<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 1-2301
BOSTON EDISON COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1278810
- ------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Boylston Street, Boston, Massachusetts 02199
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-424-2000
------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 11, 1997
- ----- ------------------------------
Common Stock, $1 par value 48,514,973 shares
<PAGE> 2
Part I - Financial Information
Item 1. Financial Statements
- -----------------------------
<TABLE>
Boston Edison Company
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues $426,735 $389,756 $849,460 $777,605
-------- -------- -------- --------
Operating expenses:
Fuel and purchased power 164,396 128,213 345,564 271,131
Operations and maintenance 100,301 100,391 200,096 203,238
Depreciation and amortization 45,023 50,814 90,546 90,471
Demand side management programs 7,107 8,528 14,096 14,998
Taxes - property and other 28,723 29,320 57,895 58,109
Income taxes 20,698 17,014 33,188 31,909
-------- -------- -------- --------
Total operating expenses 366,248 334,280 741,385 669,856
-------- -------- -------- --------
Operating income 60,487 55,476 108,075 107,749
Other income (expense), net 578 (47) 442 414
-------- -------- -------- --------
Operating and other income 61,065 55,429 108,517 108,163
-------- -------- -------- --------
Interest charges:
Long-term and medium-term debt 22,988 23,718 46,387 48,708
Other 4,488 4,232 7,892 7,100
Allowance for borrowed funds
used during construction (389) (447) (677) (775)
-------- -------- -------- --------
Total interest charges 27,087 27,503 53,602 55,033
-------- -------- -------- --------
Net income 33,978 27,926 54,915 53,130
Preferred stock dividends 3,494 3,817 7,311 7,707
-------- -------- -------- --------
Earnings available for common
shareholders $ 30,484 $ 24,109 $ 47,604 $ 45,423
======== ======== ======== ========
Weighted average common shares
outstanding 48,515 48,194 48,515 48,132
====== ====== ====== ======
Earnings per share of common stock $0.63 $0.50 $0.98 $0.94
===== ===== ===== =====
Dividends declared per share of
common stock $0.47 $0.47 $0.94 $0.94
===== ===== ===== =====
Common shares outstanding at end
of period 48,515 48,240
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> 3
<TABLE>
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Assets
- ------
Utility plant in service, at original cost $4,420,647 $4,393,585
Less: accumulated depreciation 1,626,702 1,550,317
---------- ----------
2,793,945 2,843,268
Nuclear fuel, net 77,303 82,944
Construction work in progress 56,629 30,376
---------- ----------
Net utility plant 2,927,877 2,956,588
Investments in electric companies, at equity 23,743 23,054
Nuclear decommissioning trust 142,221 132,076
Other investments 10,364 7,630
Current assets:
Cash and cash equivalents 6,130 5,651
Accounts receivable 219,813 233,024
Accrued unbilled revenues 50,191 34,922
Fuel, materials and supplies,
at average cost 49,471 57,075
Prepaid expenses and other 34,773 45,146
---------- ----------
Total current assets 360,378 375,818
---------- ----------
Regulatory assets:
Power contracts 78,293 88,963
Redemption premiums 28,868 31,052
Income taxes, net 48,163 47,483
Postretirement benefits costs 22,441 15,009
Nuclear outage costs 14,213 3,432
Other 15,354 16,087
---------- ----------
Total regulatory assets 207,332 202,026
Other deferred debits 30,843 32,099
---------- ----------
Total assets $3,702,758 $3,729,291
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
<TABLE>
Boston Edison Company
Consolidated Balance Sheets
(Unaudited)
(in thousands)
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Common stock equity:
Common stock $ 744,400 $ 744,233
Retained earnings 290,832 292,191
---------- ----------
Total common stock equity 1,035,232 1,036,424
---------- ----------
Cumulative preferred stock:
Nonmandatory redeemable series 83,000 119,954
Mandatory redeemable series 77,779 81,465
---------- ----------
Total preferred stock 160,779 201,419
---------- ----------
Long-term and medium-term debt 1,057,242 1,058,644
---------- ----------
Total capitalization 2,253,253 2,296,487
---------- ----------
Current liabilities:
Long-term debt/preferred stock
due within one year 103,467 102,667
Notes payable 286,890 201,454
Accounts payable 96,350 134,083
Accrued interest 25,401 24,378
Dividends payable 24,748 25,343
Other 93,353 115,812
---------- ----------
Total current liabilities 630,209 603,737
---------- ----------
Deferred credits:
Power contracts 78,293 88,963
Accumulated deferred income taxes 492,686 498,718
Accumulated deferred investment tax credits 56,864 58,899
Nuclear decommissioning liability 143,525 133,388
Other 47,928 49,099
---------- ----------
Total deferred credits 819,296 829,067
Commitments and contingencies __________ __________
Total capitalization and liabilities $3,702,758 $3,729,291
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE> 5
<TABLE>
Boston Edison Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<CAPTION>
Six Months Ended June 30,
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 54,915 $ 53,130
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 105,885 111,121
Deferred income taxes and investment
tax credits (8,781) (6,768)
Allowance for borrowed funds used during
construction (677) (775)
Net changes in:
Accounts receivable and accrued
unbilled revenues (2,058) (42,881)
Fuel, materials and supplies 6,740 3,343
Accounts payable (37,733) (45,054)
Other current assets and liabilities (11,658) 11,396
Other, net (15,528) 20,290
-------- --------
Net cash provided by operating activities 91,105 103,802
-------- --------
Investing activities:
Plant expenditures (excluding AFUDC) (64,707) (59,907)
Nuclear fuel expenditures (1,828) (10,457)
Investments (10,834) (18,764)
-------- --------
Net cash used in investing activities (77,369) (89,128)
-------- --------
Financing activities:
Issuances:
Common stock 145 6,325
Medium-term debt 100,000 0
Redemptions:
Preferred stock (44,000) (4,000)
Long-term debt (101,600) (101,600)
Net change in notes payable 85,436 136,059
Dividends paid (53,238) (52,959)
-------- --------
Net cash used in financing activities (13,257) (16,175)
-------- --------
Net increase (decrease) in cash and cash
equivalents 479 (1,501)
Cash and cash equivalents at beginning of year 5,651 5,841
-------- --------
Cash and cash equivalents at end of period $ 6,130 $ 4,340
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 49,812 $ 51,782
======== ========
Income taxes $ 41,251 $ 41,189
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
Notes to Consolidated Financial Statements
- ------------------------------------------
A) Basis of Presentation
---------------------
The accompanying consolidated financial statements should be read in
conjunction with the Boston Edison Company (the Company) 1996 Annual Report on
Form 10-K and Form 10-Q for the period ended March 31, 1997. The financial
information presented as of June 30 has been prepared from the Company's books
and records without audit by independent accountants. Financial information
as of December 31 has been derived from the audited financial statements of
the Company, but does not include all disclosures required by generally
accepted accounting principles (GAAP). In the opinion of the Company's
management, the accompanying financial statements reflect all adjustments
(which are all of a normal recurring nature) necessary for a fair
presentation of the financial information for the periods indicated. Certain
reclassifications have been made to the prior year data to conform with the
current presentation.
The preparation of financial statements in conformity with GAAP requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
The results of operations for the three and six-month periods ended June 30,
1997 and 1996 are not indicative of the results which may be expected for an
entire year. The Company's kilowatt-hour (kWh) sales and revenues are
typically higher in the winter and summer than in the spring and fall as sales
tend to vary with weather conditions. In addition, the Company bills higher
base rates to commercial and industrial customers during the billing months of
June through September as mandated by the Massachusetts Department of Public
Utilities (MDPU). Accordingly, greater than half of the Company's annual
earnings typically occurs in the third quarter.
B) Nature of Operations
--------------------
The Company is an investor-owned regulated public utility operating in the
energy and energy services business. This includes the generation, purchase,
transmission, distribution and sale of electric energy and the development and
implementation of electric demand side management programs. A portion of the
generation is produced by the Company's wholly owned nuclear generating unit,
Pilgrim Nuclear Power Station (Pilgrim). The Company supplies electricity at
retail to an area of 590 square miles, including the City of Boston and 39
surrounding cities and towns. It also supplies electricity at wholesale for
resale to other utilities and municipal electric departments. Electric
operating revenues were 88% retail and 12% wholesale in 1996. In addition,
the Company conducts unregulated activities through its wholly owned
subsidiary, Boston Energy Technology Group (BETG).
As discussed in the Company's 1996 Annual Report on Form 10-K, in December
1996, BETG signed a joint venture agreement with Residential Communications
Network, Inc., currently known as RCN Telecom Services, Inc. (RCN), to form a
limited liability company to provide certain telecommunications-related
<PAGE> 7
services. The final closing on the joint venture with RCN occurred on
June 17, 1997. BETG, through one of its wholly owned subsidiaries, owns 49%
of the limited liability company while RCN owns 51% and will maintain day-to-
day management responsibility. The joint venture will compete directly with
local and long-distance telephone, video, cable and Internet access companies.
Refer to Note A of Item 8 in the Company's 1996 Annual Report on Form 10-K for
information regarding the Company's energy marketing joint venture with
Williams Energy Services Company.
The Company's shareholders approved management's proposal to adopt a holding
company structure at the Annual Shareholders Meeting held in May 1997. The
holding company, to be called BEC Energy, is subject to the approval of the
MDPU, Federal Energy Regulatory Commission (FERC), Nuclear Regulatory
Commission and Securities and Exchange Commission. The Company filed for
approval with each of the various regulators during the second quarter.
