-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Or8ZbS6rzf0ksPd+6SYPcXPez/enWYfp4hVRrK7Bjhx0++Qe9qUH9BnVrfioH1Ej en+JUpU/tePCF7odoYTE5Q== 0000704503-97-000017.txt : 19971223 0000704503-97-000017.hdr.sgml : 19971223 ACCESSION NUMBER: 0000704503-97-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971222 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENERGYNORTH INC CENTRAL INDEX KEY: 0000704503 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 020363755 STATE OF INCORPORATION: NH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11441 FILM NUMBER: 97741889 BUSINESS ADDRESS: STREET 1: 1260 ELM ST STREET 2: P O BOX 329 CITY: MANCHESTER STATE: NH ZIP: 03105 BUSINESS PHONE: 6036254000 MAIL ADDRESS: STREET 1: 1260 ELM ST CITY: MANCHESTER STATE: NH ZIP: 03105 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1997 Commission File Number 1-11441 ENERGYNORTH, INC. (Exact name of registrant as specified in its charter) New Hampshire 02-0363755 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1260 Elm Street, P.O. Box 329, Manchester, New Hampshire 03105 (603-625-4000) (Address, zip code and telephone number of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock - $1.00 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At October 21, 1997, nonaffiliates held 3,141,157 shares of the registrant's $1.00 par value common stock. On December 2, 1997, the aggregate market value of those shares was $73,424,545. At the close of business on December 22, 1997, the registrant had 3,246,258 outstanding shares of its $1.00 par value common stock. DOCUMENTS INCORPORATED BY REFERENCE Incorporated Document Location in Form 10-K Portions of the Proxy Statement furnished Part III to Shareholders in connection with Annual Meeting to be held February 4, 1998. Page 1 of 49 pages. Exhibit Index appears on Pages 45 through 48. 2
TABLE OF CONTENTS Part I Page No(s). ----------- Item 1. Business General 4-5 The Utility Gas Distribution Business 5-6 The Retail Propane Business 6 Summary of Revenues 6 Deregulation 6-7 Competition 7 Gas Supply General 7 Supply Contracts and Storage 8 Cost of Purchased and Produced Gas 8-9 Supervision and Regulation 9 Employees 9 Executive Officers of the Registrant 10 Item 2. Properties 11 Item 3. Legal Proceedings 11-13 Item 4. Submission of Matters to a Vote of Security Holders 13 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-21 Item 8. Financial Statements and Supplementary Data 22-40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40 Part III Item 10. Directors and Executive Officers of the Registrant 40 Item 11. Executive Compensation 40 Item 12. Security Ownership of Certain Beneficial Owners and Management 41 Item 13. Certain Relationships and Related Transactions 41
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TABLE OF CONTENTS (continued) Part IV Page No(s). ----------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41-43 Signatures 44 Exhibit Index 45-48 Exhibit 23 - Consent of Independent Public Accountants 49
4 ENERGYNORTH, INC. FORM 10-K PART I ITEM 1. BUSINESS General The business of EnergyNorth, Inc., incorporated in the state of New Hampshire in 1982, is the ownership of 100% of the outstanding common stock of EnergyNorth Natural Gas, Inc. ("ENGI"), EnergyNorth Propane, Inc. ("ENPI"), and EnergyNorth Realty, Inc. EnergyNorth, Inc. ("ENI" or the "Registrant") and its subsidiaries, collectively referred to as the "Company," are headquartered at 1260 Elm Street, Manchester, New Hampshire, except for ENPI, which is headquartered at 75 Regional Drive, Concord, New Hampshire. All subsidiaries are incorporated in the state of New Hampshire. The business of ENGI, the Registrant's principal subsidiary, is the purchase, transportation and sale of natural gas for residential, commercial and industrial use in New Hampshire. ENPI is a retailer of liquefied petroleum gas ("propane" or "LP") and serves customers in central and southern New Hampshire. During 1996, ENPI entered into a joint venture with Northern New England Gas Corporation, creating a limited liability company to provide LP gas sales and service in the state of Vermont. In general, the senior management of ENI serves as the senior management of all subsidiaries. ENI provides for the subsidiaries' administrative support and services and establishes policies, plans and goals. The service territory of ENGI has a population of approximately 470,000 in 27 communities situated in southern and central New Hampshire, which includes the communities of Nashua, Manchester, Concord and Laconia. The service area encompasses approximately 922 square miles. Located within 30 to 85 miles of Greater Boston, ENGI's service territory offers a favorable business climate with no general sales or personal income taxes, a productive labor force and a comfortable, safe and clean environment for residents and tourists. The state of New Hampshire's nonfarm job growth continues to be significantly above average, ranking first among New England states with a 2.4% growth rate in 1997. This compares to a 2.1% average growth rate nationally and a 2% average rate for New England for the same period. New housing permits are expected to increase 8.7% in 1998 over 1997. While the New Hampshire unemployment rate for 1998 is forecasted at 2.3% compared to 2.6% in 1997, the labor force is forecasted to increase by 2% in 1998. Job growth and low unemployment in the Company's service area tend to result in an increase in volumes transported and sold and numbers of customers. (All employment and housing statistics are taken from The New England Economic Project's October 1997 Economic Outlook for New Hampshire.) In fiscal 1997, the Company experienced net growth of over 5 2.9% in natural gas and transportation customers and approximately 8% in propane customers over 1996. ENGI's marketing focus continues to stress low cost growth by concentrating on adding new customers along the Company's more than 1,000 miles of gas mains and adding load from the existing customer base, while also expanding its system of mains into areas in which there is a significant demand for natural gas service. ENGI has an approximate 28% share of the home heating market (based on households) within its service territory, creating a potential for increased sales where the natural gas pipeline is located and alternative fuels are used. In New Hampshire, fuel oil has a penetration of over 57% of the home heating market. Currently, the price of natural gas for heating is comparable to the full-service price of fuel oil. From a total energy perspective, natural gas is a stronger competitor with a complete line of gas appliances and uses, including ranges, water heaters, clothes dryers, fireplaces and gas logs, outdoor lights and natural gas heat pumps for heating and cooling. While these multiple uses provide opportunities to be the total energy provider to new customers, they also provide opportunities for expansion within the existing customer base. Due to continued customer conversions from other energy sources and expansion of its service territory, ENGI has an opportunity for growth in the retail sales market. During the past five years, ENGI has experienced an annual average customer growth rate of about 2%. This compares to an approximate 1.6% national average for local distribution companies, according to the American Gas Association. Additional growth in distribution operations may also occur as industrial and commercial customers turn to natural gas for electric generation because of a price advantage and as a means to ensure compliance with the provisions of the Clean Air Act. As the electric industry continues to move toward deregulation, this option may become more attractive. The development of new gas-burning technologies for industry has provided opportunities for increased gas usage in market sectors that are not sensitive to the weather. The Utility Gas Distribution Business ENGI distributes natural gas as a regulated utility pursuant to franchise authority granted by the State of New Hampshire Public Utilities Commission (the "Commission"). No operations are outside New Hampshire. While the franchise area of ENGI is primarily residential in character, 58% of sales volumes are commercial and industrial. As of September 30, 1997, the Company's utility business served nearly 68,000 customers, of which approximately 88% were residential and 12% were commercial and industrial. During fiscal 1997, no ENGI customer purchased more than 4% of the total ENGI annual sales and transportation volume. ENGI offers firm and interruptible transportation service to its commercial and industrial customers. Transportation service allows a customer to purchase a natural gas supply directly from a third-party marketer. The marketer delivers the gas supply to one of ENGI's interstate pipeline take stations. The customer contracts with ENGI to transport the gas from the take station to its facility. To ensure a continual, uninterrupted supply, ENGI also provides an optional, separate standby service as a backup to the gas supplies of transportation customers. As of September 30, 1997, ENGI had 45 firm transportation customers. 6 ENGI distributes gas to substantially all of its utility customers through a system of underground pipelines connected with its three operations centers in Manchester, Nashua and Tilton, six take stations located in Manchester, Londonderry, Windham, Concord, Hooksett and Suncook and four production plant facilities in Manchester, Nashua, Concord and Tilton. The pipelines are generally located in public ways and are subject to licenses granted by municipalities. ENGI serves over 75% of New Hampshire's natural gas customers. The Retail Propane Business ENPI sells propane to more than 13,000 customers, of which approximately 91% are residential and 9% are commercial and industrial. ENPI's service territory includes more than 100 communities primarily located within a 50-mile radius of Concord. Propane distribution does not require a regulatory franchise. Propane is delivered to customers by trucks from ENPI's liquid propane storage facilities located in communities within ENPI's service territory. ENPI purchases the majority of its liquid propane requirements on a firm contractual basis. The remaining liquid propane requirement is purchased in the spot market. During 1996, ENPI entered into a joint venture with Northern New England Gas Corporation to provide LP gas sales and service in Vermont. ENPI holds a 49% interest and will provide planning and management expertise to the joint venture. Summary of Revenues Revenues, in thousands of dollars, attributable to various categories of gas distribution and related operations (unaudited) during the last three fiscal years are as follows: September 30, ------------------------------ 1997 1996 1995 ------------------------------ Utility (natural gas) sales service $ 91,670 $76,007 $69,067 Utility transportation service 1,308 1,503 749 Propane gas sales 12,893 11,444 8,990 Service and appliance sales 2,185 1,917 1,794 Rentals 937 987 964 ------------------------------ $108,993 $91,858 $81,564 ============================== During the winter period, November 1 through March 31, the Company's natural gas and propane revenues are substantially higher than during the summer months. The increase in natural gas and propane revenues during the winter, and the concomitant increase in gas supply requirements, occurs because approximately 90% of ENGI's and ENPI's customers use natural gas and propane for heating. Deregulation The implementation of Federal Energy Regulatory Commission ("FERC") Order 636 provided for the unbundling and deregulation of the interstate pipeline system and led to the beginning of unbundling of the intrastate pipeline system in New Hampshire. In late 1993, the Commission approved gas 7 transportation rates and separate standby and balancing services for commercial and industrial customers. Gas transportation services have allowed customers to utilize ENGI's distribution system for the transportation of gas purchased from third-party gas marketers, creating competition from gas marketers for the sale of gas to end users. At September 30, 1997, ENGI had 45 firm transportation customers. These customers are, for the most part, large commercial and industrial customers. The volume transported for transportation customers in fiscal 1997 was 673,000 Mcf, approximately 5% of ENGI's total gas delivered. ENGI expects the number of transportation customers and the volume of gas transported to increase. ENGI is the sole distributor and transporter of natural gas in its franchise area. The Tennessee Gas Pipeline Company ("Tennessee") is the only interstate pipeline to serve ENGI's franchise area. For that reason, and because installation of private transmission mains would typically be impractical, customers have not attempted to bypass ENGI's distribution system. Competition Natural gas competes mainly with electricity and fuel oil. The principal competitive factors between natural gas and alternative fuels are the price of the fuel and the conversion costs from one fuel to another. Competition is greatest among ENGI's commercial and industrial customers who have the capability to use alternative fuels. ENGI provides flexible rates for users with dual-fuel capabilities in order to better compete with the alternative fuels. Under current market conditions, natural gas has a significant price advantage over electricity in New Hampshire. Natural gas heating costs are currently less than one-third of electric heating costs. At the present time, the price of natural gas for heating is comparable to the full-service price of fuel oil. ENGI continues to add customers who might otherwise elect to use oil, because energy decisions are also based on factors other than cost, such as service, cleanliness and environmental impact. Demand for natural gas is expected to continue to increase as national attention remains focused on its environmental advantages, efficiency and security of supply. Commercial and industrial customers continue to find gas technologies and equipment attractive as they deal with the requirements of the Clean Air Act Amendments of 1990 and other federal environmental legislation. The retail propane market is very competitive, and numerous other retail propane operations exist within the communities served by ENPI. The principal competitive factors in the industry are price, dependability of delivery and service. Gas Supply General. The Company's gas supply goal is to maintain a balanced portfolio of supply that will continue to minimize the overall cost of gas while providing the necessary security to meet demand requirements. 8 Supply Contracts and Storage. ENGI's gas supply is principally natural gas transported by the interstate pipeline system. ENGI has contracted with Tennessee to deliver 56,833 Dekatherms ("Dths," a unit of heating value equivalent to one million British Thermal Units) per day on a firm transportation basis and up to 8,000 Dths per day on an interruptible basis. Natural gas supplies are purchased both on a long-term contract and short- term spot market basis. During fiscal 1997, ENGI purchased approximately 3% of its annual natural gas requirements in the spot market. ENGI's long-term contracts, under which it has firm supply for approximately 40,529 Dths per day, have remaining terms of two to nine years. In fiscal 1997, approximately 61% of the gas delivered by ENGI came from domestic pipeline sources, 20% from Canadian pipeline supplies and approximately 12.5% from supplemental pipeline supplies. LP and liquefied natural gas ("LNG") purchases from both domestic and foreign sources made up approximately 1% of the gas delivered by ENGI. Supplemental supplies of gas are produced from plants owned and operated by ENGI. Third-party marketer supply to end users on ENGI's system accounted for 5.5%. All pipeline volumes are transported by Tennessee under FERC tariffed rate schedules. The supply from Canada is transported to Tennessee's system using the TransCanada and the Iroquois Gas transmission systems. In addition to long-term supply sources, ENGI stores gas during the summer months under long-term contracts with the owners of storage facilities located in Pennsylvania and New York. Gas from these storage facilities, up to 24,304 Dths per day on a firm basis, is delivered to ENGI during the winter months through the Tennessee system. ENGI owns other on-site storage facilities capable of holding 115,660 Dths of LP and 13,057 Dths of LNG. ENGI has contracted for 552,000 Dths of supplemental gas vapor, 75,000 Dths of LNG and an additional 1 million gallons of LP for the winter of 1997 - 1998. The Company expects to be able to secure the gas supply required to meet existing customer and forecasted new customer demands through long-term commitments and purchases in the spot market. Cost of Purchased and Produced Gas. The average unit cost of gas purchased and produced during the twelve months ended September 30, 1997 was approximately $4.28 per Mcf compared to $3.96 per Mcf for the same period last year. The 1997 average unit cost reflects the higher cost of gas supply in the marketplace. The cost of gas adjustment ("CGA") clause authorized by the Commission permits recovery by ENGI from its customers (or requires refunds to its customers) of gas costs (including pipeline, LP, LNG and storage) that are higher (or lower) than the cost of gas included in base rates. The CGA is determined twice annually, for summer and winter periods. ENGI instituted a Natural Gas Price Risk Management Program, effective September 3, 1997. The program is designed to protect customers from sharp increases in the commodity cost of gas. Under the program, ENGI has purchased call options for the 1997 - 1998 winter period. The options provide 9 the right, but not the obligation, to purchase gas at a predetermined price by a certain date. All program costs and benefits will be passed on to customers through the CGA. Margins earned on interruptible, 280-day sales and capacity release are passed on to firm customers through the CGA. In addition, costs associated with a fuel inventory trust, including administration fees and carrying costs, are recovered through the CGA. ENGI is subject to payment of transition costs associated with FERC Order 636 restructuring. Tennessee began billing these costs late in fiscal 1993. ENGI has incurred $7.9 million in transition costs through September 30, 1997 and is recovering these costs through the CGA. As of September 30, 1997, ENGI has recorded additional transition costs of approximately $1.3 million that will be billed over a period of 15 months. Meanwhile, ENGI's customers are benefiting from the restructuring, realizing long-term savings in gas costs. Supervision and Regulation ENI is generally exempt from regulation under the Public Utility Holding Company Act of 1935, because its utility operations are predominantly intrastate in character. ENGI is subject to regulation by the Commission, which has authority over accounting, rates and charges, the issuance of securities and certain operating matters. Changes in utility rates and charges cannot be made without a 30-day notice to the Commission, which has the power to suspend, investigate and change any proposed increase in rates and charges. The natural gas and propane distribution businesses of ENGI and ENPI are subject to extensive safety regulations and reporting requirements promulgated by the United States Department of Transportation, but are not otherwise subject to direct regulation by federal agencies except as to environmental matters. These subsidiaries are also subject to zoning and other regulations by local authorities. Their capital expenditures, earnings and operations have not been materially affected by environmental and local regulation. Employees At September 30, 1997, the Company had 252 full-time employees, of whom 137 were represented by four contracts with Local 12012 of the United Steelworkers of America. The contracts expire in 2001 and 2002. 10 Executive Officers of the Registrant The executive officers of the Registrant are listed below, together with age at December 22, 1997, position and other information as to each. The term of office of each executive officer terminates when his or her successor has been duly elected and qualified.
Served as Principal Occupations and Employment Name and Position Officer During Last Five Years Other Than with the Registrant Age Since with the Registrant - --------------------------------------------------------------------------------------------- Robert R. Giordano 59 1982 President and Chief Executive Officer of President and Chief ENGI; Chairman and Chief Executive Officer Executive Officer of ENPI. Michelle L. Chicoine 41 1990 Senior Vice President (since 1997), Treasurer Senior Vice President, and Chief Financial Officer (since 1996), formerly Treasurer and (1993-1997) Vice President of ENGI. Chief Financial Officer Frank L. Childs 53 1995 Senior Vice President (since 1997), formerly Senior Vice President (1995-1997) Vice President of ENGI; formerly (1992-1994) Executive Vice President and Chief Administrative Officer of UNITIL Corporation, a registered public utility holding company; formerly (until 1994) President and (until 1992) Chief Operating Officer of Fitchburg Gas and Electric Light Company, a public utility. Albert J. Hanlon (1) 56 1988 Senior Vice President of ENGI. Senior Vice President Richard P. Demers 61 1988 President of ENPI and Vice President Vice President of ENGI. David A. Skrzysowski 51 1983 Vice President and Controller of ENGI. Stephen W. Smith 50 1997 Vice President of ENGI (since 1997); Vice President formerly (1993-1996) Director of Human Resources of Hampshire Chemical Corporation; formerly (until 1993) Manager of Human Resources of W.R. Grace & Co. - Conn. __________________ (1) Mr. Hanlon has announced his intention to retire on December 31, 1997.
