<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
YANKEE ENERGY SYSTEM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
<PAGE>
Insert YankeeEnergy logo
Insert page numbers
YANKEE ENERGY SYSTEM, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 29, 1999
Meriden, CT
December 18, 1998
To the Shareholders:
The Annual Meeting of Shareholders of Yankee Energy System, Inc., a
Connecticut corporation, will be held at the Ramada Plaza Hotel and Conference
Center, 275 Research Parkway, Meriden, Connecticut (see map on back cover) on
Friday, January 29, 1999 at 10:30 a.m. for the following purposes:
1. To elect two directors for terms to expire at the 2002 Annual Meeting of
Shareholders;
2. To ratify the appointment of Arthur Andersen LLP as independent auditors
for the fiscal year ending September 30, 1999; and
3. To transact any other business which may properly come before the meeting.
Only shareholders of record at the close of business on December 7, 1998
will be entitled to notice of and to vote at the meeting or any adjournment
thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
Mary J. Healey
Vice President, General Counsel and Secretary
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Yankee Energy
System, Inc. ("Yankee Energy" or the "Company") in connection with the
solicitation of proxies on behalf of the Yankee Energy Board of Directors (the
"Board") to be voted at the Annual Meeting of Shareholders on January 29, 1999
and at any adjournment(s) thereof (the "1999 Annual Meeting") for the purposes
set forth in the accompanying Notice of Annual Meeting of Shareholders (the
"Notice"). This Proxy Statement, the Notice, the related proxy card and the
1998 Annual Report to Shareholders are being mailed to shareholders beginning on
or about December 18, 1998. Yankee Energy's principal place of business is 599
Research Parkway, Meriden, Connecticut 06450-1030.
PROXIES
The proxies named on the enclosed proxy card were appointed by the Board to
vote the shares represented by the proxy card. Upon receipt by the Company of a
properly signed and dated proxy card, the shares represented thereby will be
voted in accordance with the instructions on the proxy card. If a shareholder
does not return a signed proxy card, those shares so represented cannot be voted
by proxy. Shareholders are urged to mark the boxes on the proxy card to show how
their shares are to be voted.
If a shareholder returns a signed proxy card without marking the boxes, the
shares represented by the proxy card will be voted for the election of
directors and in favor of the other proposal set forth in the Notice. The proxy
card also confers discretionary authority on the proxies to vote on any other
matter not currently known to management that may properly come before the
meeting.
Any proxy delivered pursuant to this solicitation is revocable at the
option of the person(s) executing the same (i) upon receipt by the Company
before the proxy is voted of a duly executed proxy bearing a later date, (ii) by
written notice of revocation to the Secretary of the Company received before the
proxy is voted or (iii) by such person(s) voting in person at the 1999 Annual
Meeting.
VOTING STOCK
The record date for the determination of shareholders entitled to notice of
and to vote at the 1999 Annual Meeting was the close of business on December 7,
1998. On such date there were 10,583,887 shares of Common Stock outstanding
and entitled to vote. Each share of Common Stock is entitled to one vote. The
presence, in person or by proxy, of holders of a majority of the outstanding
shares of Common Stock entitled to vote shall constitute a quorum at the 1999
Annual Meeting. Votes will be totaled at the 1999 Annual Meeting by two
inspectors of election appointed by the Board.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of December 7, 1998
by (i) each director and nominee for director of the Company, (ii) each
executive officer named in the Summary Compensation Table, and (iii) all current
directors and executive officers as a group. Except as indicated by footnote,
the persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
<PAGE>
<TABLE>
<CAPTION>
NAME OF SHARES BENEFICIALLY
BENEFICIAL OWNER OWNED (1)
- ---------------- --------------------
<S> <C>
Michael E. Bielonko (2)................................................. 2,144
Sanford Cloud, Jr....................................................... 1,930
Charles E. Gooley (3)................................................... 30,275
J. Kingsley Fink........................................................ 1,955
Eileen S. Kraus......................................................... 2,736
Steven P. Laden (4)..................................................... 2,587
Emery G. Olcott......................................................... 5,287
Ellen J. Quinn (5)...................................................... 6,933
John J. Rando........................................................... 222
James M. Sepanski (6)................................................... 8,663
Branko Terzic (7)....................................................... 35,477
Patricia M. Worthy...................................................... 450
Current Directors and Executive Officers As a Group (12 persons)(8)..... 74,880
</TABLE>
_________________________
(1) As of December 7, 1998, each of the directors and executive officers
identified above and all current directors and executive officers of the
Company as a group beneficially owned less than one percent of the
outstanding Common Stock of the Company. The number of shares shown
includes 450 shares of restricted stock held by each of Ms. Kraus and Ms.
Worthy, 300 shares of restricted stock held by Mr. Olcott, and 150 shares
of restricted stock held by each of Mr. Cloud and Mr. Rando granted under
the Company's Non-Employee Directors' Stock Compensation Plan, which
shares had not vested by December 7, 1998. The number of shares shown
also includes 17,500 shares of restricted stock held by Mr. Gooley, 1,955
shares of restricted stock held by Mr. Fink, 370 shares of restricted stock
held by Mr. Laden, 1,200 shares of restricted stock held by Ms. Quinn, and
6,139 shares of restricted stock held by Mr. Sepanski granted under the
Company's 1991 and 1996 Long-Term Incentive Compensation Plans, which
shares had not vested by December 7, 1998. Pursuant to the terms of each
plan, such individuals have the power to vote and receive dividends with
respect to such shares but do not have dispositive power with respect to
such shares until such shares are vested.
(2) Includes 150 shares owned by Mr. Bielonko's children.
(3) Includes 10,740 shares issuable upon exercise of options that are
exercisable within 60 days of December 7, 1998.
(4) Includes 100 shares owned by Mr. Laden's spouse and 380 shares issuable
upon exercise of currently exercisable options.
(5) Includes 4,180 shares issuable upon exercise of options that are
exercisable within 60 days of December 7, 1998.
(6) Includes 220 shares issuable upon exercise of currently exercisable
options.
(7) Includes 30,500 shares issuable upon exercise of currently exercisable
options.
(8) Includes an aggregate of 29,057 shares of non-vested restricted stock held
by current directors and executive officers and an aggregate of 24,740
shares issuable upon exercise of options that are exercisable within 60
days of December 7, 1998 held by executive officers.