C) Depreciation Expense
--------------------
Upon the completion of a review of its electric generating units, the Company
determined that its oldest and least efficient fossil generating units (Mystic
4, 5 and 6) were unlikely to provide competitively priced power beyond the
year 2000. Therefore, during the second quarter of 1996 the Company revised
the estimated remaining economic lives of these units to five years
retroactive to the beginning of that year. Depreciation expense in the second
quarter of 1996, therefore, includes $5.6 million, or $0.07 per share after
tax, in additional depreciation relating to this adjustment compared to the
same period in 1997. However, as the adjustment was reflected retroactive to
the beginning of 1996, it will have no impact on the comparative earnings for
the full year of 1997.
D) Contingencies
-------------
The Company owns or operates approximately 40 properties where oil or
hazardous materials were previously spilled or released. The Company is
required to clean up these properties in accordance with a timetable developed
by the Massachusetts Department of Environmental Protection and continues to
evaluate the costs associated with their cleanup. There are uncertainties
associated with these costs due to the complexities of cleanup technology,
regulatory requirements and the particular characteristics of the different
sites. The Company also continues to face possible liability as a potentially
responsible party in the cleanup of approximately ten multi-party hazardous
waste sites in Massachusetts and other states where it is alleged to have
generated, transported or disposed of hazardous waste at the sites. At the
majority of these sites the Company is one of many potentially responsible
parties and currently expects to have only a small percentage of the potential
liability. Through June 30, 1997, the Company has approximately $7 million
accrued related to its cleanup liabilities. The Company is unable to fully
determine a range of reasonably possible cleanup costs in excess of the
accrued amount, however based on its assessments of the specific site
circumstances, it does not believe that it is probable that any such
additional costs will have a material impact on its financial condition.
However, it is reasonably possible that additional provisions for cleanup
costs that may result from a change in estimates could have a material impact
on the results of a reporting period in the near term.
<PAGE> 8
Statement of Position 96-1, Environmental Remediation Liabilities (SOP 96-1),
became effective in 1997. SOP 96-1 contains authoritative guidance on
specific accounting issues related to the recognition, measurement, display
and disclosure of environmental remediation liabilities. It requires that an
accrual for environmental liabilities include estimates of the costs to
perform all elements of the remediation effort including the costs of
compensation and benefits for those employees expected to devote a significant
amount of time directly to that effort. SOP 96-1 had no material effect on
the Company's consolidated results of operations or financial position.
The Company was named as a party in lawsuits by Subaru of New England, Inc.
and Subaru Distributors Corporation. The plaintiffs claimed certain
automobiles stored on lots in South Boston suffered pitting damage caused by
emissions from New Boston Station. In February 1997, the Company settled the
lawsuit brought by Subaru Distributors Corporation. The settlement did not
have a material impact on the Company's consolidated results of operations or
financial position. The Subaru of New England, Inc. lawsuit is still pending
and is scheduled to go to trial during the third quarter.
In the normal course of its business the Company is also involved in certain
other legal matters. The Company is unable to fully determine a range of
reasonably possible legal costs in excess of amounts accrued, although, based
on the information currently available, it does not believe that it is
probable that any such additional costs will have a material impact on its
financial condition. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact
on the results of a reporting period in the near term.
E) Income Taxes
------------
The following table reconciles the federal statutory income tax rate to the
annual estimated effective income tax rate for 1997 and the actual effective
income tax rate for 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory tax rate 35.0% 35.0%
State income tax, net of federal income
tax benefit 4.3 4.3
Investment tax credits (1.7) (1.8)
Other (0.6) 0.7
---- ----
Effective tax rate 37.0% 38.2%
==== ====
</TABLE>
F) Financing Activity
------------------
In June 1997, $40 million of 8.25% nonmandatory redeemable series preferred
stock was redeemed. The Company also redeemed $2 million of mandatory and
$2 million of the optional 7.27% sinking fund series preferred stock in May
1997.
In March 1997, $100 million of 5.70% debentures matured. These debentures
were replaced with $100 million of 6.662% bank debt due in 1999.
<PAGE> 9
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Results of Operations - Three Months Ended June 30, 1997 vs. Three Months
- -------------------------------------------------------------------------
Ended June 30, 1996
- -------------------
Earnings per share of common stock for the three months ended June 30, 1997
were $0.63 as compared to $0.50 for the three months ended June 30, 1996. The
comparison of 1997 and 1996 earnings for the second quarter is impacted by a
retroactive adjustment related to a change in the estimated economic lives of
the Company's oldest and least efficient fossil generating units in 1996. The
adjustment, which began in the second quarter of 1996 retroactive to the
beginning of that year, positively impacted second quarter earnings by $0.07
per share after tax in relation to the same period in 1996. As the adjustment
was reflected retroactive to the beginning of 1996, it will have no impact on
the comparative annual earnings of 1996 and 1997. The remaining increase is
primarily the result of a 2.6% increase in retail kWh sales. This increase is
mainly the result of the positive effect on commercial customers of a
continued strong economy and a cooler than normal spring and a warmer than
normal early summer.
The results of operations for the quarter are not indicative of the results
which may be expected for the entire year due to the seasonality of the
Company's kWh sales and revenues. Refer to Note A to the Consolidated
Financial Statements.
Operating revenues
Operating revenues increased 9.5% during the second quarter of 1997 as
follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $33,217
Demand side management revenues 317
Wholesale revenues (3,423)
Short-term sales and other revenues 6,868
- ------------------------------------------------------
Increase in operating revenues $36,979
======================================================
</TABLE>
Retail electric revenues increased $33.2 million primarily due to the timing
effect of fuel and purchased power cost recovery. The increase in the
Company's fuel and purchased power clause revenues reflects the current
recovery of substantial prior year undercollections. These higher revenues
are offset by higher fuel and purchased power expenses and, therefore, have no
net effect on earnings. In addition, the 2.6% increase in retail kWh sales
contributed to the increase in revenues.
The decrease in wholesale revenues reflects lower sales to the Company's
Pilgrim contract customers primarily due to a refueling and maintenance outage
at Pilgrim Station that ended in late April 1997.
Short-term sales revenues increased $6.7 million primarily due to an increase
in short-term power purchase requirements resulting from a reduction in the
available nuclear energy supply in New England. In addition, an increase in
generation from the Company's fossil units enabled it to increase sales to the
power exchange.
<PAGE> 10
Operating expenses
Fuel and purchased power expenses increased $36 million primarily due to the
timing effect of fuel and purchased power cost recovery and the increase in
fossil generation resulting from the greater availability of the Company's
fossil units and reflecting the impact of the Pilgrim outage. Fuel and
purchased power expenses are substantially recoverable through fuel and
purchased power revenues.
On April 1, 1997, greater Boston was struck with one of the most severe late
winter storms in history. Despite the impact of this storm, which required
the assistance of crews from as far away as Pennsylvania and Ontario, total
operations and maintenance expense in the second quarter of 1997 remained
consistent with 1996. This is due to lower overall spending resulting from
operational efficiencies and lower labor costs due to the 1995 corporate
restructuring as the related reductions in employee staffing levels were not
complete until mid-1996.
The decrease in depreciation and amortization expense reflects the impact of
the change in estimated remaining economic lives of certain Company electric
generating units as discussed in Note C to the Consolidated Financial
Statements.
The decrease in demand side management (DSM) programs expense reflects a
decline in current DSM program expenditures.
Interest charges
Total interest charges on long-term and medium-term debt decreased due to the
maturity of $100 million of 5.70% debentures in March 1997 and the cessation
of amortization of the associated redemption premiums. This was partially
offset by the March 1997 issuance of $100 million of 6.662% bank debt due in
1999.
Preferred stock dividends
The decrease in preferred stock dividends is due to the redemption of 20,000
mandatory and 20,000 optional shares of 7.27% series preferred stock in May
1997 and the redemption of 400,000 shares of 8.25% series in June 1997.
Results of Operations - Six Months Ended June 30, 1997 vs. Six Months Ended
- ---------------------------------------------------------------------------
June 30, 1996
- -------------
Earnings per share of common stock for the six months ended June 30, 1997 were
$0.98 as compared to $0.94 for the six months ended June 30, 1996. The
increase in earnings is primarily due to lower operations and maintenance and
interest expenses.
The results of operations for the six months ended June 30, 1997 are not
indicative of the results which may be expected for the entire year due to the
seasonality of the Company's kWh sales and revenues. Refer to Note A to the
Consolidated Financial Statements.
<PAGE> 11
Operating revenues
Operating revenues increased 9.2% during the first six months of 1997 as
follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------
<S> <C>
Retail electric revenues $64,449
Demand side management revenues (19)
Wholesale revenues (6,017)
Short-term sales and other revenues 13,442
- ------------------------------------------------------
Increase in operating revenues $71,855
======================================================
</TABLE>
Retail electric revenues increased $64.4 million primarily due to the timing
effect of fuel and purchased power cost recovery. The increase in the
Company's fuel and purchased power clause revenues reflects the current
recovery of substantial prior year undercollections. Retail kWh sales and
base revenues were relatively consistent with 1996.
The decrease in wholesale revenues reflects lower sales to the Company's
Pilgrim contract customers as discussed in the results of operations for the
second quarter.
Short-term sales revenues increased $11.4 million. As discussed in the
results of operations for the second quarter, this is primarily due to an
increase in short-term power purchase requirements resulting from the
reduction in available nuclear energy supply in New England combined with an
increase in the Company's fossil generation.
Operating expenses
Fuel and purchased power expenses increased $74 million. The increase is
primarily due to the timing effect of fuel and purchased power cost recovery
and a 72% increase in fossil generation.
Operations and maintenance expense decreased $3 million. The decrease is the
result of lower overall spending from the Company's continuing cost control
efforts and lower labor costs resulting from the 1995 corporate restructuring
as discussed in the results of operations for the second quarter. In
addition, the Company experienced significantly less overhaul activity in its
fossil generating units than in 1996. These decreases were partially offset
by costs associated with the April 1, 1997 storm.