11 ITEM 2. PROPERTIES The Company's utility gas distribution facilities constitute the majority of its physical assets. As of September 30, 1997, ENGI had approximately 1,050 miles of mains and 660 miles of service connections. The utility's mains and service connections are adequate to meet service requirements and are maintained through a regular program of inspection and repair. Offices and operations centers located in Nashua, Manchester, Concord and Tilton are adequate for the needs of the Company and are regularly maintained and in good condition. Substantially all of the Company's properties are fully utilized. Substantially all of the Company's utility properties are subject to the liens of the indentures securing the ENGI First Mortgage Bonds. In some cases, motor vehicles and nonutility assets are subject to purchase money security interests held by banks. The Manchester office building and substantially all of ENPI's assets are subject to first mortgages. The Company also has long-term leases for computer equipment. ITEM 3. LEGAL PROCEEDINGS The Company is a party in several proceedings of the sort that arise in the ordinary course of its business. Such actions, for the most part, are covered by insurance and, to the extent that they are not fully covered, the damages sought are not material in amount. The Company is a party to various routine Commission proceedings relating to operations, none of which is expected to have a material impact on the Company's earnings or assets. The Company and certain of its predecessors owned or operated several facilities for the manufacture of gas from coal, a process used through the mid-1900s that produced by-products that may be considered contaminated or hazardous under current law, and some of which may still be present at such facilities. The Company accrues environmental investigation and clean-up costs with respect to former manufacturing sites and other environmental matters when it is probable that a liability exists and the amount or range of amounts can be reasonably estimated. In 1995, the Company completed the disposal of the contents of the gasholder situated on a former gas manufacturing site in Concord, New Hampshire. Total remediation costs amounted to approximately $3.5 million and were recorded in deferred charges. Recovery of these costs from customers began on July 1, 1995 and extends over a seven-year period. The unamortized balance of $2.4 million at September 30, 1997 is excluded from rate base. The Company may not earn a return or charge rates to customers based on amounts not included in rate base. The New Hampshire Department of Environmental Services ("NHDES") has required remedial action for a portion of the Concord site at which wastes were disposed from approximately 1852 through 1952. The estimated cost of this remedial action ranges from $1.5 million to $2.6 million, and the Company has recorded $1.5 million at September 30, 1997 in deferred charges. The Company has petitioned the Commission for approval of the Company's proposed five-year recovery from ratepayers of $1.9 million of investigation, remediation and recovery effort costs plus carrying costs. 12 The Company has instituted several lawsuits to recover the costs of investigation and remediation of the Concord site. On September 12, 1995, the Company filed a complaint in the United States District Court for the District of New Hampshire against UGI Utilities, Inc., as the successor to United Gas Improvement Company. The Company seeks contribution for expenses incurred at the Concord site based upon the operation of the manufactured gas plant by the United Gas Improvement Company during a period of time the manufactured gas plant was in operation. On December 8, 1995, the Company filed suit in the United States District Court for the District of New Hampshire against Associated Electric and Gas Insurance Services, Ltd., American Home Assurance Company, CIGNA Specialty Insurance Company, International Insurance Company, Lloyd's, Underwriters at London, Lexington Insurance Company and National Union Fire Insurance Company, later adding Columbia Casualty Company as a defendant, seeking declaratory judgment that they owe the Company a defense and/or indemnification for environmental claims associated with the Concord facility. The Company filed suit in the New Hampshire (Hillsborough County) Superior Court on December 8, 1995 against the Continental Insurance Company and Netherlands Insurance Company seeking a declaratory judgment that they owe the Company a defense and/or indemnification for environmental claims associated with the Concord facility. Through November 1997, the Company reached settlements with certain of the defendants in those suits in an aggregate amount of $1.6 million and further payment to the Company of a portion of future Concord site remediation costs. The Company expects that such settlement amounts will reduce the amount that it will be permitted by the Commission to recover from its ratepayers. The Company and Public Service Company of New Hampshire ("PSNH"), an electric utility company, conducted an environmental site characterization of a former manufactured gas plant in Laconia, New Hampshire. The Laconia manufactured gas plant operated between approximately 1887 and 1952, and the Company owned and operated the facility for approximately the last seven years of its active life. Without admitting liability, the Company and PSNH have entered into an agreement under which the costs of the site characterization are shared. The Company's share of the costs of the site characterization and a report to the NHDES totaled $276,000 and has been recorded in deferred charges as of September 30, 1997. The report describes conditions at the site, including the presence of by-products of the manufactured gas process in site soils, groundwater and sediments in an adjacent water body. Based upon its review of the report, the NHDES has directed PSNH and the Company to prepare and submit a remedial action plan. The Company expects to incur further costs but is currently unable to predict the magnitude of any liability that may be imposed on it for the cost of additional studies or the performance of a remedial action in connection with the Laconia site. The Company commenced proceedings in New Hampshire Superior Court and Federal District Court on February 2, 1997 against eighteen of its present and former insurers seeking recovery of expenses that have been and will be incurred in connection with the investigation and remediation of contamination from the Laconia plant. Through November 1997, the Company reached a settlement with a defendant in that suit in the amount of $100,000. The Company is pursuing and intends to pursue recovery from insurance carriers and claims against any other responsible parties seeking to ensure that they contribute appropriately to reimburse the Company for any costs incurred with respect to environmental matters. The Company intends to seek and expects to receive approval of rate recovery methods with respect to environmental matters after it 13 has determined the extent of contamination, received recommendations with regard to remediation and commenced remediation efforts. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders in the fourth quarter of fiscal 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Outstanding shares of the Company's common stock are listed and traded on the New York Stock Exchange with the symbol "EI." High and low sales prices during 1997 and 1996 were as follows: Fiscal 1997 Fiscal 1996 High Low High Low - ------------------------------------------------------------------------ First Quarter $22 1/8 $19 $18 3/8 $16 5/8 Second Quarter 22 1/4 20 3/4 20 17 Third Quarter 22 5/8 21 1/4 19 7/8 18 1/4 Fourth Quarter 23 1/4 22 19 3/4 18 1/8 As of December 2, 1997, there were approximately 2,100 holders of record of common stock. Quarterly cash dividends paid were as follows: Fiscal 1997 Fiscal 1996 - ------------------------------------------------------------------- First Quarter $.305 $.29 Second Quarter .305 .29 Third Quarter .32 .305 Fourth Quarter .32 .305 14
ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share amounts) 1997 1996 1995 1994 1993* ---------------------------------------------------- Total operating revenues $105,871 $ 88,954 $ 78,806 $ 97,050 $ 86,197 Net income 6,518 6,078 4,104 5,422 5,368 Earnings per share 2.01 1.89 1.30 1.74 1.74 Cash dividends per share 1.25 1.19 1.12 1.08 1.06 Total assets 138,527 132,003 121,337 121,019 113,569 Capitalization: Common stockholders' equity 47,722 45,167 42,114 40,778 38,054 Long-term debt (including capital lease obligations) 45,242 29,571 30,103 33,501 35,588 ---------------------------------------------------- Total capitalization $ 92,964 $ 74,738 $ 72,217 $ 74,279 $ 73,642 ==================================================== Short-term debt (including current portion of long-term debt) $ 1,078 $ 11,854 $ 5,501 $ 2,308 $ 4,998 _______________ Reclassifications are made periodically to previously issued financial data to conform to the current presentation. * Results include a credit to earnings for previously disallowed gas costs, net of tax, of $959.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings and Dividends Earnings per share for 1997 were $2.01 on net income of $6.6 million, which represents a 6.3% increase from the $1.89 per share earned in 1996. Return on average common equity for 1997 was 14% compared to 13.9% in 1996. The 1997 increase in earnings was primarily due to successful efforts to contain operating costs. In addition, the Company earned $649,000, after taxes, as a result of a favorable net property tax settlement. Partially offsetting this increase was the impact on operations of the significantly warmer weather during the 1996 - 1997 heating season. While the weather was 1.5% warmer than the prior year, it was 7.3% warmer during the November - March period. The Company's Board of Directors increased the quarterly dividend 5% during the fiscal year. The current quarterly dividend of 32 cents per share is equal to an annual dividend of $1.28 per share. Cash dividends paid to common shareholders in 1997 were more than $4 million, representing a payout ratio of 62% of 1997 earnings. 15 Utility Sales and Revenues The Company's rates charged to customers are regulated by the Commission. The Commission is required by New Hampshire law to allow the Company to charge rates that are just and reasonable, such that the Company is compensated for the cost of providing service and allowed a reasonable rate of return on its investment. The Company regularly assesses whether it is earning a reasonable return and files for rate increases when it determines that it is not being permitted to earn a reasonable return. The Company generates revenues primarily through the sale and transportation of natural gas. The Company's gas sales are divided into two categories: firm, whereby the Company must supply gas to customers on demand; and interruptible, whereby the Company may, generally during cooler months, discontinue service to high-volume commercial and industrial customers. Sales of gas to interruptible customers do not materially affect the Company's operating income because all margin on such sales is returned to the Company's firm customers. The Company's tariff includes CGA rates that provide for increases and decreases in the rates charged for gas to reflect estimated changes in the cost of gas. Although changes in CGA rates affect revenues, they do not affect total margin because the CGA is a tariff mechanism designed to provide dollar-for- dollar recovery of gas costs. Amounts recovered through CGA rates are reconciled semiannually against actual costs, and future CGA rates are adjusted accordingly. The Company's sales are responsive to colder weather because the majority of its firm customers use natural gas for space heating purposes. The Company measures weather through the use of degree days. A degree day is calculated by subtracting the average temperature for the day from 65 degrees Fahrenheit. The "normal" number of degree days during any period is calculated based upon a rolling approximate 30-year average number of degree days during such period. The table below discloses degree day data as recorded at the U.S. weather station in Concord, New Hampshire, comparing actual degree days to the previous period and to normal. Because of the size and topographical variations of the Company's service territory, weather conditions within such territory often vary. The Company considers Concord, New Hampshire weather data to be representative of weather conditions within its service territory.
Degree days ---------------------------- Prior Change vs. Change vs. Actual period Normal prior period normal ------------------------------------------------------ Fiscal year ended September 30, 1997 7,373 7,482 7,506 (1.5)% (1.8)% Fiscal year ended September 30, 1996 7,482 6,834 7,549 9.5% (.9)% Fiscal year ended September 30, 1995 6,834 7,877 7,525 (13.2)% (9.2)%
Utility gas service operating revenues were $93 million in 1997, compared to $77.5 million in 1996. The increase resulted primarily from increased CGA rates to cover gas costs deferred in the prior year and increases in the cost of gas. In addition, the growth in the average number of customers in 1997 was approximately 2.2%. The volume of firm gas sendout was slightly less than 1996. The weather in 1997 was 1.5% warmer than in 1996, although the November - March 16 winter heating season was 7.3% warmer. Revenues from gas transported for customers under firm transportation service rates increased more than 21% to $1.2 million, due to a more than 37% increase in volumes transported. This increase included a shift of 132,000 Mcf from firm commercial and industrial sales customers, representing a decrease of $591,000 in operating revenue attributable to the commodity cost of gas. Shifts between transportation and sales gas will cause variations in natural gas revenues since the transportation rate does not include the commodity cost of gas, which is billed directly to the customer by its marketer. Prior to August 1, 1997, the Company's rate structure provided approximately the same margin for sales service and transportation service. Effective August 1, 1997, transportation rates were reduced by approximately 2.4%. The Company cannot predict the impact, if any, that the results of this reduction in transportation rates will have on customers' decisions to switch to transportation service or the resulting impact decisions to switch would have on operating income. The Company will seek an adjustment in overall rates, if it determines that reductions in transportation rates and increases in the number of transportation customers impair its ability to earn its allowed return. At September 30, 1997, the Company had 45 firm transportation customers compared to 27 customers the previous year. Utility Cost of Gas Sold The cost of gas sold was $54.6 million in 1997 and $39.1 million in 1996. The increase was primarily due to higher prices from suppliers ($4 million) and timing differences related to the recovery of gas costs through the CGA ($11.5 million). The average unit cost of gas sold in 1997 was $4.28 per Mcf compared to $3.96 per Mcf in 1996. Increases or decreases in purchased gas costs from suppliers have no significant impact on margin, as they are passed on to customers through the CGA. Retail Propane Operations Retail propane operations contributed $465,000 to net earnings of the Company, a decrease of $181,000 compared to 1996. Included in the 1997 results is the after-tax loss of more than $75,000 from the first year of operation of the Company's propane joint venture in Vermont. While 1997 operating revenues increased $1.4 million to $12.9 million, gross margin increased only slightly as the unit cost of gas increased more than 25%. The warmer weather, especially during the November - March winter period, offset substantial customer growth of more than 8% and resulted in a decrease in propane gallons sold of approximately 1.4%. Operations and maintenance expense increased more than 8% as a result of increases in labor, transportation and other delivery-related expenses necessary to support an expanding customer base. Operating Expenses Operations and maintenance expense was about the same as the prior year. Reductions in the work force, other cost saving initiatives and workers' compensation insurance refunds helped 17 offset the increases from liability insurance, uncollectible accounts and other administrative expenses. Depreciation and amortization expense increased from $5.8 million to almost $6.2 million in 1997, consistent with the Company's continued investment in the expansion and upgrading of its distribution system and facilities and amortization of environmental remediation costs. Net additions to property, plant and equipment were $13.3 million and $8.8 million in 1997 and 1996, respectively. Taxes other than income taxes decreased $1.1 million to $2.9 million, primarily due to a favorable property tax settlement, net of adjustments, of more than $1 million, which offset property tax rate increases and additions to taxable property. Capital Resources and Liquidity Because of the seasonal nature of the Company's operations, a substantial portion of cash receipts is generated during the November - March heating season, which results in the highest cash inflow during late winter and early spring. However, cash requirements for capital expenditures, dividends, long-term debt retirement and working capital do not track this pattern of cash receipts. The greatest demand for cash is in the fall and early winter to support the completion of the annual construction program and to fund gas inventories and other working capital requirements. Cash provided by operations and financing activities was sufficient to fund investing activities in 1997. Borrowings against lines of credit during 1997 ranged from zero to a high of $14.7 million. The Company issued $22 million in First Mortgage Bonds in September 1997. The proceeds were used to retire all existing First Mortgage Bonds designated as 8.67% Series A General and Refunding Mortgage Bonds Due 2002 and to repay borrowings against lines of credit. At September 30, 1997, deferred gas cost was in an overcollected position resulting from winter and summer period activity. The overcollected amounts will be returned to customers during the next corresponding periods through the CGA mechanism. The Company's major uses of cash were capital expenditures of $13.3 million, environmental remediation of $1.6 million and retirement of $8.3 million of long-term debt. The cost to issue First Mortgage Bonds was recorded in deferred charges and will be amortized over the life of the bonds. Included in 1997 construction expenditures was a major main extension project to serve the town of Milford, New Hampshire. In addition, dividend payments to shareholders totaled $4.1 million in 1997. Capital expenditures for 1998 are currently projected at approximately $12.8 million. Additional cash requirements will be necessary for the payment of dividends, environmental remediation, annual sinking fund requirements and maturities of long-term debt and working capital. Cash to fund these requirements is expected to be provided principally by internally generated funds and short-term bank borrowings under the Company's lines of credit. At September 30, 1997, the Company had available lines of credit aggregating $15.2 million, $100,000 of which was outstanding. In addition, a credit line of $9.5 million was available at September 30, 1997 under 18 the Company's fuel inventory trust financing plan. At September 30, 1997, the Company's fuel inventory in trust in the consolidated balance sheet was $7.8 million with an outstanding purchase obligation of $7.9 million. On September 30, 1997, the Company's capitalization ratio consisted of 50.7% common equity and 49.3% debt, including short- term debt. Return on average common equity was 14%. Environmental Matters The Company and certain of its predecessors owned or operated several facilities for the manufacture of gas from coal, a process used through the mid-1900s that produced by-products that may be considered contaminated or hazardous under current law, and some of which may still be present at such facilities. The Company accrues environmental investigation and clean-up costs with respect to former manufacturing sites and other environmental matters when it is probable that a liability exists and the amount or range of amounts can be reasonably estimated. In 1995, the Company completed the disposal of the contents of the gasholder situated on a former gas manufacturing site in Concord, New Hampshire. Total remediation costs amounted to approximately $3.5 million and were recorded in deferred charges. Recovery of these costs from customers began on July 1, 1995 and extends over a seven-year period. The unamortized balance of $2.4 million at September 30, 1997 is excluded from rate base. The Company may not earn a return or charge rates to customers based on amounts not included in rate base. The New Hampshire Department of Environmental Services ("NHDES") has required remedial action for a portion of the Concord site at which wastes were disposed from approximately 1852 through 1952. The estimated cost of this remedial action ranges from $1.5 million to $2.6 million, and the Company has recorded $1.5 million at September 30, 1997 in deferred charges. The Company has petitioned the Commission for approval of the Company's proposed five-year recovery from ratepayers of $1.9 million of investigation, remediation and recovery effort costs plus carrying costs. The Company has instituted several lawsuits to recover the costs of investigation and remediation of the Concord site. On September 12, 1995, the Company filed a complaint in the United States District Court for the District of New Hampshire against UGI Utilities, Inc., as the successor to United Gas Improvement Company. The Company seeks contribution for expenses incurred at the Concord site based upon the operation of the manufactured gas plant by the United Gas Improvement Company during a period of time the manufactured gas plant was in operation. On December 8, 1995, the Company filed suit in the United States District Court for the District of New Hampshire against Associated Electric and Gas Insurance Services, Ltd., American Home Assurance Company, CIGNA Specialty Insurance Company, International Insurance Company, Lloyd's, Underwriters at London, Lexington Insurance Company and National Union Fire Insurance Company, later adding Columbia Casualty Company as a defendant, seeking declaratory judgment that they owe the Company a defense and/or indemnification for environmental claims associated with the Concord facility. The Company filed suit in the New Hampshire (Hillsborough County) Superior