The above shares do not include amounts that have been credited to
participating directors' stock unit accounts under the Company's Non-Employee
Director Deferred Compensation Plan.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who beneficially own
more than ten percent of the Company's Common Stock to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and to
furnish the Company with copies of all such forms they file. Based solely on
its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that during
the fiscal year ended September 30, 1998, all such reports were timely filed,
except (i) a Form 4 for Michael E. Bielonko reporting the partial exercise of an
option and the subsequent sale of the underlying shares, and (ii) a Form 5 for
J. Kingsley Fink reporting the grant of an option, were filed late.
1. ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the
directors of the Company shall be divided into three classes, as nearly equal in
number as possible, with each class having a three-year term. The Board,
pursuant to the Company's Restated Certificate of Incorporation, has fixed the
number of directorships at six. The Board has nominated Sanford Cloud, Jr. and
John J. Rando for election to serve as directors of the Company until the 2002
Annual Meeting of Shareholders of the Company and until their successors are
elected and qualified. Proxies may not be voted for a greater number of persons
than the number of nominees named. Each nominee is currently a director of the
Company. In the event either of the nominees becomes unavailable for election
to the Board, an event which the Board does not expect, the shares represented
by a proxy may be voted for a substitute nominee to be designated by the Board
or a committee thereof, unless the proxy withholds authority to vote for all
nominees.
If a quorum is present at the 1999 Annual Meeting, the election of
directors will require the affirmative vote of a plurality of the votes cast by
the shares of Common Stock of the Company entitled to vote. Abstentions and
broker non-votes are not counted in determining the number of shares voted for
or against any nominee for director.
Effective September 22, 1998, Frederick M. Lowther resigned as a director
of the Company in connection with his acceptance of the position of general
counsel with another energy company. Mr. Lowther had served as a director since
1992 and was a member of the Board's Organization and Compensation Committee and
Committee on Board Affairs. The Board and the Company extend their gratitude to
Mr. Lowther for his years of service as a valued member of the Board.
In addition, in September 1998, Emery G. Olcott was appointed Chairman of
the Board and will receive an annual retainer of $30,000 for his services as
Chairman.
<PAGE>
The following information relates to the nominees named above and to the
other directors of the Company whose terms will continue after the 1999 Annual
Meeting.
NOMINEES FOR TERMS EXPIRING IN 2002
PRINCIPAL OCCUPATION AND OTHER INFORMATION
-------------------------------------------------------
Photo insert of President and Chief Executive Officer of The National
Sanford Cloud, Jr. Conference for Community and Sanford Cloud, Jr.
Justice, Inc., New York, New York, since April 1994.
Previously, he was a partner in the law firm of
Robinson and Cole, Hartford, Connecticut from January
1993 until March 1994 and Vice President of Aetna Life
and Casualty Co. from December 1986 until December
1992. Mr. Cloud is a director of The Advest Group, Inc.
and Tenet Healthcare Corp. He also serves as Chairman
of The Children's Fund of Connecticut.
Sanford Cloud, Jr.
Age 54
Director since 1995
-------------------------------------------------------
Senior Vice President and Group General Manager
Worldwide Services of Compaq Computer Corporation since
June 1998. Previously, Mr. Rando served as Senior Vice
President and General Manager of Worldwide Services for
Digital Equipment Corporation where he was employed
Photo insert of from November 1976 to June 1998.
John J. Rando
John J. Rando
Age 46
Director since 1997
-------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THESE NOMINEES
<PAGE>
OTHER DIRECTORS TERMS EXPIRING IN 2000
PRINCIPAL OCCUPATION AND OTHER INFORMATION
-------------------------------------------------------
Insert photo of President and Chief Executive Officer of Yankee Energy,
Charles E. Gooley and Chairman, President and Charles E. Gooley Chief
Executive Officer of its direct subsidiaries since
September 1998, and President of Yankee Gas Services
Company since May 1997. Previously, he served as
Executive Vice President of Yankee Energy and its
direct subsidiaries from July 1994 to September 1998,
and as Vice President, General Counsel and Assistant
Secretary of the Company from July 1989 to July 1994.
He is a director of The University of Connecticut
Foundation, Inc., the New England Gas Association (Vice
Chair), the National Conference for Community and
Justice, Greater Hartford Region (Vice Chair), and the
Connecticut Alliance for Arts Education. He is a former
director of Connecticut Water Service, Inc. and its
subsidiary, Connecticut Water Company. He is also a
trustee of the Hartford Seminary.
Charles E. Gooley
Age 45
Director since September 1998
-------------------------------------------------------
Photo insert of Chairman, President and Chief Executive Officer
Emery G. Olcott of Packard BioScience Company (f/k/a Emery G. Olcott
Canberra Industries, Inc.) since 1971. Packard is a
manufacturer and distributor of analytical instruments
and chemicals. He is a trustee of the Loomis Chaffee
School in Windsor, Connecticut.
Emery G. Olcott
Age 60
Director since 1989
-------------------------------------------------------
<PAGE>
OTHER DIRECTORS TERMS EXPIRING IN 2001
PRINCIPAL OCCUPATION AND OTHER INFORMATION
-------------------------------------------------------
Photo insert of Chairman, Connecticut, Fleet National Bank since
Eileen S. Kraus December 1, 1995. Previously, she was Eileen S. Kraus
President of Shawmut Bank Connecticut, N.A. and Vice
Chairman of Shawmut National Corporation from September
1992 until December 1, 1995, Vice Chairman, Consumer
Banking and Marketing Groups of predecessor banks from
1990 to 1992, and Executive Vice President of
predecessor banks from 1987 to 1990. She is a director
of Best Foods, Kaman Corporation and The Stanley Works.
She is a trustee of Mount Holyoke College, a trustee
and executive committee member of Kingswood-Oxford
School and vice president of Horace Bushnell Memorial
Hall.
Eileen S. Kraus
Age 60
Director since 1990
-------------------------------------------------------
Photo insert of Professor, Howard University School of Law since 1992.
Patricia M. Worthy Previously, she served as Chief Patricia M. Worthy of
Staff and Legal Counsel to Mayor Sharon Pratt Kelly of
Washington, D.C. from 1991 to 1992 and was
Commissioner, District of Columbia Public Service
Commission from 1980 to 1983, and then served as
Chairman of the Commission from 1983 to 1991. She
serves as Chairman of the District of Columbia Judicial
Nomination Commission.
Patricia M. Worthy
Age 54
Director Since 1996
-------------------------------------------------------
BOARD COMMITTEES AND MEETINGS
Standing committees of the Board include the Executive Committee, the Audit
Committee, the Finance Committee, the Organization and Compensation Committee
and the Committee on Board Affairs.
The Executive Committee is currently composed of Emery G. Olcott (Chair),
Charles E. Gooley and Eileen S. Kraus. During fiscal 1998, the Executive
Committee consisted of Mr. Olcott, Ms. Kraus and Branko Terzic (Chair). The
Executive Committee has certain powers and authority of the Board in the
management and control of the business of the Company between meetings of the
Board. The Executive Committee did not meet during fiscal 1998.
