<PAGE> 1
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
EASTERN ENTERPRISES
(Name of Registrant as Specified In Its Charter)
EASTERN ENTERPRISES
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LOGO EASTERN
ENTERPRISES]
March 19, 1997
Dear Shareholder:
The Board of Trustees joins me in inviting you to attend Eastern's Annual
Meeting at 10:00 a.m. on Thursday, April 24, 1997 in the AUDITORIUM OF THE BANK
OF BOSTON, 100 FEDERAL STREET, BOSTON, MASSACHUSETTS.
The accompanying Annual Report to Shareholders reports on the Company's
operations and outlook. The Notice of Annual Meeting and Proxy Statement contain
a description of the formal business to be acted upon by the shareholders. At
the meeting, we intend to continue our practice of discussing Eastern's
operating businesses and their prospects. Trustees, officers and other
executives, as well as representatives of Eastern's independent accountants,
will be available to answer any questions you may have.
A proxy card and a postage-paid envelope are enclosed. Your vote,
regardless of the number of shares you own, is important. Whether or not you
plan to attend the meeting, I urge you to register your vote now by signing,
dating and returning the enclosed proxy card as soon as possible in the envelope
provided.
I look forward to greeting personally as many shareholders as possible at
the meeting.
Sincerely,
/s/ J. Atwood Ives
- ------------------
J. Atwood Ives
Chairman and Chief
Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 1997
To the Holders of Common Stock of
Eastern Enterprises:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Eastern
Enterprises (the "Association") will be held in the AUDITORIUM OF THE BANK OF
BOSTON, 100 FEDERAL STREET, BOSTON, MASSACHUSETTS, at 10 o'clock in the morning
on Thursday, April 24, 1997 for the following purposes:
(1) To elect three Trustees to serve until the 2000 Annual Meeting of
Shareholders and until their successors are elected and qualified; and
(2) To consider and act upon any other matters that may properly come
before the meeting or any adjournment thereof.
Shareholders of record at the close of business on March 10, 1997 are the
shareholders entitled to receive notice of and to vote at such meeting.
Shareholders who wish their stock to be voted by proxy are requested to
date and sign the enclosed form of proxy and to return it in the enclosed
envelope. A resolution adopted by the Trustees of the Association provides that
shares voted by proxy shall be counted only if the proxy form has been presented
for validation to the Secretary prior to the meeting or, if the meeting is
adjourned to another day, prior to such adjourned session.
By order of the Board of Trustees
/s/ L. William Law, Jr.
- -----------------------
L. William Law, Jr.
Secretary
March 19, 1997
<PAGE> 4
PROXY STATEMENT
The enclosed form of proxy has been prepared at the direction of the Board
of Trustees of the Association, 9 Riverside Road, Weston, Massachusetts 02193.
Such proxy is solicited on behalf of, and the proxies named therein have been
designated by, the Board of Trustees. Giving the proxy will not affect your
right to revoke the proxy prior to voting and vote in person should you decide
to attend the meeting. Written notice of any such revocation may be addressed to
the Secretary of the Association. Shares represented by the enclosed form of
proxy, when properly executed and presented, will be voted as directed therein.
This Proxy Statement, the enclosed form of proxy and the Annual Report to
Shareholders, including financial statements, were mailed together to
shareholders on or about March 19, 1997.
OUTSTANDING SHARES AND VOTING POWER
At the close of business on March 10, 1997, the record date fixed by the
Board of Trustees for determining shareholders entitled to notice of and to vote
at the 1997 Annual Meeting of Shareholders, the Association had outstanding
20,338,333 shares of Common Stock. Under Article 11 of the Declaration of Trust
of the Association, a quorum for the consideration of questions to be presented
to the 1997 Annual Meeting of Shareholders shall consist of the holders of a
majority of shares of Common Stock issued and outstanding, provided that less
than a quorum may adjourn the meeting from time to time. Votes cast by proxy or
in person at the 1997 Annual Meeting of Shareholders will be counted by persons
appointed by the Association to act as election inspectors for the meeting.
Article 24 of the Declaration of Trust of the Association provides that:
"Shares of this trust which by the provisions of this Declaration are
entitled to vote upon any question shall be entitled to one vote per share
in person or by proxy, except that the election of Trustees by the Common
Stock shall be by cumulative voting, namely, each holder of Common Stock
will be entitled to as many votes as will equal the number of his shares
multiplied by the number of Trustees to be elected, and he may cast all of
such votes for a single candidate or distribute them among any two or more
candidates as he shall elect."
The three nominees for election as Trustees at the 1997 Annual Meeting of
Shareholders who receive the greatest number of votes properly cast will be
elected as Trustees. Proxies withholding authority to vote for one or more
nominees will thus have no effect on the outcome of the election.
<PAGE> 5
INFORMATION WITH RESPECT TO CERTAIN SHAREHOLDERS
<TABLE>
The following table shows, as of December 31, 1996, any person who is known
by the Association to be the beneficial owner of more than five percent of any
class of voting securities of the Association. See "Stock Ownership of Trustees
and Executive Officers" for information concerning the beneficial ownership of
voting securities of the Association by Trustees and executive officers of the
Association. For purposes of this Proxy Statement, beneficial ownership is
defined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934
(the "1934 Act"), and means generally the power to vote or dispose of the
securities, regardless of any economic interest therein.
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (a) CLASS (a)
------------------- ------------- ----------
<S> <C> <C>
Sasco Capital, Inc....................... 1,348,500(b) 6.6%
Ten Sasco Hill Road
Fairfield, Connecticut 06430
Merrill Lynch & Co., Inc................. 1,174,579(c) 5.8%
World Financial Center
North Tower, 250 Vesey Street
New York, New York 10281
<FN>
- ---------------
(a) According to Schedules 13G filed with the Securities and Exchange Commission
on or before February 14, 1997.