Court on December 8, 1995 against the Continental Insurance Company and Netherlands Insurance Company seeking a declaratory 19 judgment that they owe the Company a defense and/or indemnification for environmental claims associated with the Concord facility. Through November 1997, the Company reached settlements with certain of the defendants in those suits in an aggregate amount of $1.6 million and further payment to the Company of a portion of future Concord site remediation costs. The Company expects that such settlement amounts will reduce the amount that it will be permitted by the Commission to recover from its ratepayers. The Company and Public Service Company of New Hampshire ("PSNH"), an electric utility company, conducted an environmental site characterization of a former manufactured gas plant in Laconia, New Hampshire. The Laconia manufactured gas plant operated between approximately 1887 and 1952, and the Company owned and operated the facility for approximately the last seven years of its active life. Without admitting liability, the Company and PSNH have entered into an agreement under which the costs of the site characterization are shared. The Company's share of the costs of the site characterization and a report to the NHDES totaled $276,000 and has been recorded in deferred charges as of September 30, 1997. The report describes conditions at the site, including the presence of by-products of the manufactured gas process in site soils, groundwater and sediments in an adjacent water body. Based upon its review of the report, the NHDES has directed PSNH and the Company to prepare and submit a remedial action plan. The Company expects to incur further costs but is currently unable to predict the magnitude of any liability that may be imposed on it for the cost of additional studies or the performance of a remedial action in connection with the Laconia site. The Company commenced proceedings in New Hampshire Superior Court and Federal District Court on February 2, 1997 against eighteen of its present and former insurers seeking recovery of expenses that have been and will be incurred in connection with the investigation and remediation of contamination from the Laconia plant. Through November 1997, the Company reached a settlement with a defendant in that suit in the amount of $100,000. The Company is pursuing and intends to pursue recovery from insurance carriers and claims against any other responsible parties seeking to ensure that they contribute appropriately to reimburse the Company for any costs incurred with respect to environmental matters. The Company intends to seek and expects to receive approval of rate recovery methods with respect to environmental matters after it has determined the extent of contamination, received recommendations with regard to remediation and commenced remediation efforts. Results of Operations 1996 Compared to 1995 Net income increased to $6.1 million in 1996 from 1995 net income of $4.1 million. Earnings per share in 1996 were $1.89 compared to $1.30 in 1995. The 1996 increase in earnings was primarily due to greater margins resulting mostly from growth in volumes delivered. In 1995, earnings were reduced by approximately $.50 per share, after taxes, as a result of warmer temperatures. In addition, 1995 earnings included a $215,000 after-tax gain ($.07 per share) on the sale of railcars. Operating revenues were more than $88.9 million in 1996, an increase of 12.9% from 1995. The total volume of gas delivered to utility customers increased 13.1% and propane gallons sold increased almost 21% in 1996. Weather in the Company's service area was near normal in 1996, 20 but 9.5% colder than the prior year. The average number of utility customers increased 1.7% to almost 66,500 in 1996. Utility gas service revenues, which represented more than 87% of total operating revenues, increased by $7.7 million or 11%. The average unit cost of gas sold in 1996 was $3.96 per Mcf compared to $3.44 per Mcf in 1995. Propane operations recorded $11.4 million in total operating revenues in 1996, an increase over 1995 of $2.4 million. The increase was primarily due to a 10% increase in the average number of propane customers and a 21% increase in propane gallons sold due to the effect of colder weather. Operations and maintenance expense increased less than 3% in 1996. Reductions in the work force, other cost saving initiatives and workers' compensation and health insurance refunds helped offset most of the increases from liability insurance, uncollectible accounts and other administrative expenses. A gain of $350,000 from the sale of railcars formerly used to transport liquid propane is included in other income for 1995. Fiscal 1996 interest expense decreased 12.9% from 1995, due mainly to the repayment of $3.8 million of long-term debt and a decrease in average short-term borrowings and average short-term interest rates. Total federal and state income taxes increased $1.7 million in 1996. The higher level of pretax income was the main reason for the increase. In addition, as a result of the resolution of certain tax issues, the Company reduced federal income taxes by $200,000 in 1995. Factors That May Affect Future Results The Private Securities Litigation Reform Act of 1995 encourages the use of cautionary statements accompanying forward-looking statements. The preceding Management's Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements concerning the impact of changes in the cost of gas and of the CGA mechanism on total margin; projected capital expenditures and sources of cash to fund expenditures; and estimated costs of environmental remediation and anticipated regulatory approval of recovery mechanisms. The Company's future results, generally and with respect to such forward-looking statements, may be affected by many factors, among which are uncertainty as to the regulatory allowance of recovery of changes in the cost of gas; uncertain demands for capital expenditures and the availability of cash from various sources; uncertainty as to whether transportation rates will be reduced in future regulatory proceedings with resulting decreases in transportation margins; and uncertainty as to the regulatory approval of the full recovery of environmental costs, transition costs and other regulatory assets. 21 New Accounting Standards and Pronouncements The Financial Accounting Standards Board issued new accounting standards that the Company will adopt in future periods. Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," establishes standards for computing and presenting earnings per share, effective fiscal 1998. SFAS No. 130, "Reporting Comprehensive Income," establishes standards for reporting and the disclosure of comprehensive income and its components, effective fiscal 1999. It is not expected that the adoption of SFAS Nos. 128 and 130 will have a material impact on the Company's financial reporting. SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," establishes standards for the way public business enterprises report information about operating segments, including disclosures about products and services, geographic areas and major customers, effective fiscal 1998. The Company is currently evaluating the impact of SFAS No. 131. The American Institute of Certified Public Accountants issued a Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." The SOP's objective is to make the timing of the recognition of environmental obligations more uniform by discussing the estimation process and providing benchmarks to aid in determining when to recognize environmental liabilities. The SOP is effective for the Company in fiscal 1998. The Company does not expect that the adoption of the SOP will have a material impact on the Company's financial position or results of operations. The "Year 2000" Issue Many computer systems are currently based on storing two digits to identify the year of a transaction (for example, "97" for "1997"), rather than a full four digits, and are not programmed to consider the start of a new century. Significant processing inaccuracies and even inoperability could result in the year 2000 and thereafter. The Company's principal computer systems are currently capable of processing the year 2000, or are in the process of being upgraded or replaced by systems that are similarly capable. The Company does not expect that the costs of addressing the "Year 2000" issue will have a material impact on the Company's financial position or results of operations. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (a) Financial Statements required by Regulation S-X Consolidated Statements of Income EnergyNorth, Inc. (In thousands, except per share amounts) For the years ended September 30, 1997 1996 1995 - ------------------------------------------------------------------------- Operating revenues: Utility gas service $ 92,978 $77,510 $69,816 Propane gas service 12,893 11,444 8,990 ------------------------------ Total operating revenues 105,871 88,954 78,806 ------------------------------ Operating expenses: Cost of gas sold 61,829 44,941 39,961 Operations and maintenance 21,658 21,660 21,046 Depreciation and amortization 6,153 5,825 5,071 Taxes other than income taxes 2,876 3,946 3,753 Federal and state income taxes 3,808 3,635 1,972 ------------------------------ Total operating expenses 96,324 80,007 71,803 ------------------------------ Operating income 9,547 8,947 7,003 ------------------------------ Other income 956 907 1,434 Interest expense: Interest on long-term debt 2,917 3,004 3,161 Other interest 1,068 772 1,172 ------------------------------ Total interest expense 3,985 3,776 4,333 ------------------------------ Net income $ 6,518 $ 6,078 $ 4,104 ============================== Weighted average shares outstanding 3,243 3,216 3,166 ============================== Earnings per share $ 2.01 $ 1.89 $ 1.30 ============================== The accompanying notes are an integral part of these consolidated financial statements. 23
Consolidated Balance Sheets EnergyNorth, Inc. (In thousands) September 30, 1997 1996 - --------------------------------------------------------------------------------------------------------- Assets Property: Utility plant, at cost $146,830 $136,229 Accumulated depreciation and amortization 47,815 44,683 -------------------- Net utility plant 99,015 91,546 Net nonutility property, at cost 7,430 7,748 -------------------- Net property 106,445 99,294 -------------------- Current assets: Cash and temporary cash investments 1,998 770 Note receivable 111 39 Accounts receivable (net of allowances of $1,357 in 1997 and $1,211 in 1996) 3,430 2,029 Unbilled revenues 602 582 Deferred gas costs - 3,783 Materials and supplies 1,756 1,590 Supplemental gas supplies 9,120 9,039 Prepaid and deferred taxes 1,305 1,603 Recoverable FERC 636 transition costs 1,261 1,733 Prepaid expenses and other 1,340 1,304 -------------------- Total current assets 20,923 22,472 -------------------- Deferred charges: Regulatory asset - income taxes 2,401 2,401 Recoverable environmental costs 6,546 6,840 Other deferred charges 2,212 996 -------------------- Total deferred charges 11,159 10,237 -------------------- Total assets $138,527 $132,003 ==================== Stockholders' equity and liabilities Capitalization (see accompanying statements) $ 92,964 $ 74,738 -------------------- Current liabilities: Notes payable to banks 100 9,535 Current portion of long-term debt 932 2,090 Current portion of capital lease obligations 46 229 Inventory purchase obligation 7,852 7,867 Accounts payable 6,046 6,189 Deferred gas costs 1,300 - Accrued interest 311 838 Accrued and deferred taxes 111 1,642 Accrued FERC 636 transition costs 1,261 1,733 Customer deposits, environmental and other 3,927 5,062 -------------------- Total current liabilities 21,886 35,185 -------------------- Commitments and contingencies Deferred credits: Deferred income taxes 18,302 16,525 Unamortized investment tax credits 1,734 1,870 Regulatory liability - income taxes 1,254 1,374 Contributions in aid of construction and other 2,387 2,311 -------------------- Total deferred credits 23,677 22,080 -------------------- Total stockholders' equity and liabilities $138,527 $132,003 ====================
The accompanying notes are an integral part of these consolidated financial statements. 24
Consolidated Statements of Capitalization EnergyNorth, Inc. (In thousands, except share information) September 30, 1997 1996 - ------------------------------------------------------------------------------------- Capitalization: Common stockholders' equity: Common stock - par value of $1 per share, 10,000,000 shares authorized; 3,243,543 and 3,239,148 shares issued and outstanding in 1997 and 1996, respectively $ 3,244 $ 3,239 Amount in excess of par 30,428 30,342 Retained earnings 14,050 11,586 ------------------ Total common stockholders' equity 47,722 45,167 ------------------ Long-term debt: First Mortgage Bonds Due 2002 8.67% - 7,088 Due 2009 8.44% 4,000 4,333 Due 2019 9.70% 7,000 7,000 Due 2020 9.75% 10,000 10,000 Due 2027 7.40% 22,000 - Mortgage notes payable Due 1999 8.75% 1,400 1,425 Due 2008 8.75% 959 1,013 Notes payable Due through 2002 prime plus .50% 815 756 ------------------ 46,174 31,615 Less current portion 932 2,090 ------------------ Total long-term debt 45,242 29,525 ------------------ Capital lease obligations 46 275 Less current portion 46 229 ------------------ Total capital lease obligations - 46 ------------------ Total capitalization $92,964 $74,738 ==================
The accompanying notes are an integral part of these consolidated financial statements. 25
Consolidated Statements of Common Stockholders' Equity EnergyNorth, Inc. Common stock ------------------------- Total common $1.00 Amount in Retained stockholders' (In thousands, except per share amounts) par value excess of par earnings equity - ----------------------------------------------------------------------------------------------------------- Balance, September 30, 1994 $3,142 $28,860 $ 8,776 $40,778 Net income - - 4,104 4,104 Common stock - cash dividend ($1.12 per share) - - (3,545) (3,545) Issuance of common stock under the Dividend Reinvestment and Stock Purchase Plan and the Key Employee Performance and Equity Incentive Plan 54 723 - 777 ------------------------------------------------- Balance, September 30, 1995 3,196 29,583 9,335 42,114 Net income - - 6,078 6,078 Common stock - cash dividend ($1.19 per share) - - (3,827) (3,827) Issuance of common stock under the Dividend Reinvestment and Stock Purchase Plan 43 759 - 802 ------------------------------------------------- Balance, September 30, 1996 3,239 30,342 11,586 45,167 Net income - - 6,518 6,518 Common stock - cash dividend ($1.25 per share) - - (4,054) (4,054) Issuance of common stock under the Dividend Reinvestment and Stock Purchase Plan and the Key Employee Performance and Equity Incentive Plan 5 86 - 91 ------------------------------------------------- Balance, September 30, 1997 $3,244 $30,428 $14,050 $47,722 =================================================
The accompanying notes are an integral part of these consolidated financial statements. 26
Consolidated Statements of Cash Flows EnergyNorth, Inc. (In thousands) For the years ended September 30, 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 6,518 $ 6,078 $ 4,104 Noncash items: Depreciation and amortization 6,869 6,606 5,841 Deferred taxes and investment tax credits, net 1,521 1,081 1,106 Changes in: Accounts receivable, net (1,401) 142 90 Unbilled revenues (20) 4 (42) Inventories (247) (931) (1) Prepaid expenses and other (36) 37 (115) Deferred gas costs 5,083 (9,428) 909 Accounts payable (143) 1,421 (80) Accrued liabilities 191 (287) (253) Accrued/prepaid taxes (1,233) 1,495 (403) Payments for environmental costs and other (3,104) (823) (2,550) ------------------------------ Net cash provided by operating activities 13,998 5,395 8,606 ------------------------------ Cash flows from investing activities: Additions to property (13,262) (8,783) (7,915) Changes in note receivable, net (72) (39) - ------------------------------ Net cash used by investing activities (13,334) (8,822) (7,915) ------------------------------ Cash flows from financing activities: Issues of common stock 91 802 777 Issues of long-term debt 22,616 1,827 412 Change in notes payable to banks (9,435) 7,785 1,750 Increase in inventory purchase obligation 8,025 9,284 6,770 Change in customer deposits and other (355) 89 13 Cash dividends on common stock (4,054) (3,827) (3,545) Refunding requirements: Repayment of long-term debt (8,055) (3,536) (2,095) Repayment of capital lease obligations (229) (256) (272) Repayment of inventory purchase obligation (8,040) (8,546) (6,974) ------------------------------ Net cash provided by (used for) financing activities 564 3,622 (3,164) ------------------------------ Net increase (decrease) in cash and temporary cash investments 1,228 195 (2,473) Cash and temporary cash investments, beginning of year 770 575 3,048 ------------------------------ Cash and temporary cash investments, end of year $ 1,998 $ 770 $ 575 ==============================
The accompanying notes are an integral part of these consolidated financial statements. 27 ENERGYNORTH, INC. Notes to Consolidated Financial Statements Note 1. Accounting Policies The significant accounting policies followed by EnergyNorth, Inc. and subsidiaries (the "Company") are set forth below. Principles of Consolidation The accompanying financial statements of the Company include the accounts of all subsidiaries. All significant intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements. Business Organization The Company's principal business activity is the management and operation of a regulated gas distribution subsidiary located in southern and central New Hampshire. The rates and accounting practices followed by the gas distribution subsidiary are regulated by the State of New Hampshire Public Utilities Commission (the "Commission"). The Company's accounting policies conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the rate-making process in accordance with Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for Certain Types of Regulation." The Company also operates a nonregulated propane distribution subsidiary and provides service and sells appliances through its utility subsidiary. Revenue Recognition Utility revenues derived from the sale and transportation of natural gas are based on rates authorized by the Commission. Customers' meters are read and bills are rendered on a cycle basis throughout the month. The Company records unbilled revenues related to gas delivered but not billed at the end of the accounting period. Cost of Gas Adjustment Clause The Company's tariff includes a cost of gas adjustment ("CGA") clause that permits billings to customers for changes in its cost of gas over a base period cost. The tariff provides for a CGA calculation for a summer period and a winter period. Any difference between the cost of gas incurred and amounts billed to customers is deferred for rate-making and accounting purposes to the next corresponding period. Interest accrues on these amounts at the prime rate, adjusted quarterly. Inventories Inventories are valued on the basis of the lower of average cost or market. 28 Depreciation The Company provides for depreciation on the straight-line basis. The rates applied by the regulated subsidiary are approved by the Commission. Such rates were equivalent to a composite rate of 3.4% for each of the years ended September 30, 1997, 1996 and 1995. The depreciation rates for nonregulated property, plant and equipment were 8%, 8.2% and 7.8% for the years ended September 30, 1997, 1996 and 1995, respectively. Under depreciation practices required by the Commission, when gas utility assets under the composite method are retired from service, the cost of the retired assets is removed from the property accounts and charged, together with any cost of removal, to the accumulated depreciation accounts. For all other assets, when assets are sold or retired, the cost of the assets and their related accumulated depreciation are removed from the respective accounts, net removal costs are recorded and any gain or loss is included in income. Deferred Charges Total deferred charges consist primarily of regulatory assets and the cost of issuing debt. The Company has established various regulatory assets in cases where the Commission has permitted, or is expected to permit, recovery of specific costs over a period of time. At September 30, 1997, regulatory assets include $6.5 million for environmental investigation and remediation costs and $2.4 million of unrecovered deferred state income taxes (see Note 7). The unamortized cost of issuing debt at September 30, 1997 is $2.1 million. Deferred financing costs are amortized over the life of the related security. Other deferred charges are amortized over the recovery period specified by the Commission. Investment Tax Credits Investment tax credits are being amortized over the estimated useful life of the property that gave rise to the credit. Fair Value of Financial Instruments Because of the short maturity of certain assets, which include cash, temporary cash investments and accounts receivable, and certain liabilities, which include accounts payable and notes payable to banks, these instruments are stated at amounts that approximate fair value. If long-term debt outstanding at September 30, 1997 had been refinanced using new issue debt rates of interest that on average are lower than the outstanding rates, the present value of those obligations would have increased from the amounts outstanding in the September 30, 1997 balance sheet by 9.9%. 29 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect assets and liabilities, the disclosure of contingent assets and liabilities, and revenues and expenses. Actual amounts could differ from those estimates. Reclassifications Reclassifications are made periodically to previously issued financial statements to conform to the current year's presentation. Note 2. Cash Flows Supplemental disclosures of cash flow information are as follows (in thousands): 1997 1996 1995 - -------------------------------------------------------------------- Cash paid during the year for: Interest (net of amount capitalized) $4,080 $3,642 $4,415 Income taxes 3,972 899 1,074 In preparing the accompanying consolidated statements of cash flows, all highly liquid investments having maturities of three months or less when acquired were considered to be cash equivalents and classified as cash and temporary cash investments. Note 3. Inventory Financing The Company finances gas inventory purchases through the use of a single purpose trust, which purchases gas with funds loaned to it by a bank. As the Company requires gas to service customers, gas is repurchased from the trust at original product cost plus financing costs and trust fees. The cost of gas and related financing are recoverable through the CGA. The bank credit agreement provides for a .375% commitment fee on the credit line and interest at prime (8.5% at September 30, 1997) with a fixed-rate interest option at less than prime on the outstanding balance. The trust agreement provides for a management fee of $8,000 annually. The credit agreement between the trust and the bank provides for a total commitment of up to $9.5 million through February 1998. As of September 30, 1997 and 1996, the gas inventories under the trust agreement and controlled by the Company totaled $7.8 million and are included in inventories in the accompanying consolidated balance sheets. Inventory purchase obligations under this financing agreement are reflected as a current liability in the accompanying consolidated balance sheets. 