-----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, DcQwVzknEOerSv1R63LsTF2vKPYSnmVgab93x2V8alpn9lh3OtvcTsQj+gsiEYnQ PCi7Y7O92jYG0Hh9ThEBNg== 0000910647-99-000252.txt : 19991227 0000910647-99-000252.hdr.sgml : 19991227 ACCESSION NUMBER: 0000910647-99-000252 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKSHIRE ENERGY RESOURCES CENTRAL INDEX KEY: 0001056255 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 043408946 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-29812 FILM NUMBER: 99718227 BUSINESS ADDRESS: STREET 1: 115 CHESHIRE RD CITY: PITTSFIELD STATE: MA ZIP: 01201-1879 BUSINESS PHONE: 4134421511 MAIL ADDRESS: STREET 1: 115 CHESHIRE RD CITY: PITTSFIELD STATE: MA ZIP: 01201-1879 10-K 1 BODY OF THE 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended June 30, 1999 or ------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from to ------------ ------------ Commission File Number 0-29812 ------- Berkshire Energy Resources -------------------------- (Exact Name of Registrant as Specified in Its Charter) Massachusetts 04-3408946 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 115 Cheshire Road, Pittsfield, MA 01201-1803 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (413) 442-1511 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - ------------------- --------------------- Securities registered pursuant to Section 12(g) of the Act: Common Shares No-Par Value -------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] ---- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Common Shares no-par value of the Registrant held by non-affiliates as of July 31, 1999 was $51,311,930. Total shares of common stock of the Registrant outstanding as of July 31, 1999 were 2,519,170. Documents Incorporated by Reference: 1. Berkshire Energy Resources' Annual Report to Shareholders for the fiscal year ended June 30, 1999(Items 5, 6, 7, and 8 of Part II). 2. Berkshire Energy Resources' definitive Proxy Statement, to be filed on October 1, 1999, pursuant to Regulation 14A under the Securities and Exchange Act of 1934 (Items 10, 11, 12 and 13 of Part III). Table of Contents Item Page PART I Number Number ------ ------ ------ Business 1 3 Properties 2 11 Legal Proceedings 3 11 Submission of Matters to a Vote of Security Holders 4 12 Additional Items - 13 (Executive Officers of the Registrant) PART II ------- Market For Registrant's Common Equity and Related Stockholder Matters 5 14 Selected Financial Data 6 14 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 14 Financial Statements and Supplementary Data 8 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 14 PART III ------- Trustees and Executive Officers of the Registrant 10 15 Executive Compensation 11 15 Security Ownership of Certain Beneficial Owners and Management 12 15 Certain Relationships and Related Transactions 13 15 PART IV ------- Exhibits, Independent Auditors' Report on Supplemental Schedules, Financial Statement Schedules, and Reports on Form 8-K 14 16 Item 1. Business - ----------------- General The Berkshire Gas Company adopted a holding company corporate structure effective December 31, 1998 to capitalize on competitive opportunities associated with the deregulation of the natural gas industry. Berkshire Energy Resources(the "Company") has been organized as a Massachusetts Business Trust and initially has as its subsidiaries: The Berkshire Gas Company ("Berkshire Gas"), Berkshire Propane, Inc. ("Berkshire Propane"), and Berkshire Energy Marketing, Inc. ("Berkshire Energy Marketing"). The adoption of a holding company structure effectively reorganized and segregated the Company's regulated business activities from its nonregulated markets. Berkshire Gas is a subsidiary engaged in the distribution, sale and transportation of natural gas for residential, commercial and industrial use. Berkshire Gas also has an appliance rental division that sells and leases gas burning equipment. Berkshire Propane is the retail propane subsidiary that provides propane distribution and service to more than 100 communities in western Massachusetts, eastern New York and southern Vermont. Berkshire Propane is not subject to the regulatory authority of the Massachusetts Department of Telecommunications and Energy (DTE), formerly the Massachusetts Department of Public Utilities. Propane is delivered to customers by trucks from storage facilities located in the service territory. Approximately 30% of Berkshire's annual liquid propane requirements are purchased at a fixed price. The remaining requirements are purchased in the spot market. Berkshire Energy Marketing, was established to capitalize on new opportunities associated with the deregulation of the utility industry. The Berkshire Energy Marketing subsidiary offers competitively priced natural gas to meet a wide variety of customer needs. To gain additional supply and price leverage, Berkshire Energy Marketing has entered into a strategic alliance with Connectiv/CNE Energy Services, LLC, a regional energy marketer with significant supply acquisition capabilities. Berkshire Energy Marketing is extending its reach into new markets, providing a variety of energy options. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by such statements. Such statements reflect management's current views, are based on many assumptions and are subject to risks and uncertainties. Certain important factors which could cause such results to differ include risks associated with the Company's maintaining contracts with specific customers, government regulation, the increasingly competitive nature of the markets in which the Company is engaged, and dependence on key personnel. These factors are not intended to represent a complete list of the general or specific risks that may affect the Company. Territory Served Berkshire Gas' utility service territory includes 19 communities in the western portion of the Commonwealth of Massachusetts, including the cities of Pittsfield and North Adams, the towns of Adams, Amherst, Great Barrington, Greenfield and Williamstown, and twelve smaller municipalities. The population of the area served is estimated at 190,000 and is primarily residential in character, but the territory also includes industrial, agricultural, educational, cultural and resort facilities. Berkshire Propane markets propane throughout the western portion of Massachusetts, eastern New York and southern Vermont. The Berkshire Gas Company currently serves over 34,000 natural gas customers and Berkshire Propane, Inc., over 6,000 propane customers. Customers Utility Operations - ------------------ The largest group of Berkshire Gas' natural gas customers is the residential class. During the fiscal years ended June 30, 1999, 1998 and 1997, residential consumers accounted for approximately 57%, 55% and 55%; commercial and industrial consumers accounted for 35%, 41% and 40%; and transportation consumers accounted for approximately 8%, 4% and 5% of natural gas operating revenues, respectively. Transportation consumers account for approximately 15%, 8%, and 9% of natural gas operating margin for fiscal years 1999, 1998 and 1997, respectively. Net income could be impacted by the loss of one or more significant transportation consumers, who are all under contracts. The number of natural gas customers increased 1% in 1999 over 1998, from 34,166 to 34,494. Total Mcf sold and transported increased from 7,356,946 Mcf in 1998 to 7,880,066 Mcf in 1999 primarily due to increased sales volumes due to 9.9% colder weather from January through March. Total natural gas customers by classification at June 30 in each of the previous five years were: 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ Residential 30,172 29,911 29,682 29,707 29,565 Commercial & Industrial 4,322 4,255 4,205 4,056 4,031 Propane Operations - ------------------ Berkshire Propane, Inc., sells liquid propane gas to residential and commercial customers in Massachusetts, New York and Vermont. At June 30, 1999, Berkshire Propane had 6,073 customers as compared to 5,489 in 1998. As part of the Company's growth strategy, Berkshire Propane acquired a local propane dealer in October 1998, in order to increase market share. Competition Natural Gas Operations - ---------------------- Implementation of the Federal Energy Regulatory Commission's (FERC) Order 636 has increased the potential for competition in gas procurement, supply and sale. FERC's actions have sought to encourage competition and natural gas market efficiency through deregulation and "unbundling of services" at the interstate pipeline level. This unbundling has changed the historical relationships, whereby producers sold to pipelines, pipelines sold to local distribution companies (LDCs) such as Berkshire Gas and LDCs sold to end-users. Now LDCs or end-users may utilize pipeline services primarily for the transportation of gas purchased from third parties. While historically Berkshire Gas has been subject to competition from electricity, oil, propane, coal and other fuels for space heating, water heating, cooking, air conditioning and industrial applications, regulatory changes have created the competition among existing and new suppliers or marketers of natural gas. Berkshire Gas takes a very positive view of the changes occurring within the natural gas industry. The advent of customer choice should enhance the value of the Berkshire Gas's products and services. Berkshire Gas is taking an active role in the transformation of the industry at the state level, through participation in collaborative proceedings involving a wide range of market stakeholders and regulators. This process resulted in the establishment of "unbundled" rates for all customer classes that will enable all customers to select their own supplier of natural gas with Berkshire Gas providing transportation service. Rates and Regulations The Berkshire Gas Company is subject to the regulatory authority of the DTE with respect to various matters, including rates, financing, certain gas supply contracts, demand-side management programs and planning and safety matters. The principal rate classifications are residential, commercial and industrial. Berkshire Gas also offers firm and quasi-firm transportation rates for large end-users as well as interruptible sales and transportation service. The rate structure is based on the cost of providing service to each customer class. In compliance with requirements set forth by the DTE, The Berkshire Gas Company filed revenue-neutral, unbundled rates that became effective November 1, 1998. The unbundled rates were submitted in accordance with a request for a Joint Motion for Approval of the Settlement Agreement (the Settlement) reached by participants in the Massachusetts Gas Collaborative (the Collaborative). Presently, residential rates are designed separately for heating and non-heating purposes. Additionally, like most other utility companies in Massachusetts, The Berkshire Gas Company offers subsidized rates to residential customers who qualify for certain government entitlements. These customers receive a 20% discount from the standard residential rates. The commercial and industrial rates are based on load factor; that is, the cost is based on how much gas is consumed and when it is consumed. There are seven classifications of load factor rates. All but the Extra Large Annual Use, High Load rate are volumetric rates. Berkshire Gas also offers four Quasi-Firm demand-based transportation rates that are grandfathered and are only available to customers who were taking service under those rates on or before November 1, 1998. The current firm rate structure is based on seasonal rates, whereby base rates are higher in the winter (November through April) and lower in the summer (May through October). In addition to the base rates, Berkshire Gas offers Default Service to any customer who is not receiving gas service from a supplier as set forth in The Berkshire Gas Company's Terms and Conditions. The rate for Default Service is established by The Berkshire Gas Company's Seasonal Cost of Gas Adjustment Clause (CGAC) rate schedule, which is adjusted on a semi-annual basis in order for Berkshire Gas to recover the cost of gas supplies. As part of its new unbundled rates, the Company modified its existing CGAC to allow for the following regulatory changes: (a) the addition of provisions that allow for the recovery of the gas portion of bad-debt expenses; and (b) new formulas for the recovery of gas costs. In addition, Berkshire Gas has a Local Distribution Adjustment Clause (LDAC) which allows for the recovery of Demand Side Management (DSM) costs, environmental response costs, FERC Order 636 transition costs, and certain costs incurred as a result of participation in the Massachusetts Gas Collaborative. Additionally, this clause enables Berkshire Gas to return to firm ratepayers a portion of non-firm distribution margins allocated to firm distribution services. The charge is set on an annual basis and is applied to all firm sales and transportation customers. The Berkshire Gas Company also provides several non-firm and special rates to meet the varying needs of large customers. These rates include Interruptible Sales and/or Transportation Service whereby a customer is capable of either ceasing operations or switching to an alternate fuel. Additionally, a Load Management Rate is available for non-residential customers who agree to reduce demand to a predetermined minimum level on peak days. The DTE issued an order on capacity assignment, cost responsibility, and related issues on February 1, 1999. The DTE ruled that mandatory assignment of capacity on a "slice-of-the-system" would maintain reliability and avoid improper transfer of cost responsibility. The DTE also found that, until it determines that a sufficiently competitive market for upstream capacity exists, the LDCs will maintain their obligation to serve. Currently, the industry Collaborative is taking action on Model Terms and Conditions to introduce the comprehensive unbundling of LDC services to expanded customer classes as soon as November 1, 1999. The Berkshire Gas Company is also subject to standards prescribed by the Secretary of Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to the design, installation, testing, construction and maintenance of pipeline facilities. The enforcement of these standards has been delegated to the DTE, which has taken an active role in such enforcement, including the application of civil penalties and the requirement of remedial programs. The regulation of prices, terms and conditions of interstate pipeline transportation and sales of natural gas is subject to the jurisdiction of FERC. The Berkshire Gas Company is not under the direct jurisdiction of FERC, but monitors, and periodically participates in, proceedings before FERC which involve the pipeline suppliers/transporters, the Berkshire Gas Company's operations, and other matters pertinent to Berkshire Gas's business. (See also "Competition".) The Berkshire Gas Company has recently been an active participant in the FERC proceedings regarding the regulation of short-term natural gas transportation services (Docket No. RM98-10-00) "Notice of Proposed Rulemaking" (the NOPR), and the regulation of interstate natural gas transportation services (Docket No. RM98-12-00) "Notice of Inquiry" (the NOI). Through the NOPR and the NOI, the FERC is undertaking a comprehensive review of the regulatory policies and procedures including such issues as rate design, price caps, and negotiated terms and conditions, that are currently in place for the natural gas industry. The FERC is still reviewing comments from participants and at this point has not made a final ruling on these dockets. Environmental Matters Federal, state and local laws and regulations establishing standards and requirements for the protection of the environment have increased in number and scope in recent years. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can be retroactively applied. During fiscal 1990, the DTE issued a generic ruling on cost recovery for environmental cleanup with respect to former gas manufacturing sites. Under the ruling, The Berkshire Gas LDAC will recover annual cleanup costs, excluding carrying costs, over a seven-year period through the Company. This ruling also provides for the sharing of any proceeds received from insurance carriers equally between Berkshire Gas and its ratepayers, and establishes maximum amounts that can be recovered from customers in any one year. During the year ended June 30, 1999, Berkshire Gas continued the analysis and field review of two parcels of real estate formerly used for gas manufacturing operations, which had been found to contain coal tar deposits and other substances associated with by-products of the gas manufacturing process. The review and assessment process began in 1985 with respect to site #1, which is owned by Berkshire Gas, and in 1989 with respect to site #2, which it formerly owned by Berkshire Gas. With the review and approval of the Massachusetts Department of Environmental Protection (MDEP), work at site #1 has resulted in proposed remedial activities which are currently being permitted through local and state agencies and will be pursued in the near future. Site monitoring activities will continue for the foreseeable future. It is difficult to predict the potential financial impact of the sites until first, the nature and risk is fully characterized, and second, the remedial strategies and related technologies are determined. The general philosophy is one of source removal and/or reduction coupled with risk minimization. Beginning in fiscal year 2000, Berkshire Gas will likely begin remediation of site #1. It is estimated that through 2014 the level of expenditures for the sites will range from $3.3 to $12.7 million. Berkshire Gas has recorded the most likely cost of $3.3 million in accordance with SFAS No. 5. Ultimate expenditures cannot be determined until a remedial action plan for site #2 is developed. Berkshire Gas's unamortized costs at June 30, 1999, were $718 thousand and should be recovered using the formula discussed above. Seasonality The Company's business has a distinct seasonal quality because a large percentage of its sendout serves residential and commercial heating loads. Gas and propane operating revenues reflect the seasonal nature of the business. Such revenues are affected by temperature variations between the heating and non-heating seasons and by seasonal pricing differentials embodied in The Berkshire Gas Company's effective schedule of rates and charges for gas services. (See also "Rates and Regulations".) Employee Relations The Company and its subsidiaries have 164 employees, approximately 53% of whom are represented by the United Steelworkers of America, AFL-CIO-CLC, under a contract which remains in effect until March 31, 2000. Relations with employees are generally satisfactory. Gas Supply The Berkshire Gas Company's portfolio consists of five firm natural gas contracts. As of November 1, 1999, Berkshire Gas will exercise its option to terminate one of its contracts. The terms of the remaining gas supply contracts range from approximately three to four years. Under the terms of a fuel purchase agreement executed with U.S. Generating Company (formerly Altresco, Inc.), Berkshire Gas is entitled to receive gas peaking service during the Winter Period of November 1 through March 31 of each year and back-up gas supplies in the event of proration or curtailment of firm gas supplies (including propane). In addition, Berkshire Gas executed two contracts with Distrigas of Massachusetts Corporation (DOMAC). The first entitles Berkshire Gas to receive up to 2,924 Mcf per day of vaporized Liquefied Natural Gas (LNG) for 365 days. The second contract entitles Berkshire Gas to receive up to 1,949 Mcf per day of LNG for 151 days. This contract provides Berkshire Gas with the option to take the LNG in liquid or vapor form, thus providing the necessary flexibility to serve its proposed permanent storage and vaporization facility (see discussion below). The term of this contract is for a five-year period ending October 31, 2003. The Berkshire Gas Company has five Liquefied Petroleum Gas (LPG) plants and one temporary portable LNG vaporizing unit that are utilized on peak days to supplement the pipeline natural gas supply. Berkshire Gas expects to replace this temporary facility with a permanent storage and vaporization facility. The new facility should be operational by the 1999- 2000 heating season. By supplementing its natural gas supply with LPG and LNG, Berkshire Gas is able to meet its customers' requirements during peak periods. The Berkshire Gas Company's pipeline deliveries combined with LPG facilities' storage and vaporization capacity yield a maximum daily sendout of approximately 54,900 Mcf. Actual maximum daily sendout due to degree day severity during the 1998-99 heating season was 45,335 Mcf. The composition of gas supply for customer requirements during the fiscal year ended June 30, 1999, was: 99.81% natural gas and 0.19% LNG and LPG. Berkshire Gas estimates that its supply of natural gas and supplemental sources under contract are adequate to meet the anticipated needs of their customers for the foreseeable future. On April 16, 1997, the FERC approved an unopposed settlement offer of Tennessee Gas Pipeline Company. The settlement established a cost sharing mechanism between Tennessee and its customers. As a result of the order, Tennessee implemented a reduced Gas Supply Realignment (GSR) surcharge retroactively for the two-year period of January 1, 1997, through December 31, 1998. A refund from Tennessee, representing excess GSR surcharges from January through March 1997, was returned to Berkshire's customers through its CGAC during the fiscal year. The GSR surcharges did not significantly affect The Berkshire Gas Company's competitiveness and were absorbed by Berkshire's firm sales customers. On April 29, 1998, the FERC approved a Settlement Agreement for future Gas Research Institute (GRI) funding. The Agreement assures continued funding of GRI which will be phased down to a voluntary program by the year end 2004. The GRI surcharges do not significantly affect The Berkshire Gas Company's competitiveness. Finally, Berkshire Gas is currently in confidential discussions with Tennessee Gas Pipeline Company regarding the renegotiation of its long-haul and short-haul contracts. It is anticipated the new contracts will be in effect as of November 1, 1999 and will provide Berkshire Gas with a more operationally flexible and competitive portfolio. Item 2. Properties - ------------------ The Company's utility subsidiary, The Berkshire Gas Company, has approximately 694 miles of distribution mains, the major portion of which are constructed of coated steel, plastic or cast iron. Berkshire Gas owns and operates five auxiliary liquefied petroleum gas plants for supplementing its supply of natural gas. (See "Gas Supply".) Berkshire Gas Company has five sales meter stations receiving gas from the interstate pipeline. All the principal properties of the Company are owned in fee, subject to the lien of the mortgage securing The Berkshire Gas Company's First Mortgage Bond, and are also subject to covenants, restrictions, easements, leases, rights-of-way and other similar minor encumbrances or defects common to properties of comparable size and character; none of which in the opinion of the Company's management materially interferes with Berkshire Gas's use of its properties in order to conduct its business. Berkshire Gas's gas mains are primarily located under public highways and streets. Where they are under private property, Berkshire Gas has obtained easements or rights- of-way from the record holders of title. These easements and rights are deemed by Berkshire Gas to be adequate for the purposes for which they are being used. Item 3. Legal Proceedings - -------------------------- With reference to the matters discussed in Item 1 "Environmental Matters", Berkshire Gas notified its present and former insurance carriers that it has incurred and will incur further costs associated with the previously-referenced coal tar deposits, for which it will seek coverage under applicable insurance policies. No litigation has yet commenced and it is not possible to determine the extent to which recovery of costs will ultimately be obtained from such insurance carriers. The Company is also involved with other legal proceedings incidental to its business. At the present time the Company cannot predict the outcomes of these proceedings as described herein. On December 18, 1998, The Berkshire Gas Company was sued in the Supreme Court of the State of New York, County of Kings, by the executrix of the estate of a customer of Berkshire Gas's retail propane division relating to an explosion at the home of such customer in Canaan, New York on July 28, 1997 and the death of the customer. Handi Mate, Inc., a New York corporation that engages in the inspection of properties, was also named as a defendant in the lawsuit. The complaint alleges six counts against Berkshire Gas and seeks damages of twenty million dollars ($20,000,000) per count, plus punitive damages. Berkshire Gas intends to vigorously defend each of these claims and expects to challenge certain claims that, upon initial review, appear redundant to other claims. Berkshire Gas has notified its insurance carrier of the filing of such lawsuit and the carrier has assumed the defense of such claims. Berkshire Gas has comprehensive liability insurance that provides up to thirty-five million dollars ($35,000,000) of coverage per occurrence. Berkshire Gas believes that the outcome will not have a material adverse impact on its overall financial position or results of operations. Item 4. Submission of Matters To A Vote Of Security Holders - ------------------------------------------------------------ None. Additional Items - ---------------- Executive Officers of the Registrant The table set forth below shows the names, titles and ages of all executive officers of the Registrant as of June 30, 1999. There is no family relationship among officers of the Registrant. There is no arrangement between any of the officers and any other person(s) pursuant to which such officer has or is to be elected as an officer. Served in This Name Title Capacity Since Age - ---- ----- -------------- --- S.S. Robinson President and Chief 10-28-87 59 Executive Officer M.J. Marrone Vice President, Treasurer 10-28-87 57 and Chief Financial Officer R.M. Allessio Vice President, Utility 11-07-97 49 Operations of The Berkshire Gas Company The executive officers are elected annually. Listed below is a brief account of the business of each of the above executive officers during the past five years. Name Capacity in Which Served During Past Five Years - ---- ----------------------------------------------- S.S. Robinson President and Chief Executive Officer M.J. Marrone Vice President, Treasurer and Chief Financial Officer R.M. Allessio Vice President, Utility Operations of The Berkshire Gas Company; Vice President of Marketing and Distribution of The Berkshire Gas Company; Director of Marketing and Distribution of The Berkshire Gas Company; Director of Engineering and Distribution of The Berkshire Gas Company Part II ------- Item 5. Market For Registrant's Common Equity and Related Stockholder - ----------------------------------------------------------------------- Matters ------- The number of registered common shareholders of record of the Registrant as of the close of business on July 31, 1999, was 1,967. The other information required is contained in Berkshire Energy Resources's Annual Report to Shareholders for the fiscal year ended June 30, 1999, ("Registrant's Annual Report") on page 31, under the heading "Consolidated Quarterly Financial Information". This information is hereby incorporated by reference in this report. Item 6. Selected Financial Data - -------------------------------- The information required is contained in Registrant's Annual Report on pages 12 - 13, under the heading "10-Year Comparative Summary of Operations and Statistics". This information is hereby incorporated by reference in this report. Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------- Results of Operations --------------------- The information required is contained in Registrant's Annual Report on pages 14 - 16, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations". This information is hereby incorporated by reference in this report. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- The information required is contained in Registrant's Annual Report on pages 17 - 31, in the financial statements of Berkshire Energy Resources for the years ended June 30, 1999, 1998 and 1997, together with the related notes to financial statements, under the heading "Independent Auditors' Report", and under the heading "Consolidated Quarterly Financial Information". This information is hereby incorporated by reference in this report. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------- Financial Disclosure -------------------- None. Part III -------- Items 10, 11, 12 and 13 - ----------------------- The information required regarding the Executive Officers of the Registrant is included in Part I under "Additional Items". Certain other information called for by Items 10, 11, 12 and 13 has been omitted from this report pursuant to General Instruction G(3), and is incorporated herein by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the Company's last fiscal year. PART IV ------- Item 14. Exhibits, Independent Auditors' Report on Supplemental Schedules, - ---------------------------------------------------------------------------- Financial Statement Schedules and Reports on Form 8-K ----------------------------------------------------- (a) 1. Financial Statements -------------------- The following financial statements and related notes are contained in the Registrant's Annual Report for the fiscal year ended June 30, 1999, and are incorporated herein by reference. Report of Independent Auditors. Consolidated Statements of Income for the years ended June 30, 1999, 1998 and 1997. Consolidated Balance Sheets, June 30, 1999, 1998 and 1997. Consolidated Statements of Shareholders' Equity for the years ended June 30, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. Selected Consolidated Quarterly Financial Data (unaudited) for the years ended June 30, 1999, 1998 and 1997. 2. Independent Auditors' Report on Supplemental Schedules ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT Deloitte & Touche LLP - ---------------------------------------------------------------------------- City Place Telephone:(860)280-3000 185 Asylum Street Facsimile:(860)280-3051 Hartford, Connecticut 06103-3402 To the Shareholders of Berkshire Energy Resources: We have audited the consolidated financial statements of Berkshire Energy Resources (as successor to The Berkshire Gas Company) as of June 30, 1999, 1998 and 1997 and for each of the three fiscal years in the period ended June 30, 1999 and have issued our report thereon dated August 12, 1999;such financial statements and report are included in Berkshire Energy Resources's Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Berkshire Energy Resources, listed in Item 14. These financial statement schedules are the responsibility of Berkshire Energy Resources's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP August 12, 1999 3. Financial Statement Schedules ----------------------------- The information called for by this item appears under the caption "Financial Statement Schedules and Exhibits Filed with Annual Report on Form 10-K" (page 1 hereof). Such information is incorporated by reference herein. 4. Exhibits -------- The information called for by this item appears under the caption "Financial Statement Schedules and Exhibits Filed with Annual Report on Form 10-K" (page 1 hereof). Such information is incorporated by reference herein. (b) Reports on Form 8-K ------------------- A report on Form 8-K, was filed on December 18, 1998 to report the filing of a lawsuit against The Berkshire Gas Company. The information called for by this item appears under the caption "Legal Proceedings". SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 25, 1999 By: /s/ ------------------ Scott S. Robinson, President & CEO Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities on the dates indicated. Signatures Capacity Date - ---------- -------- ---- /s/------------------ Trustee August 25, 1999 Franklin M. Hundley Chairman of the Board /s/------------------ Principal Executive August 25, 1999 Scott S. Robinson Officer; Trustee President and Chief Executive Officer /s/------------------------- Principal Financial August 25, 1999 Michael J. Marrone & Accounting Officer Vice President, Treasurer and Chief Financial Officer /s/--------------- Trustee August 25, 1999 George R. Baldwin /s/------------- Trustee August 25, 1999 John W. Bond /s/------------ Trustee August 25, 1999 Paul L. Gioia /s/--------- Trustee August 25, 1999 James R. Keys /s/------------ Trustee August 25, 1999 Robert B. Trask BERKSHIRE ENERGY RESOURCES CONSOLIDATED FINANCIAL STATEMENT SCHEDULES and EXHIBITS Filed With ANNUAL REPORT ON FORM 10-K EXHIBIT INDEX Certain of the following exhibits are filed herewith or will be filed herewith by amendment. Certain other of the following exhibits have heretofore been filed with the Commission and pursuant to Rule 411 are incorporated herein by reference. Exhibit Number Description 2 Agreement and Plan of Merger dated February 19, 1998 by and among The Berkshire Gas Company, the Company, and Berkshire Gas Mergeco Gas Company, Inc., filed as Appendix A to the Company's Registration Statement on form S-4, Registration Statement No. 333-46799, and incorporated herein by reference. 