Interest charges
The decrease in interest on long-term and medium-term debt is due to the
maturity of $100 million of 5.70% debentures in March 1997 and $100 million of
5 1/8% debentures in March 1996 along with the cessation of amortization of
the associated redemption premiums. These decreases were partially offset by
the March 1997 issuance of $100 million of 6.662% bank debt due in 1999.
Interest on short-term debt increased due to a higher average short-term debt
level in 1997 resulting from the overall decrease in operating cash flow
largely due to the scheduled refueling and maintenance outage at Pilgrim and
<PAGE> 12
the preferred stock redemptions in 1997. A slightly higher effective interest
rate also contributed to the increase.
Electric Revenues
- -----------------
The annual Pilgrim performance adjustment charge provides the Company with
opportunities to improve its financial results. The most significant
potential impact of this performance incentive is based on Pilgrim Station's
annual capacity factor. Refer to the Electric revenues section of the
Company's 1996 Annual Report on Form 10-K for detail regarding the annual
performance adjustment charge.
The Company is currently billing customers based on a capacity factor of 77%
for the performance year ended October 1997. This is a decrease from the
capacity factor of 91% achieved in the performance year ended October 1996 in
which there was no refueling and maintenance outage. The current performance
year's outage, originally scheduled to be completed in March 1997, was
extended through April 1997 due to the replacement of Pilgrim's main
transformer. The power needs usually met by Pilgrim Station were met by other
generating plants or purchased from other suppliers during this period.
Liquidity
- ---------
The Company continues to supplement internally generated funds with external
financings, primarily through the issuance of short-term commercial paper and
bank borrowings. The Company has authority from the FERC to issue up to $350
million of short-term debt. The Company also has a $200 million revolving
credit agreement and arrangements with several banks to provide additional
short-term credit on a committed as well as on an uncommitted and as available
basis. At June 30, 1997 the Company had approximately $287 million of short-
term debt outstanding, none of which was incurred under the revolving credit
agreement. In 1994 the MDPU approved the Company's financing plan to issue up
to $500 million of equity and long-term securities through 1996. In 1996 the
MDPU approved the Company's request to extend this financing plan through
1998. Proceeds from issuances under this plan are to be used to refinance
short and long-term securities and to fund capital expenditures. There is
approximately $220 million remaining under the plan. Refer to Note F to the
Consolidated Financial Statements for the Company's recent financing
activities.
Outlook for the Future
- ----------------------
On July 9, 1997, the Company, along with the Massachusetts Attorney General,
the Massachusetts Division of Energy Resources and 15 other parties
representing environmental, competitor and other interests, filed a
comprehensive settlement agreement with the MDPU. If approved by the MDPU,
the settlement agreement allows retail electric customers the ability to
choose their electricity supplier (referred to as retail access) as early as
January 1, 1998 contingent upon choice being made available to all customers
of Massachusetts investor-owned utilities (the Retail Access Date). In
addition, the settlement agreement provides the Company with the ability to
fully recover its stranded costs incurred under the traditional ratemaking
structure. Refer to the Positioning in the Industry section of Item 7 in the
<PAGE> 13
Company's 1996 Annual Report on Form 10-K for more information regarding the
Company's settlement agreement.
The Company anticipates that the MDPU will issue a decision on the settlement
agreement in the third or fourth quarter of 1997. Implementation of the
settlement agreement will also be subject to enactment of enabling legislation
by the Massachusetts legislature. The major principles of potential
legislation filed to date have been substantially consistent with those
included in the Company's settlement agreement.
Included in the settlement agreement is a provision for the Company to divest
its fossil generating assets no later than six months after the Retail Access
Date. The Company filed its Fossil Generation Divestiture Plan with the MDPU
along with its settlement agreement on July 9, 1997. The Company subsequently
issued an offering memorandum which commenced the bidding process. The
Company anticipates the execution of purchase and sale agreements by the end
of October 1997. Implementation of the divestiture plan will require certain
regulatory approvals including that of the MDPU and FERC.
The Company has offered a divestiture package that includes job options for
eligible union employees affected by the Fossil Generation Divestiture Plan.
The package has been ratified by the field service union. The Company is
continuing negotiations with the clerical and professional support union.
Under the Company's settlement agreement, severance and employee training
costs related to the divestiture will be recoverable through the distribution
business access charge which is further discussed in Item 7 of the Company's
1996 Annual Report on Form 10-K.
Other Matters
- -------------
Connecticut Yankee
In December 1996, the board of directors of Connecticut Yankee Atomic Power
Company (CYAPC), which owns and operates the Connecticut Yankee nuclear
electric generating unit, unanimously voted to permanently shut down the unit.
This decision was based on an economic analysis of the costs of operating the
unit compared to the costs of closing the unit and incurring replacement power
costs through the period of its operating license.
The Connecticut Department of Public Utility Control (DPUC) has raised
concerns to the FERC regarding CYAPC's estimate of the post-operation costs
and the plant operator's prudency prior to the shut down decision. The FERC
set CYAPC's request to recover certain post-operating expenses, including
decommissioning expenses, for hearing before an Administrative Law Judge. The
DPUC subsequently filed testimony in the proceeding asserting the position
that the FERC should deny recovery of substantial post-operating costs,
including a significant amount related to decommissioning and the return on
CYPAC's undepreciated investment. The litigation is in its initial stages.
The Company, a 9.5% equity investor in CYAPC and power purchaser, is currently
unable to determine the ultimate outcome of this proceeding or its impact on
the Company.
<PAGE> 14
Safe Harbor Cautionary Statement
The Company occasionally makes forward-looking statements such as forecasts
and projections of expected future performance or statements of its plans and
objectives. These forward-looking statements may be contained in filings with
the Securities and Exchange Commission, press releases and oral statements.
Actual results could potentially differ materially from these statements.
Therefore, no assurances can be given that the outcomes stated in such
forward-looking statements and estimates will be achieved. Refer also to the
safe harbor cautionary statements included in the Company's 1996 Annual Report
on Form 10-K and Form 10-Q for the period ended March 31, 1997.
The preceding sections include certain forward-looking statements about
environmental and legal issues, Pilgrim Station's performance, the Company's
settlement agreement and Connecticut Yankee.
The impacts of various environmental and legal issues could differ from
current expectations. New regulations or changes to existing regulations
could impose additional operating requirements or liabilities other than
expected. The effects of changes in specific hazardous waste site conditions
and cleanup technology could affect estimated cleanup liabilities. The
impacts of changes in available information and circumstances regarding legal
issues could affect the estimated litigation costs.
Pilgrim Station's performance could differ from current expectations. The
capacity factor could be impacted by changes in regulations or by unplanned
outages resulting from certain operating conditions.
The effects of the industry restructuring process currently underway at the
MDPU and the Company's related settlement agreement could differ from current
expectations. The impacts of legislative action may affect the ultimate
results of the industry restructuring and the Company's settlement agreement.
The ultimate liability related to the shutdown of Connecticut Yankee could
differ from the current estimate. In addition, although not anticipated, it
is possible that some portion of the Company's share of post-operation costs
may not be recoverable from ultimate customers.
<PAGE> 15
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company's Annual Shareholders Meeting was held on May 15, 1997.
The following four Class III directors were reelected to serve until the
Annual Meeting to be held in the year 2000:
<TABLE>
<CAPTION>
Votes Votes
for abstained
---------- ---------
<S> <C> <C>
Gary L. Countryman 40,734,590 1,201,640
Thomas G. Dignan, Jr. 40,736,278 1,199,952
Herbert Roth, Jr. 40,780,980 1,155,250
Steven J. Sweeney 40,661,977 1,274,254
</TABLE>
The following proposals were approved at the Annual Meeting:
<TABLE>
<CAPTION>
Votes Votes Votes
for against abstained
---------- --------- ---------
<S> <C> <C> <C>
Adoption of a holding
company structure 33,372,556 1,164,525 749,697
1997 Stock Incentive Plan 32,186,169 8,286,407 962,223
</TABLE>
Item 5. Other Information
- --------------------------
Richard J. Egan, age 61, was elected as a Class I director and member of the
Executive Personnel and Nuclear Oversight Committees effective July 1, 1997.
Egan has been Chairman of the Board for EMC Corporation since 1988.
The following additional information is furnished in connection with the
Registration Statement on Form S-3 of the Registrant (File No. 33-57840),
filed with the Securities and Exchange Commission on February 3, 1993.
Price and dividend information per share of common stock:
<TABLE>
<CAPTION>
Price
------------------------ Dividend
High Low Paid
------- ------- --------
<S> <C> <C> <C>
First quarter 1997 $27 3/8 $26 $0.470
Second quarter 1997 26 5/8 24 5/8 0.470
</TABLE>
The market value per share of the Company's common stock as of the close of
business on August 11, 1997 was $28 5/8 per share as reported in the Wall
Street Journal.
<PAGE> 16
Ratio of earnings to fixed charges and ratio of earnings to fixed charges and
preferred stock dividend requirements:
Twelve months ended June 30, 1997:
---------------------------------
Ratio of earnings to fixed charges 3.02
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.50
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits filed herewith:
Exhibit 10 - Material contracts
10.1 - Supplemental Executive Retirement Plan
10.2 - 1997 Stock Incentive Plan
Exhibit 12 - Computation of ratio of earnings to fixed charges
12.1 - Computation of ratio of earnings to fixed charges
for the twelve months ended June 30, 1997
12.2 - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements for the
twelve months ended June 30, 1997
Exhibit 15 - Letter re unaudited interim financial information
15.1 - Report of Independent Accountants
Exhibit 27 - Financial Data Schedule
27.1 - Schedule UT
Exhibit 99 - Additional Exhibits
99.1 - Letter of Independent Accountants
Re Form S-3 Registration Statements filed by the
Company on February 3, 1993 (File No. 33-57840)
and May 31, 1995 (File No. 33-59693); Form S-8
Registration Statements filed by the Company on
October 10, 1985 (File No. 33-00810), July 28, 1986
(File No. 33-7558), December 31, 1990 (File No. 33-
38434), June 5, 1992 (33-48425), March 17, 1993
(33-59662 and 33-59682) and April 6, 1995 (33-58457)
and in the Form S-4 Registration Statement filed
by Boston Edison Holdings, currently known as
BEC Energy, on March 17, 1997 (File No. 333-23439)
b) No Form 8-K was filed during the second quarter of 1996.