30 Note 4. Notes Payable to Banks As of September 30, 1997, the Company had available $15.2 million under various unsecured bank lines of credit that are renewed annually, $100,000 of which was outstanding. The weighted average interest rate on borrowings outstanding on September 30, 1997 was 8.5%. The lines bear interest at prime, or less than prime on certain of the lines for fixed periods of time, and are due on demand. For some lines, the terms of the credit agreements require annual commitment fees of .25% to .35% of the lines. Note 5. Long-Term Debt In September 1997, the Company issued $22 million of 7.40% First Mortgage Bonds. The proceeds were used to retire all existing First Mortgage Bonds designated as 8.67% Series A General and Refunding Mortgage Bonds Due 2002 and to repay the Company's short-term debt. Interest payments for the First Mortgage Bonds are due semiannually. The First Mortgage Bonds are collateralized by first mortgage liens on substantially all real property and operating plant facilities of the Company's gas utility operations. The aggregate amounts of principal due for all long-term debt for each of the five years subsequent to September 30, 1997 are as follows (in thousands): Fiscal year Amount - ----------------------------------------------------------------- 1998 $ 933 1999 1,821 2000 564 2001 491 2002 439 Note 6. Common Stock On June 6, 1990, the Board of Directors declared a dividend distribution of one Right for each outstanding share of common stock of the Company. The Rights will not be exercisable until a person ("Acquiring Person") or group of affiliated or associated persons acquires 10% or more of the Company's outstanding common stock or announces an intention to make a tender offer that would result in ownership by such person or persons of 20% or more of the Company's outstanding common stock. Following such an event and unless earlier redeemed or expired, each Right entitles its holder to purchase from the Company one share of common stock for $48.00. In the event the Company is acquired in a merger or other business combination, 50% or more of its consolidated assets or earning power is sold or transferred, any person acquires 15% or more of the Company's outstanding common stock, or an Acquiring Person engages in one or more self-dealing transactions with the Company, each Right will entitle its holder to purchase, at the Right's exercise price, a number of shares of common stock of the Company or of the acquiring company having a 31 value of twice such exercise price. Any Rights held by an Acquiring Person or its affiliate or associate become null and void upon the occurrence of any such events. Prior to expiration of the Rights and except in certain instances following acquisitions of 10% or more of the Company's common stock, the Company may redeem all of the Rights for one cent per Right. The Rights do not carry voting or dividend rights and have no dilutive effect or effect on the earnings of the Company. The distribution of the Rights was made on June 18, 1990 to shareholders of record on that date and attach to all common shares issued at and after that date. The Rights will expire on June 18, 2000 unless such date is extended or unless the Rights are earlier redeemed by the Company. Note 7. Income Taxes At September 30, 1997 and 1996, the SFAS No. 109 regulatory liability amounted to $960,000 and $1 million, respectively, for the tax benefit of unamortized investment tax credits, and $294,000 and $339,000, respectively, for the excess reserves for deferred taxes as a result of pre-July 1, 1987 deferred income taxes that were recorded in excess of the current federal statutory income tax rate. A deferred state income tax liability and a corresponding regulatory asset of approximately $2.4 million, representing revenues the Company expects to recover from utility gas service customers, were established at September 30, 1994 as a result of recording deferred state income taxes on the cumulative temporary differences due to a change in New Hampshire tax law. Effective June 2, 1994, the 1% franchise tax assessed on sales of natural gas was repealed. Prior to the change in tax law, the franchise tax was permitted as a credit against the New Hampshire Business Profits Tax ("NHBPT"). Because franchise tax payments exceeded the NHBPT, the Company's gas distribution subsidiary never incurred a NHBPT liability; therefore, no deferred state income taxes related to temporary differences were recorded. 32 The tax effects of cumulative differences that gave rise to the deferred tax liabilities and deferred tax assets for the years ended September 30, 1997 and 1996 were as follows (in thousands): 1997 1996 - ------------------------------------------------------------------------ Deferred tax assets: Contributions in aid of construction $ 726 $ 696 Unamortized investment tax credits 590 636 Allowance for doubtful accounts 524 468 Deferred gas costs 240 - Other 1,044 910 ------------------ Total deferred tax assets 3,124 2,710 ------------------ Deferred tax liabilities: Property-related 16,873 15,650 Deferred gas costs - 1,773 Environmental costs 1,936 1,499 Other 1,880 1,461 ------------------ Total deferred tax liabilities 20,689 20,383 ------------------ Net deferred tax liability $17,565 $17,673 ================== Deferred income taxes were classified in the accompanying consolidated balance sheets at September 30, 1997 and 1996 as follows (in thousands): 1997 1996 - ------------------------------------------------------------------------ Current $ (737) $ 1,148 Long-term 18,302 16,525 ------------------ Total $17,565 $17,673 ================== The components of federal and state income taxes reflected in the accompanying consolidated statements of income for the years ended September 30, 1997, 1996 and 1995 were as follows (in thousands): 1997 1996 1995 - ------------------------------------------------------------------------ Federal: Current $3,649 $ (32) $ 1,090 Deferred (383) 3,165 625 Investment tax credits (136) (140) (141) ------------------------------ Total federal 3,130 2,993 1,574 ------------------------------ State: Current 756 (65) 254 Deferred (78) 707 144 ------------------------------ Total state 678 642 398 ------------------------------ Total provision for income taxes $3,808 $ 3,635 $ 1,972 ============================== 33 The total federal and state income tax provision, as a percentage of income before federal and state income taxes, was 36.9%, 37.4% and 32.5% for the years ended September 30, 1997, 1996 and 1995, respectively. The following table reconciles the income tax provision calculated using the federal statutory tax rate of 34% to the book provision for federal and state income taxes (in thousands): 1997 1996 1995 - ------------------------------------------------------------------------------- Tax calculated at statutory rate $3,511 $3,302 $2,066 Increase (reduction) in effective tax resulting from: Amortization of investment tax credit (136) (140) (141) Adjustment due to change in tax rates (28) (28) (28) State taxes, net of federal tax benefit 447 424 266 Other, net 14 77 (191) ------------------------ Total provision for income taxes $3,808 $3,635 $1,972 ======================== Note 8. Employee Benefit Plans Pension Plans The Company has noncontributory defined benefit plans covering substantially all employees. Benefits are based on years of credited service and average earnings during the five highest consecutive years of earnings prior to the normal retirement date. The Company's funding policy is to annually contribute to the plans an amount that is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes. The Company also has a Supplemental Executive Retirement Plan ("SERP") for certain management employees. Benefits are based on the employee's service and earnings as defined in the SERP. The SERP is a nonqualified plan under the Internal Revenue Code and has no advance funding. Benefit payments are made directly by the Company to retired employees or their beneficiaries. Net periodic pension cost included the following components (in thousands): 1997 1996 1995 - ----------------------------------------------------------------------------- Service cost for benefits earned $ 663 $ 624 $ 614 Interest cost on projected benefit obligations 1,316 1,193 1,138 Actual return on plan assets (4,526) (1,230) (2,085) Net amortization and deferral 3,101 (103) 885 ----------------------------- Net periodic pension cost $ 554 $ 484 $ 552 ============================= 34
The following table sets forth the funded status of the plans at September 30, 1997 and 1996 (in thousands): 1997 1996 - ----------------------------------------------------------------------------------- Accumulated Accumulated Assets benefits Assets benefits exceed exceed exceed exceed accumulated assets accumulated assets benefits (unfunded) benefits (unfunded) ------------------------------------------------ Vested benefit obligation $13,502 $ 1,112 $12,807 $ 1,017 ================================================ Accumulated benefit obligation $14,015 $ 1,271 $13,336 $ 1,127 ================================================ Projected benefit obligation $16,965 $ 2,001 $16,239 $ 1,645 Plan assets at fair value 21,018 - 16,584 - ------------------------------------------------ Funded status 4,053 (2,001) 345 (1,645) Unrecognized transition (asset) obligation (440) 312 (522) 375 Unrecognized prior service cost 535 6 622 7 Unrecognized net (gain) loss (2,588) 540 777 280 Additional minimum liability - (128) - (144) ------------------------------------------------ Prepaid pension (pension liability) $ 1,560 $(1,271) $ 1,222 $(1,127) ================================================
Assumptions used to determine the projected benefit obligation were as follows: 1997 1996 1995 - ------------------------------------------------------------------------------------------ Discount rate 7.5% 7.5% 7.5% Rate of increase in future compensation levels 4.0% - 5.5% 4.0% - 5.5% 4.5% - 5.5% Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Plan assets are invested in common stocks and bonds. The Company has employee 401(k) savings and investment plans covering substantially all employees. The Company made contributions of $242,000, $216,000 and $210,000 for the years ended September 30, 1997, 1996 and 1995, respectively. Other Postemployment Benefits In addition to providing pension benefits, the Company provides certain health care and life insurance benefits to qualified retired employees. 35 The expense recorded in fiscal 1997, 1996 and 1995 for providing postretirement benefits, including amortization of the accumulated projected benefit obligation over a 20-year period, was $542,000, $588,000 and $646,000, respectively. The Company has funded these benefit costs by making cash contributions, at the same level of expense recorded, to voluntary employee benefit association ("VEBA") trusts established separately for salaried and hourly paid employees.
The following table sets forth the funded status of the plans at September 30, 1997 and 1996 (in thousands): 1997 1996 - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation as of July 31: Retirees $ 2,477 $ 2,383 Fully eligible active plan participants 1,130 933 Other active participants 1,606 1,686 ---------------- 5,213 5,002 Plan assets at fair market value (2,555) (1,704) Unrecognized transition obligation (4,183) (4,445) Unrecognized net gain 1,697 1,319 ---------------- Accrued postretirement benefit cost at July 31 172 172 Contributions for the two-month period ending September 30 133 144 ---------------- Accrued postretirement benefit cost at September 30 $ 39 $ 28 ================
The components of net periodic postretirement benefit cost at September 30, 1997 and 1996 are as follows (in thousands): 1997 1996 - ------------------------------------------------------------------------------- Service cost - benefits attributed to services during the year $ 133 $ 143 Interest cost on accumulated postretirement benefit obligation 367 358 Actual asset return (462) (104) Net amortization and deferral 504 191 ---------------- Net periodic postretirement benefit cost $ 542 $ 588 ================
A 10% average annual rate of increase in the per capita costs of covered health care benefits was assumed for fiscal 1997, reduced in steps of 1% to a level of 5% at 2002 and thereafter. This decrease results from changes in estimates of future health care inflation, assumed changes in health care utilization and related effects. Increasing the assumed health care cost trend rates by one percentage point in each year would have resulted in a $453,000 increase in the accumulated postretirement benefit obligation as of July 31, 1997 and an increase in the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for fiscal 1997 of $37,000. A discount rate of 7.5% was used to determine the accumulated postretirement benefit obligation. The expected long-term rate of return on plan assets is 9%. Plan assets are invested in common stocks and bonds. 36 Note 9. Commitments and Contingencies Contracts The Company has various contractual agreements covering the transportation of natural gas, underground storage facilities and the purchase of natural gas, which are recoverable under the Company's CGA. These contracts expire at various times from 1997 to 2011. Litigation The Company and its subsidiaries have been named in certain lawsuits arising from normal operations. In the opinion of management, the outcome of these lawsuits will not have a material adverse effect on the financial position or results of operations of the Company. Environmental Issues The Company and certain of its predecessors owned or operated several facilities for the manufacture of gas from coal, a process used through the mid-1900s that produced by-products that may be considered contaminated or hazardous under current law, and some of which may still be present at such facilities. The Company accrues environmental investigation and clean-up costs with respect to former manufacturing sites and other environmental matters when it is probable that a liability exists and the amount or range of amounts can be reasonably estimated. In 1995, the Company completed the disposal of the contents of the gasholder situated on a former gas manufacturing site in Concord, New Hampshire. Total remediation costs amounted to approximately $3.5 million and were recorded in deferred charges. Recovery of these costs from customers began on July 1, 1995 and extends over a seven-year period. The unamortized balance of $2.4 million at September 30, 1997 is excluded from rate base. The Company may not earn a return or charge rates to customers based on amounts not included in rate base. The New Hampshire Department of Environmental Services ("NHDES") has required remedial action for a portion of the Concord site at which wastes were disposed from approximately 1852 through 1952. The estimated cost of this remedial action ranges from $1.5 million to $2.6 million, and the Company has recorded $1.5 million at September 30, 1997 in deferred charges. The Company has petitioned the Commission for approval of the Company's proposed five-year recovery from ratepayers of $1.9 million of investigation, remediation and recovery effort costs plus carrying costs. The Company has instituted several lawsuits to recover the costs of investigation and remediation of the Concord site. On September 12, 1995, the Company filed a complaint in the United States District Court for the District of New Hampshire against UGI Utilities, Inc., as the successor to United Gas Improvement Company. The Company seeks contribution for expenses incurred at the Concord site based upon the operation of the manufactured gas plant by the United Gas Improvement Company during a period of time the manufactured gas plant was in operation. On December 8, 1995, the Company filed suit in the United States District Court for the District of New Hampshire against 37 Associated Electric and Gas Insurance Services, Ltd., American Home Assurance Company, CIGNA Specialty Insurance Company, International Insurance Company, Lloyd's, Underwriters at London, Lexington Insurance Company and National Union Fire Insurance Company, later adding Columbia Casualty Company as a defendant, seeking declaratory judgment that they owe the Company a defense and/or indemnification for environmental claims associated with the Concord facility. The Company filed suit in the New Hampshire (Hillsborough County) Superior Court on December 8, 1995 against the Continental Insurance Company and Netherlands Insurance Company seeking a declaratory judgment that they owe the Company a defense and/or indemnification for environmental claims associated with the Concord facility. Through November 1997, the Company reached settlements with certain of the defendants in those suits in an aggregate amount of $1.6 million and further payment to the Company of a portion of future Concord site remediation costs. The Company expects that such settlement amounts will reduce the amount that it will be permitted by the Commission to recover from its ratepayers. The Company and Public Service Company of New Hampshire ("PSNH"), an electric utility company, conducted an environmental site characterization of a former manufactured gas plant in Laconia, New Hampshire. The Laconia manufactured gas plant operated between approximately 1887 and 1952, and the Company owned and operated the facility for approximately the last seven years of its active life. Without admitting liability, the Company and PSNH have entered into an agreement under which the costs of the site characterization are shared. The Company's share of the costs of the site characterization and a report to the NHDES totaled $276,000 and has been recorded in deferred charges as of September 30, 1997. The report describes conditions at the site, including the presence of by-products of the manufactured gas process in site soils, groundwater and sediments in an adjacent water body. Based upon its review of the report, the NHDES has directed PSNH and the Company to prepare and submit a remedial action plan. The Company expects to incur further costs but is currently unable to predict the magnitude of any liability that may be imposed on it for the cost of additional studies or the performance of a remedial action in connection with the Laconia site. The Company commenced proceedings in New Hampshire Superior Court and Federal District Court on February 2, 1997 against eighteen of its present and former insurers seeking recovery of expenses that have been and will be incurred in connection with the investigation and remediation of contamination from the Laconia plant. Through November 1997, the Company reached a settlement with a defendant in that suit in the amount of $100,000. The Company is pursuing and intends to pursue recovery from insurance carriers and claims against any other responsible parties seeking to ensure that they contribute appropriately to reimburse the Company for any costs incurred with respect to environmental matters. The Company intends to seek and expects to receive approval of rate recovery methods with respect to environmental matters after it has determined the extent of contamination, received recommendations with regard to remediation and commenced remediation efforts. 38 Transition Costs Federal Energy Regulatory Commission Order 636 allows interstate pipeline companies to recover transition costs created as they buy out of long-term, fixed-price gas contracts. Since the Company's pipeline supplier, Tennessee Gas Pipeline Company, began billing these costs to the Company on September 1, 1993 as a component of demand charges, $7.9 million has been billed through September 30, 1997. The Company has recorded additional transition costs of approximately $1.3 million that are expected to be billed over a period of 15 months. The Company is recovering transition costs through the CGA. 39 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and the Shareholders of EnergyNorth, Inc.: We have audited the accompanying consolidated balance sheets and statements of capitalization of EnergyNorth, Inc. (a New Hampshire corporation) and subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of income, common stockholders' equity and cash flows for each of the three years in the period ended September 30, 1997. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EnergyNorth, Inc. and subsidiaries as of September 30, 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. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedule under part IV, Item 14, is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. This information has been subjected to the auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts November 4, 1997 40 (b) Supplementary Financial Information