The Audit Committee is currently composed of Patricia M. Worthy (Chair),
Sanford Cloud, Jr., Eileen S. Kraus and John J. Rando. The Audit Committee
oversees the Company's internal accounting controls, recommends to the Board the
appointment of a firm of certified public accountants to conduct the annual
audit of the Company's financial statements, reviews reports from the
independent auditors and makes such recommendations to the Board as it deems
appropriate. The Audit Committee met three times during fiscal 1998.
The Finance Committee is currently composed of Sanford Cloud, Jr. (Chair),
Patricia M. Worthy
<PAGE>
and John J. Rando. The Finance Committee met three times during fiscal 1998 to
review the dividend policy and the financial plans and budgets of the Company in
order to determine whether they are fiscally sound and consistent with the
Company's overall business goals.
The Organization and Compensation Committee is currently composed of Emery
G. Olcott (Chair) and Eileen S. Kraus. During fiscal 1998, Frederick M. Lowther
also served on the Organization and Compensation Committee. The Organization
and Compensation Committee is responsible for organization, succession and
executive compensation and administers the Company's 1991 and 1996 Long-Term
Incentive Compensation Plans, the Non-Employee Directors' Stock Compensation
Plan and the Non-Employee Director Deferred Compensation Plan. The Organization
and Compensation Committee met six times during fiscal 1998.
The Committee on Board Affairs is currently composed of Eileen S. Kraus
(Chair) and Emery G. Olcott. During fiscal 1998, Frederick M. Lowther also
served on the Committee on Board Affairs. The Committee on Board Affairs
recommends to the Board criteria for the selection of candidates for director,
evaluates candidates and recommends nominees to fill vacancies on the Board and
seeks input from all non-employee directors on Chief Executive Officer
performance which forms the basis for a report to the Organization and
Compensation Committee and a recommendation to the Board. The Committee on
Board Affairs also reviews and makes recommendations to the Board on corporate
governance practices and on the compensation program for all non-employee
directors. The Committee on Board Affairs met once during fiscal 1998.
The Board held seven meetings during the fiscal year ended September 30,
1998. Each director attended at least 75 percent of the aggregate of (i) the
total number of meetings of the Board, and (ii) the total number of meetings
held by all committees of the Board on which such director served.
DIRECTOR COMPENSATION
In fiscal year 1998, non-employee directors received an annual retainer of
$15,000, consisting of $10,000 in Common Stock of the Company and $5,000 in
cash, each paid in equal installments on a quarterly basis in December, March,
June and September. Board committee chairs received an additional annual cash
retainer of $1,500. Non-employee directors also received $1,000 for each Board
and committee meeting attended. Directors who are full-time employees of the
Company or a subsidiary receive no additional compensation for services as a
member of the Board or any committee of the Board.
Under the Non-Employee Directors' Stock Compensation Plan, established in
1991 to promote ownership of the Company's Common Stock by members of the Board,
each non-employee director, upon his or her election or reelection to the Board,
receives an award of 450 restricted shares of the Company's Common Stock. One-
third of such restricted shares of Common Stock vests each year at subsequent
annual meetings of shareholders. The Board may make appropriate adjustments in
share amounts in the event of any change in the Company's Common Stock, such as
a stock split, or other change in the Company's corporate structure or
distribution to shareholders. Participants in the plan have voting rights and
rights to receive dividends and other distributions with respect to such shares,
but until their vesting, such shares are subject to the plan's provisions on
forfeiture and restrictions on disposition. In January 1998, Ms. Kraus and Ms.
Worthy each received 450 shares upon election to a three-year term, and 150
shares vested for all non-employee directors upon completion of a year of their
respective terms.
<PAGE>
The Company's Non-Employee Director Deferred Compensation Plan permits non-
employee directors to defer all or a portion of total fees for all services
rendered as a director, including meeting fees, committee chair retainers,
quarterly retainers paid in the Company's Common Stock and vested shares of
restricted stock awarded pursuant to the Company's Non-Employee Directors' Stock
Compensation Plan. A non-employee director may elect to have deferred cash
compensation credited to either a cash account or a stock unit account. Amounts
credited to a director's cash account will be credited on a monthly basis with
interest at an annual rate equal to the rate of return of Yankee Gas Services
Company, the Company's principal operating subsidiary, as filed with the
Connecticut Department of Public Utility Control. Amounts credited to a
director's stock unit account will be credited initially as a dollar amount
which shall be converted into stock units on a quarterly basis by dividing the
dollar amount by the closing price of the Company's Common Stock on the last day
of each quarter. Stock units will be further credited with an amount equal to
the dividends payable if the stock represented by the stock units had been
outstanding. Quarterly retainers paid in the Company's Common Stock and vested
shares of restricted stock deferred by a director pursuant to the Non-Employee
Director Deferred Compensation Plan will be automatically allocated to such
director's stock unit account. A non-employee director may also elect among
various options as to how and when compensation deferred pursuant to the Plan
will be paid to the director. The director may elect to commence payment of
deferred compensation at a specified future date or after the date on which the
participant ceases to be a director for any reason. A director may also elect
to receive payment as a single lump sum or over a fixed period of time. Amounts
credited to the director's cash account will be paid in cash. Amounts credited
to the director's stock unit account will be paid in cash or in shares of the
Company's Common Stock, based on the prior election of the director.
CERTAIN TRANSACTIONS
During fiscal year 1998, the Company engaged the law firm of Dickstein
Shapiro Morin & Oshinsky, LLP. During this time, Frederick M. Lowther served as
both a partner of that firm and as a director of the Company.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board (the "Committee"),
which, during fiscal 1998, consisted of Emery G. Olcott, Eileen S. Kraus and
Frederick M. Lowther, is responsible for recommending to the Board the Company's
executive compensation policies and the annual compensation of the Company's
executive officers and other members of senior management. In connection with
these responsibilities, the Committee administers the Company's 1991 and 1996
Long-Term Incentive Compensation Plans, including the grant of stock options,
annual incentives and other awards under these plans. The Committee also
oversees the Non-Employee Directors' Stock Compensation Plan and the Non-
Employee Director Deferred Compensation Plan.
EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation policies are designed to attract and
retain high quality executives critical to the long-term success of the Company,
to motivate and reward achievement of performance goals and to align the
interest of executive officers with the interest of the Company's other
shareholders. Consistent with this philosophy, the Company has established a
competitive and appropriate
<PAGE>
total compensation package for executive officers and other members of senior
management consisting primarily of base salary, annual bonuses, long-term
performance-based awards and stock options, restricted stock grants and stock
appreciation rights pursuant to the Company's 1996 Long-Term Incentive
Compensation Plan. Executive officers' salaries are positioned to be consistent
with the competitive practice of a peer group (the "Peer Group") of investor-
owned gas utilities located throughout the United States with annual revenues
and operating characteristics similar to Yankee Gas Services Company.