3(i) Articles of Merger of The Berkshire Gas Company and Berkshire Gas Mergeco Gas Company, and the Company, dated December 28, 1998, and incorporated herein by reference. 3(ii) By-Laws of Berkshire Energy Resources. Filed as Appendix C to the Company's Registration Statement on Form S-4, Registration Statement No. 333-46799, and incorporated herein by reference. 4(a) First Mortgage Indenture and Deed of Trust, dated as of July 1, 1954, between Pittsfield Coal Gas Company (now The Berkshire Gas Company) and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(c) to Berkshire Gas's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(b) First Supplemental Indenture, dated as of June 1, 1956, between Berkshire Gas and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(d) to Berkshire Gas's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(c) Second Supplemental Indenture, dated as of October 1, 1957, between Berkshire Gas and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(e) to Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 2-19808, and incorporated herein by reference. 4(d) Third Supplemental Indenture, dated as of October 1, 1958, between Berkshire Gas and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(f) to Berkshire Gas's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(e) Fourth Supplemental Indenture, dated as of August 1, 1960, between Berkshire Gas and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(e) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, file herewith. 4(f) Fifth Supplemental Indenture, dated as of June 1, 1962, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(f) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(g) Sixth Supplemental Indenture, dated as of February 1, 1965, between Berkshire Gas and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(g) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(h) Seventh Supplemental Indenture, dated as of October 1, 1965, between Berkshire Gas and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(h) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(i) Eighth Supplemental Indenture, dated as of September 1, 1967, between Berkshire Gas and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(i) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(j) Ninth Supplemental Indenture, dated as of April 1, 1969, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(j) to Berkshire Gas's Registration Statement on Form S-2, File No. 3-1492, and incorporated herein by reference. 4(k) Tenth Supplemental Indenture, dated as of March 1, 1972, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(k) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(l) Eleventh Supplemental Indenture, dated as of April 15, 1975, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(l) Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(m) Twelfth Supplemental Indenture, dated as of November 27, 1978, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(m) to Berkshire Gas's Registration Statement on Form S- 2, File No. 33-1492, and incorporated herein by reference. 4(n) Thirteenth Supplemental Indenture, dated as of October 15, 1981, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(n) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(o) Fourteenth Supplemental Indenture, dated as of August 19, 1983, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(o) to Berkshire Gas's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(p) Fifteenth Supplemental Indenture, dated as of August 19, 1985, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(p) to Berkshire Gas's Registration Statement on Form S-2, Registration No. 33-1492, and incorporated herein by reference. 4(q) Sixteenth Supplemental Indenture, dated as of January 1, 1988, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(q) to Berkshire Gas's Registration Statement on Form S-3, Registration No. 33-27785, and incorporated herein by reference. 4(r) Seventeenth Supplemental Indenture, dated as of February 1, 1989, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(r) to Berkshire Gas's Registration Statement on Form S-3, Registration Statement No. 33-27785, and incorporated herein by reference. 4(s) Eighteenth Supplemental Indenture, dated as of September 1, 1991, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(x) to Berkshire Gas's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(t) Nineteenth Supplemental Indenture, dated as of September 1, 1992, between Berkshire Gas and Chemical Bank, Trustee. Filed as Exhibit 4(z) to Berkshire Gas's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(u) Debenture Indenture, dated as of November 1, 1986, between Berkshire Gas and Centerre Trust Company of St. Louis (now Boatmen's Trust Company), as Trustee. Filed as Exhibit 4(q) to Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-9509, and incorporated herein by reference. 4(v) Senior Note Agreement, dated as of July 1, 1990, between Berkshire Gas and Allstate Life Insurance Company. Filed as Exhibit 4(w) to Berkshire Gas's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(w) Charter of Berkshire Gas. Filed as Exhibit 3(a) to Berkshire Gas's Form 8, amending Berkshire Gas's Form 10-Q for the fiscal quarter ended September 30, 1984, File No. 0-1857-3, and incorporated herein by reference. 4(x) Amendment to Berkshire Gas's Charter, dated October 30, 1985. Filed as Exhibit 3(b) to Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-1492, and incorporated herein by reference. 4(y) Amendment to Berkshire Gas's Charter, dated July 14, 1986. Filed as Exhibit 3(a) to Berkshire Gas's Form 10-K for the fiscal year ended June 30, 1986, File No. 0-1857-3, and incorporated herein by reference. 4(z) Amendment to Berkshire Gas's Charter, dated October 28, 1986. Filed as Exhibit 4(v) to Berkshire Gas's Registration Statement on Form S-3, Registration Statement No. 33-27785, and incorporated herein by reference. 4(aa) Amendment to Berkshire Gas's Charter, dated June 15, 1992. Filed as Exhibit 4(y) to Berkshire Gas's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(bb) Amendment to Berkshire Gas's Charter, dated July 29, 1994. Filed as Exhibit 4(bb) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 4(cc) Amendment to Berkshire Gas's Charter, dated September 10, 1996. Filed as part of Exhibit 3(i) to Berkshire Gas's form 10-Q for the fiscal quarter ended December 13, 1996. File No. 0-1857-3, and incorporated herein by reference. 4(dd) Senior Note Agreement, dated November 1, 1996, between Berkshire Gas and First Colony Life Insurance Company. Filed as Exhibit 4 to Berkshire Gas's form 10-Q for the fiscal quarter ended December 31, 1996. File No. 0-1857-3, and incorporated herein by reference. 4(ee) Declaration of Trust of Berkshire Energy Resources dated February 17, 1998. Filed as Appendix B to the Company's Registration Statement on Form S-4, Registration Statement No. 333-46799, and incorporated herein by reference. 4(ff) Amendment to Medium-Term Loan Agreement, dated April 1, 1999. Filed as Exhibit 4(ff) to Berkshire Energy Resources's Form 10-K for the fiscal year ended June 30, 1999, File No. 0-29812, filed herewith. 10(a) Employment Contract between Berkshire Gas and Scott S. Robinson. Filed as Exhibit 10(f) to Berkshire Gas's Form 10-K for the fiscal year ended June 30, 1985, File No. 01857-3, and incorporated herein by reference. 10(b) Contract for the operation and maintenance of a cogeneration pipeline between Berkshire Gas and Altresco Financial, Inc., dated December 11, 1992. Filed as Exhibit 10(n) to Berkshire Gas's Form 10-K for the fiscal year ended June 30, 1993, File No. 0-18573, and incorporated herein by reference. 10(c) Year-to-year contract for the purchase of propane gas between Berkshire Gas and Enron Gas Liquids, dated June 1, 1993. Filed as Exhibit 10(c) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(d) Contract for the transportation of natural gas under IT rate schedule between Berkshire Gas and Tennessee Gas Pipeline Company, contract number 103250-8, dated September 1, 1993. Filed as Exhibit 10(d) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(e) Contract for the transportation of natural gas under FT-A rate schedule between Berkshire Gas and Tennessee Gas Pipeline Company, contract number 2030, dated September 1, 1993. Filed as Exhibit 10(e) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(f) Contract for the transportation of natural gas under FT-A rate schedule between Berkshire Gas and Tennessee Gas Pipeline Company, contract number 2064, dated September 1, 1993. Filed as Exhibit 10(f) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(g) Contract for the transportation of natural gas under FT-A rate schedule between Berkshire Gas and Tennessee Gas Pipeline Company, contract number 779, dated September 1, 1993. Filed as Exhibit 10(g) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(h) Contract for the transportation of natural gas under CGT-NE rate schedule between Berkshire Gas and Tennessee Gas Pipeline Company, contract number 2063, dated September 1, 1993. Filed as Exhibit 10(h) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(i) Contract for the purchase of natural gas between Berkshire Gas and Tenngasco Corporation, dated September 14, 1993. Filed as Exhibit 10(i) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(j) Contract for the purchase of natural gas between Berkshire Gas and Natural Gas Clearinghouse, dated as of November 1, 1993. Filed as Exhibit 10(j) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(k) Gas Storage Agreement between Berkshire Gas and Tennessee Gas Pipeline Company, dated as of September 1, 1993. Filed as Exhibit 10(k) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(l) Company Corporate Incentive Compensation Plan ("ICP"). Filed as Exhibit 10(l) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(m) Severance Agreement, dated September 28, 1993, by and between Berkshire Gas and Robert M. Allessio. Filed as Exhibit 10(n) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(n) Severance Agreement, dated October 15, 1993, by and between Berkshire Gas and Michael J. Marrone. Filed as Exhibit 10(o) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(o) Severance Agreement, dated October 15, 1993, by and between Berkshire Gas and Cheryl M. Clark. Filed as Exhibit 10(q) on Berkshire Gas's Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference. 10(p) Employment Agreement, dated June 30, 1999, by and between the Company and Scott S. Robinson. Filed as Exhibit 10(p) to Berkshire Energy Resources's Form 10-K for the fiscal year ended June 30, 1999, File No. 0-29812, filed herewith. 10(q) Severance Agreement, dated June 9, 1999, by and between Berkshire Gas and Cheryl M. Clark. Filed as Exhibit 10(q) to Berkshire Energy Resources's Form 10-K for the fiscal year ended June 30, 1999, File No. 0-29812, filed herewith. 10(r) Severance Agreement, dated June 9, 1999, by and between Berkshire Gas and Michael J. Marrone. Filed as Exhibit 10(r) to Berkshire Energy Resources's Form 10-K for the fiscal year ended June 30, 1999, File No. 0-29812, filed herewith. 10(s) Severance Agreement, dated June 9, 1999, by and between Berkshire Gas and Robert M. Allessio. Filed as Exhibit 10(s) to Berkshire Energy Resources's Form 10-K for the fiscal year ended June 30, 1999, File No. 0-29812, filed herewith. 10(t) Company Corporate Incentive Compensation Plan ("ICP")as secured and amended. Filed as Exhibit 10(t) to Berkshire Energy Resources's Form 10-K for the fiscal year ended June 30, 1999, File No. 0-29812, filed herewith. 13(a) Annual Report to Shareholders Filed Herewith: A copy of the Company's Annual Report to Shareholders for fiscal year ended June 30, 1999. 27(a) Financial Data Schedule Filed Herewith: Financial Data Schedule for the fiscal year ended June 30, 1999. EX-3 2 ARTICLES OF MERGER Exhibit 3(i) ARTICLES OF MERGER of THE BERKSHIRE GAS COMPANY (A Massachusetts Utility Corporation) and BERKSHIRE GAS MERGECO GAS COMPANY, INC. (A Massachusetts Utility Corporation) and BERKSHIRE ENERGY RESOURCES (A Massachusetts Business Trust - - a party to the Agreement and Plan of Merger described herein and that will survive the transaction contemplated in such agreement) Pursuant to the provisions of Section 102A of Chapter 164 of the Massachusetts General Laws, the undersigned corporations adopt the following Articles of Merger for the purpose of merging Berkshire Gas Mergeco Gas Company, Inc. ("Mergeco") with and into The Berkshire Gas Company ("Berkshire Gas"), which shall be the Surviving Corporation: 1. Attached hereto and incorporated herein by reference is the Agreement and Plan of Merger dated as of February 19, 1998, of the undersigned corporations. The Surviving Corporation will furnish a copy of said agreement to any of its stockholders, or to any person who was a stockholder of a Constituent Corporation, upon written request and without charge. The Effective Time as defined therein is 11:59 P.M., Boston time on December 31, 1998. 2. The undersigned president or vice president and clerk or secretary or assistant clerk or secretary of each undersigned corporation hereby state under the penalties of perjury that the attached Agreement and Plan of Merger has been duly executed on behalf of such corporation and has been approved by the stockholders of such corporation and by the Department of Telecommunications and Energy of The Commonwealth of Massachusetts in the manner required by Section 96 of Chapter 164 of the Massachusetts General Laws. 3. The post office address of the initial principal office of the Surviving Corporation is 115 Cheshire Road, Pittsfield, Massachusetts 01201. 4. The name, residence and post office address of each of the initial directors and the chairman, president, treasurer and clerk of the Surviving Corporation are as follows: POST OFFICE NAME TITLE RESIDENCE ADDRESS George R. Baldwin Director c/o 115 Cheshire Road Pittsfield, MA 01201 John W. Bond Director c/o 115 Cheshire Road Pittsfield, MA 01201 Paul L. Gioia Director c/o 115 Cheshire Road Pittsfield, MA 01201 Franklin M. Hundley Chairman and c/o 115 Cheshire Road Director Pittsfield, MA 01201 James R. Keys Director c/o 115 Cheshire Road Pittsfield, MA 01201 Robert B. Trask Director c/o 115 Cheshire Road Pittsfield, MA 01201 Scott S. Robinson Director, 115 Cheshire Road President and Pittsfield, MA 01201 Chief Executive Officer Michael J. Marrone Vice President, 115 Cheshire Road Treasurer and Pittsfield, MA 01201 Chief Financial Officer Cheryl M. Clark Clerk 115 Cheshire Road Pittsfield, MA 02101 5. The fiscal year of the Surviving Corporation initially adopted shall end on the last day of the month of June in each year. 6. The date and time initially fixed in the Bylaws for the annual meeting of the stockholders of the Surviving Corporation is 10:00 a.m. on the second Wednesday in November of each year. IN WITNESS WHEREOF, Berkshire Gas, Mergeco and Berkshire Energy Resources, pursuant to approval and authorization duly given by resolutions adopted by their respective Boards of Directors or Board of Trustees, have each caused these Articles of Merger to be executed by its president or one of its vice presidents and its clerk or one of its assistant clerks. Dated: December 28, 1999 THE BERKSHIRE GAS COMPANY By: /s/ Scott S. Robinson --------------------- Name: Scott S. Robinson Title: President and Chief Executive Officer By: /s/ Cheryl M. Clark ------------------- Name: Cheryl M. Clark Title: Clerk BERKSHIRE GAS MERGECO GAS COMPANY, INC. By: /s/ Scott S. Robinson --------------------- Name: Scott S. Robinson Title: President and Chief Executive Officer By: /s/ Cheryl M. Clark ------------------- Name: Cheryl M. Clark Title: Clerk BERKSHIRE ENERGY RESOURCES By: /s/ Scott S. Robinson --------------------- Name: Scott S. Robinson Title: President and Chief Executive Officer By: /s/ Cheryl M. Clark ------------------- Name: Cheryl M. Clark Title: Secretary EX-4 3 SECOND AMENDMENT TO LOAN AGREEMENT Exhibit 4(ff) SECOND AMENDMENT TO LOAN AGREEMENT This SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment"), dated as of the 1st day of April, 1999, made by and between Fleet National Bank, a national banking association (as successor-in-interest to Fleet Bank of Massachusetts, a Massachusetts banking corporation), having a regular place of business at One Monarch Place, Springfield, Massachusetts (the "Bank"); and The Berkshire Gas Company, a Massachusetts public utility corporation having a usual place of business at 115 Cheshire Road, Pittsfield, Massachusetts (the "Borrower"), to the Loan Agreement between the Borrower and the Bank dated as of December 14, 1993, as modified by that certain Loan Modification Agreement between the Borrower and the Bank dated April 11, 1994 (as amended or modified, the "Loan Agreement"). All capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Loan Agreement. As wed herein, the term "Loan Documents" shall have the meaning set forth in the Loan Agreement, as amended hereby. RECITALS A. Pursuant to the Loan Agreement, the Bank has agreed to lend the Borrower Six Million Dollars ($6,000,000) (the "Term Loan") with a maturity date of April 1, 1999. B. The Borrower has requested that the Bank renew the Term Loan and extend the maturity date to April 1, 2004. C. The Bank has agreed to such request upon the terms and conditions set forth herein, and to accomplish the foregoing purpose, the Borrower and the Bank are mutually desirous of amending the Loan Agreement as set forth herein. STATEMENT OF AGREEMENT NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the Borrower and the Bank hereby agree as follows: ARTICLE I AMENDMENTS TO LOAN AGREEMENT The Loan Agreement is hereby amended as follows: 1.1 Amendment of Loan Modification Agreement. The Loan Modification hereby amended by deleting the Preliminary Statement and Section 2 in their entirety. 1.2 Amendment of Definition of Loan Documents. Section 1.2 of the Loan hereby deleted in its entirety and replaced with the following "1.2 Loan Documents Defined. As used herein, the term "Loan Documents" shall mean, collectively, (i) this Loan Agreement, as amended, (ii) that certain $6,000,000 Commercial Promissory Note dated December 14, 1993 by the Borrower in favor of the Bank, as modified and amended (the "Note") (iii) that certain $7,000,000 Demand Revolving Business Credit Note made by the Borrower on February 17, 1995 in favor of the Bank, as amended, (iv) that certain First Mortgage Indenture and Deed of Trust (the "Trust Indenture"), dated July 1, 1954 between the Borrower (formerly known as Pittsfield Coal Gas Company) and Chemical Bank (formerly known as Chemical Bank and Trust Company) as Trustee, as amended, (v) that certain Note Agreement (the "Note Agreement") of the Borrower dated as of November 1, 1996 (regarding $16,000,000 7.80% Senior Notes due November 15, 2021), (vi) that certain ISDA Master Agreement dated as of February 16, 1999 between the Bank and the Borrower (the "Swap Agreement"), (vii) that certain Letter Agreement dated February 16, 1999 between the Bank and the Borrower confirming the terms and conditions of the Swap Agreement, and (viii) any and all other agreements and documents related to or executed or delivered in connection with the foregoing agreements listed in (i) through (v) or in connection with any existing or future indebtedness of the Borrower to the Bank. 1.2A Amendment of Section 2.5. Section 2.5 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "2.5 Use of Proceeds. The proceeds of the Loans shall be used for working capital and other general corporate purposes." 1.3 Amendment of Financial Statement Requirements. (a) Section 3.1.1(i) of the Loan Agreement is hereby amended by replacing the word "reviewed" with the word "audited". (b) Section 3.1.1 (ii) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following: "(ii) As soon as available, and in any event within forty five (45) days after the end of each of the first three quarters of each fiscal year, internally prepared or accountant prepared consolidated financial statements of the Borrower and Berkshire Energy Resources, a Massachusetts business trust ("BER"), and its subsidiaries, including balance sheets, statements of earnings and changes in cash flow; provided, however, that if, and only for so long as, the Borrower accounts for at least seventy five percent (75%) of the revenues and capital of BER, the Borrower shall not be obligated to provide such quarterly statements of the Borrower." (c) Section 3.1.1(ii) of the Loan Agreement is hereby amended by replacing the first sentence thereof with the following: "With reasonable promptness, additional financial reports, statements and information regarding the financial condition, business and operations of the Borrower and BER as the Bank reasonably may request from time to time." (b) Section 3.1 of the Loan Agreement is hereby amended by adding the following new Sections 3.1.2 and 3.1.3: "3.1.2 In connection with the delivery of any of the foregoing financial statements of the Borrower to the Bank, the Borrower hereby covenants to cause a certified public accountant reasonably acceptable to the Bank ("Accountants") to deliver a letter to the Bank, upon which the Bank may rely, stating that such financial statements have been prepared based on the same books and records of the Borrower as the books and records of the Borrower used to prepare any consolidated financial statements of BER {whether internally prepared or auditor prepared) which include the Borrower's financials. 3.1.3 The Borrower hereby covenants that upon reasonable request of the Bank at any time and from time to time it shall cause its Accountants to provide a letter to the Bank, upon which the Bank may rely, stating (i) that such Accountants have reviewed the Trust Indenture and the Note Agreement, each as then currently in effect, and (ii) whether or not the Borrower is then in compliance with the terms and provisions of the Trust Indenture and the Note Agreement." 1.4 Amendment of Section 7.4. Section 7.4(a) of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(a) If to the Bank, to it at: Fleet National Bank One Monarch Place Springfield, MA 01102" 1.5 Pledge of Loan Documents. The following new Section 7.11 shall be inserted immediately following Section 7.10: "7.11 Pledge of Loan Documents. The Bank may at any time pledge all or any portion of its rights under the Loan Documents including, without limitation, any portion of the Note, to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release the Bank from its obligations under any of the loan documents." ARTICLE II AMENDMENTS TO COMMERCIAL PROMISSORY NOTE The Note is hereby amended as follows: 2.1 The first and second sentences of the second paragraph are hereby deleted in their entirety. 2.2 The third, fourth, fifth and sixth paragraphs are hereby deleted entirely and replaced with the following: "The term "Base LIBOR Rate" shall mean the rate per annum obtained by dividing (i) the Fixed LIBOR Rate for each Interest Period, by (ii) a percentage equal to one hundred percent (100%) minus the reserve percentage applicable during such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or if more than one such percentage is applicable, minus the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) for determining the maximum reserve requirements (including, without limitation, any marginal reserve requirement) for the Bank (or of any subsequent holder of this Note which is subject to such reserve requirements) in respect of liabilities or assets consisting of or including Eurocurrency liabilities having a term equal to the Interest Period. The term "Boston Banking Day" means a day on which banks are not required or authorized by law to close in Boston, Massachusetts. The term "Business Day" shall mean: any Boston Banking Day and, if the applicable Business Day relates to the selection or determination of any interest rate computed with reference to the LIBOR Rate, any London Banking Day. If any day on which a payment is due is not a Business Day, then the payment shall be due on the next day following which is a Business Day, unless, with respect to advances at the LIBOR Rate, the effect would be to make the payment due in the next calendar month, in which event such payment shall be due on the next preceding day which is a Business Day. The term "Interest Period" shall mean the applicable period for each LIBOR Loan beginning on the day selected, or deemed selected, by the Borrower at least two (2) Business Days prior to the end of the current Interest Period or, if no Interest Period has been selected, at least two (2) Business Days prior to the beginning of a new Interest Period, and ending (a) thirty (30) days thereafter at any time that the Swap Agreement is then in effect or (b) thirty (30), sixty (60), ninety (90) or one hundred twenty (120) days thereafter as selected by the Borrower at any time that the Swap Agreement is not then in effect. The term "LIBOR Principal Amount" shall mean that portion of the outstanding principal balance of the Loan with respect to which the Borrower has made the LIBOR Election as described herein. The term "Fixed LIBOR Rate" shall mean, with respect to each Interest Period, the rate of interest, expressed as an annual rate, equal to the simple average, rounded up to the nearest 1/16 of 1%, of the rates shown on the display referred to as the "LIBOR page" (or any display substituted therefor) of the Reuters U.S. Domestic Money Service transmitted through the Reuters monitor system as being the respective rates at which deposits in Dollars would be offered by the principal London offices of each of the banks named thereon to major banks in the London interbank market at approximately 11:00 a.m. (London time) on the day which is two (2) London Banking Days before the first day of such Interest Period for a period substantially coextensive with such Interest Period. The term "London Banking Day" means any day on which dealings in deposits in Dollars are transacted in the London interbank market. The term "Prime Rate" shall mean the per annum rate of interest so designated from time to time by the Bank at its principal office as its prime or commercial base lending rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. The outstanding principal balance shall bear interest at the Base LIBOR Rate plus (a) eight-tenths percent (0.8%) at any time the Swap Agreement is then in effect or (6) one and one eighth (1.125%) percent at any time that the Swap Agreement is not then in effect (as applicable, the "LIBOR Rate"). During any period of time when the Swap Agreement is not then in effect, at least two (2) Business Days prior to each last day of any Interest Period by 10:00 a.m. of a Boston Banking Day the Borrower shall select the Interest Period from the alternatives available as elsewhere provided for herein, by giving irrevocable written notice, or by cable, tested telex, telecopier (with authorized signature) or telephone, but if not written, such notice shall be immediately confirmed by written notice, to Bank specifying the Interest Period. If no such selection is made, then a thirty (30) day Interest Period shall be deemed selected." Payments of interest for each LIBOR Loan shall be made on the last day of the Interest Period for each such LIBOR Loan. In any event, payment of principal, together with all accrued and unpaid interest thereon shall be due and payable in full on April 1, 2004." 2.3 The eighth and ninth paragraphs are hereby deleted in their entirety and replaced with the following: "The Borrower shall have the right from time to time, upon at least two (2) Business Days prior written notice to the Bank, to prepay any outstanding LIBOR Loan, in whole (but not in part), and, except for prepayments resulting from revolving activity performed by the Bank under the Bank's Target Balance Service, the Borrower shall pay to the Bank a yield maintenance fee in an amount computed as follows: the latest published rate preceding the date of prepayment for United States Treasury Notes or Bills (Bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closest to the tenor of the Interest Period chosen for the LIBOR Loan, as to which the prepayment is made shall be subtracted from the London Interbank Offered Rate component of the LIBOR Interest Rate in effect at the time of prepayment. If the result is zero or a negative number, there shall be no yield maintenance fee. If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid. The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the Interest Period of the applicable LIBOR Loan. Said amount shall be reduced to present value calculated by using the number of days remaining in the Interest Period of the applicable prepaid LIBOR Loan and using the above-referenced United States Treasury Note or Bill rate and the number of days remaining in the Interest Period of the applicable prepaid LIBOR Loan. The resulting amount shall be the yield maintenance fee due to the Bank upon prepayment of the LIBOR Loan. The Borrower agrees to indemnify the Bank and to hold the Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that the Bank may sustain or incur as consequence of (i) default by the Borrower m payment of the principal amount of or any interest on any LIBOR Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain its LIBOR Loans, (ii) failure of the Borrower to make a borrowing after the Borrower has given (or is deemed to have given) a notice electing a LIBOR Loan, (iii) the making of any payment of a LIBOR Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain any such LIBOR Loans and (iv) default by the Borrower under the Swap Agreement." 2.4 The seventh full paragraph on page 4 shall be amended by replacing the words "six (6) month LIBOR Rate" in subsection (b) thereof with the words "interest rate". 2.5 The following new paragraphs are hereby added immediately following the sixth full paragraph on page 6 of the Note: "The Bank shall have the unrestricted right, at any tune and from time to time, and without the consent of or notice to the Borrower, to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in the Bank's obligation to lend hereunder and any or all of the Loans held by the Bank hereunder. In the event of any such grant by the Bank of a participating interest to a Participant, whether or not upon notice to the Borrower, the Bank shall remain responsible for the performance of its obligations hereunder and the Borrower shall continue to deal directly and solely with the Bank in connection with the Bank's rights and obligations hereunder. The Bank may furnish any information concerning the Borrower in its possession from time to time to prospective Participants, provided that the Bank shall require any such prospective Participant to agree in writing to maintain the confidentiality of such information. Upon receipt of an affidavit of an officer of the Bank as to the loss, theft, destruction or mutilation of the Note or any other security document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Note or other security document, the Borrower will issue, in lieu thereof, a replacement note or other security document in the same principal amount thereof and otherwise of like tenor." ARTICLE III REPRESENTATIONS AND WARRANTIES; COLLATERAL The Borrower hereby represents and warrants to the Bank that: 3.1 Compliance with the Loan Agreement and other Loan Documents. As of the execution of this Amendment, the Borrower is in compliance with all of the terms and provisions set forth in the Loan Agreement and in the other Loan Documents to be observed or performed by the Borrower, except where the failure of Borrower to comply has been waived in writing by the Bank. 3.2. Representations in Loan Agreement and other Loan Documents. The representations and warranties of the Borrower set forth in the Loan Agreement and the other Loan Documents are true and correct in all material respects as of the date of this Amendment except to the extent that such representations and warranties relate solely to or are specifically expressed as of a particular date or period which is past or expired. 