(b) Sasco Capital, Inc. has the sole power to vote 797,500 of these shares, no
shared voting power with regard to any of these shares and sole dispositive
power for all of these shares.
(c) Represents 1,174,579 shares held beneficially by Merrill Lynch & Co., Inc.,
Merrill Lynch Group, Inc., Princeton Services, Inc. and Merrill Lynch Asset
Management, L.P. All of such shares are collectively owned beneficially by
such entities. Such entities have shared voting and dispositive powers over
all of such shares. The principal business address of Merrill Lynch Group,
Inc. is World Financial Center, North Tower, 250 Vesey Street, New York, New
York 10281. The principal business address of Princeton Services, Inc. and
Merrill Lynch Asset Management, L.P. are 800 Scudders Mill Road, Plainsboro,
New Jersey 08536.
</TABLE>
ELECTION OF TRUSTEES
The Board of Trustees is divided into three classes having staggered terms
of three years each. The Declaration of Trust of the Association provides that
the number of Trustees shall be fixed from time to time by the Trustees but
shall not be less than three or more than twenty. The total number of Trustees
to serve following the 1997 Annual Meeting is currently fixed at eight. Two of
the Trustees now in office have terms expiring at the 1999 Annual Meeting, three
have terms expiring at the 1998 Annual Meeting, and three have terms expiring at
the 1997 Annual Meeting. One of the Trustees formerly in the class having a term
expiring at the 1999 Annual Meeting, Thomas W. Jones, resigned from the Board on
February 27, 1997. The three Trustees now in office having terms expiring at the
1997 Annual Meeting have been nominated by the Board of Trustees for reelection
at such meeting. Each Trustee elected at the 1997 Annual Meeting of Shareholders
will be elected to hold office until the 2000 Annual Meeting of Shareholders,
and until such Trustee's successor is elected and qualified.
2
<PAGE> 6
INFORMATION WITH RESPECT TO BOARD OF TRUSTEES
The Board of Trustees, which held eleven regularly scheduled and special
meetings in 1996, maintains a standing Audit Committee, Compensation Committee
and Nominating Committee, each of which is comprised of Trustees who are not
officers or employees of the Association or any of its subsidiaries. The Board
of Trustees also maintains an Executive Committee which has substantially all of
the powers and discretion of the full Board of Trustees and is available to act
when the Board is not in session. The Executive Committee did not meet in 1996.
Membership on the various committees is indicated in the biographical
information which follows.
It is the Association's policy that a majority of the members of the Board
of Trustees be independent, non-management Trustees.
The Audit Committee, which met five times in 1996, is responsible for
reviewing the performance and recommending the engagement of the Association's
independent auditors, reviewing the scope of the audit and approving all fees
paid to such auditors. The Audit Committee also reviews the Association's audit
and accounting procedures, internal controls, financial reporting practices and
annual and quarterly reports, and meets with, and reviews the audit plans of,
the Association's internal audit department.
The Compensation Committee, which met six times in 1996, is responsible for
approving officer compensation arrangements, recommending Trustee compensation
arrangements, administering stock option and other compensation and benefit
plans, and reviewing major personnel policies and benefit programs of the
Association and its subsidiaries.
The Nominating Committee, which met once in 1996, is responsible for
nominating Trustees, members of committees of the Board of Trustees and officers
of the Association, reviewing management development and succession programs,
and reviewing and making recommendations concerning the Association's corporate
governance policies. It will consider nominees for the Board of Trustees
recommended by shareholders of the Association. Written recommendations together
with supporting information should be directed to Eastern Enterprises, Attn: The
Nominating Committee, 9 Riverside Road, Weston, Massachusetts 02193. NOMINATIONS
FOR THE ELECTION OF TRUSTEES AT AN ANNUAL MEETING MAY BE MADE BY A SHAREHOLDER
ONLY IF WRITTEN NOTICE OF SUCH SHAREHOLDER'S INTENT TO MAKE SUCH NOMINATION HAS
BEEN GIVEN TO THE SECRETARY NOT LATER THAN FORTY-FIVE DAYS PRIOR TO THE
ANNIVERSARY OF THE DATE OF THE IMMEDIATELY PRECEDING ANNUAL MEETING. SUCH NOTICE
SHALL SET FORTH THE INFORMATION REQUIRED BY ARTICLE 6 OF THE ASSOCIATION'S
DECLARATION OF TRUST.
During 1996, each Trustee attended at least 75% of the aggregate of
meetings of the Board of Trustees and each committee on which he or she served.
3
<PAGE> 7
INFORMATION WITH RESPECT TO NOMINEES AND TRUSTEES
It is the intention of the management proxies to vote for the election of
the three nominees listed below. The management proxies will distribute the
total number of votes to which the shareholder executing the proxy is entitled
among the three nominees in such manner as such proxies in their discretion
shall determine unless other instructions are given in the proxy by the
shareholder executing it. If any nominee is not available as a candidate when
the election occurs, discretionary authority is reserved to vote for a
substitute. Management has no reason to believe that any nominee will not be
available.
THE NOMINEES FOR TERMS OF OFFICE EXPIRING AT THE 2000 ANNUAL MEETING OF
SHAREHOLDERS ARE AS FOLLOWS:
[Picture] RICHARD R. CLAYTON, PRESIDENT AND CHIEF OPERATING OFFICER OF THE
ASSOCIATION. Mr. Clayton is 58 years old and is a graduate of
Purdue University. Prior to joining Eastern in 1987 as its
Executive Vice President and Chief Administrative Officer, Mr.
Clayton was Chairman and Chief Executive Officer of Vermont
Castings, Inc. He is a Trustee of the Concord Museum.
Trustee since 1993;
member, Executive Committee
[Picture] LEONARD R. JASKOL, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
LYDALL, INC., A MANUFACTURING COMPANY. Mr. Jaskol is 60 years
old and is a graduate of American University and City University
of New York Graduate School of Business. He is a Director of
Rogers Corporation, the Connecticut Business and Industry
Association and the American Forest and Paper Association; and a
Trustee of American University.