<PAGE> 17
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOSTON EDISON COMPANY
---------------------
(Registrant)
Date: August 12, 1997 /s/ Robert J. Weafer, Jr.
------------------------------
Robert J. Weafer, Jr.
Vice President-Finance,
Controller and Chief
Accounting Officer
Exhibit 10.1
BOSTON EDISON COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SECTION 1. PURPOSE
The purpose of the Boston Edison Company Supplemental Executive
Retirement Plan (the "Plan") is to reward certain key executive employees
of Boston Edison Company (the "Employer") and its subsidiaries through
supplemental retirement payments.
SECTION 2. ADMINISTRATION
The Executive Personnel Committee of the Board of Directors of the
Employer (the "EPC") and the Retirement Committee appointed to administer the
Boston Edison Retirement Plan (the "RC") will be responsible under the Plan
for carrying out their respective administrative and other duties as set forth
in the Plan. In addition, the EPC has the full discretionary power and
authority to interpret the plan, settle all disputes which may arise in
connection with the Plan, and establish any claims procedures required by the
Employee Retirement Income Security Act of 1974. The decisions,
interpretations and determinations made by the EPC or the RC relating to the
Plan will be final and conclusive on all persons.
The Employer agrees to indemnify and to defend to the fullest possible
extent permitted by law any member of the EPC and the RC (including any person
who formerly served as a member of the EPC or the RC) against all liabilities,
damages, costs and expenses (including attorneys' fees and amounts paid in
settlement of any claims approved by the Company) occasioned by any act or
omission to act in connection with the Plan.
SECTION 3. PARTICIPANTS
Participants in the Plan will be those key executive employees of the
Employer and its subsidiaries selected from time to time by the EPC to
participate in plan benefits.
SECTION 4. BENEFITS
(a) Full Benefit. Each Participant who attains his or her Full Benefit
Age (as hereinafter defined) while an employee of the Employer or its
subsidiaries may terminate employment on the first day of any month thereafter
and receive an annual benefit calculated as of his or her termination date,
expressed as a single life annuity, equal to the excess (if any) of (A) over
(B),
where (A) is the excess of (i) 60% of his or her Highest Average
Total Compensation (as hereinafter defined), over (ii) 50% of the
Participant's Primary Social Security Benefit (as hereinafter
defined), which excess is then multiplied by a fraction the
numerator of which is his or her Full Years of Continuous Service
(as hereinafter defined) at the time of his or her termination
(which in no event shall exceed 20) and the denominator of which
is 20; and
where (B) is the sum of the benefits which the Participant would
be entitled to receive at such time from the Boston Edison
Retirement Plan (as from time to time amended) and the Boston
Edison Company Excess Benefit Plan (as from time to time amended),
expressed as a single life annuity.
(b) Reduced Benefit. Each Participant who attains age 55 while an
employee of the Employer or its subsidiaries and who completes five Full Years
of Continuous Service may terminate employment on the first day of any month
thereafter (but prior to his Full Benefit Age) and receive a reduced annual
benefit calculated as of his or her termination date in the same manner as
described in Section 4(a) above for a full benefit, but reduced by an amount
equal to .41666% multiplied by the aggregate number of months between the date
his or her benefit commences and his or her Full Benefit Age. A Participant
who has not attained age 55 or who has not completed five Full Years of
Continuous Service, but who has entered into a change in control agreement
with the Company and whose age plus the number of any additional years of
service credited to him under said change in control agreement for purposes of
the Plan is 50 or more, will be considered to have an accrued benefit under
the Plan for purposes of said change in control agreement, based upon his or
her number of Full Years of Continuous Service and calculated and reduced as
of his or her termination date in the same manner as described in the
preceding provision of this Section 4(b).
(c) Payments of Benefits. The annual benefit payable to a Participant
under Section 4(a) or (b) above will be paid as a single life annuity, a
Spousal Joint and Survivor Annuity (as hereinafter defined) or a Lump Sum (as
hereinafter defined), as elected by the Participant in accordance with rules
and procedures established by the RC.
(d) Benefit Definitions. For purposes of the Plan, the following terms
have the following meanings:
(1) Highest Average Total Compensation means the average of the
Participant's Total Compensation (as hereinafter defined) for the
36 consecutive months in which the Participant had the highest
Total Compensation.
(2) Lump Sum means a single payment of actuarial equivalent value
to a single life annuity (as determined by the RC with reference
to such actuarial factors as it shall select from time to time).
(3) Full Benefit Age means, for each Participant, age 62 or such
other age as the EPC may determine for a Participant.
(4) Primary Social Security Benefit means the "Primary Social
Security Benefit," as defined under the Boston Edison Retirement
Plan (as from time to time amended), as determined by the RC.
(5) Total Compensation means, for any calendar month, the
Participant's base compensation and annual bonus payments paid to
the Participant during such calendar month by the Employer, plus
any amounts that would have been paid to the Participant during
the calendar month by the Employer as base compensation or annual
bonus but for a salary reduction agreement in effect during such
month under the Boston Edison Company Deferred Compensation Plan,
as from time to time amended, or pursuant to Sections 125 or
401(k) of the Internal Revenue Code of 1986 as amended.
(6) Spousal Joint and Survivor Annuity means an annuity of
actuarial equivalent value to a single life annuity (as determined
by the RC with reference to such actuarial factors as it shall
select from time to time), under which the Participant receives a
reduced benefit during his or her lifetime, and following the
Participant's death, 50% (or 66 2/3% or 100%, as elected by the
Participant) of such reduced benefit is paid for the life of the
person who was the Participant's spouse on the date benefits
commenced to the Participant.
(7) Full Years of Continuous Service means, for each Participant,
the number of full years of continuous service with the Employer
and its affiliates, beginning with the date on which the
individual becomes a Participant in the Plan, credited to the
Participant for purposes of the Plan by the EPC, plus such other
periods of service, if any, as the EPC shall determine.
SECTION 5. PRE-RETIREMENT DEATH BENEFIT
In the case of a Participant who dies after attaining age 55 and
completing five Full Years of Continuous Service, but prior to the
commencement of his or her benefits under Section 4 above, his or her
surviving spouse, if any, will be entitled to receive an annual benefit for
his or her lifetime equal to the benefit such spouse would have received if
the Participant has terminated and commenced receiving his or her benefit
under the Plan immediately prior to his or her death under the 50% Spousal
Joint and Survivor Annuity form. In lieu of such annual death benefit, the
surviving spouse may elect to receive his or her benefit as a Lump Sum in
accordance with rules and procedures established by the RC.
SECTION 6. NO PLAN ASSETS
Except as herein provided, the Employer shall not be required to set
aside or segregate any assets of any kind to meet its obligations hereunder
and all benefits payable under the Plan will be paid from the general assets
of the Employer. The Employer may, however, but is not required to, establish
a trust of which the Employer is treated as the owner under subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended (a "grantor trust") and may deposit funds with the trustee of the
grantor trust sufficient to satisfy the benefits.
SECTION 7. PARTICIPANT'S RIGHTS; NO ASSIGNMENT
A Participant's rights to benefits under the Plan shall be no greater
than the rights of a general, unsecured creditor of the Employer, and shall
not be assignable or subject to alienation, anticipation, garnishment,
attachment, or any other legal process by his creditors.
SECTION 8. NO CONTRACT OF EMPLOYMENT
The Plan will not be deemed to constitute a contract of employment
between the Employer and any Participant, or to be consideration for the
employment of any Participant.
SECTION 9. APPLICATION OF ERISA
The Plan is intended to be "a plan which is unfunded and is maintained by
an employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income
Security Act of 1974, as amended, and shall be administered in a manner
consistent with that intent.
SECTION 10. AMENDMENT OR TERMINATION
This Plan may be amended or terminated at any time and in any respect by
the Employer or the EPC; provided, however, that no amendment shall adversely
effect the amount of a Participant's benefit without his or her consent.
SECTION 11. GOVERNING LAW
This Plan shall be governed by and construed under the laws of the
Commonwealth of Massachusetts, to the extent such laws are not preempted by
federal laws.
IN WITNESS WHEREOF, Boston Edison Company has caused this Plan to be
executed by its officer hereunto duly authorized this 24th day of June, 1997.
BOSTON EDISON COMPANY
By: /s/ Thomas J. May
-------------------------------
Thomas J. May
Exhibit 10.2
BOSTON EDISON COMPANY
1997 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1997 Stock Incentive Plan (the "Plan") is to advance
the interests of Boston Edison Company (the "Company") and its subsidiaries
by enhancing their ability (a) to attract and retain employees who are in a
position to make contributions to the success of the Company and its
subsidiaries; (b) to reward employees for such contributions; and (c) to
encourage employees to take into account the long-term interests of the
Company and its subsidiaries through ownership of shares of, and other
interests in, the Company's common stock ("Common Stock").
The Plan is intended to accomplish these goals by enabling the Company
to grant awards ("Awards") to eligible employees. Awards may be in the form
of Stock Options (as described in Section 6), Stock Appreciation Rights (as
described in Section 7), Restricted Stock Awards (as described in Section 8),
Deferred Stock Awards (as described in Section 9), Performance Unit Awards
(as described in Section 10), Dividend Equivalent Awards (as described in
Section 11), and Other Stock-Based Awards (as described in Section 12).