Selected Quarterly Financial Data (Unaudited) EnergyNorth, Inc. (In thousands, except per Operating Operating Net income Earnings (loss) Cash dividend share amounts) revenues income (loss) (loss) per share paid per share - ------------------------------------------------------------------------------------------------------- First Quarter 1997 $29,454 $ 4,434 $ 3,618 $1.12 $.305 1996 25,976 4,653 3,751 1.17 .29 - ------------------------------------------------------------------------------------------------------- Second Quarter 1997 48,898 7,295 6,581 2.03 .305 1996 39,661 7,379 6,671 2.07 .29 - ------------------------------------------------------------------------------------------------------- Third Quarter 1997 18,085 (853) (1,576) (.49) .32 1996 14,901 (1,104) (1,693) (.53) .305 - ------------------------------------------------------------------------------------------------------- Fourth Quarter 1997 9,434 (1,329) (2,105) (.65) .32 1996 8,416 (1,981) (2,651) (.82) .305 - ------------------------------------------------------------------------------------------------------- Note: Earnings (loss) per share is based on the weighted average shares outstanding at the end of the quarter. In the opinion of the Company, the quarterly financial data include all adjustments, consisting of normal recurring adjustments and reclassifications, necessary for a fair presentation of such information. Quarterly amounts vary significantly due to seasonal weather conditions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no such matters during the fiscal year ended September 30, 1997. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by this Item is incorporated by reference to pages 3 and 4 of the Registrant's Proxy Statement for its Annual Meeting to be held February 4, 1998, except for information relating to identification of Executive Officers of the Registrant which is contained in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION The information called for by this Item is incorporated by reference to "Compensation of Directors," "Executive Compensation" and "Noncontributory Retirement Plan" on pages 5 through 7 of the Registrant's Proxy Statement for its Annual Meeting to be held February 4, 1998. 41 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this Item is incorporated by reference to pages 2 and 3 of the Registrant's Proxy Statement for its Annual Meeting to be held February 4, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this Item is incorporated by reference to "Compensation Committee Interlocks and Insider Participation" on page 5 of the Registrant's Proxy Statement for its Annual Meeting to be held February 4, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List of documents filed as part of this Report (1) Financial Statements The following financial statements are included herein under Part II, Item 8: Page No(s). in this Report -------------- Consolidated Statements of Income for the years ended September 30, 1997, 1996 and 1995 22 Consolidated Balance Sheets at September 30, 1997 and 1996 23 Consolidated Statements of Capitalization at September 30, 1997 and 1996 24 Consolidated Statements of Common Stockholders' Equity for the years ended September 30, 1997, 1996 and 1995 25 Consolidated Statements of Cash Flows for the years ended September 30, 1997, 1996 and 1995 26 Notes to Consolidated Financial Statements 27-38 Report of Independent Public Accountants 39 42 (2) Financial Statement Schedules The following supplementary financial statement schedules required by Rule 5-04 of Regulation S-X, and report thereon, are filed as part of this Form 10-K on the page indicated below: Schedule Page No. in Number Description this Report -------- ----------- ----------- II Consolidated Valuation and Qualifying Accounts for the three years ended September 30, 1997 43 Report of Independent Public Accountants 39 Schedules other than the one listed above are either not required or not applicable, or the required information is shown in the financial statements or notes thereto. (3) Exhibits Required by Item 601 of Regulation S-K See Exhibit Index on pages 45 through 48. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended September 30, 1997. (c) Exhibits - See Exhibit Index on pages 45 through 48 (d) Financial Statement Schedules 43 SCHEDULE II ENERGYNORTH, INC. CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (In thousands) Reserves that are deducted in the balance sheets from assets to which they apply:
Additions ----------------------- Balance at Charged to Charged to Balance Year Ended beginning costs and other at end September 30, Description of period expenses accounts(1) Deductions of period - -------------------------------------------------------------------------------------------- 1997 Allowance for doubtful accounts $1,211 $1,232 $140 $1,226 $1,357 1996 Allowance for doubtful accounts 950 1,137 143 1,019 1,211 1995 Allowance for doubtful accounts 1,050 982 172 1,254 950 _____________________ (1) Represents recoveries on accounts previously written off
44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENERGYNORTH, INC. Date: December 22, 1997 by: /s/ Robert R. Giordano Robert R. Giordano President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on December 22, 1997. /s/ Robert R. Giordano Director, President and Chief Robert R. Giordano Executive Officer (principal executive officer) /s/ Michelle L. Chicoine Senior Vice President, Treasurer and Michelle L. Chicoine Chief Financial Officer (principal financial officer) /s/ David A. Skrzysowski Vice President & Controller David A. Skrzysowski (principal accounting officer) /s/ Edward T. Borer Director Edward T. Borer /s/ N. George Mattaini Director N. George Mattaini /s/ John E. Tulley II Director John E. Tulley II /s/ Richard B. Couser Director Richard B. Couser /s/ Sylvio L. Dupuis Director Sylvio L. Dupuis 45 EXHIBIT INDEX The exhibits listed below are filed herewith, or are incorporated herein by reference to other filings. Exhibit Number Description 3.1 Articles of Incorporation of EnergyNorth, Inc. are incorporated by reference to Exhibit 3.1 to EnergyNorth, Inc.'s Quarterly Report on Form 10-Q (File No. 1-11441) for the quarter ended March 31, 1996. 3.2 By-Laws of EnergyNorth, Inc., as amended, are incorporated by reference to Exhibit 4 to EnergyNorth, Inc.'s Post-Effective Amendment No. 2 to Registration Statement on Form S-3, No. 33-58127, dated November 21, 1996. 4.1 Gas Service, Inc. General and Refunding Mortgage Indenture, dated as of June 30, 1987, as amended and supplemented by a First Supplemental Indenture, dated as of October 1, 1988, and by a Second Supplemental Indenture, dated as of August 31, 1989, is incorporated by reference to Exhibit 4.1 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1989. 4.2 Third Supplemental Indenture, dated as of September 1, 1990, to Gas Service, Inc. General and Refunding Mortgage Indenture, dated as of June 30, 1987, is incorporated by reference to Exhibit 4.2 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1990. 4.3 Fourth Supplemental Indenture, dated as of January 10, 1992, to Gas Service, Inc. General and Refunding Mortgage Indenture, dated as of June 30, 1987, is incorporated by reference to Exhibit 4.3 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1992. 4.4 Fifth Supplemental Indenture, dated as of February 1, 1995, to Gas Service, Inc. General and Refunding Mortgage Indenture, dated as of June 30, 1987, is incorporated by reference to EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for the fiscal year ended September 30, 1996. 4.5 Sixth Supplemental Indenture, dated as of September 15, 1997, to Gas Service, Inc. General and Refunding Mortgage Indenture, dated as of June 30, 1987, is incorporated by reference to Exhibit 4.5 to EnergyNorth Natural Gas, Inc.'s Amendment No. 1 to Registration Statement on Form S-1, No. 333-32949, dated September 10, 1997. 46 4.6 Copies of credit agreements defining the rights of holders of long-term debt of certain subsidiaries of EnergyNorth, Inc., under which the amounts of the debt issued do not exceed 10% of the consolidated assets of EnergyNorth, Inc., will be furnished to the Securities and Exchange Commission upon request. 4.7 Rights Agreement, dated as of June 18, 1990, between the Registrant and State Street Bank & Trust Company as Rights Agent is incorporated by reference to Exhibit I-2 to EnergyNorth, Inc.'s Registration Statement on Form 8-A, dated June 18, 1990. 10.1 Gas transportation agreement (FT-A), dated as of September 1, 1993, between Tennessee Gas Pipeline Company and EnergyNorth Natural Gas, Inc. is incorporated by reference to Exhibit 10.1 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1993. 10.2 Gas transportation agreement (contract No. 632), dated as of September 1, 1993, between Tennessee Gas Pipeline Company and EnergyNorth Natural Gas, Inc. is incorporated by reference to Exhibit 10.2 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1995. 10.3 Supplemental Executive Retirement Plan of EnergyNorth, Inc., as amended, is incorporated by reference to Exhibit 10.3 to EnergyNorth, Inc.'s Form 10- K (File No. 1-11441) for the fiscal year ended September 30, 1996. 10.4 Deferred Compensation Agreement, dated as of October 1, 1997, between Robert R. Giordano and the Registrant. 10.5 Deferred Compensation Agreement, dated as of November 30, 1993, between Albert J. Hanlon and the Registrant, as amended, is incorporated by reference to Exhibit 10.5 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1993. 10.6 Amendment to Deferred Compensation Agreement, dated as of October 1, 1996, between Albert J. Hanlon and the Registrant is incorporated by reference to Exhibit 10.7 to EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for the fiscal year ended September 30, 1996. 10.7 Deferred Compensation Agreement, dated as of October 1, 1997, between Richard P. Demers and the Registrant. 10.8 Deferred Compensation Agreement, dated as of October 1, 1997, between Frank L. Childs and the Registrant. 10.9 Deferred Compensation Agreement, dated as of October 1, 1997, between Michelle L. Chicoine and the Registrant. 47 10.10 EnergyNorth, Inc. 1992 Directors' Deferred Compensation Plan, as amended. 10.11 Consulting Agreement, dated as of October 12, 1990, between N. George Mattaini and the Registrant is incorporated by reference to Exhibit 10.17 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1990. 10.12 Amendment No. 1 to Consulting Agreement dated as of February 7, 1996 between N. George Mattaini and the Registrant is incorporated by reference to Exhibit 10.13 to EnergyNorth, Inc.'s Form 10-K (File No. 1- 11441) for the fiscal year ended September 30, 1996. 10.13 Employment Agreement, dated as of December 1, 1995, between Robert R. Giordano and the Registrant is incorporated by reference to Exhibit 10.9 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1995. 10.14 Employment Agreement, dated as of December 1, 1995, between Albert J. Hanlon and the Registrant is incorporated by reference to Exhibit 10.11 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1995. 10.15 Management Continuity Agreement, dated as of December 7, 1995, between Robert R. Giordano and the Registrant is incorporated by reference to Exhibit 10.12 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1995. 10.16 Management Continuity Agreement, dated as of December 7, 1995, between Albert J. Hanlon and the Registrant is incorporated by reference to Exhibit 10.14 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1995. 10.17 Management Continuity Agreement, dated as of December 2, 1996, between Michelle L. Chicoine and the Registrant is incorporated by reference to Exhibit 10.18 to EnergyNorth, Inc.'s Form 10-K (File No. 1- 11441) for the fiscal year ended September 30, 1996. 10.18 Management Continuity Agreement, dated as of December 2, 1996, between Frank L. Childs and the Registrant is incorporated by reference to Exhibit 10.19 to EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for the fiscal year ended September 30, 1996. 10.19 Management Continuity Agreement, dated as of December 7, 1995, between Richard P. Demers and the Registrant is incorporated by reference to Exhibit 10.20 to EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for the fiscal year ended September 30, 1996. 48 10.20 EnergyNorth, Inc. Key Employee Performance and Equity Incentive Plan, as amended, is incorporated by reference to Exhibit 10.15 to EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the fiscal year ended September 30, 1995. 10.21 Consulting Agreement, dated as of December 1, 1997, between Albert J. Hanlon and the Registrant. 10.22 EnergyNorth, Inc. Directors' Incentive Compensation Plan is incorporated by reference to Exhibit 10 to EnergyNorth Inc.'s Quarterly Report on Form 10-Q (File No. 1-11441) for the quarter ended March 31, 1997. 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule of the Registrant. 99 EnergyNorth, Inc.'s Dividend Reinvestment and Stock Purchase Plan, as amended, is incorporated by reference to Exhibit 99 of EnergyNorth Inc.'s Post- Effective Amendment No. 2 to Registration Statement on Form S-3, No. 33-58127, dated November 21, 1996. 49 EX-10.4 2 DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT, made as of October 1, 1997, by and between ENERGYNORTH, INC. ("ENI") a New Hampshire corporation with a principal place of business in Manchester, New Hampshire, and Robert R. Giordano of Bedford, New Hampshire ("Employee"). W I T N E S S E T H WHEREAS, Employee is employed by ENI in an executive position and performs valuable services to ENI in such position; and WHEREAS, Employee possesses great ability in the gas distribution business, an intimate knowledge of ENI, its operating methods, personnel and goals; and WHEREAS, ENI desires further to compensate Employee for past services, to secure Employee's future services, to secure Employee's commitment to furnish advisory services to ENI following Employee's termination of employment by ENI and to compensate Employee therefor; NOW, THEREFORE, ENI and Employee mutually agree as follows: 1. ENI agrees to continue to employ Employee and Employee agrees to continue to serve ENI devoting Employee's normal working time to the interests and activities of ENI in the capacity of President and CEO, or such other capacity as the Board of Directors of ENI from time to time may assign for the period agreed between Employee and ENI consistent with an Employment Agreement entered into between Employee and ENI. 2 2. During the term of Employee's employment, Employee shall devote substantially all of Employee's time, attention, skill and efforts to the performance of Employee's duties for ENI as provided in Employee's Employment Agreement. 3. ENI shall pay Employee during the term of Employee's employment such salary as the Board of Directors shall from time to time determine consistent with Employee's Employment Agreement, together with the deferred compensation payable as provided in paragraph 4 below. 4. (a) ENI, on the last day of each month, commencing as of January 1998, shall credit to a book reserve (the "Deferred Compensation Account" or the "Account") in Employee's name established for this purpose, the amount stated on the Deferred Compensation Election Form; the amounts credited under this Section 4(a) shall continue to be credited monthly during the continuance of the Employee's employment hereunder. In addition, EnergyNorth, Inc. shall credit to the account a percentage or an amount of any cash incentive award paid to Employee pursuant to the EnergyNorth, Inc. Key Employee Performance and Equity Incentive Plan earned in connection with the 1998 Plan Year and subsequent Plan Years. 3 a. ENI shall credit to the Deferred Compensation Account at the end of each month during which any balance remains in the Account, whether before or after payments from the Account have commenced, an amount which shall be the equivalent of interest on the amounts credited to the Account throughout the previous month computed at the thirty-year U.S. treasury bond yield as of the last day of each calendar quarter, plus 400 basis points, adjusted quarterly; provided, however, the rate shall not be less than nine percent (9%) or greater than sixteen percent (16%). (b) In addition, ENI shall pay to Employee, monthly over the same period as specified in Section 6 below, an additional amount of money equal to the monthly increase in the qualified pension plan benefits to which Employee would then have been entitled had the amount that was credited to the Deferred Compensation Account under Section 4(a) above been paid to Employee and had it qualified as "earnings" as defined in ENI's qualified pension plan. Such additional payment shall be payable only to the extent that such deferred 4 compensation hereunder does not qualify as "earnings" under ENI's qualified pension plan and shall be payable only to the extent Employee would otherwise have received greater pension benefits from ENI's qualified pension plan. Such payments shall commence at the same time as the other payments hereunder. The amount due shall be computed actuarially using the same assumptions as used in the qualified pension plan. (c) ENI is not required to fund this Agreement in any way, but if it chooses to set aside funds for the Account, any such funds may be kept in cash, or invested in mutual funds, stocks, bonds, securities, or any other assets as may be selected by the Board of Directors, in its discretion, and also may be utilized by ENI from time to time for any other purpose. Title to and beneficial ownership of any funds, whether cash or investments, which ENI may earmark to pay the contingent deferred compensation obligation hereunder, at all times shall remain in ENI, and the Employee and Employee's designated beneficiary shall not have any property interest whatsoever in any such funds or in any specific assets of ENI. 5 5. Employee may change the amounts of Employee's salary to be deferred under Section 4(a) above for the ensuing calendar year by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of the prior calendar year, the amount of Employee's salary not yet earned or paid that is to be deferred and credited to Employee's Deferred Compensation Account. Employee may change the amounts of Employee's Cash Incentive Award to be deferred under Section 4(a) above for ensuing plan years by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of that Plan year, the percentage or amount of Employee's cash incentive award not yet paid that is to be deferred and credited to the Employee's Deferred Compensation Account. 6. The benefits to be paid as deferred compensation are as follows: (a) If the Employee's employment hereunder is terminated on or after the Employee shall have reached the age of 65, ENI shall pay to Employee in 15 annual installments the amount in Employee's Deferred Compensation Account as of such date together with the interest added pursuant to Section 4(b). The Account shall be valued as of the date the first payment is to be made, one fifteenth (1/15th) of that amount shall be paid in the first year and that same amount shall be paid 6 in the succeeding fourteen (14) years. In addition, in each of the succeeding fourteen (14) years, any interest credited to the Account with respect to the previous year shall be paid with each annual payment. If the Employee should die on or after Employee's 65th birthday and before the 15 annual payments are made, the unpaid balance will continue to be paid in installments for the unexpired portion of such 15 year period to Employee's designated beneficiary in the same amount as set forth above. (b) If the Employee's employment by ENI is terminated for any reason other than death and disability but before the Employee shall have reached the age of 65, no payments shall be made until the Employee shall have reached the age of 65 at which time payments shall be made in the same manner and to the same extent as set forth in Section 6(a) above. Notwithstanding the foregoing, if prior to reaching age 65 the Employee should die, or if prior to reaching age 65 Employee should become disabled, then payments shall be made in the same manner and to the same extent as set forth in Section 6(c), below. 7 (c) If the Employee's employment is terminated because of disability or death before the Employee has reached the age of 65 and while in the employ of ENI, then ENI, during Employee's disability, shall make annual payments not to exceed fifteen (15) to the Employee or, in the event of Employee's death, make fifteen (15) annual payments to Employee's designated beneficiary, all in the same manner and to the same extent as provided herein. (d) If both the Employee and Employee's designated beneficiary should die before a total of fifteen (15) annual payments are made by ENI, then the remaining amount in the Deferred Compensation Account shall be determined as of the date of the death of the designated beneficiary and shall be paid, with interest accrued to the date of payment, as promptly as possible in one lump sum to the Employee's estate. (e) The designated beneficiary (which may include alternate beneficiaries) referred to in this paragraph may be designated or changed by the Employee (without the consent of any prior beneficiary) on a form provided by ENI and delivered by Employee to ENI before Employee's death. If no such beneficiary shall have been 8 designated, or if no designated beneficiary shall survive the Employee, the installment payments payable under this paragraph shall be payable to the Employee's estate. (f) For purposes of Section 6(c) above, disability is defined as provided in any long-term disability plan of ENI covering Employee, or, if none, as defined under the EnergyNorth Inc. Retirement Plan for Salaried Employees. (g) The installment payments to be made to the Employee under Sections 6(a) and 6(c) above shall commence on the first day of the month next following the date of the termination of Employee's employment, and the installment payments to be made to the Employee under Section 6(b) above shall commence on the first day of the month next following the date on which Employee shall have reached the age of 65. The installment payments to be made to the designated beneficiary under the provisions of this Section 6 shall commence on a date to be selected by ENI but within six months from the date of death of the Employee. (h) Notwithstanding anything herein contained to the contrary, the Board shall have the right, with the 9 written consent of Employee, to vary the manner and time of making the installment distributions provided in this paragraph and may make such distributions in lump sums or over a shorter period of time than 15 years as it may find appropriate, but not over a longer period of time than fifteen (15) years or less frequently then once per year. (i) The Board may, in its sole discretion, permit a withdrawal of funds from a Participant's Account to meet a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant (an "Unforeseen Emergency") at such time and under such circumstances as deemed by the Board to be an Unforeseen Emergency. Distribution of funds from the Participant's Account shall be in an amount sufficient only to meet the Unforeseen Emergency presented by the Participant to the Board, and under no circumstances may a participant's 10 withdrawal of funds exceed the amount required to satisfy the Unforeseen Emergency. 7. Employee is accorded the right by this Agreement to defer receipt of compensation and earnings that, but for the Employee's election, would be paid currently. The right to receive payment of the amounts accrued shall vest absolutely and become nonforfeitable on the crediting of such amount at the end of each month. The obligation of ENI to make the payments shall not be excused by any breach of this Agreement or of any other agreement between Employee and ENI. 8. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between ENI and the Employee, Employee's designated beneficiary or any other person. Any funds that may be invested under the provision of this Agreement shall continue for all purposes to be part of the general funds of ENI and no person other than ENI shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from ENI under this Agreement, such right shall be no greater than the right of any unsecured general creditor of ENI. 9. The right of the Employee or any other person to the payment of deferred compensation or other benefits under this Agreement shall not be assigned, transferred, pledged 11 or encumbered except by will or by the laws of descent and distribution. 