Trustee since 1994;
member, Compensation Committee
[Picture] DAVID B. STONE, CHAIRMAN OF NORTH AMERICAN MANAGEMENT CORP., AN
INVESTMENT MANAGEMENT FIRM. Mr. Stone is 69 years old and is a
graduate of Harvard University and Harvard Business School. Mr.
Stone serves as Chairman and Trustee of Memorial Drive Trust; a
Director or Trustee of several mutual funds advised by
Massachusetts Financial Services Company; a Director of Boston
Municipal Research Bureau; President of Stonetex Oil Corp.; and
a Trustee of the New England Aquarium and the Massachusetts
Horticultural Society.
Trustee since 1995;
Chairman, Audit Committee;
member, Nominating Committee
THE MEMBERS OF THE BOARD OF TRUSTEES HAVING TERMS OF OFFICE EXPIRING AT THE
1999 ANNUAL MEETING OF SHAREHOLDERS ARE AS FOLLOWS:
[Picture] JOHN D. CURTIN, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
AEARO CORPORATION (FORMERLY, CABOT SAFETY CORPORATION), A
MANUFACTURING COMPANY. Mr. Curtin is 64 years old and is a
graduate of Yale College and Harvard Business School. He was
formerly Executive Vice President and a Director of Cabot
Corporation. Mr. Curtin is a Director of Imperial Holly
Corporation, Houston.
Elected to Board of Trustees, February, 1997;
member, Audit Committee
4
<PAGE> 8
[Picture] RINA K. SPENCE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF RKS
HEALTH VENTURES CORPORATION. Ms. Spence is 48 years old and is a
graduate of Boston University and Harvard University, Kennedy
School of Government. Prior to organizing RKS Health Ventures
Corporation in 1994, Ms. Spence was President and Chief
Executive Officer of Emerson Health System, Inc. and Emerson
Hospital. Ms. Spence is a Trustee of the Wang Center for the
Performing Arts, Boston and the University of Massachusetts and
a Director of the United Way of Massachusetts Bay. She is a
Director of Berkshire Mutual Life Insurance Co. and PNC Bank,
New England.
Trustee since 1989;
Chairperson, Compensation Committee;
member, Nominating Committee
THE MEMBERS OF THE BOARD OF TRUSTEES HAVING TERMS OF OFFICE EXPIRING AT THE
1998 ANNUAL MEETING OF SHAREHOLDERS ARE AS FOLLOWS:
[Picture] JAMES R. BARKER, CHAIRMAN AND PRESIDENT OF INTERLAKE STEAMSHIP
COMPANY, VICE CHAIRMAN OF MORMAC MARINE GROUP, INC. AND MORAN
TOWING COMPANY. Mr. Barker is also a principal owner and
Director of Meridian Aggregates Company. Mr. Barker is 61 years
old and is a graduate of Columbia University and Harvard
Business School. He was formerly Chairman and Chief Executive
Officer of Moore McCormack Resources, Inc. Mr. Barker co-founded
Temple, Barker & Sloane, Inc., a management consulting firm. He
is a Director of GTE Corporation, The Pittston Company, and
President of the Committee of SKULD, a Norwegian marine
insurance company; and Chairman and a member of the Board of
Trustees of Stamford (Connecticut) Hospital.
Trustee since 1995;
member, Compensation Committee
[Picture] SAMUEL FRANKENHEIM, COUNSEL, ROPES & GRAY. Mr. Frankenheim is 64
years old and is a graduate of Cornell University and Cornell
University Law School. Prior to joining Ropes & Gray in 1992,
Mr. Frankenheim was Senior Vice President, General Counsel,
Secretary and a member of the Office of the Chairman of General
Cinema Corporation (now Harcourt General, Inc.) and of The
Neiman Marcus Group, Inc. He is a Trustee of the Wang Center for
the Performing Arts, Boston, and the Huntington Theater Company,
Boston; Chairman of the Board of the International Alliance of
First Night Celebrations; and an Honorary Trustee of
Newton-Wellesley Hospital.
Trustee since 1993;
Chairman, Nominating Committee;
member, Audit and Executive Committees
[Picture] J. ATWOOD IVES, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE
ASSOCIATION. Mr. Ives is 60 years old, is a graduate of Yale
College and Stanford University Graduate School of Business, and
is a certified public accountant. Prior to joining the
Association as Chairman and Chief Executive Officer in 1991, he
was Vice Chairman, Chief Financial Officer and a member of the
Office of the Chairman of General Cinema Corporation (now
Harcourt General, Inc.) and of The Neiman Marcus Group, Inc. He
is a Director or Trustee of several mutual funds advised by
Massachusetts Financial Services Company; a Trustee of the
Museum of Fine Arts, Boston; and a member of the Corporate
Advisory Board of the Stanford University Graduate School of
Business and the Boston College Carroll School of Management.
Trustee since 1989;
Chairman, Executive Committee
5
<PAGE> 9
STOCK OWNERSHIP OF TRUSTEES AND EXECUTIVE OFFICERS
<TABLE>
The following information is furnished as to the Common Stock of the
Association owned beneficially (as defined by Rule 13d-3 under the 1934 Act) as
of February 27, 1997 by each Trustee and nominee, each executive officer named
in the Summary Compensation Table on page 7, and the Trustees and executive
officers of the Association as a group. The information concerning beneficial
ownership has been furnished by the persons listed below.
