively low margin, at a fixed price beginning August 1, 1995.
The price is allowed to escalate by a predetermined rate every
year after the first year. The commodity swap contract for this
hedging agreement was executed August 17, 1994. Yankee Gas is
responsible for margin calls collateralizing the commodity swap
contract from August 17, 1994 through the term of the gas service
agreement. Currently, Yankee Gas has a letter of credit in the
amount of $2.0 million issued to the commodity trading firm
collateralizing the commodity contract.
Tax/Legal Issues: In fiscal 1996, Yankee Gas received revised
property tax bills from the City of Meriden, Connecticut (the
City). The City is asserting a claim for approximately $5.0
million for back taxes and interest resulting from a retroactive
reassessment and revaluation of Yankee Gas' personal property
filings. The City did not locate or identify any property which
Yankee Gas omitted from its filings. The tax bills reflect a
reassessment of property at higher rates than those previously
accepted by the City. Yankee Gas is currently in the process of
litigating this retroactive reassessment. Although it is
anticipated that the outcome of this claim will not have a
material impact on the Company, based on the information
available at this time, management cannot predict what the
ultimate impact might be.
In November 1995, a class action suit was filed against Yankee
Gas and the state's two other LDCs by the Connecticut Heating and
Cooling Contractors' Association, Inc., claiming the LDCs engaged
in unfair trade practices. The action alleges that the LDCs
unfairly competed with licensed plumbers and contractors by
performing customer service work using customer service employees
who did not possess state trade licenses.
The LDCs have asserted that such licenses are not required for
this work based on a statutory exemption enacted in 1965 and
amended in 1967. However, in a separate proceeding, a
Connecticut Superior Court has upheld an administrative ruling
against the LDCs' position, which was affirmed on appeal. In
1995, the Connecticut General Assembly enacted legislation that
established, on a going-forward basis, a separate procedure for
state certification of gas service employees.
While the ultimate results of the class action suit cannot be
determined, management does not expect that it will have a
material adverse effect on the Company's consolidated results of
operations or financial position.
Note 10) Quarterly Financial Data (Unaudited)
The following table provides information with respect to the
consolidated quarterly results of operations for the fiscal years
ended September 30, 1997 and 1996, and reflects the seasonal
nature of the Company's operations. The results of any one
quarter during the year are not indicative of the results of
future quarters.
<TABLE>
<CAPTION>
(Thousands of Dollars, except share information)
Quarter Ended
Fiscal Year 1997 December 31 March 31 June 30 September 30
<S> <C> <C> <C> <C>
Operating
Revenues $95,681 $127,568 $59,435 $42,357
Operating Income
(Loss) 19,162 27,769 2,663 (6,301)
Net Income
(Loss) 8,879 13,478 (442) (4,958)
Earnings (Loss)per
Common Share (1) $0.84 $1.29 $(0.04) $(0.47)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
Fiscal Year 1996 December 31 March 31 June 30 September 30
<S> <C> <C> <C> <C>
Operating
Revenues $98,199 $139,559 $60,136 $42,046
Operating Income
(Loss) 20,220 29,849 3,172 (6,255)
Net Income (Loss) 9,838 15,327 1,822 (5,068)
Earnings (Loss) per
Common Share (1) $0.95 $1.47 $0.17 $(0.49)
</TABLE>
(1) Earnings (Loss) per common share were calculated on the
weighted average common shares outstanding of 10,451,165 and
10,435,231 for the twelve months ended September 30, 1997
and 1996, respectively.