10. If the Board shall find that any person to whom any payment is payable under this Agreement is unable to care for his or her affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Board to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Board may determine. Any such payment shall be a complete discharge of the liabilities of ENI under this Agreement. 11. Nothing contained herein shall be construed as conferring upon the Employee the right to continue in the employ of ENI other than as stated in Section 1; provided, however, this Agreement shall be construed to be consistent with an employment agreement entered into between Employee and ENI. 12. Any deferred compensation payable under this Agreement shall be deemed salary or other compensation to the Employee for the purpose of computing benefits to which the Employee may be entitled under any pension plan, life insurance plan, or other arrangement of ENI for the benefit of its employees, to the extent allowable under the Internal Revenue Code or other applicable laws and regulations, and the other plans and 12 arrangements; provided, however, the payments under Section 4(c) shall be made only to the extent the deferred compensation may not be deemed salary or "earnings" or other compensation under the qualified pension plan. 13. This Deferred Compensation Agreement constitutes the entire agreement between the Employee and ENI with respect to its subject matter and supercedes all previous agreements with respect to such subject matter provided that all amounts deferred by Employee pursuant to a Deferred Compensation Agreement dated as of November 30, 1983 plus any interest credited on such amounts shall constitute a portion of the Account and otherwise be governed by this Agreement. 14. This Agreement shall be binding upon and inure to the benefit of ENI, its successors and assigns, and Employee and Employee's heirs, executors, administrators and legal representatives. IN WITNESS WHEREOF, ENI has caused this Agreement to be executed and its seal to be affixed hereto by its agent thereunto duly authorized, and Employee has signed this Agreement, all as of the day and year first above written. /s/ Patricia L. Sowa /s/ Robert R. Giordano Witness Robert R. Giordano ENERGYNORTH, INC. /s/ Patricia L. Sowa By: /s/ Michelle L. Chicoine Witness Senior Vice President EX-10.7 3 DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT, made as of October 1, 1997, by and between ENERGYNORTH, INC. ("ENI") a New Hampshire corporation with a principal place of business in Manchester, New Hampshire, and Richard P. Demers of Manchester, New Hampshire ("Employee"). W I T N E S S E T H WHEREAS, Employee is employed by ENI in an executive position and performs valuable services to ENI in such position; and WHEREAS, Employee possesses great ability in the gas distribution business, an intimate knowledge of ENI, its operating methods, personnel and goals; and WHEREAS, ENI desires further to compensate Employee for past services, to secure Employee's future services, to secure Employee's commitment to furnish advisory services to ENI following Employee's termination of employment by ENI and to compensate Employee therefor; NOW, THEREFORE, ENI and Employee mutually agree as follows: 1. ENI agrees to continue to employ Employee and Employee agrees to continue to serve ENI devoting Employee's normal working time to the interests and activities of ENI in the capacity of Vice President, or such other capacity as the Board of Directors of ENI from time to time may assign for the period agreed between Employee and ENI. 2 2. During the term of Employee's employment, Employee shall devote substantially all of Employee's time, attention, skill and efforts to the performance of Employee's duties for ENI. 3. ENI shall pay Employee during the term of Employee's employment such salary as the Board of Directors shall from time to time determine, together with the deferred compensation payable as provided in paragraph 4 below. 4. (a) ENI, on the last day of each month, commencing as of January 1998, shall credit to a book reserve (the "Deferred Compensation Account" or the "Account") in Employee's name established for this purpose, the amount stated on the Deferred Compensation Election Form; the amounts credited under this Section 4(a) shall continue to be credited monthly during the continuance of the Employee's employment hereunder. In addition, EnergyNorth, Inc. shall credit to the account a percentage or an amount of any cash incentive award paid to Employee pursuant to the EnergyNorth, Inc. Key Employee Performance and Equity Incentive Plan earned in connection with the 1998 Plan Year and subsequent Plan Years. 3 a. ENI shall credit to the Deferred Compensation Account at the end of each month during which any balance remains in the Account, whether before or after payments from the Account have commenced, an amount which shall be the equivalent of interest on the amounts credited to the Account throughout the previous month computed at the thirty-year U.S. treasury bond yield as of the last day of each calendar quarter, plus 400 basis points, adjusted quarterly; provided, however, the rate shall not be less than nine percent (9%) or greater than sixteen percent (16%). (b) In addition, ENI shall pay to Employee, monthly over the same period as specified in Section 6 below, an additional amount of money equal to the monthly increase in the qualified pension plan benefits to which Employee would then have been entitled had the amount that was credited to the Deferred Compensation Account under Section 4(a) above been paid to Employee and had it qualified as "earnings" as defined in ENI's qualified pension plan. Such additional payment shall be payable only to the extent that such 4 deferred compensation hereunder does not qualify as "earnings" under ENI's qualified pension plan and shall be payable only to the extent Employee would otherwise have received greater pension benefits from ENI's qualified pension plan. Such payments shall commence at the same time as the other payments hereunder. The amount due shall be computed actuarially using the same assumptions as used in the qualified pension plan. (c) ENI is not required to fund this Agreement in any way, but if it chooses to set aside funds for the Account, any such funds may be kept in cash, or invested in mutual funds, stocks, bonds, securities, or any other assets as may be selected by the Board of Directors, in its discretion, and also may be utilized by ENI from time to time for any other purpose. Title to and beneficial ownership of any funds, whether cash or investments, which ENI may earmark to pay the contingent deferred compensation obligation hereunder, at all times shall remain in ENI, and the Employee and Employee's designated beneficiary shall not have any property interest whatsoever in any such funds or in any specific assets of ENI. 5 5. Employee may change the amounts of Employee's salary to be deferred under Section 4(a) above for the ensuing calendar year by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of the prior calendar year, the amount of Employee's salary not yet earned or paid that is to be deferred and credited to Employee's Deferred Compensation Account. Employee may change the amounts of Employee's Cash Incentive Award to be deferred under Section 4(a) above for ensuing plan years by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of that Plan year, the percentage or amount of Employee's cash incentive award not yet paid that is to be deferred and credited to the Employee's Deferred Compensation Account. 6. The benefits to be paid as deferred compensation are as follows: (a) If the Employee's employment hereunder is terminated on or after the Employee shall have reached the age of 65, ENI shall pay to Employee in 15 annual installments the amount in Employee's Deferred Compensation Account as of such date together with the interest added pursuant to Section 4(b). The Account shall be valued as of the date the first payment is to be made, one fifteenth (1/15th) of that amount shall be paid in the first year and that same amount shall be paid 6 in the succeeding fourteen (14) years. In addition, in each of the succeeding fourteen (14) years, any interest credited to the Account with respect to the previous year shall be paid with each annual payment. If the Employee should die on or after Employee's 65th birthday and before the 15 annual payments are made, the unpaid balance will continue to be paid in installments for the unexpired portion of such 15 year period to Employee's designated beneficiary in the same amount as set forth above. (b) If the Employee's employment by ENI is terminated for any reason other than death and disability but before the Employee shall have reached the age of 65, no payments shall be made until the Employee shall have reached the age of 65 at which time payments shall be made in the same manner and to the same extent as set forth in Section 6(a) above. Notwithstanding the foregoing, if prior to reaching age 65 the Employee should die, or if prior to reaching age 65 Employee should become disabled, then payments shall be made in the same manner and to the same extent as set forth in Section 6(c), below. 7 (c) If the Employee's employment is terminated because of disability or death before the Employee has reached the age of 65 and while in the employ of ENI, then ENI, during Employee's disability, shall make annual payments not to exceed fifteen (15) to the Employee or, in the event of Employee's death, make fifteen (15) annual payments to Employee's designated beneficiary, all in the same manner and to the same extent as provided herein. (d) If both the Employee and Employee's designated beneficiary should die before a total of fifteen (15) annual payments are made by ENI, then the remaining amount in the Deferred Compensation Account shall be determined as of the date of the death of the designated beneficiary and shall be paid, with interest accrued to the date of payment, as promptly as possible in one lump sum to the Employee's estate. (e) The designated beneficiary (which may include alternate beneficiaries) referred to in this paragraph may be designated or changed by the Employee (without the consent of any prior beneficiary) on a form provided by ENI and delivered by Employee to ENI before Employee's 8 death. If no such beneficiary shall have been designated, or if no designated beneficiary shall survive the Employee, the installment payments payable under this paragraph shall be payable to the Employee's estate. (f) For purposes of Section 6(c) above, disability is defined as provided in any long-term disability plan of ENI covering Employee, or, if none, as defined under the EnergyNorth Inc. Retirement Plan for Salaried Employees. (g) The installment payments to be made to the Employee under Sections 6(a) and 6(c) above shall commence on the first day of the month next following the date of the termination of Employee's employment, and the installment payments to be made to the Employee under Section 6(b) above shall commence on the first day of the month next following the date on which Employee shall have reached the age of 65. The installment payments to be made to the designated beneficiary under the provisions of this Section 6 shall commence on a date to be selected by ENI but within six months from the date of death of the Employee. 9 (h) Notwithstanding anything herein contained to the contrary, the Board shall have the right, with the written consent of Employee, to vary the manner and time of making the installment distributions provided in this paragraph and may make such distributions in lump sums or over a shorter period of time than 15 years as it may find appropriate, but not over a longer period of time than fifteen (15) years or less frequently then once per year. (i) The Board may, in its sole discretion, permit a withdrawal of funds from a Participant's Account to meet a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant (an "Unforeseen Emergency") at such time and under such circumstances as deemed by the Board to be an Unforeseen Emergency. Distribution of funds from the Participant's Account shall be in an amount sufficient only to meet the Unforeseen Emergency 10 presented by the Participant to the Board, and under no circumstances may a participant's withdrawal of funds exceed the amount required to satisfy the Unforeseen Emergency. 7. Employee is accorded the right by this Agreement to defer receipt of compensation and earnings that, but for the Employee's election, would be paid currently. The right to receive payment of the amounts accrued shall vest absolutely and become nonforfeitable on the crediting of such amount at the end of each month. The obligation of ENI to make the payments shall not be excused by any breach of this Agreement or of any other agreement between Employee and ENI. 8. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between ENI and the Employee, Employee's designated beneficiary or any other person. Any funds that may be invested under the provision of this Agreement shall continue for all purposes to be part of the general funds of ENI and no person other than ENI shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from ENI under this Agreement, such right shall be no greater than the right of any unsecured general creditor of ENI. 11 9. The right of the Employee or any other person to the payment of deferred compensation or other benefits under this Agreement shall not be assigned, transferred, pledged or encumbered except by will or by the laws of descent and distribution. 10. If the Board shall find that any person to whom any payment is payable under this Agreement is unable to care for his or her affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Board to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Board may determine. Any such payment shall be a complete discharge of the liabilities of ENI under this Agreement. 11. Nothing contained herein shall be construed as conferring upon the Employee the right to continue in the employ of ENI other than as stated in Section 1; provided, however, this Agreement shall be construed to be consistent with an employment agreement entered into between Employee and ENI. 12. Any deferred compensation payable under this Agreement shall be deemed salary or other compensation to the Employee for the purpose of computing benefits to which the Employee may be entitled under any pension plan, life insurance plan, or other 12 arrangement of ENI for the benefit of its employees, to the extent allowable under the Internal Revenue Code or other applicable laws and regulations, and the other plans and arrangements; provided, however, the payments under Section 4(c) shall be made only to the extent the deferred compensation may not be deemed salary or "earnings" or other compensation under the qualified pension plan. 13. This Deferred Compensation Agreement constitutes the entire agreement between the Employee and ENI with respect to its subject matter and supercedes all previous agreements with respect to such subject matter. 14. This Agreement shall be binding upon and inure to the benefit of ENI, its successors and assigns, and Employee and Employee's heirs, executors, administrators and legal representatives. IN WITNESS WHEREOF, ENI has caused this Agreement to be executed and its seal to be affixed hereto by its agent thereunto duly authorized, and Employee has signed this Agreement, all as of the day and year first above written. /s/ Patricia L. Sowa /s/ Richard P. Demers Witness Richard P. Demers ENERGYNORTH, INC. /s/ Patricia L. Sowa By: /s/ Robert R. Giordano Witness President & Chief Executive Officer EX-10.8 4 DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT, made as of October 1, 1997, by and between ENERGYNORTH, INC. ("ENI") a New Hampshire corporation with a principal place of business in Manchester, New Hampshire, and Frank L. Childs of Manchester, New Hampshire ("Employee"). W I T N E S S E T H WHEREAS, Employee is employed by ENI in an executive position and performs valuable services to ENI in such position; and WHEREAS, Employee possesses great ability in the gas distribution business, an intimate knowledge of ENI, its operating methods, personnel and goals; and WHEREAS, ENI desires further to compensate Employee for past services, to secure Employee's future services, to secure Employee's commitment to furnish advisory services to ENI following Employee's termination of employment by ENI and to compensate Employee therefor; NOW, THEREFORE, ENI and Employee mutually agree as follows: 1. ENI agrees to continue to employ Employee and Employee agrees to continue to serve ENI devoting Employee's normal working time to the interests and activities of ENI in the capacity of Vice President, or such other capacity as the Board of Directors of ENI from time to time may assign for the period agreed between Employee and ENI. 2 2. During the term of Employee's employment, Employee shall devote substantially all of Employee's time, attention, skill and efforts to the performance of Employee's duties for ENI. 3. ENI shall pay Employee during the term of Employee's employment such salary as the Board of Directors shall from time to time determine, together with the deferred compensation payable as provided in paragraph 4 below. 4. (a) ENI, on the last day of each month, commencing as of January 1998, shall credit to a book reserve (the "Deferred Compensation Account" or the "Account") in Employee's name established for this purpose, the amount stated on the Deferred Compensation Election Form; the amounts credited under this Section 4(a) shall continue to be credited monthly during the continuance of the Employee's employment hereunder. In addition, EnergyNorth, Inc. shall credit to the account a percentage or an amount of any cash incentive award paid to Employee pursuant to the EnergyNorth, Inc. Key Employee Performance and Equity Incentive Plan earned in connection with the 1998 Plan Year and subsequent Plan Years. 3 a. ENI shall credit to the Deferred Compensation Account at the end of each month during which any balance remains in the Account, whether before or after payments from the Account have commenced, an amount which shall be the equivalent of interest on the amounts credited to the Account throughout the previous month computed at the thirty-year U.S. treasury bond yield as of the last day of each calendar quarter, plus 400 basis points, adjusted quarterly; provided, however, the rate shall not be less than nine percent (9%) or greater than sixteen percent (16%). (b) In addition, ENI shall pay to Employee, monthly over the same period as specified in Section 6 below, an additional amount of money equal to the monthly increase in the qualified pension plan benefits to which Employee would then have been entitled had the amount that was credited to the Deferred Compensation Account under Section 4(a) above been paid to Employee and had it qualified as "earnings" as defined in ENI's qualified pension plan. Such additional payment shall be payable only to the extent that such 4 deferred compensation hereunder does not qualify as "earnings" under ENI's qualified pension plan and shall be payable only to the extent Employee would otherwise have received greater pension benefits from ENI's qualified pension plan. Such payments shall commence at the same time as the other payments hereunder. The amount due shall be computed actuarially using the same assumptions as used in the qualified pension plan. (c) ENI is not required to fund this Agreement in any way, but if it chooses to set aside funds for the Account, any such funds may be kept in cash, or invested in mutual funds, stocks, bonds, securities, or any other assets as may be selected by the Board of Directors, in its discretion, and also may be utilized by ENI from time to time for any other purpose. Title to and beneficial ownership of any funds, whether cash or investments, which ENI may earmark to pay the contingent deferred compensation obligation hereunder, at all times shall remain in ENI, and the Employee and Employee's designated beneficiary shall not have any property interest whatsoever in any such funds or in any specific assets of ENI. 5 5. Employee may change the amounts of Employee's salary to be deferred under Section 4(a) above for the ensuing calendar year by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of the prior calendar year, the amount of Employee's salary not yet earned or paid that is to be deferred and credited to Employee's Deferred Compensation Account. Employee may change the amounts of Employee's Cash Incentive Award to be deferred under Section 4(a) above for ensuing plan years by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of that Plan year, the percentage or amount of Employee's cash incentive award not yet paid that is to be deferred and credited to the Employee's Deferred Compensation Account. 6. The benefits to be paid as deferred compensation are as follows: (a) If the Employee's employment hereunder is terminated on or after the Employee shall have reached the age of 65, ENI shall pay to Employee in 15 annual installments the amount in Employee's Deferred Compensation Account as of such date together with the interest added pursuant to Section 4(b). The Account shall be valued as of the date the first payment is to be made, one fifteenth (1/15th) of that amount shall be paid in the first year and that same amount shall be paid 6 in the succeeding fourteen (14) years. In addition, in each of the succeeding fourteen (14) years, any interest credited to the Account with respect to the previous year shall be paid with each annual payment. If the Employee should die on or after Employee's 65th birthday and before the 15 annual payments are made, the unpaid balance will continue to be paid in installments for the unexpired portion of such 15 year period to Employee's designated beneficiary in the same amount as set forth above. (b) If the Employee's employment by ENI is terminated for any reason other than death and disability but before the Employee shall have reached the age of 65, no payments shall be made until the Employee shall have reached the age of 65 at which time payments shall be made in the same manner and to the same extent as set forth in Section 6(a) above. Notwithstanding the foregoing, if prior to reaching age 65 the Employee should die, or if prior to reaching age 65 Employee should become disabled, then payments shall be made in the same manner and to the same extent as set forth in Section 6(c), below. 