The Board of Directors, upon the recommendation of the Committee,
underscored the importance of linking executive and shareholder interests by
adopting in September 1997 stock ownership guidelines for senior management of
the Company. Under the guidelines, the target ownership of the Company's Common
Stock is directly related to the officer's corporate position, with the greatest
ownership target for the chief executive officer. The target for the chief
executive officer is 100 percent of annual base salary. The target for the other
officers named in the Summary Compensation Table is 75 percent of annual base
salary. Each officer is expected to achieve the ownership target within a period
of five years commencing October 1, 1997 for existing officers and within five
years for officers who become subject to the stock ownership guidelines. From
time to time and at the sole discretion of the Committee, these targets and time
frames may be adjusted. Share and share equivalents earned under the Company's
compensation plans, including restricted stock awards and share equivalents
measured by the unrealized gain portion of in-the-money stock options and
benefit plan investments in the Company's Common Stock are included in
determining compliance with the ownership targets. The Company's incentive plans
are designed so that the total executive compensation package is competitive
with the Peer Group. The Board intends to generally ensure that compensation
expenses are deductible under Section 162(m) of the Internal Revenue Code.
Section 162(m) generally disallows a tax deduction for public companies for
compensation, other than qualifying performance-based compensation, over $1
million paid to certain executive officers.
ELEMENTS OF EXECUTIVE COMPENSATION
Base Salary. The Company maintains formal salary grades and ranges for its
executive officers. Positions are graded based upon responsibility level. Salary
ranges at each position are established at the market average of the Peer Group.
In 1998, salary increases were determined based on individual performance, the
location of the individual's salary in the position's salary range and a
competitive increase in the payroll budget.
Annual Incentive Compensation. Executive officers are eligible to receive
an annual performance-based award pursuant to a component of the Company's 1996
Long-Term Incentive Compensation Plan which was added by the Board at the end of
fiscal 1997. In prior years, annual incentive compensation was awarded pursuant
to a separate annual incentive compensation plan. The purpose of this feature
of the 1996 plan is to enhance the Company's customer service, corporate
efficiency and financial performance. Each year, the Committee determines the
maximum incentive award for each participant, which is generally based on a
percentage of the salary range midpoint for the participant. The Committee also
establishes corporate and individual performance measures for the chief
executive officer and other executive officers based upon strategic priorities
for the purpose of determining the percentage of the maximum incentive award a
participant is entitled to receive. The Committee may also determine the
relative weights to be given to corporate and individual goals. For fiscal
1998, the performance measures were based entirely on individual goals. Awards
granted as annual incentive compensation are payable in cash, or at the election
of a participant, in shares of the Company's Common Stock. Any shares awarded
shall be subject to certain transfer restrictions imposed by the Committee.
Each executive has a threshold,
<PAGE>
target and maximum incentive amount expressed as a percentage of the salary
range midpoint. In 1998, these amounts were 15 percent, 35 percent and 50
percent, respectively, of the salary midpoint for the chief executive officer,
15 percent, 25 percent and 40 percent, respectively, for the executive vice
president and 15 percent, 20 percent and 35 percent, respectively, for the other
executive officers. The plan is intended to pay fully competitive annual cash
compensation when performance against goals matches the target level. The
Committee may adjust the incentive cash award amount by an index or "modifier"
determined by the Committee. The modifier is based on the Company's actual
profit performance and serves to maintain a correlation between an executive
officer's incentive cash award and the returns realized by the Company's
shareholders. The index may modify award amounts by as much as 50 percent. In
1998, the incentive cash awards were decreased by 20 percent to reflect the
modifier. For fiscal 1998, the Committee awarded an annual incentive of $50,900,
$32,200, $31,400, $34,900 and $19,400 for Mr. Gooley, Mr. Sepanski, Mr. Fink,
Ms. Quinn and Mr. Laden, respectively. Mr. Gooley, Mr. Fink and Ms. Quinn
elected to receive their awards in cash, and Messrs. Sepanski and Laden elected
to receive their awards half in cash and half in shares of the Company's Common
Stock.
At the end of each fiscal year, the Committee reviews a management report
on results versus goals and meets with the chief executive officer to evaluate
the performance of the other executive officers. The Committee also meets in
the absence of the chief executive officer to evaluate his performance. As
part of the process, the Committee receives a report from the Committee on Board
Affairs on chief executive officer performance which is developed from input
received from all non-employee directors. This performance, expressed as a
percentage with attainment of all goals rated as 100 percent, is used in the
determination of annual cash bonus amounts. The Committee has the authority to
modify the mathematical results of applying the terms of the plan when the
Committee, exercising sound business judgment, deems it prudent to do so.
Long-Term Incentive Compensation. Executive officers are also eligible to
receive long-term performance-based awards pursuant to a new component of the
Company's 1996 Long-Term Incentive Compensation Plan which was added by the
Board at the end of fiscal 1997. Long-term performance-based awards granted
under this provision are measured in dollar amounts, but are payable in shares
of the Company's Common Stock. One half of the shares awarded shall be subject
to certain transfer restrictions imposed by the Committee.
Awards are determined pursuant to a three-year performance cycle. Each
subsequent performance cycle will begin two years after the start of the
previous cycle. As a result, this component of the 1996 Long-Term Incentive
Compensation Plan contemplates the payment of awards every two years. At the
start of each performance cycle, the Committee establishes specific performance
goals for the chief executive officer and other executive officers and the
relative weights of the performance goals. The goals for the performance cycle
beginning October 1, 1997 are based on the earnings growth of the Company and
the relative performance of the Company's Common Stock as compared to the stock
of a peer group of investor-owned gas utilities. The plan provides threshold,
target and maximum performance levels for each job level based upon a
percentage of the salary range midpoint for that job level. These levels are 25
percent, 50 percent and 100 percent, respectively, for the chief executive
officer, 20 percent, 40 percent and 80 percent, respectively, for the executive
vice president, 15 percent, 30 percent and 60 percent, respectively, for vice
presidents and 10 percent, 20 percent and 40 percent, respectively, for other
officers. At the start of each performance cycle, the Committee also
establishes the actual performance results necessary to achieve the threshold,
target and maximum performance levels. The Committee may, in good faith and in
response to unforeseen circumstances or significantly changed conditions, modify
performance goals or the formula for applying such goals during a performance
cycle. The maximum award payable to an executive for any
<PAGE>
performance cycle may not exceed $400,000.