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP(A) OF CLASS(A)
---------------------------------------------- -------------------------- -----------
<S> <C> <C>
J.R. Barker................................... 1,950(c)(f) *
R. R. Clayton................................. 108,025(b)(e) 0.5
J. D. Curtin, Jr.............................. 1,000 *
W. J. Flaherty................................ 37,824(b) 0.2
S. Frankenheim................................ 4,193(c)(d)(f) *
J. A. Ives.................................... 347,225(b)(e) 1.7
L. R. Jaskol.................................. 2,750(c)(d)(f) *
T. W. Jones................................... 1,700(c)(d) *
C. R. Messer.................................. 48,881(b) 0.2
F. C. Raskin.................................. 37,695(b) 0.2
R. K. Spence.................................. 2,450(c)(f) *
D.B. Stone.................................... 1,350(c)(d)(f) *
Trustees and Executive Officers as a Group
(13 persons)................................ 626,972(b)(c)(d)(e)(f) 3.0
</TABLE>
- ---------------
* Less than 0.1%.
(a) Except as noted, each Trustee, nominee and executive officer has sole voting
and investment power over the shares owned.
(b) Figures include the following shares which executive officers have the right
to acquire on or before April 27, 1997 through the exercise of employee
stock options: Mr. Ives, 271,400; Mr. Clayton, 73,600; Mr. Messer, 29,400;
Mr. Raskin, 17,700; Mr. Flaherty, 15,100; and Trustees and executive
officers as a group, 422,850.
(c) Figures for Messrs. Frankenheim and Jones and Ms. Spence each include 1,600
restricted shares awarded under Restricted Stock Plan for Non-Employee
Trustees; figure for Mr. Jaskol includes 1,200 such shares; figure for Mr.
Stone includes 800 such shares; figure for Mr. Barker includes 400 such
shares; and figure for Trustees and executive officers as a group includes
7,200 such shares.
(d) Figures do not include the following Share Units held under the Deferred
Compensation Plan for Trustees: Mr. Frankenheim, 4,573; Mr. Jaskol, 822; Mr.
Jones, 4,479 and Mr. Stone, 494.
(e) Figures include the following shares owned by spouse or held by spouse as
custodian for children: Mr. Ives, 5,000 and Mr. Clayton, 30,187.
(f) Figures include 550 shares which may be acquired on or before April 27, 1997
through the exercise of stock options for each of Messrs. Barker,
Frankenheim, Jaskol and Stone and Ms. Spence.
6
<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
The following table sets forth certain information concerning the
compensation of the Association's chief executive officer and its four most
highly compensated other executive officers (the "Named Executive Officers")
with respect to the Association's last three completed fiscal years:
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
SALARY BONUS(a) OPTIONS/SARS COMPENSATION(b)
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
--------------------------- ---- ------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Atwood Ives.................... 1996 693,138 356,383 17,000 13,284
Chairman and Chief 1995 666,109 386,919 15,000 12,355
Executive Officer 1994 636,000 309,096 20,000 2,143
Richard R. Clayton................ 1996 476,473 244,663 10,000 9,123
President and Chief 1995 458,202 263,408 10,000 6,873
Operating Officer 1994 442,000 209,508 12,500 1,855
Chester R. Messer................. 1996 308,523 146,630 7,000 4,960
Senior Vice President; 1995 292,031 92,038 7,000 3,714
President of Boston 1994 276,583 99,005 7,000 1,932
Gas Company
Fred C. Raskin.................... 1996 296,450 95,912 8,500 2,037
Senior Vice President; 1995 285,069 143,000 7,000 2,150
President of Midland 1994 274,558 98,313 6,500 2,310
Enterprises Inc.
Walter J. Flaherty................ 1996 255,524 109,161 7,500 2,250
Senior Vice President 1995 245,315 115,116 7,000 1,711
and Chief Financial 1994 231,208 90,675 6,000 1,875
Officer
<FN>
- ---------------
(a) Amounts shown represent awards under the Association's Executive Incentive Compensation Plan,
which in each case were paid 50% in cash and 50% in shares of the Association's Common Stock.
Such amounts were earned in the fiscal year shown but paid in the subsequent fiscal year.
(b) Amounts shown represent employer contributions under the Association's Retirement Savings
(401k) Plan and, for Messrs. Ives, Clayton and Messer, under the Association's Deferred
Compensation Plan.
</TABLE>
7
<PAGE> 11
<TABLE>
The following table sets forth certain information concerning non-qualified
stock options granted to the Named Executive Officers during 1996 under the
Association's 1995 Stock Option Plan:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------ AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(b)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(a) FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- -------------------------- ------------- ------------- --------- ---------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Atwood Ives............ 17,000 13.4% 36.25 2/22/06 0 387,600 982,090
Richard R. Clayton........ 10,000 7.9 36.25 2/22/06 0 228,000 577,700
Chester R. Messer......... 7,000 5.5 36.25 2/22/06 0 159,600 404,390
Fred C. Raskin............ 8,500 6.7 36.25 2/22/06 0 193,800 491,045
Walter J. Flaherty........ 7,500 5.9 36.25 2/22/06 0 171,000 433,275
<FN>
- ---------------
(a) Figures represent options without SARs. Each such option becomes exercisable at the rate of 20% per year,
commencing February 22, 1997.
(b) The potential realizable values presented in this table use the hypothetical rates of appreciation
prescribed by regulations of the Securities and Exchange Commission, and are not intended to project rates
of future appreciation in the value of the Association's Common Stock. The assumed 5% and 10% annual rates
of appreciation would result in prices for the Association's Common Stock increasing to $59.05 and $94.02
per share, respectively, by February 21, 2006.