3.3. No Event of Default. No default or Event of Default exists under the Loan Agreement or any of the other Loan Documents. ARTICLE IV ACKNOWLEDGEMENT OF OBLIGATIONS 4.1 Acknowledgement of Obligations. Borrower hereby ratifies and affirms all of the terms and provisions of the Loan Documents, as amended hereby, and acknowledges and agrees that all of its obligations under any of the Loan Documents to which the Bank is a party are owed to the Bank without any offset, deduction, defense or counterclaim of any nature. ARTICLE V MODIFICATION OF AND CONSENT UNDER LOAN DOCUMENTS; EFFECTIVENESS OF AMENDMENT 5.1. Loan Documents. The Loan Agreement and each of the other Loan Documents are hereby amended to provide that any reference to the "Agreement" in the Loan Agreement or any of the other Loan Documents executed and or delivered in conjunction therewith (excluding the Trust Indenture and the Note Agreement), or any reference to any of the other Loan Documents in the Loan Agreement or any other Loan Document executed and or delivered in conjunction therewith (excluding the Trust Indenture and the Note Agreement), shall mean the Loan Agreement or such Loan Document as amended by this Amendment, and as it is further amended, restated, supplemented or modified from time to time. 5.2 Conditions Precedent. This Amendment shall become effective and be deemed effective as of the date hereof upon the satisfaction by the Borrower or waiver by the Bank of the following conditions precedent: (a) Receipt by the Bank of this Amendment, duly executed by the Borrower; (b) Receipt by the Bank of the First Amendment to Demand Revolving Business Credit Note between the Bank and the Borrower, duly executed by the Borrower; (c) Receipt by the Bank of Swap Agreement, duly executed by the Borrower; (d) Receipt by the Bank of the Consent of the Massachusetts Department of Public Utilities to the terms of this Amendment; (e) Payment to the Bank of its fee in the amount of Twenty Five Thousand Dollars ($25,000); and (f) Receipt by the Bank of such other documents, instruments and agreements as the Bank and its counsel may reasonably request. ARTICLE VI GENERAL 6.1. Full Force and Effect. As expressly amended hereby, the Loan Agreement shall continue in full force and effect in accordance with the provisions thereof. As used in the Loan Agreement, "hereinafter", "hereto", "hereof" or words of similar import, shall, unless the context otherwise requires, mean the Loan Agreement as amended by this Amendment. 6.2 Applicable Law. This Amendment shall be governed by and construed in accordance with the internal laws and judicial decisions of The Commonwealth of Massachusetts (without giving effect to principles of conflicts or choice of laws of Massachusetts or of any other jurisdiction). 6.3 Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one and the same instrument. 6.4 Expenses. The Borrower shall reimburse the Bank for all reasonable legal fees and expenses incurred by the Bank in connection with the preparation, negotiation, execution and delivery of this Amendment and all other agreements and documents or contemplated hereby. 6.5. Headings. The headings in this Amendment are for the purpose of reference only and shall not affect the construction of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered on the date first above written. BORROWER: THE BERKSHIRE GAS COMPANY ATTEST: /s/Cheryl M. Clark By: s/s Michael J. Marrone ----------------------- Clerk Name: Title:: Vice President, Treasurer & C.F.O. (CORPORATE SEAL) LENDER: FLEET NATIONAL BANK By: s/s Sheryl L. McQuade ----------------------- Sheryl L. McQuade, Vice President EX-10 4 EXHIBIT 10(P) Exhibit 10(p) EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, made this 30th day of June, 1999, effective as of June 30, 1999, by and between THE BERKSHIRE GAS COMPANY, a Massachusetts Corporation having a principal place of business in Pittsfield, Massachusetts ("BGC" or the "Company"), and Scott S. Robinson, of Lenox, Massachusetts ("Employee"). W I T N E S S E T H: WHEREAS, BGC is engaged in the business of distributing and selling natural gas and related energy businesses; and WHEREAS, Employee has been employed by BGC for more than twenty-nine (29) years in various executive positions, has performed valuable services to BGC in such positions, and is currently President of BGC; and WHEREAS, Employee is willing to continue in the employ of BGC; NOW, THEREFORE, in consideration of the mutual covenants herein contained the parties agree as follows: 1. BGC Obligations --------------- (a) BGC agrees to retain the Employee, during the period described in paragraph 3 hereof, to perform services of substantially the same nature as Employee currently performs on the terms and subject to the conditions hereinafter set forth, including similar management duties for any subsidiary or affiliated company, or services as may be assigned to him by the Board of Directors of BGC, as long as such services are reasonably comparable to those which might be reasonably expected to be performed by an employee with the experience and skills of the Employee. In addition, BGC shall not require the Employee to be based at any office or location other than one within a fifty (50) mile radius of the headquarters of BGC in Pittsfield, Massachusetts. (b) BGC shall pay to Employee salary at a rate no less than the rate in effect at the time of execution of this Agreement, or at a higher rate which may be increased from time to time by the Board of Directors for such office as the Employee then holds. BGC shall pay, or reimburse, or cause to be paid or reimbursed, to Employee, all reasonable travel and other expenses incurred by Employee in performing his obligations under this Agreement. So long as this Agreement is in effect, BGC shall not pay Employee any director's or trustee's fees for service as a director of BGC or any parent or affiliated company of BGC, including, without limitation, Berkshire Energy Resources ("Resources"). (c) Nothing in this Agreement shall restrict or limit the provision of any payments or benefits to Employee pursuant to any plans or agreements, now or hereafter existing, including but not limited to the following: (i) any incentive or bonus plans, (ii) any employee or executive benefit plan, (iii) any Deferred Compensation Agreement between BGC and Employee, (iv) any pension, stock ownership, stock option or other similar plan, or (v) any supplemental executive retirement plan. (d) Further, in case of Employee's disability, BGC shall make disability payments to Employee as described in paragraph 4 below. BGC's dismissal of Employee without Good Cause (as defined in paragraph 5 below) shall not alter its obligations under this Agreement. 2. Employee's Obligations ---------------------- (a) During the period of his employment hereunder, except for illness, vacation periods, and reasonable leaves of absence, Employee shall devote all his business time, attention, skill and efforts to the faithful performance of his duties, as currently performed, or assigned from time to time by the Board of Directors of BGC; provided, however, that any newly assigned duties shall not be inconsistent with the duties Employee presently performs. Further, Employee will serve as a Director of BGC and a Trustee of Resources, if nominated and elected to such respective positions in accordance with applicable law and the respective by-laws of BGC and Resources and agrees to accept such other office and/or committee assignments to which he may be appointed. (b) Employee agrees that, during the term of this Agreement and during the five year period following BGC's termination of or failure to extend this Agreement for other than Good Cause, he shall not directly or indirectly manage, operate, join, or become associated with a person or entity that is in competition with BGC, Resources or any subsidiary or affiliate, in BGC's service territory. Owning stock and/or securities in any other corporation or entity shall not be deemed a violation of this Agreement and Employee may serve, or continue to serve, on the boards of directors of, and hold any other office or positions in, companies or organizations, when, in the judgment of the Board of Directors, that service will not conflict with the interests of BGC or Resources or any of their subsidiaries or affiliates or divisions, or materially affect the performance of Employee's duties pursuant to this Agreement. Employee shall not, directly or indirectly, at any time during the term of his employment hereunder or thereafter, and without regard to when or for what reason such employment shall terminate, use or permit the use of any trade secrets, customer lists, proprietary computer programs used or developed by the Company or Resources or other proprietary information of or relating to BGC or Resources, or any subsidiary or affiliate and shall not divulge such trade secrets, customer lists, computer programs or other information to any person, firm or corporation whatsoever. All payments and benefits to Employee under this Agreement shall be subject to Employee's compliance with the provisions of this Paragraph 2, and if Employee fails to comply herewith, his rights to any future payments or other benefits hereunder shall terminate, and BGC's obligations to make such payments and provide such benefits shall cease; provided however, a default by Employee under this Agreement shall have no effect on Employee's right to receive payments under any agreement or plan of the sort listed in paragraph l(c) above. 3. Term of Employment ------------------ (a) The term of Employee's employment under this Agreement shall be deemed to have commenced as of June 30, 1999 and shall continue until December 31, 2001 (the "Term"). (b) In no event shall this Agreement be extended beyond December 31, 2001, except that the parties may agree in writing to continue Employee's employment beyond such date and nothing herein shall be deemed to require the retirement of Employee at any particular age. 4. Disability/Termination ---------------------- (a) If Employee is unable to perform his duties for a period of one hundred eighty (180) days due to a physical, mental or other medical disability and the Board of Directors of BGC finds, on the basis of medical evidence satisfactory to the Board by two-thirds vote, that the Employee is suffering such a disability so as to be prevented from reasonably performing his duties under this Agreement, BGC may terminate Employee's employment, provided that in the event of such termination BGC shall continue to pay Employee his then current annual salary and continue to make available all benefits provided hereunder (including any applicable benefits provided for in Section 1(c) above) for the remainder of the Term. At the expiration of such Term, Employee shall be eligible to retire with the benefit of all then existing retirement and pension programs of BGC. (b) In the event that BGC's termination of Employee's employment is made at any time with Good Cause as defined in paragraph 5 below, or is effected by resignation of the Employee, the parties' obligations under this paragraph 4 shall cease, except for and subject to the provision of paragraph l(c) above that this Agreement and its termination have no effect on other plans or agreements between the parties. (c) In the event of the Employee's death during any payment period specified in subparagraph (a) of this paragraph 4 above, and Employee dies before such payment is made, any and all such payments shall be made to Employee's designated beneficiary. (d) In the event a Change in Control (as defined in paragraph 6 below) occurs during the term of this Agreement and Employee's employment is terminated without Good Cause or by the voluntary resignation of Employee within 90 days of such Change in Control, then BGC (or any successor entity after the Change in Control) shall provide Employee a severance benefit as follows: 1) BGC shall pay Employee three times (3x) his total annual cash compensation, which total annual cash compensation shall be determined by summing (a) the Employee's then current annual salary at the time of the Change in Control and (b) his cash bonus for the most recent year preceding such Change in Control; 2) the Employee shall have the right to exercise all stock options held by him immediately upon the date of his termination; and 3) BGC shall continue to offer Employee all medical, dental and disability benefits at the same cost to the Employee as in effect prior to the Change in Control through December 31, 2001. Further, in the event of a termination without Good Cause relating to any such Change in Control, Employee shall retain any and all retirement or pension benefits, including benefits under any supplemental executive retirement plan, to which he would be entitled in the event he was employed for the full Term hereof. (e) In the event that it is determined that any payment or distribution of any type to or for the benefit of the Employee made by the Company, by any of its affiliates (including Resources), by any person who acquires ownership or effective control or ownership of a substantial portion of the Company's (or Resources) assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code")) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of a severance agreement or otherwise, including the severance benefit provided for in Section 4(d) hereof, (the "Total Payments"), would be subject to the excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (an "Excise Tax Restoration Payment") in an amount that shall fund the payment by the Employee of any Excise Tax on the Total Payments as well as all income taxes imposed on the Excise Tax Restoration Payment or any Excise Tax. Employee shall also be entitled to reimbursement for the cost of tax preparation, consultation and representation required in connection with the application of any such Excise Tax. 5. Good Cause ---------- (a) Discharge from or termination of employment of Employee by BGC for "Good Cause" shall require a finding by the Board of Directors evidenced by a vote of 75% of the Board of: (i) the willful and continued failure by Employee to substantially perform his duties with BGC after a demand for substantial performance is delivered to Employee by the Chief Executive Officer and/or Board of Directors of the Company which specifically identifies the manner in which such Chief Executive Officer and/or Board of Directors believes that Employee has not substantially performed his duties, or (ii) the willful engaging by Employee in misconduct which is materially injurious to BGC, monetarily or otherwise. For purposes of this subparagraph (a), no act, or failure to act, on the part of Employee shall be considered "willful" unless done, or admitted to be done by Employee not in good faith and without reasonable belief that the action or omission of Employee was in the best interest of BGC. Employee's failure to perform any duties due to physical or mental incapacity shall not be deemed willful, but in certain cases of incapacity, employment hereunder may be terminated in accordance with the procedures set forth in paragraph 4. (b) Notwithstanding the foregoing provisions of subparagraph (a), above, Employee shall not be deemed to have been terminated for Good Cause unless and until there shall have been delivered to Employee a copy of a notice of termination containing the aforesaid finding and specifying in detail the particulars thereof from the Board of Directors of BGC after reasonable notice to Employee and an opportunity for Employee, together with his counsel, to be heard before the Board of Directors. If Employee shall incur legal fees and expenses in contesting any termination of employment asserted by BGC to have been for Good Cause including, without limitation thereto, those incurred for any such hearing, then Employee shall be entitled to payment or reimbursement for such legal fees and costs as are reasonable. 6. Change in Control. ------------------ The term, "Change in Control", shall mean the occurrence of any of the following: (a) The Company or Resources receives a report on Schedule 13D filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Exchange Act"), disclosing that any person, group, corporation or other entity (other than BGC) is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the outstanding common stock of the Company or Resources; (b) Any Person (as such term is defined in Section 13(d) of the Exchange Act), group, corporation or other entity other than Resources or a wholly-owned subsidiary of Resources, purchases shares pursuant to a tender offer or exchange offer to acquire any common stock of Resources (or securities convertible into common stock) for cash, securities or any other consideration, provided that after consummation of the offer, the Person, group, corporation or other entity in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of the outstanding common stock of Resources (calculated as provided in paragraph (d) of Rule 13d-3 under the Exchange Act in the case of rights to acquire common stock); or (c) The stockholders of the Company or Resources, as applicable, approve (i) any consolidation or merger of the Company or Resources, in which the Company or Resources, as applicable, is not the continuing or surviving corporation or pursuant to which shares of common stock of the Company or Resources would be converted into cash, securities or other property, (ii) any acquisition, combination or merger of the Company or Resources, as applicable, by or with another corporation in which, immediately after such acquisition, combination or merger, less than a majority of the outstanding voting shares (or less than a majority of any combination of such voting shares, warrants, options, convertible securities or the like as may represent control) of the parent or surviving corporation are owned by the owners of the voting shares of the Company or Resources, as applicable, outstanding immediately prior to such acquisition, combination or merger, (iii) a complete liquidation or dissolution of the Company or Resources, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company or Resources. 7. Effect of Other Agreements -------------------------- This Agreement contains the entire understanding between the parties and supercedes any prior employment agreement between Employee and BGC; provided, however, this Agreement shall not have any effect on any understandings between the parties on such matters as insurance, supplemental retirement plans and other benefits. Without limiting the foregoing, upon the execution of this Agreement, the Employment Agreement between BGC and Employee dated June 13, 1985 and effective as of June 5, 1985, as amended on July 16, 1998, shall be terminated and this Agreement shall be in effect in lieu thereof. 8. General Provisions ------------------ (a) Nonassignability. Neither this Agreement nor any right or interest hereunder shall be assigned by Employee, his beneficiaries, or legal representative, without BGC's prior written consent. (b) 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. (c) Binding Agreement. This Agreement shall be binding upon and inure to the benefit of Employee and BGC and their respective permitted successors and assigns. If a merger, consolidation or sale of assets occurs, this Agreement shall be expressly assumed and adopted by the successor entity or person and shall be re-executed thereby. (d) Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (e) Beneficiary. Employee hereby designates as his beneficiary under this Agreement, the Scott S. Robinson Revocable Trust, under agreement dated as of April 9, 1996, provided that Employee may change his beneficiary, or provide for alternate beneficiaries, at any time by notifying BGC in writing of such change, and no consent shall be required from the beneficiary or from BGC. (f) Headings. The headings or paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. (g) Severability. All provisions hereof are severable and if any provision is determined to be unenforceable, no other provision shall be affected thereby. (h) Governing Law. This Agreement has been executed and delivered in the Commonwealth of Massachusetts and its validity, interpretation, performance, and enforcement shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, BGC has caused this Agreement to be executed and its seal to be affixed hereto by its agents thereunto duly authorized, and Employee has signed this Agreement, all as of June __, 1999. THE BERKSHIRE GAS COMPANY /s/ Cheryl M. Clark By: /s/ Michael J. Marrone - -------------------- ----------------------- Witness Vice President, Treasurer & CFO /s/ Cheryl M. Clark /s/ Scott S. Robinson Witness Employee EX-10 5 EXHIBIT 10(Q) Exhibit 10(q) THE BERKSHIRE GAS COMPANY SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT, dated this 9th day of June, 1999 (the "Agreement"), by and between THE BERKSHIRE GAS COMPANY, a Massachusetts Corporation (herein referred to as the "Company"), AND CHERYL M. CLARK having an address at 1645 DUBLIN ROAD, RICHMOND, MA 01254 (the "Employee"). W I T N E S S E T H T H A T: WHEREAS, the Employee is an Employee of the Company and an integral part of its management who participates in the decision-making process relating to short-and-long-term planning and policy for the Company; WHEREAS, the Company is a wholly owned subsidiary of Berkshire Energy Resources, a Massachusetts Business Trust (hereinafter referred to as the "Parent"); and WHEREAS, the Board of Trustees of Parent (the "Board"), at its meeting on June 9, 1999, determined that it would be in the best interests of the Company, its shareholder and the Employee to ensure continuity in the management of the Company's administration and operations in the event of a Change of Control (as defined in Section 3) by entering into a Severance Agreement to retain the services of the Employee. NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Nature of Agreement. In order to induce the Employee to remain in the employ of the Company and to provide continued services to the Company now and in the event that a Change of Control is imminent or occurring, this Agreement sets forth severance benefits that the Company shall pay the Employee, after the occurrence of a Change in Control, in the event of the Employee's termination of his or her employment for Good Reason (as defined in Section 4) or for any reason other than Cause (as defined in Section 4), disability, death or retirement. 2. Terms: (1) Term of Agreement. The initial term of this Agreement shall commence immediately upon the date hereof and continue in full force for a period of thirty-six (36) calendar months. (2) Extensions. This Agreement shall be subject to review annually by the Board prior to June 30th each year. As part of such annual review, the Board shall consider whether to extend the term of this Agreement for an additional year. Unless the Board affirmatively votes at such review not to extend the term of this Agreement, the term of this Agreement shall be extended automatically for a period of twelve months from the previously effective termination date. In the event that the Board votes not to extend the terms of this Agreement, the termination date of this Agreement shall be the later of thirty-six (36) months from the effective date of this Agreement or thirty-six (36) months from the June 30th of the year in which this Agreement was most recently extended; provided, however, that this Agreement shall expire automatically and with no requirement of notice or action by either party, on the third anniversary of a Change of Control, unless earlier terminated as provided in this Agreement. The Company shall give the Employee prompt notice of any such vote to terminate this Agreement. 3. Change in Control. The term, "Change in Control", shall mean the occurrence of any of the following: (1) The Company or Parent receives a report on Schedule 13D filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Exchange Act"), disclosing that any person, group, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the outstanding shares of the Company or Parent; (2) Any Person (as such term is defined in Section 13(d) of the Exchange Act), group, corporation or other entity other than the Company or Parent or a wholly-owned subsidiary of the Company or Parent, purchases shares pursuant to a tender offer or exchange offer to acquire any shares of the Company or Parent (or securities convertible into shares) for cash, securities or any other consideration, provided that after consummation of the offer, the Person, group, corporation or other entity in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of the outstanding shares of the Company or Parent (calculated as provided in Paragraph (d) of the Rule 13d-3 under the Exchange Act in the case of rights to acquire shares); or (3) The shareholders of the Company or Parent approve (i) any consolidation or merger of the Company or Parent in which the Company or Parent is not the continuing or surviving corporation or pursuant to which shares of the Company or Parent would be converted into cash, securities or other property, (ii) any acquisition, combination or merger of the Company or Parent by or with another corporation in which, immediately after such acquisition, combination or merger, less than a majority of the outstanding voting shares (or less than a majority of any combination of such voting shares, warrants, options, convertible securities or the like as may represent control) of the parent or surviving corporation are owned by the owners of the voting shares of the Company or Parent outstanding immediately prior to such acquisition, combination or merger, (iii) a complete liquidation or dissolution of the Company or Parent, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company or Parent. 4. Severance Benefit: (1) Amount. If, within twenty-four (24) months after a Change of Control of the Company, the Employee is discharged without Cause or resigns for Good Reason (as defined below), the Company shall pay to the Employee, on a monthly basis, a severance benefit in an amount equal to one thirtieth (1/30th) of 250% of the Employee's then current annual salary plus prior year's cash bonus, continuing for a period of thirty (30) months. Severance benefits payable hereunder shall not be considered in the computation of pension benefits payable under the Company's pension plan or benefits payable under the Supplemental Executive Retirement Plan. All stock options held by Employee as of the date of a Change of Control shall become immediately exercisable. (2) Good Reason. If any one or more of the following events occur within twenty-four (24) months after a Change of Control, the Employee may voluntarily terminate his or her employment within thirty (30) days of the occurrence of such event and be entitled to the severance benefits set forth in Sections 4 and 5 of this Agreement: (1) Employee in his or her sole discretion elects to terminate their employment with the Company for any reason whatsoever within ninety (90) days of a Change of Control. (2) the Company assigns any duties to the Employee that are substantially different from the Employee's position, duties, offices, titles, responsibilities, reporting requirements or status with the Company immediately prior to the Change of Control; (3) the Company reduces the Employee's base salary, including deferrals, as in effect immediately prior to the Change of Control; (4) the Company discontinues any bonus or other compensation plans or any other benefit, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health plan, disability plan or similar plan (as the same existed immediately prior to the Change of Control) in which the Employee participated or was eligible to participate immediately prior to the Change of Control and in lieu thereof does not make available plans providing at least comparable benefits, or fails to provide the Employee with the number of paid vacations days to which the Employee was entitled in accordance with normal vacation policy immediately prior to the Change of Control; (5) the Company takes action which adversely affects the Employee's participation in, or eligibility for, or materially reduces the Employee's benefits under, any of the plans described in subsection (iv) above, or which deprives the Employee of any material fringe benefit enjoyed by the Employee immediately prior to the Change of Control; (6) the Company requires the Employee to be based at any office or location other than one within a fifty (50) mile radius of the Company's headquarters in Pittsfield, Massachusetts; (7) the Company purports to terminate the Employee otherwise than for Cause (as defined below); or (8) the Company fails to comply with and satisfy the terms of Section 12 hereof, provided that such successor has received at least ten (10) days' prior written notice from the Company or from the Employee of the terms of Section 12. (3) Cause. Cause shall mean: dishonesty, misfeasance which substantially interferes with the orderly business of the Company or any of its affiliates, action that directly or indirectly causes the Company or its affiliates to suffer substantial loss or damage, refusal to follow or material neglect of reasonable requests of the Company made pursuant to this Agreement, conduct that substantially interferes with or damages the standing or reputation of the Company or any of its affiliates, conviction of a felony or crime involving an act of moral turpitude, or any reason constituting "Cause" or "Good Cause" for the Employee's termination by the Company set forth in the Employee's employment agreement, if any, with the Company. (4) Notice of Termination. Any termination of the Employee's employment by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in the Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the fact and circumstances claimed to provide a basis for termination of employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such Notice of Termination, specifies the termination date (which date shall be not more than thirty (30) days after the date the Notice of Termination is received). (5) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days after the date of the Notice of Termination is received), as the case may be, (ii) if the Employee is terminated by the Company other than for Cause, retirement or disability, the date on which the Company notifies the Employee of such termination, and (iii) if the Employee is terminated by reason of death, retirement or disability, the date of the Employee's death or retirement, or the date the Employee is determined to have a disability, as the case may be. (6) Retirement, Disability or Death. If the Employee's employment is terminated due to retirement or disability, or in the event of the Employee's death while still employed, no severance benefits under this Agreement shall be paid, regardless of any occurrence of a Change of Control. If, in the judgment of the Board, the Employee shall become physically or mentally incapacitated and as a result thereof shall become unable to continue the proper performance of the Employee's duties (reasonable absences because of such incapacity for up to one hundred and eighty (180) consecutive days excepted), or if the Employee retires or is deceased while employed by the Company, this Agreement shall thereupon cease and terminate. (7) Excise Tax Restoration Payment. In the event that it is determined that any payment or distribution of any type to or for the benefit of the Employee made by the Company, by any of its affiliates, by any person who acquires ownership or effective control or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code")) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of a severance agreement or otherwise (the "Total Payments"), would be subject to the excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (an "Excise Tax Restoration Payment") in an amount that shall fund the payment by the Employee of any Excise Tax on the Total Payments as well as all income taxes imposed on the Excise Tax Restoration Payment, any Excise Tax imposed on the Excise Tax Restoration or any Excise Tax. Employee shall also be entitled to reimbursement for the cost of tax preparation, consultation and representation required in connection with the application of any such Excise Tax. (8) Executive Retiree health Plan. Notwithstanding any provision of this Agreement, Employee and Employee's spouse shall retain eligibility under that certain Executive Retiree Health Plan, dated August 25, 1998, in the event Employee's employment with the Company is terminated, voluntarily or involuntarily, subsequent to a Change of Control, provided that the date of any such termination is within thirty (30) months of Employee's early retirement date as defined under the Company's defined benefit pension plan. 5. Additional Benefits. Nothing in the Agreement shall affect the Employee's eligibility to participate in all group health, dental, hospitalization, life, travel or accident or other insurance plans or programs and all other perquisites (including the use of a Company-owned car where applicable), fringe benefit or retirement plans or additional compensation, which the Company or any subsidiary of the Company may hereafter, in its or their sole and absolute discretion, elect to make available to the senior management employees of the Company generally, and the Employee shall be eligible to receive, during the period of employment under this Agreement, all benefits and emoluments for which key employees are eligible under every such plan, program, perquisite or arrangement to the extent permissible under the general terms and provision thereof. Specifically, the Employee shall: (1) enjoy the rights granted under any employment contract between the Employee and the Company (except as limited below); (2) participate in The Berkshire Gas Company Retirement Plan and any related excess benefit or supplemental retirement program (hereinafter referred to collectively as the "Retirement Program"); (3) participate in any savings or thrift plan maintained by the Company; (4) participate in any stock option, stock appreciation right, equity incentive or deferred compensation plan maintained by the Company; (5) participate in the Company's death benefit plans; (6) participate in the Company's disability benefit plans; (7) participate in the Company's medical, dental and health and welfare plans; (8) participate in equivalent successor plans of the Company for which senior management employees are eligible; and (9) to be provided with such employee perquisites as may be provided under Company policy to employees with a comparable level of responsibility; provided, however, that nothing in this Agreement shall preclude the Company from amending or terminating any such plan or program, on the condition that such amendment or termination is applicable to all of the Company's senior management employees generally. For purposes of the foregoing, any plan or program maintained by any subsidiary of the Company which is made available to the senior management of the Company and its affiliates taken as a whole, shall be deemed to be a plan or program maintained by the Company. In addition, if at the time the Employee becomes entitled to a severance benefit under Section 4 the Company is providing the Employee with a leased automobile, the Employee may (at the Employee's option) elect to have such lease assigned to the Employee so that the Employee will assume all rights and obligations with regard to the lease of such automobile. Notwithstanding the foregoing or any other provision of this Agreement, the Company and the Employee intend that the severance benefit payable by the Company pursuant to this Agreement shall be in lieu of any termination pay (whether contractual, statutory or by way of legal damages for breach of contract) that may now or hereafter be provided for the Employee of for or to which the Employee may be or become eligible or entitled under any employment contract, consulting agreement or similar compensatory arrangement with the Company. 