Stock Options, Stock Appreciation Rights and Restricted Stock. Pursuant to
the terms of the 1996 Long-Term Incentive Compensation Plan, the Committee has
the authority to award to executive officers and other key employees stock
options, stock appreciation rights and other shares of restricted stock. The
ability to grant a variety of awards enables the Committee to respond to
changing strategic, competitive, regulatory, tax and accounting forces in an
efficient manner. Over time and through the use of the grant of awards, the
Committee intends to achieve the objective of having the executive officers and
other senior management become significant shareholders of the Company so that
their interests are aligned with the interests of the Company's other
shareholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation for Branko Terzic, the Company's chief executive officer
for fiscal 1998, was determined substantially in accordance with the policies
applied to all other executive officers of the Company. Mr. Terzic's base
salary in fiscal 1998 of $300,000 was not increased from his 1997 year-end base
salary because of Company performance. During fiscal 1998, Mr. Terzic announced
his intention to resign from the Company. Mr. Terzic resigned September 29,
1998. The terms of Mr. Terzic's severance arrangements are described in
"Change-in-Control and Termination of Employment Agreements" below.
Following Mr. Terzic's resignation, the Board appointed Charles E. Gooley
as President and Chief Executive Officer of the Company and its subsidiaries.
Mr. Gooley's base salary was increased to $275,000 and Mr. Gooley was awarded
17,500 shares of restricted stock. Such shares vest ratably over four years on
each of the first four anniversary dates of the date of grant. Until vested,
such shares are subject to restrictions on transfer and risk of forfeiture.
EMERY G. OLCOTT (CHAIR)
EILEEN S. KRAUS
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation paid by the Company and its subsidiaries to the Chief Executive
Officer and the next four most highly compensated executive officers of the
Company and to a former chief executive officer and one former executive officer
during the last fiscal year for services rendered in all capacities to the
Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
------------------- ------
Securities
Restricted Underlying All Other
Name and Fiscal Stock Options Compen-
Principal Position Year Salary($) Bonus($) Awards($)(1) (#) sation($)(2)
- ------------------ ---- --------- -------- ------------ --- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Gooley (3) 1998 215,000 50,900 0 6,000 ----
President and Chief 1997 184,384 37,800 0 0 2,400
Executive Officer 1996 170,000 33,300 0 6,400 1,980
James M. Sepanski(4) 1998 169,950 32,200(5) 0 1,800 53,942
Vice President and 1997 41,250 0 70,008 0 0
Chief Financial Officer
J. Kingsley Fink (6) 1998 136,035 31,400 40,517 600 32,685
Vice President-
Operations
Ellen J. Quinn 1998 132,400 34,900 0 2,500 ----
Vice President 1997 115,892 33,000 0 0 2,400
1996 100,983 31,500 0 3,800 2,180
Steven P. Laden(7) 1998 133,017 19,400(5) 0 2,500 ----
Vice President 1997 128,750 32,800 0 0 41,865
1996 27,060 0 0 0 33,417
Branko Terzic (8) 1998 300,000 0 0 7,900 629,130
Former Chairman, 1997 285,625 32,850 0 0 0
President and Chief 1996 268,125 81,000 0 12,600 0
Executive Officer
Michael E. Bielonko(9) 1998 145,220 0 0 1,800 183,700
Former President of 1997 148,200 7,500 0 0 1,147
Yankee Energy 1996 139,725 31,900 0 5,300 1,980
Services Company
</TABLE>
<PAGE>
_______________
(1) The amounts shown represent the value of the restricted stock award,
calculated by multiplying the closing market price of the Company's Common
Stock on the date of grant by the number of shares awarded. Restricted
stock holdings as of September 30, 1998, and their value on such date,
based on an equivalent number of unrestricted shares were: Mr. Sepanski,
2,625 shares ($68,742); and Mr. Fink, 1,540 shares ($40,329).
(2) All other compensation includes the Company's matching contributions under
the Company's 401(k) Plan. It also includes the following: (i) Mr.
Sepanski received payment for relocation expenses of $53,942 in 1998; (ii)
Mr. Fink received payment for relocation expenses of $32,685 in 1998; (iii)
Mr. Laden received a signing bonus of $33,417 in 1996, and received payment
for relocation expenses of $39,465 in 1997; (iv) Mr. Terzic received
severance payments accrued by the Company in the pre-tax amount of
$629,130, which consist of severance and other payments and benefits
pursuant to Mr. Terzic's separation agreement; and (v) Mr. Bielonko
received severance payments accrued by the Company in the pre-tax amount
of $183,700, which consist of severance and other payments and benefits
pursuant to Mr. Bielonko's severance agreement. See "Change-in-Control and
Termination of Employment Agreements" below.
(3) Mr. Gooley was appointed President and Chief Executive Officer of the
Company on September 29, 1998. Mr. Gooley was previously appointed
President of Yankee Gas Services Company in May 1997 and served as
Executive Vice President of the Company from July 1994 to September 1998.
(4) Mr. Sepanski became Vice President and Chief Financial Officer of the
Company in July 1997.
(5) Pursuant to an election of the executive officer, 50 percent of such bonus
was paid in cash and 50 percent was paid in the Company's Common Stock.
The number of shares awarded was determined by dividing 50 percent of the
award by $26.1875, which was the fair market value of the Common Stock on
September 30, 1998.
(6) Mr. Fink became Vice President - Operations of Yankee Gas Services Company
on September 29, 1997.
(7) Mr. Laden became Vice President of the Company in July 1996.
(8) Mr. Terzic resigned as Chairman, President and Chief Executive Officer of
the Company effective September 29, 1998.
(9) Mr. Bielonko resigned as President of Yankee Energy Services Company
effective September 1, 1998.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted under the Company's 1996 Long-Term Incentive Compensation Plan to the
individuals named in the Summary Compensation Table during the fiscal year ended
September 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value at
-------------------------------------------------------------
Number of % of Total Assumed Annual
Securities Options Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees in Price Expiration for Option Term (2)
-------------------
Name Granted(#)(1) Fiscal Year ($/sh) Date 5%($) 10%($)
- ----- ------------ ----------- ------ ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Charles E. Gooley 4,500 10.5 $ 23.72 10/27/07 67,140 170,055
1,500 3.5 $ 23.13 05/26/08 21,855 55,320
James M. Sepanski 1,100 2.5 $ 23.72 10/27/07 16,412 41,569
700 1.6 $ 23.13 05/26/08 10,199 25,816
J. Kingsley Fink 600 1.4 $ 23.13 05/26/08 8,742 22,128
Ellen J. Quinn 1,900 4.4 $ 23.72 10/27/07 28,348 71,801
600 1.4 $ 23.13 05/26/08 8,742 22,128
Steven P. Laden 1,900 4.4 $ 23.72 10/27/07 28,348 71,801
600 1.4 $ 23.13 05/26/08 8,742 22,128
Branko Terzic 5,000 11.6 $ 23.72 10/27/07 74,600 188,950
2,900 6.7 $ 23.13 05/26/08 42,253 106,925
Michael E. Bielonko 1,000 2.3 $ 23.72 10/27/07 14,920 37,790
700 1.6 $ 23.13 05/26/08 10,199 25,816
</TABLE>
______________________
(1) Options granted vest ratably over five years on each of the first five
anniversary dates of the grant date, except that all options held by Mr.