2. ADMINISTRATION
The Plan will be administered by the Executive Personnel Committee of
the Board of Directors of the Company, excluding any member who would not be
(i) an "outside director" for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder, or (ii) a non-employee director as defined in Rule 16b-3(b)(3)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(the "Committee"). The Committee will have full discretionary authority,
not inconsistent with the express provisions of the Plan, to administer the
Plan in all respects, including without limitation, authority (a) to grant
Awards to such eligible employees as the Committee may select
("Participants"); (b) to determine the type of Awards to be granted and the
times of grants; (c) to determine the number of shares of Common Stock to be
covered by any Award; (d) to determine the terms and conditions of any Award,
which terms and conditions may differ among individual Awards and
Participants; (e) to prescribe the form or forms of instruments evidencing
Awards and any other instruments required under the Plan and to change such
forms from time to time; (f) to adopt, amend and rescind rules and
regulations for the administration of the Plan; (g) to interpret the Plan and
to decide any questions and settle all controversies and disputes that may
arise in connection with the Plan; and (h) to waive compliance by a
Participant with any obligation to be performed by him under an Award,
except that the Committee may not, (i) in the case of an incentive stock
option (as described in Section 6), take any action without consent of the
Participant which would cause such option to lose its status as an
"incentive stock option" ("ISO") within the meaning of section 422 of the
Code, or (ii) in the case of an Award intended to qualify as
"performance-based compensation" within the meaning of Section 162(m)(4)(C)
of the Code, increase the amount of compensation payable under the Award to
the extent that such increase would cause the Award to lose its
qualification as such performance-based compensation. Such determinations
and actions of the Committee shall be conclusive and shall bind all parties.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by
the stockholders of the Company. Grants of Awards under the Plan may be
made prior to that date (but after adoption of the Plan by the Board of
Directors), subject to approval of the Plan by the stockholders.
No Award may be granted under the Plan after the completion of ten years
from the date on which the Plan was adopted by the Board of Directors, but
Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
(a) Number of Shares. Subject to adjustment as provided in Section 15,
the aggregate number of shares of Common Stock that may be delivered under
the Plan is 2,000,000, including shares issued in lieu of or upon
reinvestment of dividends arising from awards. Shares of Common Stock may
be issued up to this maximum pursuant to any type or types of Awards,
including ISOs. For purposes of this limitation, Awards and shares of Common
Stock which are forfeited or reacquired by the Company, and Awards which are
satisfied or otherwise terminated without the issuance of shares of Common
Stock, will not be counted.
(b) Special Limitations Applicable to Certain Awards. Subject to
adjustment as provided in Section 15 to the extent such adjustment is
consistent with the continued satisfaction by Awards of the requirements of
Section 162(m)(4)(C) of the Code, (i) the maximum number of shares of Common
Stock for which Options and SARs may be awarded under the Plan to any
Participant in any calendar year is in each case 100,000 shares, and (ii) the
maximum number of shares of Common Stock with respect to which Restricted
Stock Awards and Awards intended to qualify as "performance-based
compensation" under Section 162(m)(4)(C) of the Code may be granted to any
Participant in any calendar year is in each case the equivalent of 25,000
shares. For purposes of the preceding sentence, the regrant of a canceled
Option or SAR, or the repricing of an Option or SAR, shall be treated as a
separate Award to the extent required under Section 162(m)(4)(C) of the
Code. The per-individual Award limitations described in this paragraph are
intended to enable certain Awards under the Plan to qualify for the
performance-based compensation exemption rules set forth under Section
162(m)(4)(C) of the Code and shall be subject to amendment or revision to
the extent (but only to the extent) consistent with such rules.
(c) Shares to be Delivered. Shares delivered under the Plan will be
authorized but unissued shares of Common Stock or, if the Committee so
decides in its sole discretion, previously issued Common Stock acquired by
the Company in the open market or in private transactions, or shares of
Common Stock held in treasury. No fractional shares of Common Stock will be
delivered under the Plan.
5. ELIGIBILITY
Employees eligible to become Participants shall be those key employees
of the Company and its subsidiaries who, in the opinion of the Committee, are
in a position to make a contribution to the success of the Company or its
subsidiaries. A subsidiary for purposes of the Plan is a corporation or
other entity in which the Company owns, directly or indirectly, stock or
other equity-like interests possessing 50% or more of the total combined
voting power of all classes of stock or other equity interests. Members of
the Committee will not be eligible to become Participants.
6. STOCK OPTIONS
Stock Options granted under the Plan ("Options") may be either ISOs or
non-qualified stock options ("NSOs"). Except to the extent expressly
designated as an ISO (or to the extent it does not qualify as an ISO even if
so designated), each Option will be an NSO.
No term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted to the Committee under
the Plan be exercised, so as to disqualify the Plan or, without the consent
of the optionee, any ISO, under Section 422 of the Code. The documents
evidencing ISOs will contain such provisions as are required of ISOs under
the applicable provisions of the Code.
Options granted under the Plan will be subject to the following terms
and conditions and will contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee deems desirable:
(a) Exercise Price. The exercise price of each Option will be
determined by the Committee, but may not be, in the case of an ISO, less than
100% (110%, in the case of an ISO granted to a ten-percent stockholder) of
the fair market value per share of Common Stock at the time the Option is
granted. For this purpose, "ten-percent stockholder" means any employee who
at the time of grant owns directly, or is deemed to own by reason of the
attribution rules in section 424(d) of the Code, Common Stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of any of its parent or subsidiary corporations.
(b) Duration of Options. An Option will be exercisable during such
period or periods as the Committee may specify. The latest date on which an
Option may be exercised will be the date which is ten years (five years, in
the case of an ISO granted to a ten-percent stockholder) from the date the
Option was granted or such earlier date as may be specified by the Committee
at the time the Option is granted.
(c) Exercise of Options.
(1) Options will be exercisable at such future time or times,
whether or not in installments, as determined by the Committee at or
after the grant date. The Committee may at any time accelerate the
exercisability of all or any portion of any Option.
(2) Any exercise of an Option must be by written notice to the
Company, accompanied by (i) the document evidencing the Option (the
"Option Certificate") and any other documents required by the Committee
and (ii) payment in accordance with Section 6(d) below for the number
of shares of Common Stock for which the Option is exercised.
(d) Payment for and Delivery of Common Stock. Common Stock purchased
upon exercise of an Option shall be paid for as follows: (1) in cash or by
certified check, bank draft or money order payable to the order of the
Company, or (2) if so permitted by the Option Certificate or otherwise
determined by the Committee, (i) through the delivery of shares of Common
Stock (held for at least six months, or such other period as the Committee
may specify) having a fair market value on the last business day preceding
the date of exercise equal to the purchase price, or (ii) by a combination of
cash and Common Stock as provided in clauses (1) and (2)(i) above, or
(iii) by delivery of a promissory note of the Participant to the Company, in
the case of an ISO, payable on such terms as are specified in the Option
Certificate, and in the case of an NSO, payable on such terms as are
specified in the Option Certificate or as are otherwise specified by the
Committee, or by a combination of cash (or cash and Common Stock) and the
Participant's promissory note; provided, however, that if the Common Stock
delivered upon exercise of the Option is an original issue of authorized
Common Stock, at least so much of the exercise price as represents the par
value of such Common Stock must be paid in cash if the Committee determines
that such cash payment is required by law.
(e) Nontransferability of Options. Except as otherwise determined by
the Committee or specified in the Option Certificate, no Option may be
transferred other than by will or by the laws of descent and distribution,
and during a Participant's lifetime an Option may be exercised only by him
or her.
(f) Death or Disability. Except as otherwise determined by the
Committee, if a Participant's employment with the Company and its
subsidiaries terminates by reason of death or total and permanent disability,
each Option held by the Participant will become fully exercisable and will
remain exercisable after the date of such termination for a period of two
years in the case of death and one year in the case of total and permanent
disability (but in no event later than the date the option would have expired
in all events under Section 6(b)). In the case of a deceased Participant,
such Option may be exercised within such time limits by his executor or
administrator, or by the person or persons to whom the Option is transferred
by will or the applicable laws of descent and distribution.
(g) Other Termination of Employment. Except as otherwise determined by
the Committee, if a Participant's employment with the Company and its
subsidiaries terminates for any reason other than death or total and
permanent disability, all Options held by the Participant that are not then
exercisable shall terminate. Options that are exercisable on the date of
termination will continue to be exercisable for a period of three months (but
in no event later than the date the option would have expired in all events
under Section 6(b)) unless the employee has admitted to, or been convicted
of, any act of fraud, theft or dishonesty arising in the course of, or in
connection with, his employment with the Company and its subsidiaries, in
which case the Option will terminate immediately and in full, all except as
otherwise determined by the Committee. Except as otherwise determined by the
Committee, after completion of that three-month period, such Options shall
terminate to the extent not previously exercised, expired or terminated.
7. STOCK APPRECIATION RIGHTS
(a) Nature of Stock Appreciation Right. A Stock Appreciation Right
("SAR") is an Award entitling the recipient to receive an amount in cash or
shares of Common Stock or a combination thereof having a value equal to the
excess of the fair market value of a share of Common Stock on the date of
exercise over the fair market value of a share of Common Stock on the date of
grant (or over the Option exercise price, if the SAR was granted in tandem
with an Option), multiplied by the number of shares with respect to which the
SAR has been exercised, with the Committee having the right to determine the
form of payment.
(b) Grant of SARs. SARs may be granted in tandem with, or
independently of, Options granted under the Plan. In the case of an SAR
granted in tandem with an NSO, such SAR may be granted either at or after the
time of the grant of such Option. In the case of an SAR granted in tandem
with an ISO, such SAR may be granted only at the time of the grant of the
Option. SARs will be evidenced by such written agreement as is deemed
appropriate by the Committee.