</TABLE>
<TABLE>
The following table sets forth certain information regarding the options
and SARs in tandem with options exercised during fiscal year 1996, and the
number and value of outstanding options and SARs in tandem with options held as
of December 31, 1996, by Named Executive Officers under the Association's Stock
Option Plans:
YEAR-END OPTION/SAR VALUES
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT 12/31/96(#) AT 12/31/96($)(b)
ACQUIRED ON VALUE ------------------------ -------------------------
NAME EXERCISE(#) REALIZED($)(a) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- ----------- -------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
J. Atwood Ives............ -- -- 261,000/41,000(c) 2,195,305/243,720(c)
Richard R. Clayton........ -- -- 67,100/25,500(d) 722,483/156,918(d)
Chester R. Messer......... -- -- 25,200/16,800(d) 300,614/98,161(d)
Fred C. Raskin............ -- -- 14,900/18,000(d) 130,618/94,824(d)
Walter J. Flaherty........ -- -- 11,000/16,700(d) 101,274/91,486(d)
<FN>
- ---------------
(a) The amount "realized" reflects the appreciation on the date of exercise (based on the excess of the fair
market value of the shares on the date of exercise over the exercise price).
(b) All values are based on closing price as of December 31, 1996.
(c) Figures represent options without SARs. No SARs have been granted to J. A. Ives.
(d) Figures represent options, including those with and those without tandem SARs. All options granted during
1996 are without tandem SARs, and no SARs have been granted to any executive officer since 1991. In each
case in which tandem SARs were granted, the amount of SARs granted was equal to one-half of the related
options. All SARs are exercisable in lieu of, and not in addition to, such portion of the related options.
</TABLE>
8
<PAGE> 12
<TABLE>
The following table sets forth estimated annual benefits payable upon
retirement in specified compensation and years of service categories under
qualified retirement plans maintained for salaried employees of the Association
and certain subsidiaries (the "Retirement Plans") and the Association's non-
qualified Supplemental Executive Retirement Plan (the "SERP") maintained for all
executive officers and certain other officers of the Association and its
subsidiaries:
PENSION PLAN TABLE
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
BASED ON YEARS OF SERVICE(B)
-------------------------------------------------------------
REMUNERATION(A) 15 20 25 30 35
- --------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 42,500 $ 50,000 $ 50,000 $ 50,000 $ 50,000
200,000 85,000 100,000 100,000 100,000 100,000
300,000 127,500 150,000 150,000 150,000 150,000
400,000 170,000 200,000 200,000 200,000 200,000
500,000 212,500 250,000 250,000 250,000 250,000
600,000 255,000 300,000 300,000 300,000 300,000
700,000 297,500 350,000 350,000 350,000 350,000
800,000 340,000 386,000 386,000 386,000 386,000
900,000 382,500 386,000 386,000 386,000 386,000
1,000,000 386,000 386,000 386,000 386,000 386,000
</TABLE>
- ---------------
(a) The compensation covered by the Retirement Plans and the SERP is the average
annual compensation (whether or not deferred under deferred compensation or
savings plan) for the highest five years in the ten years preceding
retirement, based on the annual salary rate plus 100% of bonuses and
incentive awards earned (whether payable in cash or stock), not including
any amounts with respect to options, SARs or restricted stock awards;
provided that, pursuant to letter agreements described on page 12 hereof,
average annual compensation for J.A. Ives and R.R. Clayton is based on
annual salary rate plus only 50% of bonuses and incentive awards earned.
(b) The benefits set forth in these columns assume that the participant elects a
straight life annuity with five years certain. Such benefits are shown
before deductions for 50% of Social Security benefits and other applicable
offsets. In general, Federal law limits the annual benefit payable under the
Retirement Plans to a participant at age 65, calculated in the form of a
life annuity (with no period certain), to a specified amount ($125,000,
adjusted as of January 1, 1997). Not being subject to limitations imposed on
the Retirement Plans by Federal law, the SERP provides for annual benefits
equal to up to one-half of covered compensation, provided that annual
benefits under the SERP, before offset for annual benefits received under
the Retirement Plans, may not exceed three times the $125,000 limit, as such
limit may from time to time be increased. Years of service credited under
the Retirement Plans and years of service as an officer credited under the
SERP through 1996 for the Named Executive Officers were as follows: J.A.
Ives, 11 and 11; R.R. Clayton, 18 and 18; C.R. Messer, 33 and 20; F.C.
Raskin, 19 and 18; W.J. Flaherty, 25 and 13. Years of service for J.A. Ives
and R. R. Clayton are determined in accordance with their employment
agreements described on pages 11 and 12 hereof. Years of service under the
SERP for C.R. Messer, F.C. Raskin and W.J. Flaherty equal years of service
as an officer of the Association or a subsidiary.
9
<PAGE> 13
COMPENSATION OF TRUSTEES
During 1996, each Trustee of the Association who was not an officer of the
Association received cash retainer fees at an annual rate of $10,000. Each such
Trustee who was a member of the Executive, Audit, Compensation or Nominating
Committee received an additional annual retainer fee of $1,200 for each
committee of which he or she was a member. The Chairman of each of the Audit,
Compensation and Nominating Committees, in addition to the committee membership
retainer fee, received an annual retainer fee of $4,000. In addition, each such
non-officer Trustee received $1,000 for each meeting session of the Board of
Trustees and each standing committee meeting session he or she attended. The
Association also reimburses Trustees' travel expenses for attendance at
meetings.
The Association's Restricted Stock Plan for Non-Employee Trustees provides
for supplemental retainer fees in the form of five annual grants of restricted
shares of the Association's Common Stock, each in the amount of 400 shares, to
each Trustee who at the time of grant serves as a Trustee but is not an employee
of the Association or any of its subsidiaries. Initial grants under such Plan
were made on April 22, 1993 to each Trustee other than J. A. Ives, R. R.
Clayton, L. R. Jaskol (who was first elected to the Board on February 24, 1994),
D. B. Stone (who was first elected to the Board on May 25, 1995), J. R. Barker
(who was first elected to the Board on December 7, 1995) and R. D. Curtin, Jr.
(who was first elected to the Board on February 27, 1997). Additional grants
were made on June 1, 1994, to each Trustee other than J. A. Ives, R. R. Clayton,
D. B. Stone, J. R. Barker and R. D. Curtin, Jr., on June 1, 1995 to each Trustee
other than J. A. Ives, R. R. Clayton, J. R. Barker and R. D. Curtin, Jr., and on
June 1, 1996 to each Trustee other than J. A. Ives, R. R. Clayton and R. D.