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Selected Financial and Operating Data
<TABLE>
<CAPTION>
September 30, 1997 1996 1995 1994 1993
Balance Sheet Data:
(Thousands)
<S> <C> <C> <C> <C> <C>
Net Utility
Plant $350,865 $335,488 $324,870 $315,063 $308,384
Total Assets 500,364 478,749 479,301 481,518 441,293
Total
Capitalization 300,971 271,348 292,802 276,513 311,197
Income and Share Data:
(Thousands except share data)
Operating
Revenues $325,041 $339,940 $294,022 $317,298 $302,657
Cost of Gas 176,757 189,504 155,404 168,816 157,816
Other O&M
Expenses 64,951 64,852 65,473 62,733 59,142
Depreciation 17,521 16,649 16,520 16,993 17,133
Net Income (1) 16,957 21,919 12,358 19,485 17,479
Earnings
per Share (1) $1.62 $2.10 $1.20 $1.89 $1.70
Revenues:
(Thousands)
Gas:
Residential $140,750 $145,364 $127,493 $140,403 $133,846
Commercial 95,098 103,787 88,983 95,286 93,045
Industrial 70,743 82,725 73,715 77,850 72,940
Miscellaneous 2,312 6,217 2,161 3,328 1,884
Transportation 10,051 952 1,631 431 942
_______ _______ _______ _______ _______
Total Gas $318,954 $339,045 $293,983 $317,298 $302,657
Nonutility
Revenue 6,087 895 39 - -
_______ _______ _______ _______ _______
Total Operating
Revenues $325,041 $339,940 $294,022 $317,298 $302,657
Sales and Transportation:
(Mcf-Thousands)
Firm:
Residential 12,473 13,185 11,591 13,101 12,691
Commercial 9,222 10,521 9,022 9,998 9,703
Industrial 9,862 11,438 10,007 10,421 9,600
Transportation 4,059 178 589 128 167
Unbilled and
Other (111) 969 793 245 129
______ ______ ______ ______ ______
Total Firm 35,505 36,291 32,002 33,893 32,290
Non-Firm:
Commercial 1,595 1,746 1,809 1,549 1,663
Industrial 4,983 6,792 7,286 7,149 5,336
Transportation 6,853 2,444 3,654 559 1,400
______ ______ ______ ______ ______
Total
Non-Firm 13,431 10,982 12,749 9,257 8,399
______ ______ ______ ______ ______
Total Sales and
Transportation 48,936 47,273 44,751 43,150 40,689
Customers:
(Average)
Residential 159,541 157,526 156,539 155,874 155,385
Commercial (2) 18,930 19,313 19,167 19,156 19,139
Industrial (2) 2,005 2,112 2,145 1,980 1,893
Firm
Transportation 766 19 - - -
Resale - 2 1 1 1
_______ _______ _______ _______ _______
Total
Customers 181,242 178,972 177,852 177,011 176,418
Sources of Gas:
(Mcf-Thousands)
Domestic 15,594 21,331 13,534 16,162 7,474
Canadian Gas
Firm 24,919 24,721 24,283 24,440 23,970
Spot Market Gas 97 710 2,836 2,318 8,155
Produced Gas 34 19 9 30 6
Company Use/
Unaccounted For (414) (1,285) (405) (488) (608)
_______ _______ _______ _______ _______
Total Sources 40,230 45,496 40,257 42,462 38,997
Peak Day Data:
Peak Day Send
Out (Mcf per
day) (3) 250,448 239,348 250,518 262,794 247,315
Peak Day Date 1/17/97 2/05/96 2/06/95 1/19/94 2/01/93
Peak Day
Degree Days 55 62 59 55 54
Total Annual
Heating
Degree Days 5,979 6,302 5,595 6,454 6,232
</TABLE>
(1) Exclusive of an $879,900 charge, or $0.08 per share,
resulting from the early redemption premium on the Company's
preferred stock in fiscal 1994. All per share amounts have been
restated to give retroactive effect to the three-for-two stock
split on June 28, 1993.
(2) Non-firm transportation customers who utilize both sales gas
and transportation service are included in these customer
categories. Average non-firm transportation customers are as
follows: 1997:18, 1996:12, 1995:23, 1994:17,and 1993:25.
(3) Converted from BTU-millions assuming 1,020 BTU per CF. 1994
sendout includes one time delivery of 17,425 Mcf to Con Ed.
<PAGE>
Shareholder and Stock Information
Left side of page:
Annual Meeting
The Annual Meeting of Shareholders will take place on Friday,
January 30, 1998, at 10:30 a.m. at the Ramada Plaza Hotel in
Meriden, Connecticut.
Market for Common Stock
As of October 31, 1997, there were 26,329 holders of record of
Yankee Energy common stock. Yankee Energy's stock is quoted on
the New York Stock Exchange (NYSE) under the symbol "YES"
although it is frequently presented as "YanEnS" in various
financial publications.
<TABLE>
<CAPTION>
High and Low Stock Prices and Dividend Information
($/Share)
Year Ended
September 30, 1997 High Low Dividend
<S> <C> <C> <C>
First Quarter, 1997 23.625 21.250 0.325
Second Quarter, 1997 23.750 21.125 0.325
Third Quarter, 1997 24.750 21.000 0.335
Fourth Quarter, 1997 24.625 22.750 0.335
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30, 1996 High Low Dividend
<S> <C> <C> <C>
First Quarter, 1996 25.500 20.875 0.315
Second Quarter, 1996 25.750 21.875 0.315
Third Quarter, 1996 22.500 20.375 0.325
Fourth Quarter, 1996 23.625 20.750 0.325
</TABLE>
Dividends
Dividends are considered quarterly by the Board of Directors and,
if declared, are payable at the end of March, June, September and
December. The dividend record date is generally three weeks
prior to the dividend payable date. Yankee Energy offers
registered shareholders the ability to have quarterly dividends
deposited directly into their bank account.