An SAR or applicable portion thereof granted in tandem with an Option
will terminate and no longer be exercisable upon the termination or exercise
of such Option, except that an SAR granted with respect to less than the full
number of shares covered by an Option will not be reduced until the exercise
or termination of the related Option exceeds the number of shares not covered
by the SAR.
(c) Terms and Conditions of SARs. SARs will be subject to such terms
and conditions as are determined from time to time by the Committee, subject,
in the case of SARs granted in tandem with Options, to the following:
(1) SARs will be exercisable only at such time or times and to the
extent that the related Option is exercisable.
(2) Upon the exercise of an SAR, the applicable portion of any
related Option must be surrendered.
(3) SARs will be transferable only with the related Option. Except
as otherwise determined by the Committee, all SARs will be exercisable
during the Participant's lifetime only by the Participant or his legal
representative.
(4) An SAR granted in tandem with an Option may be exercised only
when the market price of the Common Stock subject to the Option exceeds
the exercise price of such Option.
The provisions of Sections 6(f) and 6(g) relating to the exercisability
and termination of Options shall also apply to SARs, whether or not granted
in tandem with Options.
Any exercise of an SAR must be by written notice to the Company,
accompanied by the document evidencing the SAR and any other documents
required by the Committee.
(d) Discretionary Payments. Notwithstanding that an Option at the time
of exercise shall not be accompanied by a related SAR, if the market price of
the shares subject to such Option exceeds the exercise price of such Option
at the time of its exercise, the Committee may, in its discretion, cancel
such Option, in which event the Company shall pay to the person exercising
such Option an amount equal to the difference between the fair market value
of the Common Stock to have been purchased pursuant to such exercise of such
Option (determined on the date the Option is canceled) and the aggregate
consideration to have been paid by such person upon such exercise. Such
payment shall be by check or in shares of Common Stock having a fair market
value (determined on the date the payment is to be made) equal to the amount
of such payments or any combination thereof, as determined by the Committee.
The Committee may exercise its discretion under the first sentence of this
paragraph (d) only in the event of a written request of the person exercising
the option, which request shall not be binding on the Committee.
8. RESTRICTED STOCK
(a) Nature of Restricted Stock Award. A Restricted Stock Award
("Restricted Stock Award") is an Award entitling the recipient to acquire
shares of Common Stock ("Restricted Stock") for a purchase price (which may
be zero), subject to such conditions, including the restrictions specified in
Section 8(d) below, as the Committee may impose at the time of grant. The
Committee may also condition such acquisition on the attainment of specified
performance goals as described in Section 16(f) below.
(b) Restricted Stock Award Agreement. A Participant who is granted a
Restricted Stock Award will have no rights with respect to such Award unless
the Participant accepts the Award within 60 days (or such shorter period as
the Committee may specify) following the Award date by making payment to the
Company by certified or bank check or other instrument acceptable to the
Committee in an amount equal to the specified purchase price, if any, of the
shares covered by the Award and by executing and delivering to the Company an
agreement (a "Restricted Stock Award Agreement") in such form as the
Committee determines.
(c) Rights as a Stockholder. Upon complying with Section 8(b) above,
a Participant will have all the rights of a stockholder with respect to the
Restricted Stock awarded to him including voting and dividend rights, subject
to the restrictions described in this Section 8 and subject to any other
conditions contained in the Restricted Stock Award Agreement. Unless the
Committee otherwise determines, certificates evidencing shares of Restricted
Stock will remain in the possession of the Company until such shares are free
of any restrictions under the Plan.
(d) Restriction. Except as otherwise determined by the Committee,
shares of Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of, except as specifically provided herein.
If a Participant ceases for any reason to be employed by the Company or its
subsidiaries other than due to death or total and permanent disability,
shares of Restricted Stock held by such Participant shall be resold to the
Company at their purchase price, or forfeited to the Company if the purchase
price was zero, except as specifically set forth herein or otherwise
determined by the Committee. Shares of Restricted Stock resold to the
Company shall have the status of authorized but unissued shares of Common
Stock.
(1) The Committee will specify in the Restricted Stock Award
Agreement the date or dates (which may depend upon or be related to the
attainment of performance goals and other conditions) on which the
nontransferability of the Restricted Stock and the obligation of the
Participant to resell such Stock to the Company will lapse. The
Committee may at any time accelerate such date or dates or waive such
performance goals and other conditions.
(2) Unless otherwise determined by the Committee or specified in
the Restricted Stock Award Agreement, if the Participant's employment
terminates because of death or total and permanent disability, all
restrictions on shares of Restricted Stock held by the Participant will
lapse.
(e) Notice of Election. Any Participant making an election under
Section 83(b) of the Code with respect to a Restricted Stock Award must
provide a copy thereof to the Company within 30 days of the filing of such
election with the Internal Revenue Service.
(f) Dividends. Dividends paid on shares of Restricted Stock shall be
either paid at the dividend payment date or deferred for payment to such date
as determined by the Committee, in cash or in unrestricted shares of Common
Stock having a fair market value equal to the amount of such dividends.
Shares distributed in connection with a stock split or dividend in shares of
stock, and other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the Restricted
Stock with respect to which such shares of Restricted Stock or other property
has been distributed.
9. DEFERRED STOCK AWARDS
(a) Nature of Deferred Stock Award. A Deferred Stock Award ("Deferred
Stock Award") is an award entitling the recipient to acquire shares of Common
Stock ("Deferred Stock") without payment in one or more installments at a
future date or dates, all as determined by the Committee. The Committee may
condition such acquisition on the attainment of specified performance goals
as described in Section 16(f) below.
(b) Deferred Stock Award Agreement. A Participant who is granted a
Deferred Stock Award shall have no rights with respect to such Award unless
within 60 days of the grant of such Award or such shorter period as the
Committee may specify, the Participant shall have accepted the Award by
executing and delivering to the Company an agreement (a "Deferred Stock
Award Agreement") in such form as the Committee determines.
(c) Restrictions on Transfer. Except as otherwise determined by the
Committee, Deferred Stock Awards and all rights with respect to such Awards
may not be sold, assigned, transferred, pledged, or otherwise encumbered,
and shall be exercisable during the Participant's lifetime only by the
Participant or the Participant's legal representative.
(d) Rights as a Stockholder. A Participant receiving a Deferred Stock
Award will have rights of a stockholder only as to shares of Deferred Stock
actually received by the Participant under the Plan and not with respect to
shares subject to the Award but not actually received by the Participant. A
Participant shall be entitled to receive a stock certificate for shares of
Deferred Stock only upon satisfaction of all conditions therefor specified
in the Deferred Stock Award Agreement.
(e) Termination. Except as otherwise determined by the Committee, a
Participant's rights in all Deferred Stock Awards shall automatically
terminate upon the termination of such Participant's employment by the
Company and its subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc. At any time prior to the termination of
a Participant's employment, the Committee may in its discretion accelerate,
waive, or, subject to Section 16, amend any or all of the restrictions or
conditions imposed under any Deferred Stock Award.
(g) Payments in Respect of Deferred Stock. Without limiting the right
of the Committee to specify different terms, the Deferred Stock Award
Agreement may either make no provisions for, or may require or permit the
immediate payment, deferral, or investment of amounts equal to, or less than,
any cash dividends which would have been payable on the Deferred Stock had
such stock been outstanding, all as determined by the Committee in its sole
discretion.
10. PERFORMANCE UNIT AWARDS
(a) Nature of Performance Units Awards. A Performance Unit Award
("Performance Unit Award") is an award entitling the recipient to acquire
cash or shares of Common Stock, or a combination of cash and shares of Common
Stock, upon the attainment of specified performance goals as described in
Section 16(f) below. The Committee in its sole discretion shall determine
whether and to whom Performance Unit Awards shall be made, the performance
goals applicable under each such Award, the periods during which performance
is to be measured and all other limitations and conditions applicable to each
such Award. Performance Unit Awards may be awarded independent of or in
connection with the granting of any other Award under the Plan.
(b) Performance Unit Award Agreement. A Participant shall have no
rights with respect to a Performance Unit Award unless within 60 days of the
grant of such Award or such shorter period as the Committee may specify, the
Participant shall have accepted the Award by executing and delivering to the
Company a Performance Unit Award Agreement.
(c) Restrictions on Transfer. Except as otherwise determined by the
Committee, Performance Unit Awards and all rights with respect to such Awards
may not be sold, assigned, transferred, pledged, or otherwise encumbered, and
if exercisable over a specified period, shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's legal
representative.
(d) Rights as a Stockholder. A Participant receiving a Performance
Unit Award will have rights of a stockholder only as to shares of Common
Stock actually received by the Participant under the Plan and not with
respect to shares subject to the Award but not actually received by the
Participant. A Participant shall be entitled to receive a stock certificate
evidencing the acquisition of shares of Common Stock under a Performance Unit
Award only upon satisfaction of all conditions therefor specified in the
Performance Unit Award Agreement.
(e) Termination. Except as otherwise determined by the Committee, a
Participant's rights in all Performance Unit Awards shall automatically
terminate upon the termination of such Participant's employment by the
Company and its subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc. At any time prior to the termination of
a Participant's employment, the Committee may in its discretion accelerate,
waive, or, subject to Section 16, amend any or all of the restrictions or
conditions imposed under any Performance Unit Award.
(g) Exercise. The Committee in its sole discretion shall establish
procedures to be followed in exercising any Performance Unit Award, which
procedures shall be set forth in the Performance Unit Award Agreement. The
Committee may at any time provide that payment under a Performance Unit Award
shall be made, upon satisfaction of the applicable performance goals, without
exercise by the Participant. Except as otherwise specified by the Committee,
a Performance Unit granted in tandem with an Option may be exercised only
while the Option is exercisable, and the exercise of a Performance Unit
granted in tandem with any other Award shall reduce the number of shares
subject to the related award on such basis as is specified in the Performance
Unit Award Agreement.