Terzic are currently exercisable.
(2) The dollar amounts under these columns are the result of calculations
assuming 5 percent and 10 percent growth rates as set by the Securities and
Exchange Commission and, therefore, are not intended to forecast future
price appreciation, if any, of the Company's Common Stock.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information with respect to the
individuals named in the Summary Compensation Table regarding options held as of
September 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT AT FISCAL
SHARES VALUE FISCAL YEAR END (#) YEAR-END ($)(1)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
Charles E. Gooley 0 0 8560/11340 33,739/32,117
James M. Sepanski 0 0 0/1800 0/4,855
J. Kingsley Fink 0 0 0/ 600 0/1,835
Ellen J. Quinn 0 0 3040/5160 10,724/13,949
Steven P. Laden 0 0 0/2500 0/6,523
Branko Terzic 0 0 30500/0 100,798/0
Michael E. Bielonko(2) 4,800 111,813 2120/6080 5,295/18,019
</TABLE>
_______________
(1) Based on the fair market value of the Company's Common Stock as of
September 30, 1998 ($26.1875), less the exercise price of the options.
(2) All of Mr. Bielonko's remaining options expired on October 1, 1998.
LONG-TERM INCENTIVE COMPENSATION AWARDS
In October 1997, the Committee made long-term incentive compensation awards
to certain key employees of the Company, including the individuals named in the
Summary Compensation Table. The awards are contingent upon the Company
achieving certain performance goals described below. The awards are measured in
dollar amounts, but, to the extent that the performance goals are achieved, will
be paid in shares of Common Stock pursuant to the long-term incentive award
provisions of the 1996 Long-Term Incentive Compensation Plan. One half of any
shares awarded will be subject to certain transfer restrictions imposed by the
Committee. The number of shares to be issued shall be based on the closing
price of the Common Stock on the last day of the three-year performance period.
Under the terms of the awards, there are two equally weighted performance goals
measured over the fiscal 1998-2000 three-year period: (i) the relative stock
performance of the Company's Common Stock compared with the stock of a group of
peer natural gas distribution companies; and (ii) annualized earnings growth.
However, if certain minimum
<PAGE>
performance measurements are not achieved in either category, no awards will be
granted regardless of performance achieved in the other category. The Committee
established threshold, target and maximum performance results to be achieved in
connection with the awards. Under the 1996 Long-Term Incentive Compensation
Plan, the award levels for each job level is based upon a percentage of the
salary range midpoint for that job level. For fiscal 1998, these levels are 20
percent, 40 percent and 80 percent for Mr. Gooley and 15 percent, 30 percent
and 60 percent for the other current executive officers named in the Summary
Compensation Table. In particular, the threshold, target and maximum
performance awards are: $45,320, $90,640, and $181,280 for Mr. Gooley; $20,685,
$41,370, and $82,740 for Mr. Sepanski; $17,835, $35,670, and $71,340 for Mr.
Fink; $20,685, $41,370, and $82,740 for Ms. Quinn; and $17,835, $35,670 and
$71,340 for Mr. Laden. The Committee may, in good faith and in response to
unforeseen circumstances or significantly changed conditions, modify performance
goals or the formula for applying such goals during the performance cycle.
CHANGE-IN-CONTROL AND TERMINATION OF EMPLOYMENT AGREEMENTS
The Company has entered into Change in Control Executive Severance
Agreements with each of Messrs. Gooley, Sepanski, Fink, Laden and Ms. Quinn.
The intent of the agreements is to assure continuity in the management of the
operations of the Company in the event of a "change in control." A change in
control is defined as occurring when (i) any person becomes the beneficial
owner, directly or indirectly, of 25 percent or more of the Company's Common
Stock, (ii) there is a change in the majority of the Board during a 25-month
period, (iii) a consolidation or merger of the Company is consummated in which
the Company is not the continuing or surviving corporation or pursuant to which
the Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock have the same proportionate ownership of Common Stock of
the surviving corporation, (iv) the consummation of any sale, lease, exchange or
other transfer of a majority of the Company's assets, (v) the Company's
shareholders approve any plan or proposal for the liquidation or dissolution of
the Company, or (vi) the Board determines that a change in control has occurred.
These agreements provide that in the event that the executive officer's
employment is terminated within two years of a change in control either by (i)
the Company for reasons other than for disability, death or cause, or (ii) the
executive officer due to (a) material diminution in status, position, duties or
responsibilities, (b) a reduction in total compensation, or (c) assignment to a
location more than 50 miles from the executive officer's current place of
employment, the executive officer is entitled to a severance payment. The
amount payable upon the occurrence of any of the foregoing events is two times
the sum of the executive officer's annual base salary at the date of the change
in control plus the average annual incentive compensation paid to the executive
officer in the two fiscal years prior to the fiscal year in which the change in
control occurs. In addition, the executive officer shall be entitled to
participate in all benefit plans in which such officer participated in prior to
the termination, and if the executive officer is age 55 or older on the date of
termination of employment, such officer shall be entitled to receive service
credit under the Company's pension plans until his or her normal retirement
date. The agreements will be automatically renewed on each successive January
1, unless not later than December 1 of the preceding year, one of the parties
notifies the other that he or she does not wish to extend the agreement, except
that the agreement shall be automatically extended for 24 months after any
change in control.
In September 1998, the Company entered into a Separation Agreement and
General Release (the "Separation Agreement") with Mr. Terzic in connection with
Mr. Terzic's resignation from the Company. The Separation Agreement requires Mr.
Terzic to maintain the confidentiality of Company information. Furthermore, Mr.
Terzic released the Company and related parties from any claim arising out of
Mr. Terzic's
<PAGE>
employment with the Company. The Separation Agreement provided for the Company
(i) to pay Mr. Terzic a lump-sum severance payment of $600,000, which was twice
Mr. Terzic's base salary, (ii) to pay Mr. Terzic approximately $18,000 for
unused vacation days, (iii) to provide Mr. Terzic with continued medical
insurance coverage until no later than March 31, 1999 and (iv) to provide Mr.