Shareholder Investment Plan
The Yankee Energy Shareholder Investment Plan is administered by
the Company's stock transfer agent, ChaseMellon Shareholder
Services (ChaseMellon). The Plan provides registered
shareholders and their family members a convenient way to acquire
shares of common stock. Shares can be purchased by having
quarterly dividends automatically reinvested in additional shares
or by sending in funds to purchase additional shares. In
addition, holders of fewer than 100 shares may sell all their
shares at any time for no fee. The Plan also offers charitable
donation and share safekeeping services as well. Copies of the
Plan are available from ChaseMellon or Yankee Energy.
Right side of page:
Transfer Agent
Shareholders who have questions about their accounts or desire to
transfer their stock from one name to another should contact
ChaseMellon at 1.800.288.9541 or write:
For Transfers and Transfer Inquiries:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Ridgefield Park, NJ 07660
All Other Inquiries:
ChaseMellon Shareholder Services, L.L.C.
P.O. Box 590 Overpeck Centre
Ridgefield Park, NJ 07660
Yankee Energy News and Information
Yankee Energy has a toll-free news and information service which
includes current news releases, a Chairman's message, earnings
and dividend information as well as access to the transfer agent
or the Company's Investor Relations Department.
1.800.YES.9989
Shareholders, interested investors and analysts may also contact
Yankee Energy by calling or writing to:
Thomas D. Dorsey
Director, Investor Relations
Yankee Energy System, Inc.
599 Research Parkway
Meriden, CT 06450-1030
Phone 203.639.4407
Fax 203.639.4011
Email: [email protected]
Yankee Energy will provide shareholders with a copy of its 1997
Annual Report to the Securities and Exchange Commission on Form
10-K, without charge, upon written request.
Bottom left: 32
Bottom Center: YES 1997
<PAGE>
Inside Back Cover
Top left: Yankee Energy Logo
(Two columns)
Left Column:
Yankee Energy System, Inc.
599 Research Parkway
Meriden, CT 06450-1030
203.639.4000
Yankee Energy Services Company
270 Farmington Avenue, Suite 181
Farmington, CT 06032-1909
860.678.6710
R.M. Services, Inc.
639 Research Parkway
Meriden, CT 06450-1030
203-639-4501
YESCo Industrial Energy Services, Inc.
11C Kripes Road
East Granby, CT 06026-9646
860.653.5667
Right Column:
Yankee Gas Services Company
599 Research Parkway
Meriden, CT 06450-1030
203.639.4000
Yankee Energy Financial Services Company
599 Research Parkway
Meriden, CT 06450-1030
203.639.4462
YESCo Power
33 Christa McAuliffe Blvd.
Plymouth, MA 02360-4867
508.746.5500
YESCo Mira Systems
270 Farmington Avenue, Suite 181
Farmington, CT 06032-1909
860.678.6700
Bottom center of page:
YES
Listed
NYSE
For additional copies of this Annual Report, contact Corporate
Communications at 203.639.4439
<PAGE>
Outside Back Cover
Background graphic of sky and clouds with words:
safe
reliable
efficient
clean
Spread across center of page from top to bottom:
Yankee Energy
Imaginative
and Responsive
Energy Solutions
For your home
or business.
Bottom left: Yankee Energy logo
Bottom right: Yankee Energy System, Inc.
599 Research Parkway
Meriden, CT 06450-1030
http://www.yankeegas.com
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Yankee Gas Services Company is a wholly-owned subsidiary of
the registrant. It is incorporated in Connecticut and does
business under its own name.
Yankee Energy Financial Services Company is a wholly-owned
subsidiary of the registrant. It is incorporated in Connecticut
and does business under its own name.
Yankee Energy Services Company is a wholly-owned subsidiary
of the registrant. It is incorporated in Connecticut and does
business under its own name in Connecticut and New Jersey.
NorConn Properties, Inc. is a wholly-owned subsidiary of the
registrant. It is incorporated in Connecticut and does business
under its own name.
R. M. Services, Inc. is a wholly-owned subsidiary of the
registrant. It is incorporated in Connecticut and does business
under its own name in Connecticut. R.M. Services, Inc. does
business in Pennsylvania under the name, R.M. Connecticut
Services, Inc. and in Massachusetts under the name, REC
Management Services.
<PAGE>
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included (or incorporated by
reference) in this Form 10-K, into the Company's previously filed
Registration Statement File No. 033-56323.
/s/ Arthur Andersen LLP
Hartford, Connecticut
December 3, 1997
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<S> <C>
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<PERIOD-END> SEP-30-1997
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0
0
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