6. Source and Nature of Payments. All payments provided for in Sections 4 and 5 hereof shall be paid in cash from the general funds of the Company or any of its affiliates. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments provided pursuant to Section 4 hereof shall be deemed severance pay in consideration of the Employee's past service, and pay in consideration of the Employee's continued service from the date of this Agreement. 7. Litigation Expenses. In the event of any litigation or other proceeding between the Company and the Employee with respect to the subject matter of this Agreement and the enforcement of rights thereunder, the Company shall reimburse the Employee for all reasonable costs and expenses relating to such litigation or other proceeding as they are incurred, including reasonable attorneys' fees and expenses, regardless of whether such litigation results in any settlement or judgment or order in favor of any party; provided, however, that any claim or action initiated by the Employee relating to this Agreement shall have been made or brought after reasonable inquiry and shall be well-grounded in fact, and warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that is not interposed for any improper purpose; such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. In no event shall the Employee be required to reimburse the Company for any of the costs and expenses relating to such litigation or other proceeding. The obligation of the Company under this Section 7 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Employee, upon the expiration of this Agreement or otherwise). 8. Late or Refused Payment. If the Company refuses or fails to timely pay or provide the severance benefits specified in Sections 4 and 5 upon demand as provided in this Agreement and if such refusal or failure is not corrected within 10 business days after the Employee provides written notice to the Company concerning the refusal or failure, then the Company shall pay immediately to the Employee an additional amount equal to 50% of the severance benefit to which Employee is entitled under Sections 4 and 5 of this Agreement. 9. Taxes. The Company may withhold from any payments made under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 10. Payment Deductibility. The Company shall be obligated to pay to the Employee pursuant to Sections 4 and 5 hereof even if the Company is not entitled to deduct such severance benefit as a result of the operation of Section 280G of the Internal Revenue code of 1954 (or any successor section thereof), as amended. 11. Assignability. This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators, and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Company (except to any subsidiary or affiliate) or by the Employee. 12. Successor. The Company shall require any successor (whether direct or indirect), by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform. As used in this Agreement, "Company" shall mean the company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Mitigation and Set-Off. The Employee shall have no duty to mitigate damages under the terms of this Agreement. Moreover, the amount of any compensation (including base compensation and incentive or bonus compensation) received by Employee following the termination of the Employee's employment with the Company, whether from a subsequent full-time or part-time employer or from self-employment, shall not reduce the amount of the severance benefit that the Employee is entitled to receive under Sections 4 and 5 hereof. The Employee is under no duty to notify the Company of compensation received or to be received from such other employment. 14. Entire Understanding. This Agreement contains the entire understanding between the Company and the Employee with respect to the subject matter hereof and supersedes any prior employment agreement between the Company and the Employee. 15. Severability. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with the law continue in full force and effect. 16. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation with a net worth at least equal to that of the Company and which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term "the Company", as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 17. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, first class as follows: (1) To the Company: The Berkshire Gas Company 115 Cheshire Road Pittsfield, Massachusetts 01201 (2) To the Employee: at the address set forth at the beginning of this Agreement or to such other address as either party shall have previously specified in writing to the other. 18. 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 or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 19. Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of the Employee and the Company and their respective permitted successors and assigns. 20. Modification and Waiver. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waiver and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 21. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 22. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts, without giving effect to the choice of law provisions in effect in the Commonwealth. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officer thereunto duly authorized, and the Employee has signed this Agreement, all as of the date first above written. COMPANY: THE BERKSHIRE GAS COMPANY By: /s/ Scott S. Robinson ----------------------- its President EMPLOYEE: /s/ Cheryl M. Clark ----------------------- EX-10 6 EXHIBIT 10(R) Exhibit 10(r) THE BERKSHIRE GAS COMPANY SEVERANCE AGREEMENT ------------------- THIS SEVERANCE AGREEMENT, dated this 9th day of June, 1999 (the "Agreement"), by and between THE BERKSHIRE GAS COMPANY, a Massachusetts Corporation (herein referred to as the "Company"), AND MICHAEL J. MARRONE having an address at COLONIAL ACRES, RR#3, PITTSFIELD, MA 01201 (the "Employee"). W I T N E S S E T H T H A T: WHEREAS, the Employee is an Employee of the Company and an integral part of its management who participates in the decision-making process relating to short-and-long-term planning and policy for the Company; WHEREAS, the Company is a wholly owned subsidiary of Berkshire Energy Resources, a Massachusetts Business Trust (hereinafter referred to as the "Parent"); and WHEREAS, the Board of Trustees of Parent (the "Board"), at its meeting on June 9, 1999, determined that it would be in the best interests of the Company, its shareholder and the Employee to ensure continuity in the management of the Company's administration and operations in the event of a Change of Control (as defined in Section 3) by entering into a Severance Agreement to retain the services of the Employee. NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Nature of Agreement. In order to induce the Employee to remain in the employ of the Company and to provide continued services to the Company now and in the event that a Change of Control is imminent or occurring, this Agreement sets forth severance benefits that the Company shall pay the Employee, after the occurrence of a Change in Control, in the event of the Employee's termination of his or her employment for Good Reason (as defined in Section 4) or for any reason other than Cause (as defined in Section 4), disability, death or retirement. 2. Terms: (1) Term of Agreement. The initial term of this Agreement shall commence immediately upon the date hereof and continue in full force for a period of thirty-six (36) calendar months. (2) Extensions. This Agreement shall be subject to review annually by the Board prior to June 30th each year. As part of such annual review, the Board shall consider whether to extend the term of this Agreement for an additional year. Unless the Board affirmatively votes at such review not to extend the term of this Agreement, the term of this Agreement shall be extended automatically for a period of twelve months from the previously effective termination date. In the event that the Board votes not to extend the terms of this Agreement, the termination date of this Agreement shall be the later of thirty-six (36) months from the effective date of this Agreement or thirty-six (36) months from the June 30th of the year in which this Agreement was most recently extended; provided, however, that this Agreement shall expire automatically and with no requirement of notice or action by either party, on the third anniversary of a Change of Control, unless earlier terminated as provided in this Agreement. The Company shall give the Employee prompt notice of any such vote to terminate this Agreement. 3. Change in Control. The term, "Change in Control", shall mean the occurrence of any of the following: (1) The Company or Parent receives a report on Schedule 13D filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Exchange Act"), disclosing that any person, group, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the outstanding shares of the Company or Parent; (2) Any Person (as such term is defined in Section 13(d) of the Exchange Act), group, corporation or other entity other than the Company or Parent or a wholly-owned subsidiary of the Company or Parent, purchases shares pursuant to a tender offer or exchange offer to acquire any shares of the Company or Parent (or securities convertible into shares) for cash, securities or any other consideration, provided that after consummation of the offer, the Person, group, corporation or other entity in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of the outstanding shares of the Company or Parent (calculated as provided in Paragraph (d) of the Rule 13d-3 under the Exchange Act in the case of rights to acquire shares); or (3) The shareholders of the Company or Parent approve (i) any consolidation or merger of the Company or Parent in which the Company or Parent is not the continuing or surviving corporation or pursuant to which shares of the Company or Parent would be converted into cash, securities or other property, (ii) any acquisition, combination or merger of the Company or Parent by or with another corporation in which, immediately after such acquisition, combination or merger, less than a majority of the outstanding voting shares (or less than a majority of any combination of such voting shares, warrants, options, convertible securities or the like as may represent control) of the parent or surviving corporation are owned by the owners of the voting shares of the Company or Parent outstanding immediately prior to such acquisition, combination or merger, (iii) a complete liquidation or dissolution of the Company or Parent, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company or Parent. 4. Severance Benefit: (1) Amount. If, within twenty-four (24) months after a Change of Control of the Company, the Employee is discharged without Cause or resigns for Good Reason (as defined below), the Company shall pay to the Employee, on a monthly basis, a severance benefit in an amount equal to one thirtieth (1/30th) of 250% of the Employee's then current annual salary plus prior year's cash bonus, continuing for a period of thirty (30) months. Severance benefits payable hereunder shall not be considered in the computation of pension benefits payable under the Company's pension plan or benefits payable under the Supplemental Executive Retirement Plan. All stock options held by Employee as of the date of a Change of Control shall become immediately exercisable. (2) Good Reason. If any one or more of the following events occur within twenty-four (24) months after a Change of Control, the Employee may voluntarily terminate his or her employment within thirty (30) days of the occurrence of such event and be entitled to the severance benefits set forth in Sections 4 and 5 of this Agreement: (1) Employee in his or her sole discretion elects to terminate their employment with the Company for any reason whatsoever within ninety (90) days of a Change of Control. (2) the Company assigns any duties to the Employee that are substantially different from the Employee's position, duties, offices, titles, responsibilities, reporting requirements or status with the Company immediately prior to the Change of Control; (3) the Company reduces the Employee's base salary, including deferrals, as in effect immediately prior to the Change of Control; (4) the Company discontinues any bonus or other compensation plans or any other benefit, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health plan, disability plan or similar plan (as the same existed immediately prior to the Change of Control) in which the Employee participated or was eligible to participate immediately prior to the Change of Control and in lieu thereof does not make available plans providing at least comparable benefits, or fails to provide the Employee with the number of paid vacations days to which the Employee was entitled in accordance with normal vacation policy immediately prior to the Change of Control; (5) the Company takes action which adversely affects the Employee's participation in, or eligibility for, or materially reduces the Employee's benefits under, any of the plans described in subsection (iv) above, or which deprives the Employee of any material fringe benefit enjoyed by the Employee immediately prior to the Change of Control; (6) the Company requires the Employee to be based at any office or location other than one within a fifty (50) mile radius of the Company's headquarters in Pittsfield, Massachusetts; (7) the Company purports to terminate the Employee otherwise than for Cause (as defined below); or (8) the Company fails to comply with and satisfy the terms of Section 12 hereof, provided that such successor has received at least ten (10) days' prior written notice from the Company or from the Employee of the terms of Section 12. (3) Cause. Cause shall mean: dishonesty, misfeasance which substantially interferes with the orderly business of the Company or any of its affiliates, action that directly or indirectly causes the Company or its affiliates to suffer substantial loss or damage, refusal to follow or material neglect of reasonable requests of the Company made pursuant to this Agreement, conduct that substantially interferes with or damages the standing or reputation of the Company or any of its affiliates, conviction of a felony or crime involving an act of moral turpitude, or any reason constituting "Cause" or "Good Cause" for the Employee's termination by the Company set forth in the Employee's employment agreement, if any, with the Company. (4) Notice of Termination. Any termination of the Employee's employment by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in the Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the fact and circumstances claimed to provide a basis for termination of employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such Notice of Termination, specifies the termination date (which date shall be not more than thirty (30) days after the date the Notice of Termination is received). (5) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days after the date of the Notice of Termination is received), as the case may be, (ii) if the Employee is terminated by the Company other than for Cause, retirement or disability, the date on which the Company notifies the Employee of such termination, and (iii) if the Employee is terminated by reason of death, retirement or disability, the date of the Employee's death or retirement, or the date the Employee is determined to have a disability, as the case may be. (6) Retirement, Disability or Death. If the Employee's employment is terminated due to retirement or disability, or in the event of the Employee's death while still employed, no severance benefits under this Agreement shall be paid, regardless of any occurrence of a Change of Control. If, in the judgment of the Board, the Employee shall become physically or mentally incapacitated and as a result thereof shall become unable to continue the proper performance of the Employee's duties (reasonable absences because of such incapacity for up to one hundred and eighty (180) consecutive days excepted), or if the Employee retires or is deceased while employed by the Company, this Agreement shall thereupon cease and terminate. (7) Excise Tax Restoration Payment. In the event that it is determined that any payment or distribution of any type to or for the benefit of the Employee made by the Company, by any of its affiliates, by any person who acquires ownership or effective control or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code")) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of a severance agreement or otherwise (the "Total Payments"), would be subject to the excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (an "Excise Tax Restoration Payment") in an amount that shall fund the payment by the Employee of any Excise Tax on the Total Payments as well as all income taxes imposed on the Excise Tax Restoration Payment, any Excise Tax imposed on the Excise Tax Restoration or any Excise Tax. Employee shall also be entitled to reimbursement for the cost of tax preparation, consultation and representation required in connection with the application of any such Excise Tax. (8) Executive Retiree health Plan. Notwithstanding any provision of this Agreement, Employee and Employee's spouse shall retain eligibility under that certain Executive Retiree Health Plan, dated August 25, 1998, in the event Employee's employment with the Company is terminated, voluntarily or involuntarily, subsequent to a Change of Control, provided that the date of any such termination is within thirty (30) months of Employee's early retirement date as defined under the Company's defined benefit pension plan. 5. Additional Benefits. Nothing in the Agreement shall affect the Employee's eligibility to participate in all group health, dental, hospitalization, life, travel or accident or other insurance plans or programs and all other perquisites (including the use of a Company-owned car where applicable), fringe benefit or retirement plans or additional compensation, which the Company or any subsidiary of the Company may hereafter, in its or their sole and absolute discretion, elect to make available to the senior management employees of the Company generally, and the Employee shall be eligible to receive, during the period of employment under this Agreement, all benefits and emoluments for which key employees are eligible under every such plan, program, perquisite or arrangement to the extent permissible under the general terms and provision thereof. Specifically, the Employee shall: (1) enjoy the rights granted under any employment contract between the Employee and the Company (except as limited below); (2) participate in The Berkshire Gas Company Retirement Plan and any related excess benefit or supplemental retirement program (hereinafter referred to collectively as the "Retirement Program"); (3) participate in any savings or thrift plan maintained by the Company; (4) participate in any stock option, stock appreciation right, equity incentive or deferred compensation plan maintained by the Company; (5) participate in the Company's death benefit plans; (6) participate in the Company's disability benefit plans; (7) participate in the Company's medical, dental and health and welfare plans; (8) participate in equivalent successor plans of the Company for which senior management employees are eligible; and (9) to be provided with such employee perquisites as may be provided under Company policy to employees with a comparable level of responsibility; provided, however, that nothing in this Agreement shall preclude the Company from amending or terminating any such plan or program, on the condition that such amendment or termination is applicable to all of the Company's senior management employees generally. For purposes of the foregoing, any plan or program maintained by any subsidiary of the Company which is made available to the senior management of the Company and its affiliates taken as a whole, shall be deemed to be a plan or program maintained by the Company. In addition, if at the time the Employee becomes entitled to a severance benefit under Section 4 the Company is providing the Employee with a leased automobile, the Employee may (at the Employee's option) elect to have such lease assigned to the Employee so that the Employee will assume all rights and obligations with regard to the lease of such automobile. Notwithstanding the foregoing or any other provision of this Agreement, the Company and the Employee intend that the severance benefit payable by the Company pursuant to this Agreement shall be in lieu of any termination pay (whether contractual, statutory or by way of legal damages for breach of contract) that may now or hereafter be provided for the Employee of for or to which the Employee may be or become eligible or entitled under any employment contract, consulting agreement or similar compensatory arrangement with the Company. 6. Source and Nature of Payments. All payments provided for in Sections 4 and 5 hereof shall be paid in cash from the general funds of the Company or any of its affiliates. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments provided pursuant to Section 4 hereof shall be deemed severance pay in consideration of the Employee's past service, and pay in consideration of the Employee's continued service from the date of this Agreement. 7. Litigation Expenses. In the event of any litigation or other proceeding between the Company and the Employee with respect to the subject matter of this Agreement and the enforcement of rights thereunder, the Company shall reimburse the Employee for all reasonable costs and expenses relating to such litigation or other proceeding as they are incurred, including reasonable attorneys' fees and expenses, regardless of whether such litigation results in any settlement or judgment or order in favor of any party; provided, however, that any claim or action initiated by the Employee relating to this Agreement shall have been made or brought after reasonable inquiry and shall be well-grounded in fact, and warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that is not interposed for any improper purpose; such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. In no event shall the Employee be required to reimburse the Company for any of the costs and expenses relating to such litigation or other proceeding. The obligation of the Company under this Section 7 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Employee, upon the expiration of this Agreement or otherwise). 8. Late or Refused Payment. If the Company refuses or fails to timely pay or provide the severance benefits specified in Sections 4 and 5 upon demand as provided in this Agreement and if such refusal or failure is not corrected within 10 business days after the Employee provides written notice to the Company concerning the refusal or failure, then the Company shall pay immediately to the Employee an additional amount equal to 50% of the severance benefit to which Employee is entitled under Sections 4 and 5 of this Agreement. 9. Taxes. The Company may withhold from any payments made under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 10. Payment Deductibility. The Company shall be obligated to pay to the Employee pursuant to Sections 4 and 5 hereof even if the Company is not entitled to deduct such severance benefit as a result of the operation of Section 280G of the Internal Revenue code of 1954 (or any successor section thereof), as amended. 11. Assignability. This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators, and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Company (except to any subsidiary or affiliate) or by the Employee. 12. Successor. The Company shall require any successor (whether direct or indirect), by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform. As used in this Agreement, "Company" shall mean the company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Mitigation and Set-Off. The Employee shall have no duty to mitigate damages under the terms of this Agreement. Moreover, the amount of any compensation (including base compensation and incentive or bonus compensation) received by Employee following the termination of the Employee's employment with the Company, whether from a subsequent full-time or part-time employer or from self-employment, shall not reduce the amount of the severance benefit that the Employee is entitled to receive under Sections 4 and 5 hereof. The Employee is under no duty to notify the Company of compensation received or to be received from such other employment. 14. Entire Understanding. This Agreement contains the entire understanding between the Company and the Employee with respect to the subject matter hereof and supersedes any prior employment agreement between the Company and the Employee. 15. Severability. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with the law continue in full force and effect. 16. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation with a net worth at least equal to that of the Company and which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term "the Company", as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 17. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, first class as follows: (1) To the Company: The Berkshire Gas Company 115 Cheshire Road Pittsfield, Massachusetts 01201 (2) To the Employee: at the address set forth at the beginning of this Agreement or to such other address as either party shall have previously specified in writing to the other. 18. 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 or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 19. Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of the Employee and the Company and their respective permitted successors and assigns. 20. Modification and Waiver. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waiver and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 21. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 22. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts, without giving effect to the choice of law provisions in effect in the Commonwealth. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officer thereunto duly authorized, and the Employee has signed this Agreement, all as of the date first above written. COMPANY: THE BERKSHIRE GAS COMPANY By: /s/ Scott S. Robinson ---------------------- its President EMPLOYEE: /s/ Michael J. Marrone ----------------------- EX-10 7 EXHIBIT 10(S) Exhibit 10(s) THE BERKSHIRE GAS COMPANY SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT, dated this 9th day of June, 1999 (the "Agreement"), by and between THE BERKSHIRE GAS COMPANY, a Massachusetts Corporation (herein referred to as the "Company"), AND ROBERT M. ALLESSIO having an address at 180 RAYMOND DRIVE, DALTON, MA 01226 (the "Employee"). W I T N E S S E T H T H A T: WHEREAS, the Employee is an Employee of the Company and an integral part of its management who participates in the decision-making process relating to short-and-long-term planning and policy for the Company; WHEREAS, the Company is a wholly owned subsidiary of Berkshire Energy Resources, a Massachusetts Business Trust (hereinafter referred to as the "Parent"); and WHEREAS, the Board of Trustees of Parent (the "Board"), at its meeting on June 9, 1999, determined that it would be in the best interests of the Company, its shareholder and the Employee to ensure continuity in the management of the Company's administration and operations in the event of a Change of Control (as defined in Section 3) by entering into a Severance Agreement to retain the services of the Employee. NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Nature of Agreement. In order to induce the Employee to remain in the employ of the Company and to provide continued services to the Company now and in the event that a Change of Control is imminent or occurring, this Agreement sets forth severance benefits that the Company shall pay the Employee, after the occurrence of a Change in Control, in the event of the Employee's termination of his or her employment for Good Reason (as defined in Section 4) or for any reason other than Cause (as defined in Section 4), disability, death or retirement. 2. Terms: (1) Term of Agreement. The initial term of this Agreement shall commence immediately upon the date hereof and continue in full force for a period of thirty-six (36) calendar months. (2) Extensions. This Agreement shall be subject to review annually by the Board prior to June 30th each year. As part of such annual review, the Board shall consider whether to extend the term of this Agreement for an additional year. Unless the Board affirmatively votes at such review not to extend the term of this Agreement, the term of this Agreement shall be extended automatically for a period of twelve months from the previously effective termination date. In the event that the Board votes not to extend the terms of this Agreement, the termination date of this Agreement shall be the later of thirty-six (36) months from the effective date of this Agreement or thirty-six (36) months from the June 30th of the year in which this Agreement was most recently extended; provided, however, that this Agreement shall expire automatically and with no requirement of notice or action by either party, on the third anniversary of a Change of Control, unless earlier terminated as provided in this Agreement. The Company shall give the Employee prompt notice of any such vote to terminate this Agreement. 