11. DIVIDEND EQUIVALENT AWARDS
(a) Nature of Dividend Equivalent Awards. A Dividend Equivalent Award
("Dividend Equivalent Award") is an Award entitling the Participant to
receive cash, shares of Common Stock, or other property equal in value to
dividends paid with respect to a specified number of shares of Common Stock.
Dividend Equivalent Awards may be awarded on a free-standing basis or in
connection with another Award, and may be paid currently or on a deferred
basis. The Committee may provide at the date of grant or thereafter that the
Dividend Equivalent Award shall be paid or distributed when accrued or shall
be deemed to have been reinvested in additional shares of Common Stock or
such other investment vehicles as the Committee may specify; provided,
however, that Dividend Equivalent Awards (other than free-standing Dividend
Equivalent Awards) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate. The Committee may also condition
such Award on the attainment of specified performance goals as described in
Section 16(f) below.
(b) Dividend Equivalent Award Agreement. A Participant who is granted
a Dividend Equivalent Award shall have no rights with respect to such Award
unless within 60 days of the grant of such Award or such shorter period as
the Committee may specify, the Participant shall have accepted the Award by
executing and delivering to the Company an agreement (a "Dividend Equivalent
Award Agreement") in such form as the Committee determines.
(c) Restrictions on Transfer. Except as otherwise determined by the
Committee, Dividend Equivalent Awards and all rights with respect to such
Awards may not be sold, assigned, transferred, pledged, or otherwise
encumbered.
(d) Rights as a Stockholder. A Participant receiving a Dividend
Equivalent Award will have rights of a stockholder only as to shares of
Common Stock actually received by the Participant under the Plan and not
with respect to shares subject to the Award but not actually received by the
Participant.
(e) Termination. Except as otherwise determined by the Committee, a
Participant's rights in all Dividend Equivalent Awards shall automatically
terminate upon the termination of such Participant's employment by the
Company and its subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc. At any time prior to the Participant's
termination of employment, the Committee may in its discretion accelerate,
waive, or, subject to Section 16 of the Exchange Act, amend any or all of the
restrictions or conditions imposed under any Dividend Equivalent Award.
12. OTHER STOCK-BASED AWARDS
(a) Nature of Awards. The Committee may grant other Awards under which
Common Stock is or may in the future be acquired ("Other Stock-Based
Awards"). Such awards may include, without limitation, debt securities
convertible into or exchangeable for shares of Common Stock upon such
conditions, including attainment of performance goals, as the Committee shall
determine. Subject to the purchase price limitations in paragraph (b) below,
such convertible or exchangeable securities may have such terms and
conditions as the Committee may determine at the time of grant. However, no
convertible or exchangeable debt shall be issued unless the Committee shall
have provided (by Company right of repurchase, right to require conversion or
exchange, or other means deemed appropriate by the Committee) a means of
avoiding any right of the holders of such debt to prevent a Company
transaction by reason of covenants in such debt. The Committee may also
condition such Awards on the attainment of specified performance goals as
described in Section 16(f) below.
(b) Purchase Price; Form of Payment. The Committee may determine the
consideration, if any, payable upon the issuance or exercise of an Other
Stock-Based Award. The Committee may permit payment by certified check or
bank check or other instrument acceptable to the Committee or by surrender of
other shares of Common Stock (excluding shares then subject to restrictions
under the Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver
of Restrictions. The Committee may determine the conditions under which an
Other Stock-Based Award shall be forfeited or, in the case of an Award
involving a payment by the recipient, the conditions under which the Company
may or must repurchase such Award or related Common Stock. At any time the
Committee may in its sole discretion accelerate, waive, or, subject to
Section 16 of the Exchange Act, amend any or all of the limitations or
conditions imposed under any Other Stock-Based Award.
(d) Other Stock-Based Award Agreements. A Participant shall have no
rights with respect to any Other Stock-Based Award unless within 60 days
after the grant of such Award (or such shorter period as the Committee may
specify) the Participant shall have accepted the Award by executing and
delivering to the Company an agreement (an "Other Stock-Based Award
Agreement") in such form as the Committee determines.
(e) Restrictions on Transfer. Except as otherwise determined by the
Committee, Other Stock-Based Awards may not be sold, assigned, transferred,
pledged, or encumbered nor shall any Other Stock-Based Award be transferred
other than by will or by the laws of descent and distribution or be
exercisable during the Participant's lifetime by other than the Participant
or the Participant's legal representative.
(f) Rights as a Stockholder. A recipient of any Other Stock-Based
Award will have rights of a stockholder only at the time and to the extent,
if any, specified in the Other Stock-Based Award Agreement or otherwise
determined by the Committee.
(g) Deemed Dividend Payments; Deferrals. Without limiting the right
of the Committee to specify different terms, an Other Stock-Based Award
Agreement may require or permit the immediate payment, waiver, deferral, or
investment of dividends or deemed dividends payable or deemed payable on
Common Stock subject to the Award.
13. SUPPLEMENTAL GRANTS
(a) Loans. The Company may in its sole discretion make a loan to the
recipient of an Award hereunder, either on or after the date of grant of such
Award. Such loans may be made either in connection with the exercise of a
Stock Option, an SAR or an Other Stock-Based Award, in connection with the
purchase of shares under any Award, or in connection with the payment of any
federal, state and local income tax in respect of income recognized under any
Award. The Committee shall have full authority to decide whether to make a
loan hereunder if it determines that the making of such loan is in the best
interest of the Company, and to determine the amount, term, and provisions of
any such loan, including the interest rate (which may be zero) charged in
respect of any such loan, whether the loan is to be secured or unsecured, the
terms on which the loan is to be repaid and the conditions, if any, under
which it may be forgiven. However, no loan hereunder shall provide or
reimburse to the borrower the amount used by him for the payment of the par
value of any shares of Common Stock issued, have a term (including
extensions) exceeding ten years in duration, or be in an amount exceeding the
total exercise or purchase price paid by the borrower under an Award or for
related Common Stock under the Plan plus an amount equal to the cash payment
permitted in the following paragraph.
(b) Cash Grants. The Committee may at any time authorize a cash
payment, in respect of the grant or exercise of an Award under the Plan (or
the lapse or waiver of restrictions under an Award) which shall not exceed
the amount which would be required in order to pay in full any federal, state
and local income tax due as a result of income recognized by the recipient
under both the Award and such cash payment, in each case assuming that such
income is taxed at the regular maximum marginal rate applicable to
individuals under the Code as in effect at the time such income is includable
in the recipient's income. Subject to the foregoing, the Committee shall
have complete authority to decide whether to make such cash payments in any
case, to make provision for such payments either simultaneously with or after
the grant of the associated Award and to determine the amount of each such
payment.
14. CHANGE OF CONTROL
Notwithstanding any other provision of this Plan, in the event of a
Change of Control of the Company as defined in EXHIBIT A hereto (a) each
outstanding Award held by each Participant the exercisability of which is
restricted or limited will immediately become fully exercisable; and
(b) restrictions and conditions on each outstanding Award subject to such
restrictions and conditions held by each Participant will immediately lapse
or be deemed waived.
15. CHANGES IN COMPANY; SUBSTITUTE AWARDS
(a) Changes in Capital Stock. In the event of a stock dividend, stock
split or combination of shares, recapitalization or other change in the
Company's capital stock, the number and kind of shares of stock, securities
of the Company or other consideration issued or issuable in respect of Awards
then outstanding or subsequently granted under the Plan, the maximum number
of shares of stock or securities that may be delivered under the Plan, the
purchase price and other relevant provisions will be appropriately adjusted
by the Committee, whose determination shall be binding on all persons.
The Committee may also adjust the number of shares, securities or other
consideration issued or issuable in respect of outstanding Awards, the
exercise price of outstanding Awards and the other terms of outstanding
Awards, and may make adjustments in the terms and conditions of, and the
criteria and performance objectives included in, Awards, to take into
consideration material changes in accounting practices or principles,
consolidations or mergers (except those described in Section 15(b) below),
acquisitions or dispositions of stock or property or any other event if it
is determined by the Committee that such adjustment is appropriate to avoid
distortion in the operation of the Plan. Adjustments under this paragraph
will be made only to the extent they are consistent with the requirements
for ISOs or under Section 162(m)(4)(C) of the Code.
(b) Merger, etc. Subject to Section 14, in the event of a dissolution
or liquidation of the Company or a merger or consolidation in which the
Company is not the surviving corporation or its outstanding shares are
converted into securities of another corporation or exchanged for other
consideration, all Awards granted hereunder will terminate, but during a
period commencing 20 days prior to the effective date of any such dissolution
or liquidation (or 20 days prior to any earlier related sale of substantially
all the assets of the Company) or of any such merger or consolidation,
subject to the effectiveness of such dissolution, liquidation, sale, merger
or consolidation (1) all Awards outstanding hereunder the exercisability of
which is restricted or limited will become immediately exercisable, and
(2) all restrictions and conditions on all Awards subject to such
restrictions and conditions will immediately lapse or be deemed waived;
provided, however, that, unless the event will give rise to a Change of
Control or it is anticipated that a Change of Control will coincide with or
follow the event, the Committee may instead arrange that the successor or
surviving corporation, if any, grant replacement or substitute Awards on
terms and conditions as the Committee considers appropriate in the
circumstances.
(c) Substitute Awards. The Company may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or its
subsidiary as the result of a merger or consolidation of the employing
corporation with the Company or its subsidiary or the acquisition by the
Company or a subsidiary of property or stock of the employing corporation.
The Committee may direct that the substitute Awards be granted on such terms
and conditions as the Committee considers appropriate. The shares which may
be delivered under such substitute Awards will be in addition to the maximum
number of shares provided for in Section 4(a) only to the extent that the
substitute Awards are both (1) granted to persons whose relationship to the
Company does not make (and is not expected to make) them subject to Section
16(b) of the Exchange Act and (2) are granted in substitution for awards
issued under a plan approved, to the extent then required under
Rule 16b-3 (or any successor rule under the Exchange Act), by the
stockholders of the entity which issued such predecessor awards.