Terzic with outplacement services for a six-month period. In addition, pursuant
to the Separation Agreement, the Company agreed to immediately vest all of Mr.
Terzic's unvested stock options and allow such options to be exercised until
September 29, 1999, to immediately vest all shares of restricted stock and to
deem Mr. Terzic to be fully vested, as of December 31, 1998, in ten years of
service under the Company's retirement plans.
Also in September 1998, the Company entered into a Severance Agreement and
Release (the "Severance Agreement") with Mr. Bielonko in connection with Mr.
Bielonko's separation from the Company. The Severance Agreement requires Mr.
Bielonko to maintain the confidentiality of Company information and not to
compete with the Company in the HVAC service business for a one-year period in
Connecticut and Massachusetts. In addition, Mr. Bielonko released the Company
and related parties from any claim arising out of Mr. Bielonko's employment with
the Company. The Severance Agreement provided for the Company (i) to pay Mr.
Bielonko a severance payment of $150,700, which was Mr. Bielonko's annual
salary, (ii) to pay Mr. Bielonko a total of $33,000 in additional payments,
which includes payment for an outplacement program for a maximum of twelve
months, and (iii) to permit Mr. Bielonko to exercise his vested stock options
until October 1, 1998.
RETIREMENT PLANS
The following table sets forth the annual pension benefits payable upon
normal retirement at age 65, pursuant to the Yankee Energy System, Inc.
Retirement Plan (the "Retirement Plan", described below) and the Company's
Excess Benefit Plan (the "Excess Benefit Plan", described below), based upon the
average annual earnings and years of service indicated.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
EARNINGS FOR THE HIGHEST
CONSECUTIVE 60 MONTHS OF YEARS OF SERVICE
LAST 120 MONTHS PRIOR ---------------------------------------------------------
TO NORMAL RETIREMENT
- ------------------------
15 20 25 30 35 40
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 75,000 $15,708 $ 20,944 $ 26,180 $ 31,415 $ 36,651 $ 38,526
125,000 26,958 35,944 44,930 53,915 62,901 66,026
175,000 38,208 50,944 63,680 76,415 89,151 93,526
225,000 49,458 65,944 82,430 98,915 115,401 121,026
275,000 60,708 80,944 101,180 121,415 141,651 148,526
325,000 71,958 95,944 119,830 143,915 167,901 176,026
375,000 83,208 110,944 138,880 166,415 194,151 203,526
</TABLE>
<PAGE>
Pursuant to provisions of the Internal Revenue Code, compensation earned
that is used in calculating retirement benefits under the Retirement Plan is
limited to a maximum of $160,000. This affects the benefit calculation for
certain individuals and effectively reduces their benefits under the Retirement
Plan. The Company's Excess Benefit Plan provides benefits not payable under the
Retirement Plan due to the $160,000 limitation. The maximum annual benefit that
can be paid in 1998 to a participant from a tax qualified benefit plan is
$130,000.
All employees of the Company, including the five current executive officers
named in the Summary Compensation Table, are entitled to participate in the
Retirement Plan, which is a non-contributory, defined benefit retirement plan.
Retirement benefits are based on years of credited service and the employee's
average annual earnings, which is the average of an employee's five highest
years of earnings during the last ten years of employment. The benefits
presented are based on straight life annuity and do not take into account any
reduction for joint and survivorship annuity payments. The Retirement Plan
provides for several optional forms of benefit payments, including a straight
life annuity option, a contingent annuitant option, a ten-year certain and life
option and a level income option. Retirement benefits under the Retirement Plan
are not reduced by the employee's Social Security benefits. Contributions, which
are actuarially determined, are made to the Retirement Plan by the Company for
the benefit of all employees covered by the Retirement Plan. The Retirement Plan
provides for continued benefit accruals for employees who work beyond age 65.
As of September 30, 1998, the years of credited service under the
Retirement Plan for Messrs. Gooley, Sepanski, Fink and Laden and Ms. Quinn were
17, 1, 1, 4, and 16, respectively. The years of credited service for certain of
the executive officers named above include prior service under the Northeast
Utilities Service Company Retirement Plan. Mr. Laden received two years of
credited service for every one year of service completed pursuant to an
agreement with the Company. In addition, the years of credited service under the
Retirement Plan for Messrs. Terzic and Bielonko are 10 and 21, respectively.
Under federal law, an employee's benefits under a qualified pension plan, such
as the Retirement Plan, are limited to certain amounts. The Company has adopted
the Excess Benefit Plan in which all of the current executive officers named in
the Summary Compensation Table participate. The Excess Benefit Plan supplements
the benefits of a participant in the Retirement Plan in an amount by which such
participant's benefits under the Retirement Plan are limited by law. The Excess
Benefit Plan also provides for the payment of additional retirement benefits in
the same manner as under the Retirement Plan on remuneration paid under certain
management incentive plans. The Excess Benefit Plan is an unfunded plan that is
not intended to meet the qualification requirements of Section 401 of the
Internal Revenue Code.
CORPORATE PERFORMANCE GRAPH
The following graph and table compare the total shareholder returns over
the last five fiscal years to the Standard & Poor's 500 Stock Index ("S&P 500"),
Standard & Poor's Utility Index ("S&P Utility") and a "Peer Group" consisting of
natural gas distribution companies comparable to Yankee Energy. The Peer Group
is composed of Bay State Gas Company, Colonial Gas Company, Connecticut Energy
Corporation, CTG Resources, Inc., New Jersey Resources Corporation, North
Carolina Natural Gas Corporation, Providence Energy Corporation, Public Service
Company of North Carolina, and South Jersey Industries, Inc. Total return values
for the S&P 500, S&P Utility, Peer Group and Yankee Energy were calculated based
on cumulative total return values assuming the reinvestment of dividends. The
shareholder returns shown on the graph below are not necessarily indicative of
future performance.
<PAGE>
Insert Graph
TOTAL SHAREHOLDER RETURNS
Fiscal Yankee Peer S&P S&P
Year Energy Group 500 Utility
------ ------ ----- --- -------
1993 100 100 100 100
1994 85 84 104 87
1995 90 93 135 111
1996 102 109 162 119
1997 111 127 227 136
1998 130 151 248 177
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP served as independent auditors for the
Company for the fiscal year ended September 30, 1998. Pursuant to the
recommendation of the Audit Committee, the Board has appointed that firm to
continue in that capacity for the fiscal year 1999, and recommends that a
resolution be presented to shareholders at the 1999 Annual Meeting to ratify
their appointment.