3. Change in Control. The term, "Change in Control", shall mean the occurrence of any of the following: (1) The Company or Parent receives a report on Schedule 13D filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "Exchange Act"), disclosing that any person, group, corporation or other entity is the beneficial owner, directly or indirectly, of twenty-five percent (25%) or more of the outstanding shares of the Company or Parent; (2) Any Person (as such term is defined in Section 13(d) of the Exchange Act), group, corporation or other entity other than the Company or Parent or a wholly-owned subsidiary of the Company or Parent, purchases shares pursuant to a tender offer or exchange offer to acquire any shares of the Company or Parent (or securities convertible into shares) for cash, securities or any other consideration, provided that after consummation of the offer, the Person, group, corporation or other entity in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of the outstanding shares of the Company or Parent (calculated as provided in Paragraph (d) of the Rule 13d-3 under the Exchange Act in the case of rights to acquire shares); or (3) The shareholders of the Company or Parent approve (i) any consolidation or merger of the Company or Parent in which the Company or Parent is not the continuing or surviving corporation or pursuant to which shares of the Company or Parent would be converted into cash, securities or other property, (ii) any acquisition, combination or merger of the Company or Parent by or with another corporation in which, immediately after such acquisition, combination or merger, less than a majority of the outstanding voting shares (or less than a majority of any combination of such voting shares, warrants, options, convertible securities or the like as may represent control) of the parent or surviving corporation are owned by the owners of the voting shares of the Company or Parent outstanding immediately prior to such acquisition, combination or merger, (iii) a complete liquidation or dissolution of the Company or Parent, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company or Parent. 4. Severance Benefit: (1) Amount. If, within twenty-four (24) months after a Change of Control of the Company, the Employee is discharged without Cause or resigns for Good Reason (as defined below), the Company shall pay to the Employee, on a monthly basis, a severance benefit in an amount equal to one thirtieth (1/30th) of 250% of the Employee's then current annual salary plus prior year's cash bonus, continuing for a period of thirty (30) months. Severance benefits payable hereunder shall not be considered in the computation of pension benefits payable under the Company's pension plan or benefits payable under the Supplemental Executive Retirement Plan. All stock options held by Employee as of the date of a Change of Control shall become immediately exercisable. (2) Good Reason. If any one or more of the following events occur within twenty-four (24) months after a Change of Control, the Employee may voluntarily terminate his or her employment within thirty (30) days of the occurrence of such event and be entitled to the severance benefits set forth in Sections 4 and 5 of this Agreement: (1) Employee in his or her sole discretion elects to terminate their employment with the Company for any reason whatsoever within ninety (90) days of a Change of Control. (2) the Company assigns any duties to the Employee that are substantially different from the Employee's position, duties, offices, titles, responsibilities, reporting requirements or status with the Company immediately prior to the Change of Control; (3) the Company reduces the Employee's base salary, including deferrals, as in effect immediately prior to the Change of Control; (4) the Company discontinues any bonus or other compensation plans or any other benefit, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health plan, disability plan or similar plan (as the same existed immediately prior to the Change of Control) in which the Employee participated or was eligible to participate immediately prior to the Change of Control and in lieu thereof does not make available plans providing at least comparable benefits, or fails to provide the Employee with the number of paid vacations days to which the Employee was entitled in accordance with normal vacation policy immediately prior to the Change of Control; (5) the Company takes action which adversely affects the Employee's participation in, or eligibility for, or materially reduces the Employee's benefits under, any of the plans described in subsection (iv) above, or which deprives the Employee of any material fringe benefit enjoyed by the Employee immediately prior to the Change of Control; (6) the Company requires the Employee to be based at any office or location other than one within a fifty (50) mile radius of the Company's headquarters in Pittsfield, Massachusetts; (7) the Company purports to terminate the Employee otherwise than for Cause (as defined below); or (8) the Company fails to comply with and satisfy the terms of Section 12 hereof, provided that such successor has received at least ten (10) days' prior written notice from the Company or from the Employee of the terms of Section 12. (3) Cause. Cause shall mean: dishonesty, misfeasance which substantially interferes with the orderly business of the Company or any of its affiliates, action that directly or indirectly causes the Company or its affiliates to suffer substantial loss or damage, refusal to follow or material neglect of reasonable requests of the Company made pursuant to this Agreement, conduct that substantially interferes with or damages the standing or reputation of the Company or any of its affiliates, conviction of a felony or crime involving an act of moral turpitude, or any reason constituting "Cause" or "Good Cause" for the Employee's termination by the Company set forth in the Employee's employment agreement, if any, with the Company. (4) Notice of Termination. Any termination of the Employee's employment by the Company for Cause, or by the Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in the Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the fact and circumstances claimed to provide a basis for termination of employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such Notice of Termination, specifies the termination date (which date shall be not more than thirty (30) days after the date the Notice of Termination is received). (5) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (but not more than thirty (30) days after the date of the Notice of Termination is received), as the case may be, (ii) if the Employee is terminated by the Company other than for Cause, retirement or disability, the date on which the Company notifies the Employee of such termination, and (iii) if the Employee is terminated by reason of death, retirement or disability, the date of the Employee's death or retirement, or the date the Employee is determined to have a disability, as the case may be. (6) Retirement, Disability or Death. If the Employee's employment is terminated due to retirement or disability, or in the event of the Employee's death while still employed, no severance benefits under this Agreement shall be paid, regardless of any occurrence of a Change of Control. If, in the judgment of the Board, the Employee shall become physically or mentally incapacitated and as a result thereof shall become unable to continue the proper performance of the Employee's duties (reasonable absences because of such incapacity for up to one hundred and eighty (180) consecutive days excepted), or if the Employee retires or is deceased while employed by the Company, this Agreement shall thereupon cease and terminate. (7) Excise Tax Restoration Payment. In the event that it is determined that any payment or distribution of any type to or for the benefit of the Employee made by the Company, by any of its affiliates, by any person who acquires ownership or effective control or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code")) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of a severance agreement or otherwise (the "Total Payments"), would be subject to the excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (an "Excise Tax Restoration Payment") in an amount that shall fund the payment by the Employee of any Excise Tax on the Total Payments as well as all income taxes imposed on the Excise Tax Restoration Payment, any Excise Tax imposed on the Excise Tax Restoration or any Excise Tax. Employee shall also be entitled to reimbursement for the cost of tax preparation, consultation and representation required in connection with the application of any such Excise Tax. (8) Executive Retiree health Plan. Notwithstanding any provision of this Agreement, Employee and Employee's spouse shall retain eligibility under that certain Executive Retiree Health Plan, dated August 25, 1998, in the event Employee's employment with the Company is terminated, voluntarily or involuntarily, subsequent to a Change of Control, provided that the date of any such termination is within thirty (30) months of Employee's early retirement date as defined under the Company's defined benefit pension plan. 5. Additional Benefits. Nothing in the Agreement shall affect the Employee's eligibility to participate in all group health, dental, hospitalization, life, travel or accident or other insurance plans or programs and all other perquisites (including the use of a Company-owned car where applicable), fringe benefit or retirement plans or additional compensation, which the Company or any subsidiary of the Company may hereafter, in its or their sole and absolute discretion, elect to make available to the senior management employees of the Company generally, and the Employee shall be eligible to receive, during the period of employment under this Agreement, all benefits and emoluments for which key employees are eligible under every such plan, program, perquisite or arrangement to the extent permissible under the general terms and provision thereof. Specifically, the Employee shall: (1) enjoy the rights granted under any employment contract between the Employee and the Company (except as limited below); (2) participate in The Berkshire Gas Company Retirement Plan and any related excess benefit or supplemental retirement program (hereinafter referred to collectively as the "Retirement Program"); (3) participate in any savings or thrift plan maintained by the Company; (4) participate in any stock option, stock appreciation right, equity incentive or deferred compensation plan maintained by the Company; (5) participate in the Company's death benefit plans; (6) participate in the Company's disability benefit plans; (7) participate in the Company's medical, dental and health and welfare plans; (8) participate in equivalent successor plans of the Company for which senior management employees are eligible; and (9) to be provided with such employee perquisites as may be provided under Company policy to employees with a comparable level of responsibility; provided, however, that nothing in this Agreement shall preclude the Company from amending or terminating any such plan or program, on the condition that such amendment or termination is applicable to all of the Company's senior management employees generally. For purposes of the foregoing, any plan or program maintained by any subsidiary of the Company which is made available to the senior management of the Company and its affiliates taken as a whole, shall be deemed to be a plan or program maintained by the Company. In addition, if at the time the Employee becomes entitled to a severance benefit under Section 4 the Company is providing the Employee with a leased automobile, the Employee may (at the Employee's option) elect to have such lease assigned to the Employee so that the Employee will assume all rights and obligations with regard to the lease of such automobile. Notwithstanding the foregoing or any other provision of this Agreement, the Company and the Employee intend that the severance benefit payable by the Company pursuant to this Agreement shall be in lieu of any termination pay (whether contractual, statutory or by way of legal damages for breach of contract) that may now or hereafter be provided for the Employee of for or to which the Employee may be or become eligible or entitled under any employment contract, consulting agreement or similar compensatory arrangement with the Company. 6. Source and Nature of Payments. All payments provided for in Sections 4 and 5 hereof shall be paid in cash from the general funds of the Company or any of its affiliates. The Company shall not be required to establish a special or separate fund or other segregation of assets to ensure such payments. All payments provided pursuant to Section 4 hereof shall be deemed severance pay in consideration of the Employee's past service, and pay in consideration of the Employee's continued service from the date of this Agreement. 7. Litigation Expenses. In the event of any litigation or other proceeding between the Company and the Employee with respect to the subject matter of this Agreement and the enforcement of rights thereunder, the Company shall reimburse the Employee for all reasonable costs and expenses relating to such litigation or other proceeding as they are incurred, including reasonable attorneys' fees and expenses, regardless of whether such litigation results in any settlement or judgment or order in favor of any party; provided, however, that any claim or action initiated by the Employee relating to this Agreement shall have been made or brought after reasonable inquiry and shall be well-grounded in fact, and warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that is not interposed for any improper purpose; such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. In no event shall the Employee be required to reimburse the Company for any of the costs and expenses relating to such litigation or other proceeding. The obligation of the Company under this Section 7 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Employee, upon the expiration of this Agreement or otherwise). 8. Late or Refused Payment. If the Company refuses or fails to timely pay or provide the severance benefits specified in Sections 4 and 5 upon demand as provided in this Agreement and if such refusal or failure is not corrected within 10 business days after the Employee provides written notice to the Company concerning the refusal or failure, then the Company shall pay immediately to the Employee an additional amount equal to 50% of the severance benefit to which Employee is entitled under Sections 4 and 5 of this Agreement. 9. Taxes. The Company may withhold from any payments made under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 10. Payment Deductibility. The Company shall be obligated to pay to the Employee pursuant to Sections 4 and 5 hereof even if the Company is not entitled to deduct such severance benefit as a result of the operation of Section 280G of the Internal Revenue code of 1954 (or any successor section thereof), as amended. 11. Assignability. This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators, and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Company (except to any subsidiary or affiliate) or by the Employee. 12. Successor. The Company shall require any successor (whether direct or indirect), by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform. As used in this Agreement, "Company" shall mean the company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Mitigation and Set-Off. The Employee shall have no duty to mitigate damages under the terms of this Agreement. Moreover, the amount of any compensation (including base compensation and incentive or bonus compensation) received by Employee following the termination of the Employee's employment with the Company, whether from a subsequent full-time or part-time employer or from self-employment, shall not reduce the amount of the severance benefit that the Employee is entitled to receive under Sections 4 and 5 hereof. The Employee is under no duty to notify the Company of compensation received or to be received from such other employment. 14. Entire Understanding. This Agreement contains the entire understanding between the Company and the Employee with respect to the subject matter hereof and supersedes any prior employment agreement between the Company and the Employee. 15. Severability. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with the law continue in full force and effect. 16. Consolidation, Merger or Sale of Assets. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation with a net worth at least equal to that of the Company and which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term "the Company", as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 17. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, first class as follows: (1) To the Company: The Berkshire Gas Company 115 Cheshire Road Pittsfield, Massachusetts 01201 (2) To the Employee: at the address set forth at the beginning of this Agreement or to such other address as either party shall have previously specified in writing to the other. 18. 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 or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 19. Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of the Employee and the Company and their respective permitted successors and assigns. 20. Modification and Waiver. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waiver and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 21. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 22. Governing Law. This Agreement and its validity, interpretation, performance and enforcement shall be governed by the laws of the Commonwealth of Massachusetts, without giving effect to the choice of law provisions in effect in the Commonwealth. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officer thereunto duly authorized, and the Employee has signed this Agreement, all as of the date first above written. COMPANY: THE BERKSHIRE GAS COMPANY By: /s/ Scott S. Robinson ---------------------- its President EMPLOYEE: /s/ Robert M. Allessio ---------------------- EX-10 8 EXHIBIT 10(T) Exhibit 10(t) BERKSHIRE ENERGY RESOURCES EXECUTIVE INCENTIVE PLAN Revised December 2, 1998 BERKSHIRE ENERGY RESOURCES -------------------------- EXECUTIVE INCENTIVE PLAN ------------------------ PLAN OBJECTIVES - --------------- The objectives of the plan are to: Promote achievement of both Corporate and operating Company goals for the benefit of customers and shareholders. The Plan is intended to provide for competitive, market-based total compensation for key employees comprised of base salary plus incentive salary that is at risk. By encouraging share ownership, the Company seeks to attract, retain and motivate highly qualified key employees, and to align the interests of key employees with the interests of shareholders and ratepayers. ELIGIBILITY - ----------- Eligibility will include Corporate officers at the Vice-President level and above, including incumbents of the following positions: President and Chief Executive Officer Vice President, Treasurer and Chief Financial Officer Vice President Utility Operations An employee joining the Company, or one who is promoted, during the plan year who would be bonus eligible based on position grade may have any earned incentive award prorated by the salary for that period. A minimum of six months service is required to earn any incentive award. The President and Chief Executive Officer of Berkshire Gas Company will be responsible for recommending changes in eligibility to the Board of Directors for review and approval. PERFORMANCE MEASURES - -------------------- Corporation performance will be measured in three categories: Shareholder interests Customer interests Board of Directors discretion Performance criteria will be weighted as follows:
Category Weighting -------- --------- Shareholder 50% Customer 25 Board 25 --- 100%
With regard to the first category (shareholder interests), there will be three specific measures of performance: Berkshire Gas annual earnings compared to budget. Total shareholder return (three-year measurement period) [for year one of the plan it shall be a one-year measurement period, for year two it shall be a two-year measurement period, and for year three, and thereafter, a three-year measurement period]. Market-to-book value of stock. Return on total shareholders' return and market-to-book value results for Berkshire Gas will be judged in relation to the peer group. (See Table C for the companies comprising the peer group) Berkshire's Board may modify the Company's plan or target level of achievement relative to the peer group. The earnings (net income) measure will be judged against the budget with 90 percent of target representing the threshold level of performance. The second performance category (customer issues), will be measured by the following: The ratio of Gross Margin to budget. This measure will ------------------------------------------------------- compare the combined total of natural gas margin and propane margin to - ----------------------------------------------------------------------- budget. - ------- Other operating and maintenance expenses. The ratio of other operating and maintenance expenses for Berkshire Gas will be judged in relation to the peer group (three-year measurement period). [For year one of the plan it shall be a one-year measurement period, and for year two it shall be a two-year measurement period, for year three, and thereafter, a three-year measurement period] The third performance category (Board discretion) will represent a broad based qualitative evaluation of management's results over the annual plan year (on both a group and individual basis). In this way, important areas which may not be directly captured in financial and operating results can be factored into the determination of incentive results. The Board's Compensation Committee and the CEO will evaluate results in key areas for each participant. Table A summarizes the performance measures and the related weightings. Berkshire Energy Resources Executive Incentive Plan Glossary of Terms Earnings versus Budget - ---------------------- This performance criterion measures the annual consolidated Earnings Per Share of Berkshire Energy Resources compared to the fiscal operating budget. Earnings Per Share: The annual consolidated Earnings per Share for the annual period ended June 30 shall be calculated by dividing the earnings available for common stock by the average number of common shares outstanding. The number of common shares shall be adjusted to reflect normalized DRIP shares as compared to budget. Weighted Performance Value: 20% Total Shareholder Return - ------------------------ This performance criterion measures the total shareholders return of Berkshire Energy Resources to the total shareholders return of the seven member Peer Group ("the Peer Group"). For year one (6/30/98) of the plan, a one year measurement period is used, for year two, a two-year measurement and year three, and thereafter, a three-year measurement period. Shareholders return: The total value of $100 invested over a five-year period, assuming the reinvestment of dividends. Measurement of return: The difference between the current year shareholder value and the base period (1,2,or 3 year) shareholder value is divided by the base period to arrive at a percentage increase or decrease. The percentages calculated for the Peer Group are averaged and compared to Berkshire Energy Resources. Sources: The latest available fiscal year published data for each of the Peer Group will be used to obtain the total shareholders return data. Weighted Performance Value: 15% Market to Book Ratio - -------------------- This performance criterion measures the market to book ratio of Berkshire Energy Resources at June 30 to the market to book ratio of the Peer Group. Market to Book Ratio: The market value of a company's common stock at June 30 divided by the total book value per share (total common equity/common shares outstanding). Measurement of return: The difference between the current year market to book ratio and the prior year ratio is expressed as a percentage. This percentage is compared to Peer Group's average increase/(decrease) expressed as a percentage. Sources: Market to book ratios for the Peer Group will be obtained from an outside investor service such as Edward Jones. Weighted Performance Value: 15% Gross Margin - ------------ This performance criterion measures the combined ratio of natural gas gross margin (from gas sales and transportation) and propane gross margin growth compared to budget. Measurement of Growth: The gross margin from total firm natural gas sold and transported and the gross margin from propane sales for the 12 months ended June 30 will be weather normalized and compared to the projected operating budget. The current year's total gross margin will be divided by the budgeted total gross margin to determine the measured ratio. Sources: June 30 final audited financial statements and the internal weather normalization model. Weighted Performance Value: 12.5% Other Operating and Maintenance Expenses - ---------------------------------------- This performance criterion measures the increase/(decrease) in consolidated operating and maintenance expenses ("O&M") for Berkshire Energy Resources as compared to the Peer Group. For year one (6/30/98) of the plan, a one year measurement period is used, for year two, a two-year measurement and year three, and thereafter, a three-year measurement period. Measurement of Expense Comparisons: The total consolidated operating and maintenance expenses as reported on the latest published annual report will be divided by the number of customers to establish the O&M per customer for each company. The O&M expense per customer for the current fiscal year will be compared to the prior fiscal years expense per customer. The difference will be expressed as a percentage of change. The percentage of change for Berkshire Energy Resources will be compared to the average of the Peer Group. Sources: The most recent published annual reports of the companies will provide the data. Weighted Performance Value: 12.5% Board of Directors Discretion - ----------------------------- Weighted Performance Value: 25% Revised 12/1/98 Table A ------- Berkshire Energy Resources Executive Incentive Plan --------------------------------------------------- Summary of 1998-1999 Performance Measures -----------------------------------------
Weight Threshold Target Maximum ------ --------- ------ ------- Earnings vs. Budget 20% 90% of Budget Budget* 120% of Budget Pres. VP - ------------------------------------- *At 102% of Budget 26% 21% 104% 27 22 106% 28 23 108% 29 24 110% 30 25 112% 31 26 114% 32 27 116% 33 28 118% 34 29 Total Shareholder Return 15% 5% Improvement 10% Improvement 15% Improvement to Peer group to Peer group to Peer group Market to Book Ratio 15% 5% Improvement 10% Improvement 15% Improvement to Peer group to Peer group to Peer group Gross Margin 12.5% 100% Budget 105% Budget 110% Budget Natural Gas and Propane Other Operating and 12.5% Peer Group 105% of 110% of Maintenance Expenses Peer Group Peer Group Board Discretion 25% N/A N/A N/A
INCENTIVE POTENTIAL - ------------------- The annual incentive potential will be stated as a percentage of each participant's current salary. Incentive potential will be as follows:
Incentive Percent of Salary ----------------- Threshold Target Maximum --------- ------ ------- President and CEO 15% 25% 35% Vice President 10 20 30
INCENTIVE AWARD CALCULATION - --------------------------- Calculation of the incentive is done by comparing actual results to planned or index results for each of the performance criteria. Each Participant will be provided with a summary of threshold, target and maximum standards and the potential incentive monies associated with achieving each level of results. The performance criteria generally operate independently of one another such that if a minimum (threshold) level of performance is achieved on a given factor, some incentive can be earned with the following exception: An incentive award will only be earned if earnings exceed dividend payout. If the threshold level is not met, no incentive may be earned, except for Board discretion. This provides a shareholder "cutout" mechanism to ensure Berkshire achieves a minimum level of profits. Table B illustrates a calculation of the incentive. PLAN ADMINISTRATION - ------------------- The plan will be administered by the Board of Directors. Earned awards will be payable as ordinary income and expensed in the plan year. The results of the plan each year will be reviewed by the outside independent accountants and reported to the Audit Committee of the Board. The payment of the award will be made as soon as practical following the conclusion of the Company's fiscal year. The Board of Directors strongly encourages stock ownership by key executives, therefore the payment will be made 50% cash and 50% in the form of Company stock. Stock shall be purchased by the Company sending monies, at the employee's direction, to the optional cash purchase portion of the Company's DRIP program. The participants are encouraged to hold this investment in Company stock. TERMINATION OR AMENDMENT - ------------------------ The Board of Directors may at any time suspend, reinstate, or terminate the Plan or make such changes in or additions to the Plan as it deems advisable, except: that in the event of a Change in Control, the Company may neither terminate the Plan nor reduce benefits under the Plan with respect to those individuals who are Participants as of the date of the Change in Control for that plan year. EMPLOYMENT - ---------- Nothing in the Plan shall confer upon any employee the right to continue in the employ of the Company, and it is understood and agreed that all key employees are employees at will, except as may be provided in specific employment agreements. OTHER PLANS - ----------- The adoption of the Plan shall not affect any other compensation plan in effect for the Company, nor shall the Plan preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company. June, 1997 Amended August 26, 1998 Amended December 2, 1998 TABLE C ------- BERKSHIRE ENERGY RESOURCES UTILITY PEER GROUP - ------------------ Valley Resources Yankee Energy Connecticut Energy Corp. Connecticut Natural Gas (CTG) EnergyNorth, Inc. Delta Natural Gas Fall River Gas Company EX-13 9 EXHIBIT 13 Think Energy Berkshire Energy Resources is aggressively pursuing opportunities for growth in today's changing and emerging energy markets. By capitalizing on the flexibility of its new corporate structure, heightening its focus on fueling customer growth and developing strategic programs to produce new opportunities, the Company is realizing its goal of becoming a truly integrated energy services company. This year's annual report provides an overview of the innovative thinking, commitment to customer service and proactive approach to growth opportunities that are driving Berkshire Energy Resources toward achieving its goal of becoming the region's acknowledged energy services leader. When you think energy, think Berkshire Energy Resources. FINANCIAL HIGHLIGHTS * For the Fiscal Year Ended June 30, (In Thousands, Except Per Share Amounts)
1999/1998 1998/1997 OPERATIONS 1999 1998 % Change 1997 % Change - ----------------------------------------------------------------------------------------------------- Operating Revenues $ 50,733 $ 54,601 -7.1% $ 53,584 1.9% Operating Margin 28,248 27,578 2.4 27,711 -0.5 Operating and Other Income 9,576 8,841 8.3 9,756 -9.4 Net Income 3,233 2,794 15.7 3,556 -21.4 Earnings Available for Common Shares 3,218 2,778 15.8 3,316 -16.2 COMMON SHARE DATA - ----------------- Earnings Per Common Share $ 1.34 $ 1.23 8.9% $ 1.52 -19.1% Dividends Per Share 1.165 1.145 1.7 1.125 1.8 Book Value Per Share 15.07 14.48 4.1 14.18 2.1 Market Price (Year-End) 22.50 23.25 -3.2 16.00 45.3 Average Shares of Common Shares Outstanding 2,405.2 2,263.6 6.3 2,181.5 3.8 Number of Registered Common Shareholders 1,977 1,912 3.4 1,902 0.5 OTHER DATA - ---------- Gross Property, Plant and Equipment $124,412 $119,438 4.2% $113,966 4.8% Net Property, Plant and Equipment 83,364 81,647 2.1 79,736 2.4 Capital Expenditures 6,735 6,945 -3.0 7,393 -6.1 Total Gas Sold and Transported (MCF) 7,880 7,357 7.1 8,080 -8.9 Total Natural Gas Customers 34,494 34,166 1.0 33,887 0.8 Beginning in fiscal 1999, financial statements are presented for Berkshire Energy Resources, a holding company consolidating the operations of The Berkshire Gas Company, Berkshire Propane, Inc., and Berkshire Energy Marketing, Inc. Prior years were reported as The Berkshire Gas Company, which included nonregulated operating divisions.