7 (c) If the Employee's employment is terminated because of disability or death before the Employee has reached the age of 65 and while in the employ of ENI, then ENI, during Employee's disability, shall make annual payments not to exceed fifteen (15) to the Employee or, in the event of Employee's death, make fifteen (15) annual payments to Employee's designated beneficiary, all in the same manner and to the same extent as provided herein. (d) If both the Employee and Employee's designated beneficiary should die before a total of fifteen (15) annual payments are made by ENI, then the remaining amount in the Deferred Compensation Account shall be determined as of the date of the death of the designated beneficiary and shall be paid, with interest accrued to the date of payment, as promptly as possible in one lump sum to the Employee's estate. (e) The designated beneficiary (which may include alternate beneficiaries) referred to in this paragraph may be designated or changed by the Employee (without the consent of any prior beneficiary) on a form provided by ENI and delivered by Employee to ENI before Employee's 8 death. If no such beneficiary shall have been designated, or if no designated beneficiary shall survive the Employee, the installment payments payable under this paragraph shall be payable to the Employee's estate. (f) For purposes of Section 6(c) above, disability is defined as provided in any long-term disability plan of ENI covering Employee, or, if none, as defined under the EnergyNorth Inc. Retirement Plan for Salaried Employees. (g) The installment payments to be made to the Employee under Sections 6(a) and 6(c) above shall commence on the first day of the month next following the date of the termination of Employee's employment, and the installment payments to be made to the Employee under Section 6(b) above shall commence on the first day of the month next following the date on which Employee shall have reached the age of 65. The installment payments to be made to the designated beneficiary under the provisions of this Section 6 shall commence on a date to be selected by ENI but within six months from the date of death of the Employee. 9 (h) Notwithstanding anything herein contained to the contrary, the Board shall have the right, with the written consent of Employee, to vary the manner and time of making the installment distributions provided in this paragraph and may make such distributions in lump sums or over a shorter period of time than 15 years as it may find appropriate, but not over a longer period of time than fifteen (15) years or less frequently then once per year. (i) The Board may, in its sole discretion, permit a withdrawal of funds from a Participant's Account to meet a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant (an "Unforeseen Emergency") at such time and under such circumstances as deemed by the Board to be an Unforeseen Emergency. Distribution of funds from the Participant's Account shall be in an amount sufficient only to meet the Unforeseen Emergency 10 presented by the Participant to the Board, and under no circumstances may a participant's withdrawal of funds exceed the amount required to satisfy the Unforeseen Emergency. 7. Employee is accorded the right by this Agreement to defer receipt of compensation and earnings that, but for the Employee's election, would be paid currently. The right to receive payment of the amounts accrued shall vest absolutely and become nonforfeitable on the crediting of such amount at the end of each month. The obligation of ENI to make the payments shall not be excused by any breach of this Agreement or of any other agreement between Employee and ENI. 8. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between ENI and the Employee, Employee's designated beneficiary or any other person. Any funds that may be invested under the provision of this Agreement shall continue for all purposes to be part of the general funds of ENI and no person other than ENI shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from ENI under this Agreement, such right shall be no greater than the right of any unsecured general creditor of ENI. 11 9. The right of the Employee or any other person to the payment of deferred compensation or other benefits under this Agreement shall not be assigned, transferred, pledged or encumbered except by will or by the laws of descent and distribution. 10. If the Board shall find that any person to whom any payment is payable under this Agreement is unable to care for his or her affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Board to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Board may determine. Any such payment shall be a complete discharge of the liabilities of ENI under this Agreement. 11. Nothing contained herein shall be construed as conferring upon the Employee the right to continue in the employ of ENI other than as stated in Section 1; provided, however, this Agreement shall be construed to be consistent with an employment agreement entered into between Employee and ENI. 12. Any deferred compensation payable under this Agreement shall be deemed salary or other compensation to the Employee for the purpose of computing benefits to which the Employee may be entitled under any pension plan, life insurance plan, or other 12 arrangement of ENI for the benefit of its employees, to the extent allowable under the Internal Revenue Code or other applicable laws and regulations, and the other plans and arrangements; provided, however, the payments under Section 4(c) shall be made only to the extent the deferred compensation may not be deemed salary or "earnings" or other compensation under the qualified pension plan. 13. This Deferred Compensation Agreement constitutes the entire agreement between the Employee and ENI with respect to its subject matter and supercedes all previous agreements with respect to such subject matter. 14. This Agreement shall be binding upon and inure to the benefit of ENI, its successors and assigns, and Employee and Employee's heirs, executors, administrators and legal representatives. IN WITNESS WHEREOF, ENI has caused this Agreement to be executed and its seal to be affixed hereto by its agent thereunto duly authorized, and Employee has signed this Agreement, all as of the day and year first above written. /s/ Patricia L. Sowa /s/ Frank L. Childs Witness Frank L. Childs ENERGYNORTH, INC. /s/ Patricia L. Sowa By: /s/ Robert R. Giordano Witness President & Chief Executive Officer EX-10.9 5 DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT, made as of October 1, 1997, by and between ENERGYNORTH, INC. ("ENI") a New Hampshire corporation with a principal place of business in Manchester, New Hampshire, and Michelle L. Chicoine of Bedford, New Hampshire ("Employee"). W I T N E S S E T H WHEREAS, Employee is employed by ENI in an executive position and performs valuable services to ENI in such position; and WHEREAS, Employee possesses great ability in the gas distribution business, an intimate knowledge of ENI, its operating methods, personnel and goals; and WHEREAS, ENI desires further to compensate Employee for past services, to secure Employee's future services, to secure Employee's commitment to furnish advisory services to ENI following Employee's termination of employment by ENI and to compensate Employee therefor; NOW, THEREFORE, ENI and Employee mutually agree as follows: 1. ENI agrees to continue to employ Employee and Employee agrees to continue to serve ENI devoting Employee's normal working time to the interests and activities of ENI in the capacity of Vice President, Treasurer and Chief Financial Officer, or such other capacity as the Board of Directors of ENI from time to time may assign for the period agreed between Employee and ENI. 2 2. During the term of Employee's employment, Employee shall devote substantially all of Employee's time, attention, skill and efforts to the performance of Employee's duties for ENI. 3. ENI shall pay Employee during the term of Employee's employment such salary as the Board of Directors shall from time to time determine, together with the deferred compensation payable as provided in paragraph 4 below. 4. (a) ENI, on the last day of each month, commencing as of January 1998, shall credit to a book reserve (the "Deferred Compensation Account" or the "Account") in Employee's name established for this purpose, the amount stated on the Deferred Compensation Election Form; the amounts credited under this Section 4(a) shall continue to be credited monthly during the continuance of the Employee's employment hereunder. In addition, EnergyNorth, Inc. shall credit to the account a percentage or an amount of any cash incentive award paid to Employee pursuant to the EnergyNorth, Inc. Key Employee Performance and Equity Incentive Plan earned in connection with the 1998 Plan Year and subsequent Plan Years. 3 a. ENI shall credit to the Deferred Compensation Account at the end of each month during which any balance remains in the Account, whether before or after payments from the Account have commenced, an amount which shall be the equivalent of interest on the amounts credited to the Account throughout the previous month computed at the thirty-year U.S. treasury bond yield as of the last day of each calendar quarter, plus 400 basis points, adjusted quarterly; provided, however, the rate shall not be less than nine percent (9%) or greater than sixteen percent (16%). (b) In addition, ENI shall pay to Employee, monthly over the same period as specified in Section 6 below, an additional amount of money equal to the monthly increase in the qualified pension plan benefits to which Employee would then have been entitled had the amount that was credited to the Deferred Compensation Account under Section 4(a) above been paid to Employee and had it qualified as "earnings" as defined in ENI's qualified pension plan. Such additional payment shall be payable only to the extent that such 4 deferred compensation hereunder does not qualify as "earnings" under ENI's qualified pension plan and shall be payable only to the extent Employee would otherwise have received greater pension benefits from ENI's qualified pension plan. Such payments shall commence at the same time as the other payments hereunder. The amount due shall be computed actuarially using the same assumptions as used in the qualified pension plan. (c) ENI is not required to fund this Agreement in any way, but if it chooses to set aside funds for the Account, any such funds may be kept in cash, or invested in mutual funds, stocks, bonds, securities, or any other assets as may be selected by the Board of Directors, in its discretion, and also may be utilized by ENI from time to time for any other purpose. Title to and beneficial ownership of any funds, whether cash or investments, which ENI may earmark to pay the contingent deferred compensation obligation hereunder, at all times shall remain in ENI, and the Employee and Employee's designated beneficiary shall not have any property interest whatsoever in any such funds or in any specific assets of ENI. 5 5. Employee may change the amounts of Employee's salary to be deferred under Section 4(a) above for the ensuing calendar year by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of the prior calendar year, the amount of Employee's salary not yet earned or paid that is to be deferred and credited to Employee's Deferred Compensation Account. Employee may change the amounts of Employee's Cash Incentive Award to be deferred under Section 4(a) above for ensuing plan years by filing in writing with the Board of Directors of ENI not less than thirty (30) days prior to the end of that Plan year, the percentage or amount of Employee's cash incentive award not yet paid that is to be deferred and credited to the Employee's Deferred Compensation Account. 6. The benefits to be paid as deferred compensation are as follows: (a) If the Employee's employment hereunder is terminated on or after the Employee shall have reached the age of 65, ENI shall pay to Employee in 15 annual installments the amount in Employee's Deferred Compensation Account as of such date together with the interest added pursuant to Section 4(b). The Account shall be valued as of the date the first payment is to be made, one fifteenth (1/15th) of that amount shall be paid in the first year and that same amount shall be paid 6 in the succeeding fourteen (14) years. In addition, in each of the succeeding fourteen (14) years, any interest credited to the Account with respect to the previous year shall be paid with each annual payment. If the Employee should die on or after Employee's 65th birthday and before the 15 annual payments are made, the unpaid balance will continue to be paid in installments for the unexpired portion of such 15 year period to Employee's designated beneficiary in the same amount as set forth above. (b) If the Employee's employment by ENI is terminated for any reason other than death and disability but before the Employee shall have reached the age of 65, no payments shall be made until the Employee shall have reached the age of 65 at which time payments shall be made in the same manner and to the same extent as set forth in Section 6(a) above. Notwithstanding the foregoing, if prior to reaching age 65 the Employee should die, or if prior to reaching age 65 Employee should become disabled, then payments shall be made in the same manner and to the same extent as set forth in Section 6(c), below. 7 (c) If the Employee's employment is terminated because of disability or death before the Employee has reached the age of 65 and while in the employ of ENI, then ENI, during Employee's disability, shall make annual payments not to exceed fifteen (15) to the Employee or, in the event of Employee's death, make fifteen (15) annual payments to Employee's designated beneficiary, all in the same manner and to the same extent as provided herein. (d) If both the Employee and Employee's designated beneficiary should die before a total of fifteen (15) annual payments are made by ENI, then the remaining amount in the Deferred Compensation Account shall be determined as of the date of the death of the designated beneficiary and shall be paid, with interest accrued to the date of payment, as promptly as possible in one lump sum to the Employee's estate. (e) The designated beneficiary (which may include alternate beneficiaries) referred to in this paragraph may be designated or changed by the Employee (without the consent of any prior beneficiary) on a form provided by ENI and delivered by Employee to ENI before Employee's 8 death. If no such beneficiary shall have been designated, or if no designated beneficiary shall survive the Employee, the installment payments payable under this paragraph shall be payable to the Employee's estate. (f) For purposes of Section 6(c) above, disability is defined as provided in any long-term disability plan of ENI covering Employee, or, if none, as defined under the EnergyNorth Inc. Retirement Plan for Salaried Employees. (g) The installment payments to be made to the Employee under Sections 6(a) and 6(c) above shall commence on the first day of the month next following the date of the termination of Employee's employment, and the installment payments to be made to the Employee under Section 6(b) above shall commence on the first day of the month next following the date on which Employee shall have reached the age of 65. The installment payments to be made to the designated beneficiary under the provisions of this Section 6 shall commence on a date to be selected by ENI but within six months from the date of death of the Employee. 8 (h) Notwithstanding anything herein contained to the contrary, the Board shall have the right, with the written consent of Employee, to vary the manner and time of making the installment distributions provided in this paragraph and may make such distributions in lump sums or over a shorter period of time than 15 years as it may find appropriate, but not over a longer period of time than fifteen (15) years or less frequently then once per year. (i) The Board may, in its sole discretion, permit a withdrawal of funds from a Participant's Account to meet a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant (an "Unforeseen Emergency") at such time and under such circumstances as deemed by the Board to be an Unforeseen Emergency. Distribution of funds from the Participant's Account shall be in an amount sufficient only to meet the Unforeseen Emergency 10 presented by the Participant to the Board, and under no circumstances may a participant's withdrawal of funds exceed the amount required to satisfy the Unforeseen Emergency. 7. Employee is accorded the right by this Agreement to defer receipt of compensation and earnings that, but for the Employee's election, would be paid currently. The right to receive payment of the amounts accrued shall vest absolutely and become nonforfeitable on the crediting of such amount at the end of each month. The obligation of ENI to make the payments shall not be excused by any breach of this Agreement or of any other agreement between Employee and ENI. 8. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between ENI and the Employee, Employee's designated beneficiary or any other person. Any funds that may be invested under the provision of this Agreement shall continue for all purposes to be part of the general funds of ENI and no person other than ENI shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from ENI under this Agreement, such right shall be no greater than the right of any unsecured general creditor of ENI. 11 9. The right of the Employee or any other person to the payment of deferred compensation or other benefits under this Agreement shall not be assigned, transferred, pledged or encumbered except by will or by the laws of descent and distribution. 10. If the Board shall find that any person to whom any payment is payable under this Agreement is unable to care for his or her affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Board to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Board may determine. Any such payment shall be a complete discharge of the liabilities of ENI under this Agreement. 11. Nothing contained herein shall be construed as conferring upon the Employee the right to continue in the employ of ENI other than as stated in Section 1; provided, however, this Agreement shall be construed to be consistent with an employment agreement entered into between Employee and ENI. 12. Any deferred compensation payable under this Agreement shall be deemed salary or other compensation to the Employee for the purpose of computing benefits to which the Employee may be entitled under any pension plan, life insurance plan, or other 12 arrangement of ENI for the benefit of its employees, to the extent allowable under the Internal Revenue Code or other applicable laws and regulations, and the other plans and arrangements; provided, however, the payments under Section 4(c) shall be made only to the extent the deferred compensation may not be deemed salary or "earnings" or other compensation under the qualified pension plan. 13. This Deferred Compensation Agreement constitutes the entire agreement between the Employee and ENI with respect to its subject matter and supercedes all previous agreements with respect to such subject matter. 14. This Agreement shall be binding upon and inure to the benefit of ENI, its successors and assigns, and Employee and Employee's heirs, executors, administrators and legal representatives. IN WITNESS WHEREOF, ENI has caused this Agreement to be executed and its seal to be affixed hereto by its agent thereunto duly authorized, and Employee has signed this Agreement, all as of the day and year first above written. /s/ Patricia L. Sowa /s/ Michelle L. Chicoine Witness Michelle L. Chicoine ENERGYNORTH, INC. /s/ Patricia L. Sowa By: /s/ Robert R. Giordano Witness President & Chief Executive Officer EX-10.10 6 1 ENERGYNORTH, INC. 1992 DIRECTORS' DEFERRED COMPENSATION PLAN (As amended, as of October 1, 1997) 2 1. Name and Purpose. The name of this Plan is the "1992 Directors' Deferred Compensation Plan" (the "Plan"). The purpose of the Plan is to provide Directors who are not employees of EnergyNorth, Inc. (the "Company") or any of its subsidiaries the opportunity to defer receipt of retainer or meeting income earned for services rendered. The Plan is an unfunded deferred compensation arrangement for purposes of federal taxation and for purposes of Title I of the Employee Retirement Income Security Act of 1974. 2. Definitions. For purposes of this Plan, the following definitions shall be applicable: a. The term "Board of Directors" shall mean the Board of Directors of the Company. b. The term "Committee" shall mean the Compensation Committee of the Company's Board of Directors whose responsibility it shall be to administer the Plan. c. The term "Deferral Account" shall mean the cumulative amount of a Participant's deferred compensation plus accumulated interest and earnings. d. The term "Directors' Compensation" shall mean the annual retainer, meeting and committee fee income earned by the Participant for the Plan Year. e. The term "Minimum Deferral Amount" shall mean $2,500. f. The term "Participant" shall mean any Director of the Company who is not in an employee of the Company or any of its subsidiaries, and who has elected to defer 3 part of his or her Directors' Compensation for any year during which this Plan is in effect. g. The term "Plan Year" shall mean the calendar year concluding December 31. h. The term "Separation Date" shall mean the date of the Participant's severance from the Company, its affiliates, or successor organizations, by reason of the Participant's death, retirement, disability, resignation, discharge, expiration of term without reelection or otherwise. i. The term "Unforeseen Emergency" shall mean severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. j. The term "Unforseen Emergency Payout" shall mean a withdrawal of funds from a Deferred Account to meet an Unforeseen Emergency to a Participant in the Plan, with the amount of such withdrawal being limited to the amount required to satisfy the emergency need. 3. Administration. The Board of Directors designates the Committee to administer, construe and interpret this Plan. The construction and interpretation by the Committee of any provisions of this Plan shall be final, conclusive and binding upon all parties, including the Company and the Participants. No member of the Committee shall be 4 liable for any action taken or omitted or determination made in good faith in connection with the administration of this Plan. 4. Deferred Compensation Account. The Company shall establish a Deferral Account for each Participant, which shall be a bookkeeping account for purposes of recording the amounts deferred according to the provisions of Section 5 and interest and earnings thereon as set forth below. The Company shall credit each Participant's Deferral Account in the amount of the portion of the Director's Compensation designated in the Participant's written election described in Section 5. Such credit shall be made at the time the payment to the Participant of the current compensation would have been made if the Participant had not elected deferral under this Plan. Additionally, the Company shall credit each Participant's Deferral Account at the end of each month during which any balance remains in the Deferral Account, whether before or after payments from the Deferral Account have commenced, an amount equal to the balance in the Participant's Deferral Account multiplied by the thirty- year U.S. treasury bond yield, as of the last day of each calendar quarter, plus 400 basis points, adjusted quarterly; provided, however, the rate shall not be less than nine percent (9%) or greater than sixteen percent (16%). 