16. GENERAL PROVISIONS
(a) No Distribution; Compliance With Legal Requirements, etc. The
Committee may require each person acquiring Common Stock pursuant to an Award
to represent to and agree with the Company in writing that such person is
acquiring the Common Stock without a view to distribution thereof.
The Company will not be obligated to deliver any shares of Common Stock
pursuant to an Award (1) until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been complied with,
including, if required, the receipt of all necessary approvals from the
Massachusetts Department of Public Utilities, and (2) if the outstanding
Common Stock is at the time listed on any stock exchange, until the shares
to be delivered have been listed or authorized to be listed on such exchange
upon official notice of issuance, and (3) until all other legal matters in
connection with the issuance and delivery of such shares have been approved
by the Company's counsel. If the sale of Common Stock has not been
registered under the Securities Act of 1933, as amended, the Company may
require such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Common Stock bear an appropriate legend
restricting transfer.
Notwithstanding any provision of the Plan, the Company will be under no
obligation to deliver shares of Common Stock to an estate of a deceased
Participant, or to the person or persons to whom the Award has been
transferred by the Participant's will or the applicable laws of descent and
distribution, until the Company is satisfied as to the authority of such
person or persons.
(b) Tax Withholding, etc. Each Participant will, no later than the
date as of which the value of an Award or of any Common Stock or other
amounts received hereunder first becomes includable in gross income for
federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, all federal, state and
local taxes required by law to be withheld with respect to such income. The
Company and its subsidiaries will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
the Participant.
The Committee may provide, in respect of any transfer of Common Stock
under an Award, that if and to the extent withholding of any federal, state
or local tax is required, the Participant may elect in such manner as the
Committee prescribes, to have the Company hold back from the transfer Common
Stock having a value calculated to satisfy such withholding obligation, or
to deliver to the Company previously owned shares of equal value.
Notwithstanding the foregoing, in the case of a Participant subject to the
restrictions of Section 16(b) of the Exchange Act no such election shall be
effective unless made in compliance with any applicable requirements of
Rule 16b-3(e) or any successor rule under such Act.
(c) Continuance of Employment. For purposes of the Plan, employment
of a Participant will not be considered terminated (1) in the case of sick
leave or other bona fide leave of absence approved for purposes of the Plan
by the Committee, so long as the Participant's right to re-employment is
guaranteed either by statute or by contract, or (2) in the case of a
transfer to the employment of a corporation (or a parent or subsidiary
corporation of such corporation) issuing or assuming an option in a
transaction to which section 424(a) of the Code would apply.
(d) Fair Market Value. For purposes of the Plan, in general, "fair
market value" of a share of Common Stock on any date means the closing price
on such date as reflected in the New York Stock Exchange Composite Index.
If, however, the Committee determines that a different meaning is in any
circumstance necessary in order to comply with applicable law, such
different meaning will apply in that circumstance.
(e) Employment Rights. Neither the adoption of the Plan nor the grant
of Awards will confer upon any employee any right to continued employment
with the Company or any subsidiary or affect in any way the right of the
Company or any subsidiary to terminate the employment of an employee at any
time. Except as specifically provided by the Committee in any particular
case, the loss of existing or potential profit in Awards granted under this
Plan shall not constitute an element of damages in the event of termination
of the employment of an employee even if the termination is in violation of
an obligation of the Company to the employee by contract or otherwise.
(f) Awards Subject to Performance Conditions. The Committee may, at
the time any Award described in the Plan is granted, impose the condition
(in addition to any conditions specified or authorized in any other
provisions of the Plan), that performance goals must be met prior to the
Participant's realization of any vesting, payment or benefit under the
Award. Performance goals may be related to personal performance, corporate
performance, departmental performance, or any other category of performance
established by the Committee. The Committee will determine the performance
goals, the period or periods during which performance is to be measured,
and all other terms and conditions applicable to the Award. If necessary
in order to qualify an Award for the performance based remuneration
exception described in Section 162(m)(4)(C) of the Code and the regulations
thereunder, the Committee shall in writing preestablish one or more
specific, objectively determinable performance goal or goals (based solely
on one or more qualified performance criteria) no later than ninety (90)
days after the commencement of the period to which the performance relates
(or in any such other time as is required to satisfy the conditions of
Section 162(m)(4)(C) of the Code and the regulations thereunder). For
purposes of the preceding sentence, a qualified performance criterion is
any of the following: (i) earnings per share, (ii) individual performance
objectives, (iii) net income, (iv) proforma net income, (v) return on
designated assets, (vi) return on revenues, or (vii) satisfaction of
Company-wide or departmental based objectives.
17. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant
shall affect the Company's right to grant to such Participant awards that
are not subject to the Plan, to issue Common Stock to such Participant as a
bonus or otherwise, or to adopt other plans or arrangements under which
Common Stock may be issued to employees.
The Committee may at any time discontinue granting Awards under the
Plan. With the consent of the Participant, the Committee may at any time
cancel an existing Award in whole or in part and grant the Participant
another Award for such number of shares of Common Stock as the Committee
specifies, subject to Section 4(b). The Committee may at any time or times
amend the Plan or any outstanding Award for the purpose of satisfying the
requirements of any changes in applicable laws or regulations or for any
other purpose which may at the time be permitted by law; and may at any
time terminate the Plan as to any further grants of Awards; provided,
however, that (except to the extent expressly required or permitted herein)
no such amendment shall, without the approval of the stockholders of the
Company, (a) increase the maximum number of shares available for delivery
under the Plan, (b) change the group of employees eligible to receive
Awards under the Plan, (c) reduce the price at which ISOs may be granted,
(d) extend the time within which Awards may be granted, or (e) amend the
provisions of this Section 17, and no such amendment shall adversely affect
the rights of any Participant (without his consent) under any Award
previously granted.
As Adopted by the Board of Directors: January 23, 1997
As Approved by the Stockholders: May 15, 1997
EXHIBIT A
A "Change of Control" will occur for purposes of this Plan if (i) any
individual, corporation, partnership, company or other entity (a "Person"),
which term shall include a group, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of securities of the Company representing
more than 30% of the combined voting power of the Company's then-outstanding
securities (other than as a result of acquisitions of such securities from
the Company), (ii) there is a change of control of the Company of a kind
which would be required to be reported under Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act) (or a similar item in a
similar schedule or form), whether or not the Company is then subject to such
reporting requirement, (iii) the Company is a party to, or the stockholders
approve, a merger, consolidation, or other reorganization (other than (a) a
merger, consolidation or other reorganization which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent, either by remaining outstanding or by being
converted into vested securities of the surviving entity, more than 50% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger, consolidation,
or other reorganization, or (b) a merger, consolidation, or other
reorganization effected to implement a recapitalization of the Company or
establish a holding company structure, or similar transaction in which no
Person acquires more than 20% of the combined voting power of the Company's
then outstanding securities, a sale of all or substantially all assets, or a
plan of liquidation or (iv) individuals who, at the date hereof, constitute
the Board cease for any reason to constitute a majority thereof; PROVIDED,
HOWEVER, that any director who is not in office at the date hereof but whose
election by the Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors
then still in office who either were directors at the date hereof or whose
election or nomination for election was previously so approved (other than
an election or nomination of an individual whose initial assumption of office
is in connection with an actual or threatened election contest relating to
the election of the Directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be
deemed to have been in office at the date hereof for purpose of this
definition.
Notwithstanding the foregoing provisions of this EXHIBIT A, a "Change
of Control" will not be deemed to have occurred solely because of the
acquisition of securities of the Company (or any reporting requirement under
the Exchange Act relating thereto) by an employee benefit plan maintained by
the Company for its employees.
<TABLE>
Exhibit 12.1
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended June 30, 1997
(in thousands)
<S> <C>
Net income from continuing operations $143,331
Income taxes 89,159
Fixed charges 114,987
--------
Total $347,477
========
Interest expense $107,845
Interest component of rentals 7,142
--------
Total $114,987
========
Ratio of earnings to fixed charges 3.02
====
</TABLE>
<TABLE>
Exhibit 12.2
Boston Edison Company
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
Twelve Months Ended June 30, 1997
(in thousands)
<S> <C>
Net income from continuing operations $143,331
Income taxes 89,159
Fixed charges 114,987
--------
Total $347,477
========
Interest expense $107,845
Interest component of rentals 7,142
--------
Subtotal 114,987
--------
Preferred stock dividend requirements 23,996
--------
Total $138,983
========
Ratio of earnings to fixed charges and preferred
stock dividend requirements 2.50
====
</TABLE>
Exhibit 15.1
Report of Independent Accountants
To the Stockholders and Directors
of Boston Edison Company
We have reviewed the accompanying consolidated balance sheet of Boston Edison
Company (the Company) and subsidiaries as of June 30, 1997 and the related
statements of income for the three and six-month periods ended June 30, 1997
and 1996 and cash flows for the six-month periods ended June 30, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
July 24, 1997
Exhibit 99.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Boston Edison Company
Registration on Form
S-3, S-4 and Form S-8
We are aware that our report dated July 24, 1997 on our review of the interim
financial information of Boston Edison Company for the period ended June 30,
1997 and included in this Form 10-Q is incorporated by reference in the
Company's registration statements on Form S-3 (File Nos. 33-57840 and 33-
59693), Form S-8 (File Nos. 33-00810, 33-7558, 33-38434, 33-48425, 33-59662,
33-59682 and 33-58457) and on Form S-4 filed by Boston Edison Holdings,
currently known as BEC Energy (File No. 333-23439). Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a part
of the registration statements prepared or certified by us within the meaning
of Sections 7 and 11 of that Act.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
July 24, 1997
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