Curtin, Jr. The final grants currently scheduled under such Plan will be made on
the first day of June in the year 1997. All shares granted under such Plan are
nontransferable and subject to forfeiture while the recipient serves on the
Board of Trustees. In the event that he or she resigns or declines to stand for
re-election to the Board, not due to disability and not in accordance with a
retirement policy of the Board then in effect, all shares granted to him or her
under the Plan shall be forfeited. In this regard, as a result of his
resignation from the Board on February 27, 1997, Thomas W. Jones forfeited 1600
restricted shares under the Plan, on such date. Dividends on restricted shares
granted under the Plan are paid directly to the Trustee.
The Association's 1996 Non-Employee Trustees' Stock Option Plan provides
for five annual grants of options to purchase 1100 shares of the Association's
Common Stock to each Trustee who at the time of grant serves as a Trustee but is
not and has not been for five years an employee of the Association or any of its
subsidiaries. Options are granted on the day following the Annual Meeting of
Shareholders, commencing with the 1996 Annual Meeting and will continue through
the day following the 2000 Annual Meeting; provided that any eligible Trustee
who joins the Board of Trustees of the Association at a time between regular
option grant dates will receive an option for 550 shares upon joining the Board.
The exercise price of all options granted under such Plan will be the fair
market value of the Association's Common Stock on the date of grant. All options
issued under the Plan become exercisable as to one-half of the shares subject to
the option on each of the first and second anniversaries of the grant date. The
latest date on which an option may be exercised is the tenth anniversary of its
grant date. Pursuant to such Plan, options to purchase 1100 shares of the
Association's Common Stock were granted on April 26, 1996 to each Trustee other
than J. A. Ives, R. R. Clayton and J. D. Curtin, Jr., and options to purchase
550 shares of the Association's Common stock were granted to J. D. Curtin, Jr.
on February 27, 1997 (when he was elected to the Board).
The Association maintains a Deferred Compensation Plan for Trustees under
which Trustees' cash fees may be deferred at the election of participants.
Participants may elect to credit amounts deferred to a Cash Account or to a
Share Unit Account. Interest based on the prime rate plus 1% (determined on the
first day of each calendar quarter) is credited to Cash Accounts at the end of
each calendar year. Amounts credited to Share Unit Accounts are converted to
Share Units based on the fair market value of the Association's Common Stock on
the deferral date. Additional Share Units are credited to reflect dividends on
shares of such
10
<PAGE> 14
stock. The balance in a participant's Cash Account and Share Unit Account will
be paid to him or her, or to his or her beneficiary, in cash only, in a lump sum
or installments when he or she ceases to be a Trustee, or if he or she
experiences serious financial hardship.
The Association's Retirement Plan for Non-Employee Trustees was terminated
by the Board, effective at the 1996 Annual Meeting, and the following
non-employee Trustees received a cash payment equal to the present value of
their respective accrued but unvested retirement benefits under such plan: S.
Frankenheim -- $29,345; L.R. Jaskol -- $12,988; T.W. Jones -- $15,150; and R.K.
Spence -- $20,265.
The Association provides term life insurance to each non-employee Trustee
in the amount of $50,000.
Samuel Frankenheim, a Trustee of the Association, is counsel to Ropes &
Gray, a Boston law firm which provided legal services to the Association and its
subsidiaries during 1996, and which is expected to continue providing legal
services to them during 1997. Fees paid for such services during 1996 were less
than 5% of such law firm's 1996 gross revenues.
TERMINATION OF
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
The Association has entered into Salary Continuation Agreements with
officers of the Association and its subsidiaries under which, if the employment
of any such officer is terminated by the Association otherwise than for Cause
(as defined in such agreements, generally including malfeasance or misfeasance),
or by the officer for Good Reason (as defined in such agreements, generally
including diminishment of authority, responsibility or cash compensation
opportunities), following a Change of Control, the officer would be entitled to
receive income equal to the salary rate in effect at the time of the Change of
Control together with continuation of certain of the Association's medical and
other benefits. Subject to certain limitations, such income and benefits for the
Association's executive officers would continue for 18 months, but not beyond
the date which follows by 30 months, the Change of Control. For purposes of the
Agreements, a "Change of Control" is deemed to occur if (i) a person or entity
or a group acting together becomes a beneficial owner of securities representing
25 percent or more of the outstanding voting securities of the Association or
(ii) within two years after the commencement of a tender offer or exchange offer
for the voting securities of the Association, or as a result of a merger,
consolidation, sale of assets or contested election, the individuals who were
Trustees of the Association immediately prior thereto shall cease to constitute
a majority of the Board of Trustees of the Association or of the board of
trustees or directors of its successor.
The Association has also entered into an employment agreement with Mr. Ives
dated November 27, 1991, and an employment agreement with Mr. Clayton dated
October 25, 1991, under which, if the employment of either such officer is
terminated by the Association otherwise than for Cause (as defined in such
agreements, generally including malfeasance or misfeasance), or by the officer
for Good Reason (as defined in such agreements, generally including diminishment
of authority, responsibility, or cash compensation opportunities), whether or
not following a Change of Control, he will be entitled to receive income equal
to the salary rate in effect at the time of such termination, together with
continuation of certain medical and other benefits. Subject to certain
limitations, such income and benefits would continue for thirty-six months in
the case of Mr. Ives and twenty-four months in the case of Mr. Clayton. If such
termination occurs after a Change of Control and the Salary Continuation
Agreements also apply, the officer may elect the salary continuation or other
benefit provisions contained in his Salary Continuation Agreement or the
employment agreement referred to in this paragraph, but shall not be entitled to
a duplication of any such benefit under both agreements. Mr. Ives' employment
agreement established his initial salary rate at $600,000 per year, subject to
review and adjustment by the Compensation Committee. In addition, under such
employment agreements, Mr. Ives will be credited with five years of service
under the Association's Retirement Plan and
11
<PAGE> 15
SERP for his first year of employment and one and one-half years of service for
each year of employment thereafter, and Mr. Clayton will be credited with one
and one-half years of service for each year of employment, plus four years,
under such Plans.