(Picture of Scott Robinson, President and CEO) To Our Shareholders Welcome to the first annual report issued by Berkshire Energy Resources. With the formal adoption of a holding company corporate structure in January of this year, The Berkshire Gas Company, formerly listed on the NASDAQ under the symbol BGAS, became a member of the Berkshire Energy Resources family. Listed on the NASDAQ under the symbol BERK, Berkshire Energy Resources currently operates three subsidiaries, The Berkshire Gas Company, Berkshire Propane and Berkshire Energy Marketing. Berkshire Gas is a natural gas utility serving western Massachusetts for more than 145 years. It provides natural gas service to 34,000 customers. Berkshire Propane, established in 1955, provides retail propane service across a 5,000-square-mile territory in western Massachusetts, southern Vermont and eastern New York. Berkshire Energy Marketing, established in 1998, provides one-stop energy services to commercial and industrial customers in unregulated energy commodity markets. The adoption of a holding company structure represents one of the biggest changes in the Company's history. As such, it reflects the Company's aggressive efforts to drive change in the energy marketplace and to strategically adapt and realign its resources to seize new opportunities in the ever more competitive energy industry. With separate subsidiaries for regulated and nonregulated operations, Berkshire Energy Resources is structured to capitalize on changes in the energy marketplace by expanding its energy-related offerings and enterprises without delay. As the industry moves toward full and final deregulation, a combination of vision and experience will continue to serve the Company well. Opportunities have never been greater for Berkshire Energy Resources as it looks toward diversification and continued growth. Berkshire Gas As Berkshire Energy Resources' core business, Berkshire Gas continues to provide first-rate natural gas service to western Massachusetts. With a focus on continued growth, ongoing efforts to increase market share are being developed and implemented by the utility's Marketing Department. One such initiative, highlighted in this year's report, aligns our resources with outside energy engineering firms in an effort to expand natural gas sales in our Commercial and Industrial market segment by introducing new energy efficient technologies and methodologies to our customers. Aided by our long-standing relationships with the Gas Research Institute and the Institute for Gas Technology, this venture benefits all parties and holds significant potential. In a further effort to plan for future growth and to accommodate new demand for natural gas service, Berkshire Gas has also been actively engaged in planning and permitting a new facility for the storage of liquefied natural gas (LNG) in the Town of Whately, Massachusetts. This is the first such facility to be sited in Massachusetts in more than twenty years. Similar projects are now being planned by utilities across the Commonwealth. After an extensive permitting process, which has included a multi- year site selection and design process, Berkshire Gas submitted its petition for approval to site and construct this facility to the Massachusetts Energy Facilities Siting Board earlier this year. This project was the subject of a series of regulatory hearings in June and has been under exhaustive review by state regulators. The petition has been approved by the Siting Board. An aggressive construction timetable is planned which should make it possible for this facility to be in operation for this year's heating season. This facility will expand delivery capacity and enhance our ability to serve growing demand for natural gas service in Franklin and Hampshire counties in western Massachusetts. These counties represent the strongest growth areas in the service territory. Berkshire Gas is also exploring options to expand its natural gas service territory in response to growing demand for service from commercial and industrial enterprises as well as residential consumers. We look forward to continuing our efforts with local officials in the Town of Sunderland, Massachusetts, toward this end. Berkshire Propane Berkshire Propane is committed to the pursuit of new opportunities in competitive energy markets. With a focus on growth, Berkshire Propane is expanding its customer base and increasing sales volumes to enhance overall performance. In keeping with this business strategy, Berkshire Propane announced its acquisition of County Propane of Great Barrington, Massachusetts, in October of 1998. With this transaction, Berkshire Propane increased its base of Massachusetts customers by approximately 8%. Operating efficiencies achieved as a result of this purchase made it possible to serve these new customers without any increase in personnel. Berkshire Propane continues to realize real growth in customer numbers across the remainder of its three-state service area as well. Over the past year, its Vermont customer base has expanded by 39% with a corresponding double-digit increase in gallons of propane sold. In its New York market, gallons sold increased by double digits and customer numbers also increased. Overall, sales volumes increased by better than 10% over the year, despite significantly warmer than normal weather. Plans to site satellite storage facilities are also in development. These facilities will increase operating efficiencies, reduce costs and strengthen our local presence in the markets that we serve. Berkshire Propane continues to explore avenues for continued growth in its Vermont and New York markets while also focusing on expanding its influence in the highly competitive Massachusetts market. Berkshire Energy Marketing Berkshire Energy Marketing has worked diligently over the past year selling natural gas supplies in unregulated markets, primarily to larger commercial and industrial users. As one of approximately twelve energy marketers currently competing in the service area, Berkshire Energy Marketing capitalizes on its local base and local presence, providing hands-on, year- round service to its customers. In keeping with the nature of the competitive markets, flexibility and service have continued to be very strong selling points for Berkshire Energy Marketing as it works to educate customers about their energy options in the deregulated marketplace. Shareholder Value The prime focus of the Company's management and its Board of Trustees is enhancing shareholder value and providing a fair return on shareholder investment. The achievements of the last year outlined in this letter and throughout this report represent real investments in the success and ultimately the value of the Company. We are focused on growing the Company and enhancing performance while at the same time making investments in our future on behalf of our shareholders. The adoption of a holding company structure earlier this year was one such value-based investment that provides a real asset to the Company and facilitates our entry into competitive markets. For the fifth consecutive year, the Company's Board of Trustees has voted to increase the annual dividend paid on the Company's Common Shares. The increase, which was effective with the dividend paid on July 15, 1999, raised the annual dividend from $1.16 to $1.18 per share. With this vote, the Board reaffirmed its commitment to a conservative, yet progressive dividend policy that is intended to provide shareholders with a fair return on their investment. Performance Weather trends seem to be a topic that is being discussed and analyzed ever more frequently in the popular media. Whether these discussions focus on global warming or turbulent weather, it is clear that weather patterns over the course of the last decade have varied significantly from statistical norms. These variances are of obvious interest to the Company, as the lion's share of our revenues is derived from serving the heating needs of our customers during the New England winter. Weather in our service area during the last fiscal year was, on average, 12% warmer than normal. The norm is based on an average of temperatures over the prior twenty years. Temperatures during the heating season were 9% warmer than normal. Recognizing this trend toward warmer winters years ago, we have worked diligently to insulate the business as much as possible from the influence of unusually warm weather. Our efforts have been positive in this regard and we continue to explore additional ways to mitigate the effect of warmer temperatures on overall performance. One such measure the Company utilized this year was weather insurance. As a hedge against warmer than normal weather, the Company made a strategic decision to purchase insurance for the 1998-1999 heating season. This insurance was intended to mitigate financial impacts resulting from extended periods of warmer than normal winter temperatures. The weather insurance provided coverage for the heating season beginning November 1, 1998, and running through March 31, 1999. In accordance with the terms of the policy, the Company received insurance proceeds which partially offset revenues that would have been earned had weather been normal. Earnings for the year were $1.34 on revenues of $50.7 million as compared to earnings of $1.23 on revenues of $54.6 million a year ago. The 9% increase in earnings is largely attributable to the receipt of weather insurance proceeds as well as changes in the regulatory accounting for bad debt expense. For a number of years, the Company has offered its shareholders the convenience of reinvesting their dividends toward the purchase of additional shares in the Company through its Dividend Reinvestment Plan. This program has been well received by our shareholders and has enabled the Company to meet its capital needs. At the same time, the level of additional investment has resulted in a dilution of earnings. This dilution over the last twelve months has reduced per share earnings by $.08. To prevent further dilution, the Company's Board of Trustees has suspended the discount and optional cash payment provisions of the Plan. Dividends may still be reinvested without the discount. Y2K The Year 2000 challenge is one that the Company has taken very seriously. Over the course of the past year, we have been actively engaged in assessing our exposure, and planning and implementing necessary remedial action. Our primary concern has been our core business applications, which include software and hardware systems used for billing, customer service, engineering and related activities. Fortunately, the Company's recently completed upgrade of these systems and associated technology is Year 2000 compliant and testing of those systems has been completed. The Company is also reviewing and taking remedial action associated with a wide array of technologies used in the distribution of natural gas to our customers. We are confident that our remedial efforts will be complete by October 1999. Additionally, the Company is developing contingency plans for implementation in the event of unforeseen occurrences that may arise internally or as a result of noncompliance of outside parties. Our efforts in this area are near completion and will be ready for implementation, if necessary, prior to year-end. While we are taking the necessary actions internally, our ability to provide service is contingent on assurances provided to us by our critical vendors, associated utilities and service providers. We have aggressively pursued assurances of compliance from these parties and will continue to monitor their progress. While no one is offering absolute assurances relative to the Year 2000 challenge, we are confident that our efforts and our planning have been thorough and that our approach to this problem has been well considered. Summary Berkshire Energy Resources is witnessing the dawn of a new day in the energy industry, one for which we have planned and positioned the Company and its resources for some time now. We look back at a year of significant progress and we look at the challenges ahead as opportunities for future growth and expansion. I invite you to read the pages that follow and learn more about the customers that we serve and about the many initiatives that have been taken over the past year to improve operations, build revenues and enhance performance. Most of all, I would like to thank you for your interest in Berkshire Energy Resources and for the confidence that you have placed in us by way of your investment. /s/Scott S. Robinson Scott S. Robinson President & Chief Executive Officer Think Flexibility The energy industry has never been more competitive. As their choice of energy providers grows, customers are demanding competitive rates, superior service and enhanced products. Unlike a traditional utility business, the energy company of today must have the flexibility to move quickly and decisively to create opportunity and seize success. Berkshire Energy Resources is that dynamic company: poised to thrive in the competitive energy marketplace. The adoption of a more flexible organization is consistent with the Company's rich history of driving change and capitalizing on opportunity. Founded in 1853 as the Pittsfield Coal Gas Company, it became the first New England distributor of pipeline natural gas in 1951. After acquiring The Berkshire Gas Company in 1954 and adopting its name, the Company expanded its operation with the acquisition of the Greenfield Gas Light Company in 1958. Over the last decade, the Company has strategically aligned its resources to capitalize on changes in the energy marketplace. Without losing sight of its commitment to continued growth in its core business, Berkshire Energy Resources has been actively shaping the changing marketplace, working in collaboration with natural gas utilities, regulators, marketers and customers. True corporate flexibility, a prerequisite to success in today's marketplace, was realized with the establishment of Berkshire Energy Resources as an energy holding company. The holding company currently has three subsidiaries: Berkshire Gas, a natural gas utility serving 19 cities and towns in western Massachusetts; Berkshire Propane, a retail supplier of propane in western Massachusetts, eastern New York and southern Vermont; and Berkshire Energy Marketing, an unregulated full-service energy marketer. This flexible corporate structure enables the Company to serve and expand its core business of natural gas distribution, focusing on increasing load, while at the same time pursuing growth opportunities in unregulated energy markets. By diversifying its portfolio of energy services, Berkshire Energy Resources has become the integrated energy services firm best equipped to meet the growing needs of the unique region it serves. Its diverse customer base includes commercial and industrial accounts, retail operations, world- renowned cultural attractions, fast-growing technology firms and nationally recognized academic institutions, to name a few. The region's economic strength, natural beauty and rich heritage make it one of the most desirable destinations in America. On the coming pages, you'll meet some of the customers who found this region to be the perfect setting for their enterprises and Berkshire Energy Resources to be the perfect choice for their energy needs. Dependability, fuel efficiency, competitive pricing and environmental responsibility are just a few of the benefits that have motivated a diverse range of customers to choose Berkshire Energy Resources as their energy provider. Here is a small sample of the client base that the Company is proud to serve. (Berkshire Energy Resources logo with logo of each subsidiary) (Map of service area) Williams College Williamstown, Massachusetts One of the nation's premier liberal arts colleges, Williams is known for the exceptional talent of its students and the dedication of its faculty. The Norman Rockwell Museum Stockbridge, Massachusetts Maintains the world's largest collection of original Rockwell artwork, including the Four Freedoms. Tanglewood Lenox, Massachusetts Summer home of the Boston Symphony Orchestra, it draws thousands of classical music lovers to the Berkshires annually. General Dynamics Defense Systems Pittsfield, Massachusetts Designs and supports sophisticated systems for commercial and government customers. Lunt Silversmiths Greenfield, Massachusetts A world leader in precious metal personal accessories and home furnishings. Greenfield Industries Greenfield, Massachusetts Manufactures a wide range of high-quality taps for domestic and international customers. Yankee Candle Deerfield, Massachusetts Manufacturer of "the world's most fragrant candles," attracting more than 2.5 million visitors annually. Amherst College Amherst, Massachusetts Founded in 1821, Amherst is one of the most highly respected liberal arts colleges in the United States, enrolling some 1,600 talented men and women. Think Growth Growth opportunities are realized by those with the initiative to seek them, the knowledge to develop them and the vision to bring them to fruition. Dedicated to providing its shareholders with a fair return, Berkshire Energy Resources is pursuing multiple avenues for continued growth in both new and traditional markets. The Company is taking advantage of the knowledge and resources it has accumulated over nearly a century and a half of service to create new opportunities and to expand its market share by driving demand for its products and services. The focus on expanding its markets and increasing capacity in areas of rapid growth continues to serve the Company well. The Company is working closely with regulators to site a state-of-the-art liquefied natural gas (LNG) storage facility in the Town of Whately to ensure its ability to continue to meet increasing demand along the vital Interstate 91 corridor in Franklin and Hampshire counties, the fastest-growing area in its service territory. This strategically located facility - which has been in development for four years - will help the Company realize its vision of increasing capacity at a fraction of the cost of expanding existing distribution lines or installing new ones. In a similar move, Berkshire Propane is exploring the strategic placement of a satellite propane storage facility in southern Vermont that would empower the Company to reach new markets, improve profitability and enhance its presence as a locally based provider of clean-burning, efficient propane. Information technology upgrades are also providing opportunities for growth. A new information systems infrastructure has enabled the Berkshire Gas Marketing Department to make more effective and efficient use of information about its customers as a strategic tool. This comprehensive customer data aids the Company in planning and developing targeted marketing programs focused on increasing load and expanding revenues. Combining the experience of nearly 150 years with innovative strategies and new technology, Berkshire Energy Resources continues to achieve the growth that keeps it well ahead of the competition. Berkshire Energy Resources is building the energy services company of the future by focusing on growth, capitalizing on its competitive advantages and aggressively shaping the competitive landscape in the energy marketplace. Food for Thought Vegetarians and other with healthy appetites are helping to make Lightlife Foods, located in Turners Falls, Massachusetts, a leader in the natural foods industry. Lifelight has been operating around the clock to meet the ever-growing domestic and international demand for its products. Lightlife takes great pride in providing its customers with the very best products that are 100% vegetarian and 100% natural, which means no artificial additives of any kind. The company also is committed to the ecological health of the planet, so it's no surprise that Lightlife chose clean-burning natural gas to fuel its operations and its domestic hot water system. Expressive Energy Randi and David Solin recently moved Solinglass Studios, a glass blowing enterprise that produces one-of-a-kind artistic treasures, from Santa Cruz, California, to Brattleboro, Vermont. The Solins have exhibited their work all over the country and one of their pieces was commissioned for the permanent White House collection. Glass blowing is very energy intensive. They chose propane because it's dependable , claen, and burns hot - and chose Berkshire Propane because of its competitive price and peerless service. "Berkshire Propane did an amazing job for us," Randi said. "They've really been a pleasure to work with." Economical Expansion By strategically placing a new liquefied natural gas (LNG) storage facility in Whately, Massachusetts, Berkshire Gas will realize a vision that's been four years in development and meet the growing demand of Franklin County, one of the fastest-growing areas in its service territory. Through this new facility, the Company will reinforce its deliverability and support continued economic growth and increased demand for natural gas in the area. The decision to build the facility makes good economic sense as well, producing increased capacity at a fraction of the cost of expanding existing distribution lines or installing new ones. Think Customers Berkshire Energy Resources is building the energy services company of the future on a longstanding foundation of superior service and exceptional value. Dedicated professionals throughout the Company are working to ensure the continued satisfaction of existing customers and forging innovative programs to win new ones. A number of initiatives are directed toward educating commercial and industrial customers about new gas-energy technologies and helping them realize the potential savings to be gained through the conversion of their existing systems from competing fuels. One exciting new program is the Fuel Blind Audit, designed to meet the needs of commercial and industrial customers. Working together with its customers, Berkshire Gas is employing this program to find opportunities to expand base load while at the same time assuring its customers access to the most efficient new energy technologies available. The program begins with an exhaustive on-site investigation of the customer's total energy use and expenditures, conducted by Berkshire Gas marketing professionals and engineering firms specializing in energy technologies with whom the Company has established cooperative working partnerships. Potential applications of new gas-fired equipment and systems are identified and a financial analysis is provided. From relatively simple equipment, such as high-efficiency, gas-powered air conditioning, to advanced cogeneration systems, significant cost savings often can be achieved by replacing electricity with gas. The potential for customer savings combined with the increased load for Berkshire Gas makes the program a real "win-win" enterprise for the Company. The Berkshire Gas Energy Management Program is another initiative designed to encourage commercial and industrial customers to convert to natural gas. By reducing the operation's conversion and upgrade costs, Berkshire Gas can build load, improve a company's energy efficiency and establish itself as an energy partner in a long-term relationship. Customer satisfaction also has been a primary focus of Berkshire Energy Marketing, which has developed a respectable portfolio of commercial and industrial accounts in its first year of operation. Customers are being won over by the Company's local presence, familiarity with the market, dependable service and competitive pricing. Through their long history of exceptional service, both Berkshire Gas and Berkshire Propane have built strong brand identities that their customers equate with quality, dependability and trust. This customer loyalty creates opportunities throughout the Company to build sales and enhance revenues. Customer satisfaction will continue to play a major role in our strategies for the future. By building on the rock-solid relationships it has worked so hard to forge over the years, the Company is providing lasting value not only to its customers, but to its shareholders, its employees and the communities it serves. Peak Efficiency Clean-burning, efficient propane serves many unique needs at Jiminy Peak in Hancock, Massachusetts, which draws in excess of 300,000 visitors annually to its year-round resort, which includes a ski area, alpine slide, conference center, restaurants and condominiums. All four of the resort's on-site restaurants are fueled by Berkshire Propane, as are its laundry facilities, and propane is being chosen over electric heat by discriminating condominium owners for dependability and value. Propane is the only energy source at the summit, so Jiminy's lift operators depend on it for warmth. All year round, Jiminy's employees depend on Berkshire Propane to keep them at their peak. Dollars & Sense A solid, long-term relationship and focus on customer service were key factors in Crane & Company's decision to choose Berkshire Energy Marketing as its transportation gas supplier. Founded in 1801 in Dalton, Massachusetts, Crane is recognized worldwide for the quality of its 100% cotton writing paper. Its most popular product, however, is the currency paper it has produced for the U.S. Bureau of Engraving and Printing since 1879. "We looked at a number of alternatives," said Andy St. Pierre, Crane's energy management engineer. "Our decision to go with Berkshire Energy Marketing was based on two key factors: We've had a solid long-term relationship and they offered the best price as well." Selling Knowledge Berkshire Gas has been teaming with specialists in energy technologies to conduct innovative audits, such as this one at A.H. Rice Corporation in Pittsfield, Massachusetts. These audits provide customers with potential applications of new gas-fired equipment and a financial analysis of potential savings through conversion from electricity to natural gas. A.H. Rice manufactures customized threads and specialty braids for high-end uses in the textile, automotive and aerospace industries. The company is considering cogeneration to reduce total energy costs by increasing its use of fuel-efficient natural gas and decreasing electricity use. (Picture of Berkshire Gas marketing representative reviewing audit with two of A.H. Rice's employees) Berkshire Gas has been teaming with specialists in energy technologies to conduct innovative audits, such as this one at A.H. Rice Corporation in Pittsfield, Massachusetts. These audits provide customers with potential applications of new gas-fired equipment and a financial analysis of potential savings through conversion from electricity to natural gas. A.H. Rice manufactures customized threads and specialty braids for high-end uses in the textile, automotive and aerospace industries. The company is considering Think Opportunity Capitalizing on opportunity requires a great deal more than being in the right place at the right time. In fact, the greatest achievements are realized through a visionary approach that recognizes the opportunity for success where it appears least likely. Such insight has generated an amazing success story for the Massachusetts Museum of Contemporary Art, which depends on Berkshire Gas to heat its 19 spacious galleries. MASS MoCA is a thriving, vibrant laboratory for the fabrication and presentation of new works in the visual and performing arts that has blossomed in a former North Adams, Massachusetts, manufacturing complex that once was the center of economic vitality for northern Berkshire County. The triumphant reviews of its May opening in Time, USA Today and The Wall Street Journal trumpeted the brilliance of MASS MoCA's mission to be responsive to changes in art-making and art-presentation environments. "I have seen the future," wrote one reviewer, "and it's MASS MoCA." Just as MASS MoCA's vision has been transforming the art world, Berkshire Energy Resources has been actively reshaping the energy marketplace. The Company's flexibility ensures its forward-looking approach to change in the energy industry, while its in-depth understanding of the energy marketplace, active efforts in developing trends in new and emerging markets and effective planning are continually creating new opportunities to benefit both customers and shareholders. The Berkshire Energy Resources vision encompasses the traditional natural gas utility as well as multifaceted subsidiaries that comprise a powerful new entity that is successfully competing in traditional and competitive markets. With its new corporate structure in place and a pervasive "think energy" philosophy, Berkshire Energy Resources is proactively developing and implementing strategies for growth and profitability. The Company is confident and excited about its prospects for success in the energy markets of today, and the benefits it will provide for its shareholders, customers and employees well into the future. Rethinking Art Thousands of art lovers are flocking to North Adams to visit the Massachusetts Museum of Contemporary Art, the largest and most compelling of the nation's new wave of modern art centers. Berkshire Gas is proud not only to provide the clean-burning, efficient natural gas that heats MASS MoCA's more than 100,000 square feet of exhibition space, but also to have been one of the first corporate sponsors in this private-public venture that is helping to revitalize North Adams. "Berkshire Gas stood by us during our boot-strap days," said Joseph C. Thompson, MASS MoCA's director, "and they continue to provide this institution with top- notch service, excellent advice and friendly support." Financial Review - ---------------- 10-Year Comparative Summary of Operations and Statistics 12 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Financial Statements: Consolidated Statements of Income 17 Consolidated Balance Sheets 18 Consolidated Statements of Shareholders' Equity 19 Consolidated Statements of Cash Flows 20 Notes to Financial Statements 21 Independent Auditors' Report 29 Quarterly Financial Information 31 Officers and Trustees 32
10-Year Comparative Summary of Operations and Statistics - -------------------------------------------------------- For the Years Ended June 30, OPERATIONS ($000) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------- Operating Revenues $ 50,733 $ 54,601 $ 53,584 $ 50,405 $51,627 Cost of Gas Sold 22,485 27,023 25,873 22,368 26,541 - ------------------------------------------------------------------------------------------- Operating Margin 28,248 27,578 27,711 28,037 25,086 - ------------------------------------------------------------------------------------------- Net Income 3,233 2,794 3,556 4,213 2,529 Earnings Available for Common Shareholders 3,218 2,778 3,316 3,521 1,835 COMMON SHARE DATA - ----------------- Earnings Per Share $ 1.34 $ 1.23 $ 1.52 $ 1.65 $ 0.92 Annualized Dividends Per Share 1.18 1.16 1.14 1.12 1.10 Dividends Declared Per Share 1.165 1.145 1.125 1.105 1.10 Book Value Per Share 15.07 14.48 14.18 13.75 13.16 Market Price (Year-End) 22.50 23.25 16.00 15.38 15.00 Average Shares of Common Stock Outstanding (000s) 2,405.2 2,263.6 2,181.5 2,129.2 1,990.5 CAPITALIZATION ($000) Common Equity $ 37,896 $ 33,536 $ 31,365 $ 29,595 $27,688 Preferred Stock 312 321 363 8,406 8,448 Long-Term Debt 40,000 34,000 40,000 31,999 30,983 - ------------------------------------------------------------------------------------------- Total Capitalization $ 78,208 $ 67,857 $ 71,728 $ 70,000 $67,119 - ------------------------------------------------------------------------------------------- % OF TOTAL - ---------- Common Equity 48.5% 49.4% 43.7% 42.3% 41.2% Preferred Stock 0.4 0.5 0.5 12.0 12.6 Long-Term Debt 51.1 50.1 55.8 45.7 46.2 RATIOS (%) - ---------- Payout Ratio 87% 93% 74% 67% 120% Market to Book Ratio 149 161 113 112 114 Return on Average Common Equity 9.0 8.6 10.9 12.3 7.2 PROPERTY ($000) - --------------- Capital Expenditures $ 6,735 $ 6,945 $ 7,393 $ 6,507 $ 7,746 Pipeline Construction 0 0 0 0 0 Gross Utility Plant 110,405 106,654 101,983 96,571 91,863 Net Utility Plant 76,330 75,283 73,640 71,215 69,326 Net Non-Utility Plant 7,034 6,364 6,096 5,949 5,962 Total Assets 105,485 101,897 101,688 93,660 87,741 GAS SALES (MCF-000s) - -------------------- Residential 2,551 2,548 2,730 2,814 2,513 Commercial & Industrial 1,783 2,261 2,289 2,626 2,305 Interruptible 683 542 592 522 1,104 - ------------------------------------------------------------------------------------------- Total Natural Gas Sales 5,017 5,351 5,611 5,962 5,922 - ------------------------------------------------------------------------------------------- GAS TRANSPORTED (MCF-000s) - -------------------------- Firm Transportation 1,858 1,307 1,409 1,073 1,130 Interruptible Transportation 1,005 699 1,060 1,040 340 - ------------------------------------------------------------------------------------------- Total Gas Sold and Transported 7,880 7,357 8,080 8,075 7,392 - ------------------------------------------------------------------------------------------- OTHER STATISTICS - ---------------- Customer Meters 34,494 34,166 33,887 33,763 33,596 Maximum Daily MCF Sendout 43,818 43,643 44,734 44,161 45,760 Minimum Daily MCF Sendout 8,876 7,481 7,847 8,381 8,216 Degree Days 6,287 6,506 6,953 7,402 6,748 20-Year Average Degree Days 7,163 7,241 7,301 7,300 7,354 Number of Employees 164 150 153 153 160 10-Year Comparative Summary of Operations and Statistics - -------------------------------------------------------- For the Years Ended June 30, OPERATIONS ($000) 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------- Operating Revenues $ 56,846 $ 50,690 $ 51,153 $ 44,507 $42,008 Cost of Gas Sold 29,558 26,502 28,178 23,826 21,990 - ------------------------------------------------------------------------------------------- Operating Margin 27,288 24,188 22,975 20,681 20,018 - ------------------------------------------------------------------------------------------- Net Income 3,673 2,810 1,952 1,462 2,047 Earnings Available for Common Shareholders 2,953 2,066 1,849 1,377 1,955 COMMON SHARE DATA - ----------------- Earnings Per Share $ 1.69 $ 1.20 $ 1.10 $ 0.83 $ 1.21 Annualized Dividends Per Share 1.10 1.08 1.08 1.08 1.28 Dividends Declared Per Share 1.085 1.08 1.08 1.23 1.28 Book Value Per Share 12.99 12.30 12.13 12.07 12.40 Market Price (Year-End) 16.25 18.00 14.75 13.00 14.50 Average Shares of Common Stock Outstanding (000s) 1,751.8 1,718.5 1,687.7 1,655.6 1,622.6 CAPITALIZATION ($000) - --------------------- Common Equity $ 22,946 $ 21,326 $ 20,626 $ 20,155 $20,299 Preferred Stock 8,491 9,026 9,111 1,196 1,290 Long-Term Debt 31,083 25,413 26,564 28,156 29,147 - ------------------------------------------------------------------------------------------- Total Capitalization $ 62,520 $ 55,765 $ 56,301 $ 49,507 $50,736 - ------------------------------------------------------------------------------------------- % OF TOTAL - ---------- Common Equity 36.7% 38.2% 36.6% 40.7% 40.1% Preferred Stock 13.6 16.2 16.2 2.4 2.5 Long-Term Debt 49.7 45.6 47.2 56.9 57.4 RATIOS (%) - ---------- Payout Ratio 65% 90% 98% 130% 106% Market to Book Ratio 125 146 122 108 117 Return on Average Common Equity 13.3 9.8 9.1 6.8 9.7 PROPERTY ($000) - --------------- Capital Expenditures $ 5,112 $ 5,458 $ 5,165 $ 4,245 $ 6,438 Pipeline Construction 0 5,659 1,539 4,526 6,475 Gross Utility Plant 86,098 83,016 79,942 76,404 71,805 Net Utility Plant 66,191 65,846 64,840 63,277 60,558 Net Non-Utility Plant 5,715 5,004 8,965 10,627 8,119 Total Assets 90,991 91,891 92,124 95,971 83,680 GAS SALES (MCF-000s) - -------------------- Residential 2,839 2,730 2,639 2,347 2,545 Commercial & Industrial 2,625 2,681 2,703 2,480 2,778 Interruptible 807 1,012 1,468 1,092 1,163 - ------------------------------------------------------------------------------------------- Total Natural Gas Sales 6,271 6,423 6,810 5,919 6,486 - ------------------------------------------------------------------------------------------- GAS TRANSPORTED (MCF-000s) - -------------------------- Firm Transportation 874 289 0 0 0 Interruptible Transportation 217 0 0 0 169 - ------------------------------------------------------------------------------------------- Total Gas Sold and Transported 7,362 6,712 6,810 5,919 6,655 - ------------------------------------------------------------------------------------------- OTHER STATISTICS - ---------------- Customer Meters 33,047 32,565 32,207 31,711 31,260 Maximum Daily MCF Sendout 43,934 39,446 38,237 37,095 38,012 Minimum Daily MCF Sendout 8,114 7,371 8,060 6,855 7,294 Degree Days 7,651 7,396 7,210 6,261 7,045 20-Year Average Degree Days 7,356 7,341 7,348 7,432 7,474 Number of Employees 173 181 180 185 191
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------ (Dollars in Thousands, Except Share and Per Share Amounts) 1999 in Review - -------------- In 1999, Berkshire Gas Company reorganized its corporate structure by forming a holding company that will provide greater flexibility and new opportunities for growth. The new holding company - Berkshire Energy Resources - enables the Company to separate regulated and nonregulated operations. Berkshire Energy Resources has been organized as a Massachusetts Business Trust and initially has as its subsidiaries: The Berkshire Gas Company, Berkshire Propane, Inc., and Berkshire Energy Marketing, Inc. Current operations of Berkshire Gas and Berkshire Propane will be largely unaffected by the new corporate structure. In 1999, Berkshire Energy Resources reported Earnings Available for Common Shares of $3,218 or $1.34 per share as compared to $2,778 or $1.23 in 1998. Earnings were impacted by warmer weather during the heating season. In fiscal 1999, weather was 12.2% warmer than the twenty-year average resulting in decreased gas demand during the heating season. In addition, the very positive response by our shareholders to the Dividend Reinvestment Stock Purchase Plan has resulted in an $.08 per share dilution on earnings. Lower sales revenues were partially offset by proceeds from weather insurance. Results of Operations - --------------------- 1999 vs. 1998 Earnings per share for 1999 were $1.34 on $3,218 of Earnings Available for Common Shares, as compared with $1.23 and $2,778 in 1998. The $.11 or 8.9% increase in earnings is primarily due to proceeds from weather insurance, lower bad debts as a result of a change in the recovery mechanism for the portion of bad debt expense related to gas costs and a reduction of pension costs due to growth in plan assets. Operating Margin for both natural gas and propane increased $670 or 2.4% as compared to 1998. Operating Margin on sales of natural gas increased $198 or 0.8% as compared to 1998. Operating Margin (Operating Margin or Gross Profit = Operating Revenues Net of Cost of Gas Sold) is primarily affected by the level of firm gas sold and transported. Interruptible gas sold and transported has minimal or no effect on Operating Margin since those margins are primarily flowed back to the firm customers through rates. The Company's sales are affected by weather as the majority of its firm customers use natural gas for heating. Changes in the cost of natural gas do not affect Operating Margin as these changes are recovered or returned to customers through the Cost of Gas Adjustment Clause (CGAC). The increase in Operating Margin in 1999 is a direct result of increased sales volumes during the mid-winter period due to 9.9% colder weather from January through March. Also, growth in the propane customer base, in conjunction with the acquisition of a local propane dealer in October 1998, contributed to the additional margins.