In the event the shareholders fail to ratify the appointment of Arthur
Andersen LLP, the Board will appoint other independent public accountants as
auditors. Representatives of Arthur Andersen LLP will attend the 1999 Annual
Meeting. They will have the opportunity to make a statement and respond to
appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL
OTHER MATTERS
The Board does not know of any matters that will be presented for action at
the 1999 Annual Meeting other than those described above and matters incident to
the conduct of the meeting. If, however, any other matters not currently known
to management should come before the 1999 Annual Meeting, it is intended that
the shares represented by the accompanying proxy will be voted on such matters
in accordance with the discretion of the holders of such proxy.
COST OF SOLICITATION
The cost of soliciting proxies will be paid by the Company. Proxies may be
solicited by directors, officers or regular employees of the Company in person,
by telephone or telegram. The Company has retained Chase Mellon Shareholder
Services to assist in the solicitation and sending of proxy material. The
Company will pay approximately $5,500 for these services.
<PAGE>
SHAREHOLDER PROPOSALS FOR 2000
Shareholder proposals submitted for inclusion in next year's proxy
materials must be received by the Company no later than August 20, 1999.
Shareholder proposals submitted to be considered at the 2000 Annual Meeting
without inclusion in next year's proxy materials must be received by the Company
no later than November 3, 1999. If the Company is not notified of a shareholder
proposal by November 3, 1999, then proxies held by management of the Company may
provide the discretion to vote against such shareholder proposal, even though
such proposal is not discussed in the Proxy Statement. Proposals should be
addressed to Mary J. Healey, Vice President, General Counsel and Secretary,
Yankee Energy System, Inc., 599 Research Parkway, Meriden, CT 06450-1030.
Shareholders holding at least five percent of the voting power of the issued and
outstanding Common Stock of the Company may nominate candidates for election to
the Board if a written notice setting forth (i) the name, age, business address
and residence address of each person to be nominated, (ii) the principal
occupation or employment of each such person, (iii) the number of shares of
capital stock of the Company which are beneficially owned by each such person,
(iv) a statement that each such person is willing to be nominated and (v) such
other information concerning each such person as would be required under the
rules of the Securities and Exchange Commission to be included in a proxy
statement soliciting proxies for the election of such person as a director is
submitted and received by the Secretary of the Company not less than 90 days
prior to a meeting of shareholders called for election of directors.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
<PAGE>
[MAP APPEARS HERE]
DIRECTIONS TO ANNUAL MEETING
FROM HARTFORD: Take I-91 South to exit 17 or Rte. 15 to exit 67W (East Main
Street exit). At the end of the exit, take a left onto East Main Street. At the
second light take a right onto Pomeroy Avenue. Ramada Plaza Hotel will be on the
right.
FROM NEW HAVEN: Take I-91 North to exit 16 or Rte. 15 to exit 67. At the end of
the exit take a right onto East Main Street. At the first light take a right
onto Pomeroy Avenue. Ramada Plaza Hotel will be on the right.
FROM WATERBURY: Take I-84 East to exit 27 onto I-691 east bound. Follow to exit
10, I-91 Rte. 15 South. Get off at first exit, which is exit 67W (East Main
Street exit). At the end of the exit take a left onto East Main Street. At the
second light take a right onto Pomeroy Avenue. Ramada Plaza Hotel is on the
right.
FROM MIDDLETOWN: Take Rte. 66 exit 13, which will put you on East Main Street.
At the second light take a left onto Research Parkway. Follow to stop sign, go
straight through. Ramada Plaza Hotel will be on the right.
<PAGE>
- --------------------------------------------------------------------------------
PROXY YANKEE ENERGY SYSTEM, INC. PROXY
Proxy for Annual Meeting of Shareholders January 29, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Emery G. Oicott and Eileen S. Kraus or any of
them, each with full power of substitution, proxies of the undersigned, to act
for and to vote, as and to the extent specified, all shares of common stock of
Yankee Energy System, Inc. held by the undersigned at the Annual Meeting to be
held on January 29, 1999 and any adjournment thereof upon the matters set forth
hereon and upon such other business that may properly come before the meeting
or any adjournment thereof.
THIS PROXY FORM, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS AND TO
THE EXTENT SPECIFIED BY THE UNDERSIGNED. WHERE NO CHOICE IS SPECIFIED, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
(continued on reverse side)
________________________________________________________________________________
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
or
--
2. Call toll free 1-800-435-6710 on a Touch Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
or
--
3. Vote by Internet at our Internet Address: HTPP//WWW.EPROXY.COM/YES/
PLEASE VOTE
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 & 2. Please mark
your vote as
indicated in [X]
this example
1. Election of Directors: (01) SANFORD CLOUD, JR AND (02) JOHN J. RANDO
FOR all nominees WITHOLD To vote for all nominees, mark "FOR" box. To withhold authority to vote
listed above AUTHORITY for any individual nominees, cross out that nominees's name.
(except as marked to to vote for all
the contrary) nominees listed above
[_] [_] I plan to attend the meeting [_]
2. Ratification of Arthur Andersen LLP as independent auditors of
Yankee Energy System, Inc. for the fiscal year ended
September 30, 1999.
FOR AGAINST ABSTAIN If you receive more than one copy of the annual report
[_] [_] [_] and do not wish to in the future, please check this box, [_]
The undersigned hereby also acknowledge(s) receipt of notice of
said meeting and the related proxy statement.
Dated:_______________________________________, 1999
Signed:_______________________________________
Signed:_______________________________________
Please sign this Proxy exactly as your name appears hereon. When
shares are held by joint tenants, both should sign. When signing
as an attorney, executor, administrator, or guardian, please
give full title as such. If a corporation, please sign in full
coporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
</TABLE>
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
----------------------------------------------
VOTE BY TELEPHONE OR INTERNET
QUICK * * * EASY * * * IMMEDIATE
----------------------------------------------
Your telephone or internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
VOTE BY PHONE: CALL TOLL FREE ON A TOUCH-TONE TELEPHONE 1-800-435-6710
ANYTIME.
THERE IS NO CHARGE FOR THIS CALL.
You will be asked to enter the 11-digit Control Number located
in the box in the lower right of this form.
- -------------------------------------------------------------------------------
OPTION A: To vote as the Board of Directors recommends on ALL items,
press 1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OPTION B: If you choose to vote on each item separately, press 0. You
will hear these instructions:
- -------------------------------------------------------------------------------
Item 1 - To vote FOR ALL nominees, press 1: to WITHHOLD FOR All
nominees, press 9
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to
the instructions
Item 2 - To vote FOR, press 1; AGAINST, press 9; ABSTAIN,
press 0.
When asked, you must confirm your vote by pressing 1.
VOTE BY
INTERNET: THE WEB ADDRESS IS HTPP//WWW.EPROXY.COM/YES/
THANK YOU FOR VOTING
- --------------------------------------------------------------------------------