Messrs. Ives and Clayton entered into letter agreements with the
Association dated April 28, 1994 under which each agreed that he will not be
entitled to the benefit of certain April, 1994, amendments to the Association's
SERP which (i) increased the portion of bonuses and incentive awards taken into
account in determining compensation covered by such Plan from 50% to 100%, and
(ii) increased the level of benefits payable upon early retirement prior to age
62.
The Association has established a trust to make payments to certain
officers of the Association and its subsidiaries under the Association's SERP
and its 1994 Deferred Compensation Plan for officers and payments to Trustees
under the Association's Retirement Plan for Non-Employee Trustees and its
Deferred Compensation Plan for Non-Employee Trustees, and makes contributions to
such trust from time to time. Such Plans provide that upon a Change of Control
(as defined above), the Association is obligated to fund such trust fully by
depositing therein sufficient funds to pay the present value of all benefits to
those who have retired prior to the Change of Control, plus the present value of
all retirement benefits that would be payable if all eligible officers and
Trustees had retired prior thereto, plus the aggregate of the account balances
under such deferred compensation plans. As of February 24, 1997, the balance
held in such trust was approximately $13 million.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Ownership of and certain transactions in the Association's Common Stock by
executive officers, Trustees and certain other persons are required to be
reported to the Securities and Exchange Commission pursuant to Section 16 of the
Exchange Act. Based upon a review of the information provided to the
Association, all persons subject to these reporting requirements filed the
required reports on a timely basis during 1996.
COMPENSATION COMMITTEE REPORT
The duties of the Compensation Committee include approval of salary and
other compensation arrangements for the Association's officers, and
administration of the Association's incentive and stock plans, including the
Executive Incentive Compensation Plan and the 1982 and 1995 Stock Option Plans.
EXECUTIVE OFFICER COMPENSATION
The Committee's policy with respect to approving 1996 executive officer
compensation was to establish base salaries and annual incentive compensation
opportunities and to grant stock options which, in the judgment of the
Committee, were appropriate to provide fair compensation, to enable the
Association to attract and retain executives with abilities and experience
necessary to implement the Association's objectives, and to create incentives
for high levels of individual performance, consistent with attainment of the
financial goals and the best interests of the Association. The Committee's
judgments were based on an assessment of each executive officer's current and
past performance, his business experience and level of responsibilities,
information concerning compensation paid to executive officers at
similarly-sized companies, annual compensation increases at such companies and
recommendations and advice from the Association's chief executive officer
concerning compensation levels for other officers. The Committee's decisions
were not based on any established formulas with respect to weighting of the
foregoing factors or the effect of any particular factor on any component of an
executive officer's compensation, except to the extent that annual bonuses are
determined in accordance with the factors described below. Information
concerning compensation levels at
12
<PAGE> 16
similarly-sized companies reviewed by the Committee consisted of data provided
in previous years by Hewitt Associates, a management consulting firm, concerning
total compensation and the components thereof (salary, annual bonus and
long-term compensation), and year-to-year compensation increases for officers of
companies having levels of total revenues approximately the same as that of the
Association and for overall industry practice. The comparator data provided by
Hewitt Associates was based on a number of surveys covering companies
representing a broad cross-section of U.S. industries. For 1996, base salaries
for executive officers of the Association as a group (including for the CEO)
were targeted at levels which would average above the median base salaries for
the comparator group data, while opportunities for variable compensation were
set at levels which would cause total annual compensation (i.e., base salary and
bonus) of executive officers to average about the median for such group. Actual
incentive compensation would exceed the comparator group median to the extent
the Association was successful in substantially exceeding financial performance
targets established in the 1996 annual bonus program. The comparator group data
previously provided by Hewitt Associates also suggested that annual long-term
compensation grants would be appropriate so that levels of total compensation
(including long-term compensation) of the Association's executive officers would
approximate average total compensation levels for similar positions at companies
in the survey group. With this information in mind, the Committee granted
non-qualified stock options in February, 1996 to the Association's executive
officers. Such options were granted without stock appreciation rights, and at an
exercise price equal to the fair market value of the Association's Common Stock
on the date of grant. In determining the size of option grants, the Committee
considered recommendations of management and Hewitt Associates.
As with respect to 1995, it was the Committee's judgment in establishing
1996 annual incentive opportunities for executive officers that (i) more senior
executive officers should receive a larger portion of their potential total
compensation in the form of variable incentive awards than less senior executive
officers; (ii) appropriate maximum potential incentive awards for executive
officers, expressed as a percentage of salary, are 60% (for the chief executive
officer and chief operating officer), and 50% (for other executive officers),
reflecting the Committee's judgment as to an appropriate mix of base and
incentive compensation for executive officers at each level; (iii) a higher
percentage of incentive compensation opportunities for more senior executive
officers should be based on financial performance of the Association and a
lesser percentage of such incentive opportunities should be based on individual
performance, than for less senior executive officers and other officers of the
Association and its subsidiaries; and (iv) 50% of any annual incentive payment
should be made in shares of the Association's Common Stock. In accordance with
such policy, the Committee approved 1996 award opportunities under the
Association's Executive Incentive Compensation Plan equal to up to 60% (in the
case of Messrs. Ives and Clayton) or 50% (in the case of other executive
officers) of individual salaries. No portion of the bonus opportunity relating
to financial performance (i.e., 75% of the potential annual bonus amount in the
case of Mr. Ives, 70% in the case of Messrs. Clayton, Messer and Raskin and 67%
for the other executive officers) could be earned unless minimum pre-tax income
performance goals were met by the Association or, in the case of executive
officers who are subsidiary presidents, by the subsidiary. The minimum pre-tax
income level was 85% of the targeted goal, and at such minimum level, the
financial performance award would equal 20% of the potential financial
performance opportunity. Upon achievement of the targeted pre-tax income goals,
which were set at levels at which there was a 50% chance of achievement, the
bonus award would equal 66 2/3% of the potential financial performance bonus
opportunity, with additional bonus amounts being earned to the extent that
pre-tax income levels exceeded the target level up to an established maximum
pre-tax income level, at which point the full financial performance bonus
opportunity would be earned. The portion of the annual bonus opportunity based
on achievement of individual management objectives could be earned by an
executive officer independent of the achievement of the financial goals, so long
as minimum financial results equal to 50% of the targeted levels were achieved.