5 The Company shall provide each Participant with an annual statement setting forth the balance in his or her Deferral Account as soon as practical following the close of the Plan Year. 5. Participant's Election. a. For each Plan Year beginning in 1993, a Participant may elect to defer payment of all or a portion of his or her Directors' Compensation that would have otherwise been paid for services performed by the Participant during such Plan Year, by filing a written election with the Committee at any time prior to 30 days prior the end of previous Plan Year. However, the amount of Directors' Compensation a Participant may elect to defer during any such Plan Year shall not be less than the Minimum Deferral Amount nor will an amount greater than 100 percent of the Participant's Director's Compensation for such Plan Year be credited to the Director's Deferral Account. Notwithstanding the above, in the year in which the Plan is first implemented, a Participant may make a written election to defer compensation, for services to be performed subsequent to the written election, within thirty (30) days after the effective date of the Plan. Further, in the first Plan Year in which a Participant becomes eligible to participate in the Plan, the newly eligible Participant may make a written election to defer compensation, for services to be 6 performed subsequent to the written election, within thirty (30) days after the Participant becomes eligible. b. A Participant's written election shall not be effective unless the Participant also specifies the deferral term, by reference to either a specific future date or the Participant's Separation Date from the Company on which date Deferral Account distributions will commence. The Participant shall also designate on the written election whether amounts in the Participant's Deferral Account shall be payable in a lump sum or in annual or monthly installments for ten (10) years in the manner provided in Section 6. c. Any election by a Participant to defer compensation under this Section 5 shall be irrevocable except in the event of an Unforeseen Emergency Payout pursuant to Section 6. 6. Distribution of Deferral Account. Upon the earlier of a Participant's Separation Date or attainment of the specified date indicated by the Participant on the Participant's written election form, the Company shall pay the amount in the Participant's Deferral Account to the Participant in a lump sum or in annual or monthly installments for ten (10) years. Payments made in installments shall be calculated by dividing the value of the Deferral Account or portion of a Deferral Account to be distributed as of the date that the first payment is to be made by the number of installments, and distributing such amount at the 7 date of each installment plus all interest credited to such Deferral Account portion of such Deferral Account from the date of the previous installment. The Committee may, in its sole discretion, permit an Unforeseen Emergency Payout to a Participant at such time and under such circumstances as deemed by the Committee to be an Unforeseen Emergency. Distribution of funds from the Participant's Deferral Account shall be in an amount sufficient only to meet the Unforeseen Emergency presented by the Participant to the Committee. Under no circumstances may a Participant's withdrawal of funds exceed the amount required to satisfy the Unforeseen Emergency. 7. Nature of Accounts and Plan Funding. The Deferral Account shall exist only for the purpose of facilitating the computation of benefits hereunder and nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust or escrow of any kind, or a fiduciary relationship between the Company and the Participant, a Participant's designated beneficiary or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the right of any unsecured general creditor of the Company. The Company is not required to fund this Plan but may choose to set aside funds for payment of amounts deferred, in its sole discretion. Any such funds may be kept in cash, or invested in mutual funds, stocks, bonds, securities, or any other assets as may be 8 selected by the Committee, in its discretion, and such funds may be utilized by the Company from time to time for any other purpose. Title to and beneficial ownership of any funds, whether cash or investments, which the Company may set aside to make payments pursuant to this Plan shall at all times remain in the Company, no Participant shall have any property interest whatsoever in any such funds or in any specific assets of the Company. 8. Beneficiary Designation. A Participant may designate a primary beneficiary or primary beneficiaries to receive all amounts that are payable under Section 4 in the event of the Participant's death and an alternate beneficiary or alternate beneficiaries to receive such amounts in the event of the deaths of all primary beneficiaries. If the Participant designates such beneficiaries, payments of amounts due under Section 4 shall be made to the beneficiaries in accordance with the Participant's written election form described in Section 5. Such beneficiary designation and any subsequent changes to it shall be made in writing and delivered to the Committee. In the event the Participant dies prior to receipt of the total Deferral Account or Accounts and without so designating a beneficiary or if there are no surviving beneficiaries, the balance of the Participant's Deferral Account shall be paid to the Participant's spouse, if living, otherwise to the Participant's estate. 9. Non-Transferability. No right to payment under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge and any attempt to anticipate, alienate, sell, assign, pledge, encumber, attach or charge the same shall be void. 9 If, at the time when payments are to be made under this Plan, the Participant or the Participant's beneficiaries are indebted to the Company, any payments remaining to be made may, at the discretion of the Company, be reduced by the amount of such indebtedness. An election by the Company not to reduce such payments shall not constitute a waiver of its claim for such indebtedness. 10. Plan Interpretation. The Committee shall have full power and authority to interpret, construe and administer this Plan and the Committee's interpretations and construction of the Plan and actions taken under the Plan, including any valuation of the Deferral Account or the amount or recipient of the payment to be made from a Deferral Account, shall be binding and conclusive on all persons for all purposes. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to their own willful misconduct or lack of good faith. 11. Successors and Assigns. This Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Participants and the Participants' heirs, executors, administrators and legal representatives. 12. Amendment and Termination. The Committee may, at its sole discretion at any time, amend or terminate this Plan with respect to any future period, and no such amendment or termination shall reduce the Participant's benefits which had accrued prior to such 10 amendment or termination. Notice of any such amendment or termination shall be given to the Participants ninety (90) days before the effective date(s) thereof. 13. Applicable Law. This Plan shall be construed in accordance with and governed by the laws of the State of New Hampshire. 14. Effective Date. The Plan shall be effective as of the third day of February, 1993. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly Authorized officer, as of the 18th day of November, 1992. ENERGYNORTH, INC. By:/s/ Robert R. Giordano (Duly Authorized Officer) 11 ENERGYNORTH, INC. 1992 DIRECTORS' DEFERRED COMPENSATION PLAN ELECTION FORM Participant's Name ______________________________ I hereby elect to have EnergyNorth, Inc. (the Company) defer my Directors' Compensation for the 199_ Plan (calendar) Year by: A. $____________________; B. __________% of all amounts earned; C. All amounts in excess of $___________ per _________; or (period) D. Other ______________________ ______________________ ______________________ This amount is to be credited to a "Deferral Account" in my name under the 1992 Directors' Deferred Compensation Plan (the Plan). I designate the following individual(s) as my beneficiary(s) of this Plan pursuant to Section 8: Primary Beneficiaries _____________________ _________________________ ____________ (Name) (Relationship) (Percentage) _____________________ _________________________ ____________ (Name) (Relationship) (Percentage) Alternate Beneficiaries: _____________________ _________________________ ____________ (Name) (Relationship) (Percentage) _____________________ _________________________ ____________ (Name) (Relationship) (Percentage) I elect to receive distribution of my "Deferral Account" balance beginning (Select only one): Upon my Separation Date (Check if chosen) as defined in Section 2, On __________, 199___. 12 I request that the "Deferral Account" be paid to me on the aforementioned distribution time as: (Select only one) a. Lump-sum amount equal to my accrued "Deferral Account" balance as of the distribution date, or b. A _____________________ installments for 10 years. (monthly/annual) ______________________________ ____________________ Participant's Signature Date EX-10.21 7 CONSULTING AGREEMENT Agreement dated as of December l, 1997 between ENERGYNORTH, INC. of 1260 Elm Street, Manchester, New Hampshire ("ENI") and ALBERT J. HANLON of Concord, New Hampshire ("Consultant"). In consideration of the mutual promises and obligations contained in this Agreement, the Consultant and ENI agree as follows: 1. General Description and Scope of Services 1.1. ENI agrees to retain the services of the Consultant, acting in the capacity of an independent contractor, to perform services in the areas of environmental investigation and remediation and related matters as designated by ENI, to which the Consultant shall apply his substantial knowledge, experience and resources. 1.2. The Consultant agrees to devote such time, not to exceed an average of eight hours per week, and best efforts as may be necessary to perform his duties and responsibilities pursuant to the terms and conditions of this Agreement. Duties and responsibilities hereunder may be performed by the Consultant through the use of mail services, telephone,electronic mail, facsimile or other means of telecommunication. 1.3. Unless otherwise agreed to in writing, the Consultant agrees not to hire, solicit the employment, or retain the services of any personnel of ENI while the Consultant is performing services for ENI under this Agreement. 1.4. The Consultant is not, and shall not be construed to be an employee, executive, officer or director of ENI or any of its subsidiaries under this Agreement. Consultant may perform services for other clients which do not conflict with his obligations under this Agreement. 2. Terms of Consulting Services The Consultant is retained by ENI for the two-year period beginning January 1, 1998 through December 31, 1999, unless earlier terminated as provided in Section 6 of this Agreement. 3. Compensation 3.1. The Consultant shall be paid by ENI at the rate of $2,500.00 per month for the services provided under this Agreement. The Consultant's services shall be 2 billed by the Consultant at the end of each month and shall be immediately due and payable. 3.2. ENI shall pay or reimburse or cause to be reimbursed to the Consultant, in addition to the payment for services described in Section 3.1, all reasonable expenses incurred by the Consultant in performing his services pursuant to this Agreement, including telephone toll charges, travel expenses (excluding travel to and from ENI offices), and disbursements made on behalf on ENI or its subsidiaries. 4. Facilities and Access to Records and Premises 4.1. ENI shall provide access to its facilities and such workspace as is reasonably required by Consultant to perform services pursuant to this Agreement. Consultant shall maintain his own office facilities, and ENI shall provide electronic connection between its facilities and Consultant's facilities. 4.2. ENI agrees to disclose to and permit access of the Consultant all information as may be reasonably necessary to the performance of his obligations under the terms of this Agreement. 4.3. Unless otherwise agreed to by the parties, the Consultant, while working on the premises of ENI or its subsidiaries, shall observe the working hours, working rules and holiday schedules of ENI applicable to such company's premises. 5. Non-Disclosure Covenant 5.1. Non-Disclosure. Except as may be required in the performance of his duties under the terms of this Agreement, unless this Agreement is terminated by ENI without cause or is terminated by the Consultant by reason of a breach of this Agreement by ENI, during the term of this Agreement and for a period of three (3) years thereafter, the Consultant will not, without prior written consent of ENI, disclose, use, or permit the use at any time either during or subsequent to his retention under this Agreement any trade secret or confidential information of ENI of which the Consultant may become informed during his association with ENI. For the purposes of this Section 5.1, "trade secret or confidential information of ENI" means information conspicuously treated as a secret and not generally known about ENI's or any of its subsidiaries' or affiliates' financial information, market information, or business information such as products, processes, 3 research, development, manufacturing techniques, or customers and marketing plans. This non-disclosure covenant does not release the Consultant from or supersede any non-disclosure obligations that exist under any other agreements between him and ENI. 5.2. The Consultant acknowledges that breach of the covenants contained in Section 5.1 of this Agreement cannot be adequately remedied by the award of monetary damages and agrees that his obligations under Section 5.1 shall be specifically enforceable. 6. Termination 6.1. In the event of any material breach of this Agreement by either party, the other party may terminate this Agreement upon seven (7) days' written notice, unless during such period the breach has been remedied or cured, which termination shall not preclude the terminating party from any other remedies it may have at law or in equity. 6.2. ENI may terminate this Agreement, upon seven (7) days' written notice, for good cause, which termination shall not preclude ENI from any other remedies it may have at law or in equity. "Good cause" shall be limited to conviction of a felony or a crime involving an act of moral turpitude, dishonesty, misfeasance which substantially interferes with the orderly business of ENI or any of its subsidiaries, action that directly or indirectly causes ENI or any of its subsidiaries to suffer substantial loss or damage, refusal to follow or materially neglecting the reasonable requests of ENI made pursuant to this Agreement, and conduct that substantially interferes with or damages the standing or reputation of ENI or any of its subsidiaries. 6.3. The Consultant may terminate this Agreement, upon thirty (30) days' written notice, at his election. 6.4. This Agreement shall be terminated in the event of the death or total disability of the Consultant. 6.3. If this Agreement is terminated as provided herein for any reason other than by Consultant's breach of the Agreement as provided in Section 6.1, good cause as provided in Section 6.2, Consultant's termination of the Agreement as provided in Section 6.3, or Consultant's death or total disability as provided in Section 6.4, the monthly payments specified in Section 3.1 shall continue until the expiration of this Agreement on December 31, 1999. 4 7. Termination on Change of Control This Agreement shall continue upon the change of control or ownership of ENI. In the event ENI or its successors terminate this Agreement for any reason (including those designated in Sections 6.1 and 6.2) or materially breach this Agreement, ENI or its successor shall continue to make the same monthly payments specified in Section 3.1 until the expiration of this Agreement on December 31, 1999. A "change of control or ownership of ENI" for purposes of this paragraph means that at least forty percent (40%) of the outstanding stock of ENI, or such lesser amount as the Board shall deem necessary to obtain effective control of ENI, has been obtained by a corporation, person or entity through a merger, consolidation or tender or exchange offer not initiated, supported or endorsed by the Board of ENI. 8. Other Agreements This Agreement contains the entire understanding between the parties and supersedes all prior agreements between them except to the extent specified in Section 5 of this Agreement and neither party shall have any rights against the other pursuant to or in connection with such prior agreements or their previous relationship as employer and employee; provided, however, that this Agreement shall not affect any benefits that may have accrued or vested to the Consultant under the Deferred Compensation Agreement dated November 30, 1993 (as amended) between ENI and the Consultant, ENI's qualified Pension Plan, the ENI Supplemental Executive Retirement Plan, or the ENI Key Employee Performance and Equity Incentive Plan. In addition, this Agreement shall not affect any health or insurance benefits available to Consultant by virtue of his status as a retired employee of ENI. 9. Arbitration Any dispute or controversy between the parties relating to this Agreement shall be settled by binding arbitration in the City of Manchester, State of New Hampshire, pursuant to the governing rules of the American Arbitration Association and shall be subject to the provisions of New Hampshire Revised Statutes Annotated Ch. 542. Judgment upon the award may be entered in any court of competent jurisdiction. 5 10. General Provisions 10.1. Nonassignability. Neither this Agreement nor any right or interest hereunder shall be assigned by the Consultant, his beneficiaries, or legal representative, without ENI's prior written consent; provided, however that Consultant may assign his right to continued payments in the event of his termination as provided under Section 6.5 and 7. 10.2. Indemnification. ENI shall indemnify and hold Consultant harmless from all claims and expenses for loss or damages, including costs of defense and attorneys fees, related to his performance of services pursuant to this Agreement. 10.3. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, and of no effect. 10.4. Waiver of Breach. The waiver by either party of a breach or any provision of this agreement shall not operate as a waiver of a subsequent breach of the same or any other provision. 10.5. Notices. Any notice required to be given under this Agreement shall be deemed sufficient if in writing and sent by mail to the parties at the addresses shown above, or such other address as either party may designate from time to time. Notices shall be effective in the order they are received or, if received the same day, as of the time of postmark. 10.6. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Consultant and his successors and assigns, heirs, executors, administrators and legal representatives, and shall be binding upon and inure to the benefit of ENI, its successors and assigns, including, without limitation, any person, partnership, company or corporation which may acquire substantially all of ENI's assets or business or with or into which ENI may be liquidated, consolidated, merged or otherwise combined. 7 10.7. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties. 10.8 Headings. The headings in this Agreement herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 10.9 Governing Law. This Agreement has been executed and delivered in the State of New Hampshire and its validity, interpretation, performance and enforcement shall be governed by the laws of the State of New Hampshire. IN WITNESS WHEREOF, ENI has caused this Agreement to be executed, and the Consultant has signed this Agreement, all as of the day and year first above written. ENERGYNORTH, INC. /s/ Patricia L. Sowa By:/s/ Robert R. Giordano Witness Robert R. Giordano, President and Chief Executive Officer /s/ Patricia L. Sowa By:/s/ Albert J. Hanlon Witness Albert J. Hanlon EX-21 8 EXHIBIT 21 Subsidiaries of EnergyNorth, Inc. EnergyNorth, Inc., incorporated in the state of New Hampshire, has 100% ownership of the common stock of the following: Broken Bridge Corporation, 1260 Elm Street, Manchester, New Hampshire. EnergyNorth Natural Gas, Inc., 1260 Elm Street, Manchester, New Hampshire. EnergyNorth Propane, Inc., 75 Regional Drive, Concord, New Hampshire. EnergyNorth Realty, Inc., 1260 Elm Street, Manchester, New Hampshire. ENI Resources, Inc., 1260 Elm Street, Manchester, New Hampshire. _______________ All of the above companies are incorporated in the state of New Hampshire. EX-23 9 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of EnergyNorth, Inc.: As independent public accountants, we hereby consent to the incorporation by reference in the registration statement on Form S-3, File No. 33-58127 of our reports dated November 4, 1997, included in EnergyNorth, Inc.'s Form 10-K for the year ended September 30, 1997, and to all references to our firm included in this registration statement. ARTHUR ANDERSEN LLP Boston, Massachusetts December 22, 1997 EX-27 10
UT This schedule contains summary financial information extracted from the EnergyNorth, Inc. consolidated balance sheet and the consolidated statement of capitalization at September 30, 1997 and from the consolidated statement of income and statement of cash flows for the twelve months ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS SEP-30-1997 SEP-30-1997 PER-BOOK 99,015 7,403 20,923 11,159 0 138,527 3,244 30,428 14,050 47,722 0 0 45,242 100 0 0 932 0 0 46 44,485 138,527 105,871 3,808 92,516 96,324 9,547 956 10,503 3,985 6,518 0 6,518 4,054 2,625 13,998 $2.01 0 Net of accumulated depreciation of $47,815 Net of accumulated depreciation of $ 9,485
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