1999 1998 ---- ---- Firm MCF Sold and Transported 6,192 6,116 Consolidated Operating Margin $28,248 $27,578 Other Operating Expenses consisted of the following: 1999 1998 ---- ---- Transmission and Distribution $ 3,855 $ 3,484 Customer Accounts 2,618 3,271 Administrative and General 4,148 4,149 Propane Operations 2,045 1,628 Other 1,771 1,529 ------- ------- TOTAL $14,437 $14,061 ======= =======
Other Operating Expenses increased $376 or 2.7% from 1998 levels. Increases in payroll and information technology were offset by lower pension and employee benefits costs. Increases in Propane Operations expenses were driven by customer growth. Partially offsetting these increases was lower expense for bad debts due to a regulatory change in the mechanism for the recovery of bad debts. The portion of bad debts related to gas costs will now be recovered through the CGAC. Other Income increased $591 or 36.9%, primarily representing proceeds recognized from weather insurance. The Company purchased insurance to protect against warmer than normal weather for the winter period (November 1, 1998 through March 31, 1999). Other Taxes increased $122 or 6.5% primarily due to increases in plant property and municipal tax rates. Income Taxes increased $306 due to a related increase in Pre-tax Income. Common Share Dividends increased $223 due to additional shares outstanding through the Company's Dividend Reinvestment and Optional Cash Purchase Plan (DRIP) over the twelve-month period, and to a lesser extent, an increase in the quarterly dividend to $.295 per share from $.29 per share effective the fourth quarter of 1999. Results of Operations - --------------------- 1998 vs. 1997 Earnings per share for 1998 were $1.23 on $2,778 of Earnings Available for Common Shares, as compared with $1.52 and $3,316 in 1997. The $.29 or 19.1% decrease in earnings was due primarily to 10% warmer than normal weather and costs related to corporate restructuring. The book value per share rose to $14.48 from $14.18 in 1997. Operating Margin on sales of natural gas decreased $133 or 0.5% as compared to 1997. The decrease in Operating Margin in 1998 was a direct result of lower propane margins due to warmer temperatures, partially offset by higher natural gas margins due to increased sales volumes during the winter period. An increase in the number of commercial and industrial customers had the effect of stabilizing margins as these customers tend to be less weather sensitive.
1998 1997 ---- ---- Firm MCF Sold and Transported 6,116 6,428 Consolidated Operating Margin $27,578 $27,711
Other Operating Expenses consisted of the following:
1998 1997 ---- ---- Transmission and Distribution $ 3,484 $ 3,420 Customer Accounts 3,271 3,029 Administrative and General 4,149 4,382 Propane Operations 1,628 1,522 Other 1,529 1,231 ------- ------- TOTAL $14,061 $13,584 ======= =======
Other Operating Expenses increased $477 or 3.5% from 1997 results. Customer Accounts increased $242 reflecting the development and implementation of new information systems company-wide. Administrative and General decreased $233 from 1997 primarily due to reduced costs related to the Company's pension plan and insurance, partially offset by costs incurred for the restructuring for a holding company. Other Expenses increased $298 resulting from increased marketing costs and other gas supply and production costs. Depreciation Expense increased by $130 in 1998 over 1997 due to an increase in depreciable assets. Other Income decreased $76 or 4.5% from 1997. The decrease was primarily due to lower interest income on the undercollection of prior period gas costs through the CGAC. Due to the increase of long-term debt used to retire the 8.4% Preferred Stock, Interest Expense increased $414 which was partially offset by a reduction of $224 in the requirements for Preferred Stock Dividends. Replacing Preferred Stock with debt resulted in a tax savings of $86. Income Taxes decreased $567 from 1997 due to lower taxable earnings. Common Share dividends increased $146 due to additional shares outstanding because of the Company's Dividend Reinvestment and Optional Cash Payment Plan over the twelve-month period and, to a lesser extent, an increase in the quarterly dividends to $.29 per share from $.285 per share, effective the fourth quarter of 1998. Year 2000 Compliance - -------------------- The Company has identified all significant applications that will require modification to ensure Year 2000 compliance. Internal and external sources are being used to make the required modifications and test Year 2000 compliance. The Company believes that the most critical risk relates to the replacement and modification of its business application software. During the second quarter of fiscal 1999, the Company replaced its core business applications which support customer service, billing, collection, jobbing and engineering. This upgraded system is Year 2000 compliant. The installation and testing of the upgrade to the Company's current finance, accounting, payroll and inventory system has been completed. This system is Year 2000 compliant. These upgrades were initiated in the normal course of addressing business needs. The Company has also assessed the other areas of its business not related to its core information systems. Presently, the Company believes that these areas which include automated meter reading, dispatch, administration and distribution, are being modified or upgraded without disruption of service or material cost. Necessary upgrades and replacements are expected to be completed by October 1999. Due to the complexity of the Year 2000 problem and the reliance on certain critical vendors and suppliers, there can be no guarantees that the Company will achieve Year 2000 compliance or that critical vendors and suppliers will achieve Year 2000 compliance. A vendor management program has been undertaken as part of the Company's effort to obtain reasonable assurances from key vendors that there will not be any interruptions in the supply of goods and services as a result of the Year 2000 issues. The Company is preparing strategies to address potential failures of significant vendors in its contingency plans. The Company is currently completing a business contingency plan addressing Year 2000 risks associated with its internal systems and critical vendors. The plan includes continuation strategies for critical business processes and will be completed by September 1999. The total cost to the Company of Year 2000 compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. Management has budgeted fifty thousand dollars for fiscal year 2000 to address Year 2000 related expenditures. These costs and the date on which the Company plans to complete Year 2000 modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. Liquidity and Capital Resources - -------------------------------- Cash flows from operating activities have decreased from the twelve months ended June 30, 1998, primarily due to an increase in accounts receivable and less cash from recoverable gas costs. Capital requirements have been primarily funded by internal sources, and to a lesser extent, external sources. The issuance of long-term financing is dependent on management's evaluation of need, financial market conditions and other factors. Short-term financing is used to meet seasonal cash requirements. The Company initially finances construction expenditures and other funding needs primarily with internal sources and with the reinvestment of dividends. The Company continually evaluates its short-term borrowing position, and based on prevailing interest rates, market conditions, and other considerations, makes determinations regarding conversion of short- term borrowings to long-term debt or equity. As part of this process during the second quarter of fiscal 1997, the Company repurchased the 80,000 shares of its Preferred Stock at $117 per share. To finance these redemptions, the Company sold a $16,000 Senior Note at 7.8% due 2021. The Company's capital expenditures were $6,735, $6,945, and $7,393 in 1999, 1998, and 1997, respectively. These construction expenditures primarily represent investments in new and replacement mains and services. The Company expects fiscal 2000's capital expenditures to total approximately $5,700. Construction expenditures will be financed primarily through internal sources, short term borrowings and the reinvestment of dividends. As of June 30, 1999, the Company had lines of credit aggregating $30,500, of which $23,400 remained unused. Like other companies in the natural gas industry, the Company is a party to governmental actions associated with former gas manufacturing sites. Management estimates that expenditures to remediate and monitor known environmental sites will range from $3,355 to $12,673. In accordance with SFAS No. 5, the Company has recorded the most likely cost of $3,355. The Company's unamortized costs at June 30, 1999, were $718 and should be recovered over a seven-year period through the Local Distribution Adjustment Clause (LDAC) (See Contingencies footnote). Capitalization, at June 30, 1999, consisted of 51.1% long-term debt, 48.5% common equity, and 0.4% preferred stock. It is management's view that the Company has adequate access to capital markets and will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. Inflation - --------- The accompanying financial statements reflect the historical cost of events and transactions, regardless of the purchasing power of the dollar at the time. Due to the capital-intensive nature of the Company's businesses, the most significant impact of inflation is on the Company's depreciation of utility plant. Rate regulation, to which The Berkshire Gas Company is subject, allows recovery through its rates of only the historical cost of utility plant as depreciation. It is expected that any higher costs experienced upon replacement of existing facilities will be recovered through the normal regulatory process.
CONSOLIDATED STATEMENTS OF INCOME - --------------------------------- (In Thousands, Except Per Share Amounts) Years Ended June 30, 1999 1998 1997 ---------------------------------- Operating Revenues $ 50,733 $ 54,601 $ 53,584 Cost of Gas Sold 22,485 27,023 25,873 - -------------------------------------------------------------------------- Operating Margin 28,248 27,578 27,711 - -------------------------------------------------------------------------- Other Operating Expenses 14,437 14,061 13,584 Depreciation 4,437 4,409 4,279 Other Taxes 1,992 1,870 1,771 Total 20,866 20,340 19,634 - -------------------------------------------------------------------------- Operating Income 7,382 7,238 8,077 Other Income - Net 2,194 1,603 1,679 - -------------------------------------------------------------------------- Operating and Other Income 9,576 8,841 9,756 Interest Expense 4,382 4,392 3,978 - -------------------------------------------------------------------------- Pre-tax Income 5,194 4,449 5,778 Income Taxes 1,961 1,655 2,222 - -------------------------------------------------------------------------- NET INCOME $ 3,233 $ 2,794 $ 3,556 ========================================================================== Earnings Available for Common Shares $ 3,218 $ 2,778 $ 3,316 ========================================================================== Average Common Shares Outstanding 2,405.2 2,263.6 2,181.5 - -------------------------------------------------------------------------- Basic and Diluted Earnings Per Common Share $ 1.34 $ 1.23 $ 1.52 ==========================================================================
Reference should be made to Notes to Financial Statements.
CONSOLIDATED BALANCE SHEETS - --------------------------- (In Thousands) June 30, 1999 1998 1997 - -------------------------------------------------------------------------- ASSETS Property, Plant and Equipment - at original cost Gas-related activities $110,405 $106,654 $101,983 Unregulated activities 14,007 12,784 11,983 - -------------------------------------------------------------------------- 124,412 119,438 113,966 - -------------------------------------------------------------------------- Less: Accumulated depreciation and amortization Gas-related activities 34,075 31,371 28,343 Unregulated activities 6,973 6,420 5,887 - -------------------------------------------------------------------------- 41,048 37,791 34,230 - -------------------------------------------------------------------------- Property, Plant and Equipment - Net Gas-related activities 76,330 75,283 73,640 Unregulated activities 7,034 6,364 6,096 - -------------------------------------------------------------------------- 83,364 81,647 79,736 - -------------------------------------------------------------------------- Current Assets: Cash 117 160 356 Accounts and Other Receivables - Net 7,152 6,277 7,587 Recoverable Gas Costs 188 224 1,404 Inventories 4,301 4,261 3,665 Prepayments and Other 1,238 979 689 Prepaid Taxes 397 370 96 - -------------------------------------------------------------------------- Total Current Assets 13,393 12,271 13,797 - -------------------------------------------------------------------------- Deferred Debits: Unamortized Debt Expense - Net 2,150 2,200 2,302 Capital Share Expense - Net 232 275 319 Environmental Cleanup Costs 718 800 819 Other 2,293 1,414 1,425 - -------------------------------------------------------------------------- Total Deferred Debits 5,393 4,689 4,865 - -------------------------------------------------------------------------- Recoverable Environmental Cleanup Costs 3,335 3,290 3,290 - -------------------------------------------------------------------------- TOTAL ASSETS $105,485 $101,897 $101,688 ========================================================================== CAPITALIZATION AND LIABILITIES Common Shareholders' Equity: Common Shares $ 28,596 $ 24,625 $ 22,626 Retained Earnings 9,300 8,911 8,739 - -------------------------------------------------------------------------- Total Common Shareholder's Equity 37,896 33,536 31,365 - -------------------------------------------------------------------------- Redeemable Cumulative Preferred Stock 312 321 363 - -------------------------------------------------------------------------- Long-Term Debt (less current maturities) 40,000 34,000 40,000 - -------------------------------------------------------------------------- Current Liabilities: Notes Payable to Banks 7,100 7,085 6,480 Current Maturities of Long-Term Debt 0 6,000 0 Accounts Payable 2,636 3,024 3,513 Other Current Liabilities 2,628 3,098 4,621 - -------------------------------------------------------------------------- Total Current Liabilities 12,364 19,207 14,614 - -------------------------------------------------------------------------- Other Liabilities 1,538 1,676 1,561 - -------------------------------------------------------------------------- Unamortized Investment Tax Credit 1,070 1,139 1,209 - -------------------------------------------------------------------------- Deferred Income Taxes 8,970 8,728 9,286 - -------------------------------------------------------------------------- Reserve for Recoverable Environmental Cleanup Costs 3,335 3,290 3,290 - -------------------------------------------------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $105,485 $101,897 $101,688 ==========================================================================
Reference should be made to Notes to Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - ----------------------------------------------- (In Thousands, Except Share Amounts) Cumulative Common Shares Preferred Stock ------------- --------------- Number of Retained Number of Shares Cost Earnings Shares Cost - ------------------------------------------------------------------------------------ Balance at June 30, 1996 2,152,592 $21,712 $7,883 84,055 $8,406 Issuance through Dividend Reinvestment Program 59,059 914 Net Income 3,556 Dividends on Preferred Stock (240) Dividends on Common Shares (2,460) Redemption of Preferred Stock (80,423) (8,043) - ------------------------------------------------------------------------------------ Balance at June 30, 1997 2,211,651 22,626 8,739 3,632 363 Issuance through Dividend Reinvestment Program 104,263 1,999 Net Income 2,794 Dividends on Preferred Stock (16) Dividends on Common Shares (2,606) Redemption of Preferred Stock (420) (42) - ----------------------------------------------------------------------------------- Balance at June 30, 1998 2,315,914 24,625 8,911 3,212 321 Issuance through Dividend Reinvestment Program 197,991 3,971 Net Income 3,233 Dividends on Preferred Stock (15) Dividends on Common Shares (2,829) Redemption of Preferred Stock (91) (9) - ------------------------------------------------------------------------------------ Balance at June 30, 1999 2,513,905 $28,596 $9,300 3,121 $ 312 ====================================================================================
Reference should be made to Notes to Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------- (In Thousands) Years Ended June 30, ------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net Income $3,233 $2,794 $3,556 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 5,092 5,110 4,897 Provision for Losses on Accounts Receivable 79 1,065 973 Recoverable Gas Costs 36 1,180 (2,235) Deferred Income Taxes 242 (558) 620 Changes in Assets and Liabilities Which Provided (Used) Cash: Accounts and Other Receivables (954) 245 (1,747) Inventories (40) (596) (595) Unamortized Debt Expense (48) 0 (169) Accounts Payable (388) (489) 337 Prepaid Taxes (27) (274) 153 Consumer Rebates and Other (1,666) (1,668) 2,108 - ------------------------------------------------------------------------------------ Net Cash Provided by Operating Activities 5,559 6,809 7,898 - ------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Capital Expenditures and Disposal Costs (6,735) (6,945) (7,393) - ------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Dividends Paid (2,844) (2,622) (2,700) Proceeds from (Principal Payments on) Issuance of Long-Term Debt 0 0 16,000 Proceeds from (Principal Payments on) Notes Payable Borrowings-Net 15 605 (5,155) Redemption of Preferred Stock (Including Call Premium) (9) (42) (9,360) Proceeds from Other Stock Transactions 3,971 1,999 870 - ------------------------------------------------------------------------------------ Net Cash Provided (Used in) by Financing Activities 1,133 (60) (345) Net (Decrease) Increase in Cash (43) (196) 160 Cash at Beginning of Year 160 356 196 - ------------------------------------------------------------------------------------ Cash at End of Year $ 117 $ 160 $ 356 - ------------------------------------------------------------------------------------ Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (net of amount capitalized) $4,358 $4,178 $3,974 Income Taxes (net of refund). 1,849 2,553 1,527 =====================================================================================
Reference should be made to Notes to Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ (Dollars in Thousands, Except Share and Per Share Amounts) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------- The Berkshire Gas Company adopted a holding company corporate structure effective December 31, 1998, to capitalize on competitive opportunities associated with the deregulation of the natural gas industry. The adoption of a holding company structure effectively reorganized and segregated the Company's regulated business activities from its nonregulated markets. The holding company, known as Berkshire Energy Resources (the Company), has been organized as a Massachusetts Business Trust and initially has as its subsidiaries: The Berkshire Gas Company, Berkshire Propane, Inc., and Berkshire Energy Marketing, Inc. Beginning with fiscal 1999, the financial statements and results of operations for these subsidiaries/divisions have been reflected in the accompanying consolidated financial statements. Prior years were reported as The Berkshire Gas Company, which reported nonregulated operating divisions under Other Income. Effective December 31, 1998, the outstanding shares of The Berkshire Gas Company Common Stock were automatically exchanged on a share-for-share basis for Berkshire Energy Resources Common Shares (no par value), and Berkshire Energy Resources became the holding company of The Berkshire Gas Company. The Berkshire Gas Company is a subsidiary engaged in the distribution and sale of natural gas for residential, commercial and industrial use, as well as the transportation of natural gas for larger commercial and industrial users, and also sells and leases gas-burning equipment. The Berkshire Gas Company is subject to regulation by the Massachusetts Department of Telecommunications and Energy (DTE) as it relates to utility service. The Berkshire Gas Company's accounting policies conform to Generally Accepted Accounting Principles (GAAP) as applied to public utilities giving effect to the accounting practices and policies of the DTE. Berkshire Propane is the retail propane subsidiary, which provides service to more than 100 communities in western Massachusetts, eastern New York and southern Vermont. The Berkshire Energy Marketing, Inc. subsidiary has formed a marketing alliance with Conectiv/CNE Energy Services, LLC, a major regional energy services company, to sell natural gas, electricity, fuel oil and other energy service products in the Company's service territory and surrounding areas. Berkshire Propane and Berkshire Energy Marketing's accounting policies conform to GAAP. New Accounting Standards - ------------------------ In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS No. 130). This statement establishes standards for reporting and display of comprehensive income and its components in the financial statements. Adoption of SFAS No. 130 disclosure is required in fiscal 1999 and will have no impact on the Company's financial condition or results of operations. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). This statement requires that public business enterprises report certain additional information about operating segments. Adoption of SFAS No. 131 is required in fiscal 1999. The adoption of SFAS No. 131 will have no impact on the Company's financial condition or results of operations. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Post-Retirement Benefits" (SFAS No. 132). This statement standardizes employers' disclosures requirements about pension and other post-retirement benefit plans. Adoption of SFAS No. 132 is required in fiscal 1999. The adoption of SFAS No. 132 will have no impact on the Company's financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activites" (SFAS No. 133). This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. Adoption of SFAS No. 133 is required for fiscal years beginning after June 15, 2000. The Company is aware of certain provisions which may impact the natural gas industry but has not yet reviewed these provisions in detail against existing accounting practices and disclosures. It is management's expectation that the adoption of SFAS No. 133 will have no effect on the Company's financial condition or results of operations. SFAS No. 123, "Accounting for Stock-Based Compensation", if fully adopted, changes the methods for recognition of cost on plans similar to those of the Company. The Company's management has evaluated this statement and feels it will have no effect on the company. Segment Information - ------------------- The Company operates two segments: regulated activities and unregulated diversified businesses. Gas-related activities consist primarily of natural gas distribution to residential, commercial and industrial customers, as well as the sale and leasing of gas burning equipment. Diversified businesses consist primarily of distribution of liquefied petroleum gas and energy marketing. Intersegment sales are priced at fair market value. Information about the Company's operations, by business segment, is presented below:
Revenues: 1999 1998 1997 - ------------------------------------------------------------------ Gas-related activities $ 45,772 $ 49,859 $ 48,462 Unregulated activities 4,961 4,742 5,122 - ------------------------------------------------------------------ Total $ 50,733 $ 54,601 $ 53,584 ================================================================== Pre-tax Operating Income: 1999 1998 1997 - ------------------------------------------------------------------ Gas-related activities $ 4,786 $ 4,006 $ 4,966 Unregulated activities 408 443 812 - ------------------------------------------------------------------ Total $ 5,194 $ 4,449 $ 5,778 ================================================================== Income Taxes: 1999 1998 1997 - ------------------------------------------------------------------ Gas-related activities $ 1,804 $ 1,484 $ 1,909 Unregulated activities 157 171 313 - ------------------------------------------------------------------ Total $ 1,961 $ 1,655 $ 2,222 ================================================================== Depreciation and Amortization: 1999 1998 1997 - ------------------------------------------------------------------ Gas-related activities $ 4,249 $ 4,171 $ 4,021 Unregulated activities 188 238 258 - ------------------------------------------------------------------ Total $ 4,437 $ 4,409 $ 4,279 ================================================================== Identifiable Assets: 1999 1998 1997 - ------------------------------------------------------------------ Gas-related activities $104,396 $100,876 $100,522 Unregulated activities 1,089 1,021 1,166 - ------------------------------------------------------------------ Total $105,485 $101,897 $101,688 ==================================================================
Income Taxes - ------------- The Company uses the liability method in calculating deferred income taxes. The Company records deferred income tax liabilities for temporary differences between the basis of assets and liabilities for financial reporting and income tax purposes at tax rates expected to be in effect during the periods the temporary differences reverse. The Company has excess deferred taxes which has resulted in the recording of a regulatory liability. The regulatory liability reflects amounts due to the ratepayers which will be refunded through the regulatory process. Depreciation - ------------ The Company depreciates its utility plant at straight line rates approved by the DTE. The current composite depreciable rate is 4.04% and has been in effect since April 1, 1993. Depreciable non-utility/unregulated property consists of rental equipment, propane tanks and related equipment used in the Company's liquefied petroleum gas operations, and is depreciated at annual rates ranging from 2.5% to 20.0%. Revenues - -------- Customer meters are read on a cycle basis throughout each month. After the reading is prepared, customers are billed for their gas usage and any applicable monthly rental fee. At the time of billing, revenues are recorded. Pursuant to the DTE, The Berkshire Gas Company recovers the cost of gas supplies by way of the Seasonal Cost of Gas Adjustment Clause (CGAC), and recovers the cost of distribution charges through the Local Distribution Adjustment Clause (LDAC). Gas costs to be recovered include the cost of gas supplies, pipeline and storage capacity, certain bad debt expenses, local production and storage expenses, and gas acquisition expenses. The gas costs are offset by credits from supplier refunds and margins from non-firm gas sales, capacity release, and off-system sales. Any difference between actual and estimated costs, plus interest, is accrued or deferred and is recorded in the month the related revenue is billed. Unamortized Debt Expense - ------------------------ The issuance costs associated with long-term debt are deferred and amortized over the life of the issue. Investment Tax Credit - --------------------- The unamortized balance of the Investment Tax Credit (ITC) relating to machinery and equipment acquisitions up through 1986 is deducted from federal income taxes and is deferred on the balance sheet, as prescribed by the DTE, and is being amortized over the expected lives of the applicable assets. The unamortized balance of the ITC for the years ended June 30, 1999, 1998 and 1997, was $1,070, $1,139 and $1,209, respectively. The amortized portion for the years ended June 30, 1999, 1998 and 1997, was $69, $70 and $71. Utility Plant - ------------- The cost of maintenance, repairs and the renewal of items determined to be less than full units of plant property are charged to maintenance expense accounts. The cost of betterments and the renewal of full units of plant property are charged to plant property accounts. Costs include materials, labor and indirect charges for engineering, general and administrative and supervisory services. The book value of plant property replaced, retired or sold is concurrently removed from such plant property accounts and charged to accumulated depreciation along with its associated removal costs, less any salvage value. A functional classification for the cost of utility plant at June 30 is as follows:
1999 1998 1997 - --------------------------------------------------------------------- Transmission and Distribution Plant $ 97,072 $ 92,388 $ 87,206 General Plant 8,235 9,125 9,387 Manufactured Gas Production Plant 4,564 4,544 4,518 Construction in Progress 534 597 872 - --------------------------------------------------------------------- Total $110,405 $106,654 $101,983 =====================================================================
Transmission and distribution plant consists of mains, the installed costs of services and meters, land, rights of way and measuring and regulating station equipment which is used to deliver and to monitor gas used by the customer. General plant consists of structures and their improvements, office furniture and equipment, including computers, and transportation equipment. The manufactured gas production plant consists of land, gas mixing equipment and liquefied petroleum gas equipment used to supplement natural gas volumes during the peak season in order to meet customer demand. Earnings per Share - ------------------ Earnings per Common Share have been computed by dividing earnings applicable to Common Shares by the weighted average number of shares of Common Shares outstanding during each year. Effective December 31, 1997, the Company, as required, retroactively adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128). The statement established new standards for computing and presenting earnings per share (EPS) and required restatement of prior years information. As such, EPS for all prior periods presented has been restated to conform with SFAS 128. Due to the capital structure of the Company basic and diluted EPS are equal. Estimates - --------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTS RECEIVABLE - ------------------- Details of accounts receivable, net of allowance for doubtful accounts, as of June 30 are as follows:
1999 1998 1997 - --------------------------------------------------------------- Gas-related activities $6,346 $5,476 $6,489 Unregulated activities 654 620 766 Other 152 181 332 - --------------------------------------------------------------- Total - Net $7,152 $6,277 $7,587 ===============================================================
The allowance for doubtful accounts as of June 30, 1999, 1998 and 1997, respectively, is: Gas-related activities - $1,000, $927, and $943; Unregulated activities - $19, $47 and $78. INVENTORIES - ----------- Materials, supplies and liquefied petroleum used in the non-utility operations are valued at the lower of average cost or market value; liquefied petroleum gas used in the utility operations is valued at cost, and natural gas is recorded at cost. The details of these inventories as of June 30 are as follows:
1999 1998 1997 - --------------------------------------------------------------- Gas-related activities $4,137 $4,127 $3,519 Unregulated activities 164 134 146 - --------------------------------------------------------------- Total - Net $4,301 $4,261 $3,665 ===============================================================
RECLASSIFICATION - ---------------- The Company has reclassified certain amounts for prior years to conform with the 1999 presentation. COMMON SHARES - ------------- The Share Owner Dividend Reinvestment and Stock Purchase Plan (the Plan) of Berkshire Energy Resources provides holders of record of Common Shares of beneficial interest in the Company, a simple and convenient method of investing in additional Common Shares by automatically reinvesting cash dividends on all or a portion of their shares. The price for shares purchased through the Plan shall be equal to the average of the daily high and low sales prices for the Company's Common Shares (as quoted in the NASDAQ National Market System) for the five consecutive trading days prior to and including the date of purchase. The Charter provisions applicable to the 4.8% Cumulative Preferred Stock, the First Mortgage Indenture and the 7.8% Senior Note contain restrictions on the use of The Berkshire Gas Company's retained earnings for the payment of cash dividends on, or purchases of, Common Shares. At June 30, 1999, The Berkshire Gas Company's retained earnings were $8,032. At such date, under the most restrictive of these provisions, $4,259 of the retained earnings were unrestricted. REDEEMABLE CUMULATIVE PREFERRED STOCK - ------------------------------------- (Actual Shares and Dollars) The Company has one series of 4.8% Cumulative Preferred Stock authorized. The redemption price per share (as well as the amount due on voluntary liquidation) is $100.00. The provisions of the 4.8% Cumulative Preferred Stock require the Company to offer to purchase up to 450 shares at par annually on September 15. Pursuant thereto, the Company purchased 91, 420 and 423 shares during fiscal years 1999, 1998 and 1997, respectively. During fiscal 1997, the Company repurchased the 80,000 shares of the 8.4% Preferred Stock at $117 per share (see Long-Term Debt footnote). LONG-TERM DEBT - -------------- Details regarding the Company's First Mortgage Bond, Senior and Medium-Term Notes Payable as of June 30 are as follows:
Interest Final Description Rate Maturity 1999 1998 1997 - ------------------------------------------------------------------------- First Mortgage Bond: Series P 10.06% 2019 $10,000 $10,000 $10,000 Senior Note: 9.60 2020 8,000 8,000 8,000 Medium-Term Note: 6.10 2004 6,000 6,000 6,000 Senior Note: 7.80 2021 16,000 16,000 16,000 - ------------------------------------------------------------------------- 40,000 40,000 40,000 Less Current Portion 0 6,000 0 - ------------------------------------------------------------------------- Total $40,000 $34,000 $40,000 =========================================================================
The aggregate amount of maturities due are: 2000 - 2003 = $0; 2004 - $6,000; 2005 - 2010 = $0; 2011 - 2018 = $11,640; and $22,360 maturing thereafter per the dates in the table above. The First Mortgage Bond is collateralized by substantially all of the utility plant. During 1997, in conjunction with the Company's cost containment policies, the Company revised its capital structure to lower its borrowing costs. The Company issued a $16,000, 7.8% Senior Note and used the proceeds to redeem 80,000 shares of the 8.4% Preferred Stock. On April 1, 1999 the Company rolled-over the $6,000 Medium-Term Note at 6.10%, for a five-year term. The Indentures of the Series P Mortgage Bond and 7.8% Senior Note contain certain restrictive and financial covenants, principally a fixed charge ratio, and limitation on funded debt. As of June 30, 1999, the Company was not in violation of any such covenants. SHORT-TERM LOANS AND COMPENSATING BALANCES - --------------------- The Company has lines of credit aggregating $30,500 with various banks, of which $23,400 remained unused as of June 30, 1999. The lines of credit are reviewed periodically with various banks and may be renewed or cancelled. In connection with these lines of credit, the Company borrows at less than the prime rate. In lieu of compensating balance requirements, the Company pays commitment fees on a portion of its credit lines equating to 0.28% on $9,000 with the various banks. Information as to short-term borrowings is as follows:
1999 1998 1997 - ------------------------------------------------------------------ Balance Outstanding at June 30 $ 7,100 $ 7,085 $ 6,480 Maximum Amount of Borrowings at Any Month-End 17,960 14,600 19,190 Average Borrowings During the Year 11,701 9,528 12,434 Average Interest Rate at End of Year 6.01% 6.75% 6.72% Weighted Average Interest Rate During the Year 6.31% 6.67% 6.44%
OTHER CURRENT LIABILITIES - ------------------------- Details of other current liabilities as of June 30 are as follows:
1999 1998 1997 - ------------------------------------------------------------------ Accrued Interest $ 908 $ 884 $ 927 Retirement Plan 224 350 192 Dividends Declared 745 675 635 Accrued Consumer Rebates 116 523 2,251 Other 635 666 616 - ------------------------------------------------------------------ Total $2,628 $3,098 $4,621 ==================================================================
Accrued consumer rebates represent refunds received from a major supplier of natural gas to The Berkshire Gas Company. The refunds are the result of suppliers' settlements with FERC and are to be refunded to firm sales customers during the next fiscal year. LEASE COMMITMENTS - ----------------- The Company is committed under operating leases having an initial lease term of one year or more expiring on various dates. Rental expense under all long-term operating leases aggregated $1,264, $962 and $695 in fiscal 1999, 1998 and 1997, respectively. The minimum future obligations under long-term noncancelable leases in effect at June 30, 1999, are as follows:
2000 1,265 2001 1,201 2002 795 2003 265 2004 40 ----------------------------------------- Total $3,566 =========================================
INCOME TAXES - ------------ The difference in the effective tax rate compared with the statutory tax rate is shown in the following table:
1999 1998 1997 - ------------------------------------------------------------- Tax at Statutory Rate 34% 34% 34% State Taxes (Net of Federal Benefit) 4.5 4.3 4.5 Investment Tax Credit (1.3) (1.6) (1.2) Permanent Differences 0.7 .5 1.2 - ------------------------------------------------------------- Effective Tax Rate 37.9% 37.2% 38.5% =============================================================
A summary of the tax provision is as follows:
1999 1998 1997 - ------------------------------------------------------------ Federal Income - Current $1,446 $1,904 $1,393 Federal Income - Deferred 160 (542) 437 State - Current 307 390 285 State - Deferred 48 (97) 107 - ------------------------------------------------------------ Total $1,961 $1,655 $2,222 ============================================================
The components of the net deferred income tax liability at June 30 are as follows:
1999 1998 1997 - ------------------------------------------------------------ Deferred Liabilities: Investment Tax Credit $ 410 $ 436 $ 467 Excess Tax over Book Depreciation 9,086 8,924 8,837 Environmental Response Costs 135 171 228 - ------------------------------------------------------------ Total Deferred Liabilities 9,631 9,531 9,532 - ------------------------------------------------------------ Deferred Assets: Recoverable Gas Costs (70) (99) 301 Other (591) (704) (547) - ------------------------------------------------------------ Total Deferred Assets (661) (803) (246) - ------------------------------------------------------------ Total Net Deferred Income Taxes $8,970 $8,728 $9,286 ============================================================
CONTINGENCIES - ------------- Federal, state and local laws and regulations establishing standards and requirements for the protection of the environment have increased in number and scope in recent years. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can be retroactively applied. During fiscal 1990, the DTE issued a generic ruling on cost recovery for environmental cleanup with respect to former gas manufacturing sites. Under the ruling, The Berkshire Gas Company will recover annual cleanup costs, excluding carrying costs, over a seven-year period through the LDAC. This ruling also provides for the sharing of any proceeds received from insurance carriers equally between Berkshire Gas and its ratepayers, and establishes maximum amounts that can be recovered from customers in any one year. During the year ended June 30, 1999, Berkshire Gas continued the analysis and field review of two parcels of real estate formerly used for gas manufacturing operations, which had been found to contain coal tar deposits and other substances associated with by-products of the gas manufacturing process. The review and assessment process began in 1985 with respect to site #1, which is owned by Berkshire Gas, and in 1989 with respect to site #2, which it formerly owned. With the review and approval of the Massachusetts Department of Environmental Protection (MDEP), work at site #1 has resulted in proposed remedial activities which are currently being permitted through local and state agencies and will be pursued in the near future. Site monitoring activities will continue for the foreseeable future. It is difficult to predict the potential financial impact of the sites until first, the nature and risk is fully characterized, and second, the remedial strategies and related technologies are determined. The general philosophy is one of source removal and/or reduction coupled with risk minimization. Beginning in fiscal year 2000, Berkshire Gas will likely begin remediation of site #1. It is anticipated that through 2014 the level of expenditures for the sites will range from $3,335 to $12,673. The Company has recorded the most likely cost of $3,335 in accordance with SFAS No. 5. Ultimate expenditures cannot be determined until a remedial action plan for site #2 is developed. The Company's unamortized costs at June 30, 1999, were $718 and should be recovered using the formula discussed above. FERC Order 636 provides for 100% recovery by pipelines of any "Transition Costs" prudently incurred as a result of industry restructuring. As these costs have been and may be approved in the future, they have been and will be passed through to Berkshire Gas as demand charges associated with the transportation of gas through the pipeline. Under current rate structures, these costs are recovered through the LDAC. Legal Matters - ------------- The Company is involved with other legal proceedings incidental to its business. At the present time the Company cannot predict the outcome of these proceedings and also believes that the outcomes will not have a material adverse impact on its overall financial position or results of operations. OTHER INCOME - ------------ A condensed summary of the Company's non-utility/unregulated operations before income tax (included in the "Consolidated Statements of Income" under "Other Income - Net") as of June 30 is as follows:
1999 1998 1997 - --------------------------------------------------------------- Merchandise and Jobbing: Sales $1,100 $1,149 $1,064 Cost of Sales and Expenses 855 836 730 - --------------------------------------------------------------- Net 245 313 334 - --------------------------------------------------------------- Appliance Rentals: Revenues 1,544 1,452 1,410 Expenses 864 819 797 - --------------------------------------------------------------- Net 680 633 613 - --------------------------------------------------------------- Miscellaneous Net 1,269 657 732 - --------------------------------------------------------------- Total $2,194 $1,603 $1,679 ===============================================================
POST-RETIREMENT BENEFITS - ------------------------ The Company has noncontributory funded retirement income plans covering substantially all employees. The cost of the plans is actuarially determined, and it is the Company's policy to fund accrued pension costs. The change in benefit obligations and plan assets for the years ended June 30, 1999, 1998 and 1997 are as follows:
1999 1998 1997 - -------------------------------------------------------------- Change in Benefit Obligations: Benefit Obligations at Beginning of Year $19,827 $17,146 $16,946 Service Cost 468 496 556 Interest Cost 1,311 1,295 1,242 Benefits Paid (807) (885) (774) Plan Amendments 233 0 285 Actuarial Loss(Gain) (235) 1,775 (1,109) - -------------------------------------------------------------- Benefit Obligations at End of Year $20,797 $19,827 $17,146 ============================================================== Change in Plan Assets: Fair Value of Plan Assets at Beginning of Year $27,664 $22,281 $20,593 Actual Return on Plan Assets 2,879 6,175 2,019 Employer Contribution 0 0 404 Benefits Paid (807) (792) (735) - -------------------------------------------------------------- Fair Value of Plan Assets at End of Year $29,736 $27,664 $22,281 ============================================================== Funded Status $8,939 $7,837 $5,135 Unrecognized Net Gain (10,945) (10,017) (7,674) Unrecognized Prior Service Cost 1,032 900 1,000 Unrecognized Net Obligation (at Transition) 750 930 1,110 - -------------------------------------------------------------- Accrued Benefit Liability $ (224) $ (350) $ (429) ==============================================================
A summary of net periodic benefit(income)/cost for the years ended June 30, 1999, 1998 and 1997 are as follows:
1999 1998 1997 - -------------------------------------------------------------- Service Cost $ 468 $ 496 $ 556 Interest Cost 1,311 1,295 1,242 Return on Plan Assets: Actual (2,879) (6,175) (2,019) Deferred 850 4,478 447 - -------------------------------------------------------------- Net Recognized Return on Plan Assets (2,029) (1,697) (1,572) Other 124 64 283 - -------------------------------------------------------------- Net Pension (Income)/Cost $ (126) $ 158 $ 509 ==============================================================
Significant assumptions used in determining pension expense and related obligations for 1999, 1998 and 1997 are as follows:
1999 1998 1997 - --------------------------------------------------------------- Assumed Discount Rate 6.75% 7.75% 7.75% Assumed Rate of Compensation Increase 3.375% 4.125% 4.125% Expected Rate of Return on Plan Assets 9.50% 8.75% 8.75% - ---------------------------------------------------------------
Plan assets are invested in equity securities, debt securities and cash equivalents, and the balance is in other investments, principally real estate. The benefit formula is based either on the number of years of service or the employee's average base salary for the five years yielding the highest average. The Company maintains a 401(k)Post-Retirement Plan for all Company employees. The Company matches up to 3.5% of a participating employee's annual salary. The expense for the years ended June 30, 1999, 1998 and 1997, related to the 401(k)Plan was $233, $226, and $219, respectively. Fair Value of Financial Instruments - ----------------------------------- Because of the short maturity of certain assets, which include Cash, Accounts Receivable, and certain liabilities, which include Accounts Payable, these instruments are stated at amounts which approximate fair value. Long-Term Debt: - --------------- Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair values of existing debt. As of June 30, 1999, 1998 and 1997, the estimated fair values of the Series P Mortgage Bond are $11,165, $12,344, and $12,281, respectively. The estimated fair values of the 9.6% Senior Note are $8,698, $9,044, and $9,052, respectively. As of June 30, 1999, 1998 and 1997, the estimated fair values of the 7.8% Senior Note are $15,863, $15,155 and $15,704, respectively. The Medium-Term Note carried a variable interest rate for 1998 and 1997, and as such, the carrying value approximated fair value. As a result of the roll-over in April with a fixed rate of interest, the fair value as of June 30, 1999, of the Medium-Term Note is $4,675. Redeemable Preferred Stock: - --------------------------- It was not practicable to estimate the fair value of the 4.8% Redeemable Preferred Stock as any resultant difference between the fair value and its carrying value is immaterial. Subsequent Events - ----------------- During September 1999, the Company announced that it had reached agreements to purchase two privately held plumbing and heating contractors headquartered in Pittsfield, Massachusetts. These companies will operate under Berkshire Services Solutions, a nonregulated subsidiary. The annual sales of these companies at the time of acquisition were $3.7 million. INDEPENDENT AUDITORS' REPORT Deloitte & Touche LLP City Place Telephone:(860)280-3000 185 Asylum Street Facsimile:(860)280-3051 Hartford, Connecticut 06103-3402 To the Shareholders of Berkshire Energy Resources: We have audited the accompanying consolidated balance sheets of Berkshire Energy Resources (as successor to The Berkshire Gas Company) (the "Company") as of June 30, 1999, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 1999, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP /s/ - ---------------------------- Deloitte & Touche LLP August 12, 1999 QUARTERLY FINANCIAL INFORMATION - ------------------------------- A comparison of unaudited quarterly financial information is presented on page 31. ANNUAL MEETING - -------------- The annual meeting of shareholders will be held in Pittsfield, Massachusetts, at the Crowne Plaza Hotel, on Thursday, November 4, 1999, at 10:00 A.M. SHARE OWNER DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN - -------------------- The Company has a program which allows for the reinvestment of dividends to purchase additional Common Shares of the Company. The Plan is available to all shareholders of 10 or more shares and provides a convenient method to acquire additional shares without fees or other charges. Shareholders who wish to take advantage of the Plan or want additional information may do so by contacting: Berkshire Energy Resources Attn:Secretary of the Share Owner Dividend Reinvestment and Stock Purchase Plan Committee 115 Cheshire Road Pittsfield, Massachusetts 01201-1803 (413) 442-1511 TRANSFER AGENT - -------------- State Street Bank and Trust Company C/O EquiServe P.O. Box 8200 Boston, Massachusetts 02266-8200 Shareholder Inquiries: 1-800-426-5523 STOCK LISTING - ------------- The Common Shares of Berkshire Energy Resources are traded on the National Over-the-Counter Market and are quoted through the NASDAQ National Market System under the symbol BERK. FORM 10-K INFORMATION - --------------------- Upon written request to the address below, a copy of the Company's current Form 10-K Annual Report, as filed with the Securities and Exchange Commission, will be provided to any shareholder without charge. Berkshire Energy Resources Attn: Corporate Secretary 115 Cheshire Road Pittsfield, Massachusetts 01201-1803 This report has been prepared for the purposes of information and record only and not in connection with the sale or offer for sale of securities, or any solicitation of an offer to buy securities. CONSOLIDATED QUARTERLY FINANCIAL INFORMATION - -------------------------------------------- For the Fiscal Year Ended June 30, (In Thousands, Except Per Share Amounts) (Unaudited)
1999 First Second Third Fourth - ------------------------------------------------------------------------------ Operating Revenues(Consolidated) $ 4,837 $13,320 $23,544 $ 9,031 Operating and Other Income(Loss) (356) 2,104 6,832 995 Income (Loss) Before Income Taxes (1,434) 948 5,706 (27) Net Income (Loss) (876) 602 3,514 (8) Earnings (Loss) Per Share (0.38) 0.25 1.43 (0.01) Dividends Declared Per Share 0.29 0.29 0.29 0.295 Prices of Common Shares: High 25.000 24.250 23.125 23.750 Low 19.500 20.000 18.500 16.250 1998 First Second Third Fourth - ------------------------------------------------------------------------------ Operating Revenues(Consolidated) $ 5,052 $15,752 $24,768 $ 9,030 Operating and Other Income(Loss) (69) 3,345 6,360 1,074 Income (Loss) Before Income Taxes (1,374) 1,724 4,419 (320) Net Income (Loss) (836) 1,076 2,739 (185) Earnings (Loss) Per Share (0.38) 0.47 1.20 (0.08) Dividends Declared Per Share 0.285 0.285 0.285 0.29 Prices of Common Shares: High 17.375 23.500 25.625 24.750 Low 15.250 16.250 21.500 21.625 1997 First Second Third Fourth - ------------------------------------------------------------------------------ Operating Revenues (Consolidated) $ 4,657 $13,723 $23,978 $11,225 Operating and Other Income (Loss) (165) 3,298 6,834 1,560 Income (Loss) Before Income Taxes (1,143) 1,826 4,932 163 Net Income (Loss) (708) 1,124 3,042 98 Earnings (Loss) Per Share (0.41) 0.48 1.38 0.06 Dividends Declared Per Share 0.28 0.28 0.28 0.285 Prices of Common Shares: High 16.750 18.000 17.500 16.000 Low 14.875 15.250 15.250 15.000
The Common Shares of Berkshire Energy Resources are traded on the National Over-the-Counter Market and are quoted through the NASDAQ National Market System (BERK). Earnings per Common Share have been computed based on average Common Shares outstanding in each period after recognition of Preferred Stock dividends. It is currently the policy of the Board of Trustees to declare cash dividends payable in July, October, January and April. The dividend rate is reassessed regularly in light of existing conditions, the needs of the Company and the interests of shareholders. The sum of the quarterly earnings (loss) per share amounts may not equal the annual income per share due to the issuance of Common Shares and rounding. The name "Berkshire Energy Resources" means the trustees for the time being (as trustees but not individually) under a Declaration of Trust dated 2/17/98, as amended, which is hereby referred to, and a copy of which has been filed with the Secretary of The Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of said Berkshire Energy Resources binds only the trust estate, and no shareholder, director, trustee, officer or agent assumes, or shall be held to, any liability by reason thereof. Officers - -------- SCOTT S. ROBINSON ROBERT M. ALLESSIO President and Chief Vice President Executive Officer MICHAEL J. MARRONE CHERYL M. CLARK Vice President, Treasurer and Secretary of the Chief Financial Officer Corporation Trustees - -------- GEORGE R. BALDWIN** JAMES R. KEYS President, President, J.R. Keys & Assoc. Inc., Baldwin & Co., a marketing and government relations an investment firm consulting firm JOHN W. BOND* ** SCOTT S. ROBINSON* President, President and Chief Kimbell Financial, Inc., Executive Officer, a financial services company Berkshire Energy Resources PAUL L. GIOIA** ROBERT B. TRASK** Of Counsel, President, The LeBoeuf, Lamb, Greene & MacRae, Fitzpatrick Companies, a law firm formerly Country Curtains, Inc., a FRANKLIN M. HUNDLEY* mail order/retail firm Chairman of the Board, Berkshire Energy Resources Of Counsel, * Executive Committee Rich, May, Bilodeau & Flaherty, P.C., a law firm ** Audit Committee EX-27 10 FDS
UT 12-MOS JUN-30-1999 JUN-30-1999 PER-BOOK 76,330 7,034 13,393 5,393 3,335 105,485 28,596 0 9,300 37,896 0 312 40,000 7,100 0 0 0 0 0 0 20,177 105,485 50,733 1,961 14,437 20,866 7,382 2,194 9,576 4,382 3,233 15 3,218 2,829 0 5,559 1.34 0
EX-27 11 FDS-RESTATED
UT 12-MOS JUN-30-1998 JUN-30-1998 PER-BOOK 75,283 6,364 12,271 4,689 3,290 101,897 24,625 0 8,911 33,536 0 321 34,000 7,085 0 0 6,000 0 0 0 20,595 101,897 54,601 1,655 14,061 20,340 7,238 1,603 8,841 4,392 2,794 16 2,778 2,606 0 6,809 1.23 0
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