The Committee's intent in establishing these management objectives was that only
outstanding
13
<PAGE> 17
performance by an executive officer would qualify such officer to earn in excess
of 75% of his or her management performance bonus. Finally, the award
opportunities provided that the Committee be given authority in its judgment to
approve discretionary awards in the event that equity should so require. A
discretionary award could not exceed the maximum potential award for any
officer. No discretionary awards were made for 1996 to any executive officers.
The Association and each of its subsidiaries were successful in reaching
and exceeding the minimum pre-tax income goals established for them in 1996,
with the Association exceeding its targeted and Boston Gas Company exceeding its
maximum pre-tax income goal. As a result, each of the Association's executive
officers earned an annual bonus in 1996 based on achievement of financial
performance goals, as well as a bonus based on achievement of his or her
individual management objectives. As in previous years, the bonus payments to
executive officers were made 50% in shares of the Association's Common Stock
(valued as of the time that the awards are approved by the Committee based on
the average of the high and low trading prices for the previous five business
days) and 50% in cash. In this regard, cash is withheld by the Association from
the cash portion of the bonus to cover state and federal tax withholding
requirements relating to an individual's total bonus award. As a result,
after-tax bonus awards received by executive officers in the incentive plan are
primarily in the form of shares of the Association's stock.
Section 162(m) of the Internal Revenue Code disallows tax deductions for
certain compensation paid by a public company to its chief executive officer or
any other executive officer named in its proxy statement compensation tables, to
the extent such compensation exceeds $1 million in any year. None of such
officers received taxable compensation from the Association in excess of $1
million in 1996, and the Committee does not anticipate that such limitation will
affect deductibility of any compensation paid to the Association's executive
officers for 1997. With respect to Mr. Ives, in particular, the salary component
of his total compensation would appear to be exempt from such $1 million
limitation because it is paid pursuant to a written binding agreement executed
prior to February 17, 1993. Moreover, taxable income resulting from the exercise
of outstanding stock options issued under the Association's 1982 and 1995 Stock
Option Plans would also be exempt from the $1 million limitation under
applicable rules. Finally, the Committee has adopted a policy under which any
executive officer whose compensation subject to Section 162(m) would exceed $1
million in any year shall be expected to defer, if reasonably possible, all or a
portion of his or her annual incentive compensation for such year to the extent
necessary to avoid loss of the Association's tax deduction for such executive's
compensation.
CEO COMPENSATION
During 1996, Mr. Ives was paid a base salary, effective from February 1,
1996, at an annual rate equal to $694,500. Prior to February 1, 1996, Mr. Ives'
base salary had been set at $667,800 since February 1, 1995. Mr. Ives' base
salary is provided for in his employment agreement with the Association,
described elsewhere in this proxy statement.
In addition to his base salary, Mr. Ives was granted an incentive bonus
opportunity in 1996, as described above, under the Association's Executive
Incentive Compensation Plan. Of Mr. Ives' potential award under such plan, 75%
was based on the achievement by the Association of specific pre-tax income
levels for 1996, and 25% of such bonus opportunity was based on the achievement
by Mr. Ives of management objectives approved for him by the Compensation
Committee. Mr. Ives' objectives were to develop and implement a plan for the
Association to capitalize on the deregulation of energy-related industries; to
pursue specified strategic business opportunities for the Association's existing
businesses; to evaluate officers and implement appropriate management
development and succession plans; to utilize capital resources to improve return
on investment and enhance shareholder value; and to manage the Association's
efforts to obtain relief from liabilities under the federal Coal Industry
Retiree Health Benefits Act.
14
<PAGE> 18
Because the Association's pre-tax income performance for 1996 exceeded the
targeted financial performance goal, Mr. Ives was entitled to a payment of
$270,959 under the financial performance portion of his award opportunity, equal
to 86.7% of the maximum possible payment under such portion. In addition, the
Committee, after consultation with the other non-management members of the Board
of Trustees, determined that Mr. Ives' overall achievement of his 1996
management objectives equaled 82% of the maximum potential achievement, and that
Mr. Ives was therefore entitled to a payment of $85,424 under the portion of his
award opportunity based on management objectives. Under the terms of the 1996
incentive program, 50% of Mr. Ives' total incentive award was paid in shares of
the Association's Common Stock and 50% was paid in cash.
As described above, during 1996, Mr. Ives was granted a non-qualified stock
option to purchase 17,000 shares of the Association's Common Stock at a price of
$36.25 per share, equal to the fair market value of such stock on the date of
grant.
No member of the Compensation Committee is a current or former officer or
employee of the Association or any of its subsidiaries.
Respectfully submitted,
COMPENSATION COMMITTEE MEMBERS
Rina K. Spence, Chairperson
James R. Barker
Leonard R. Jaskol
15
<PAGE> 19
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Association's Common Stock to the cumulative total return of the S&P 500 Index,
the S&P Natural Gas Index and the Edward D. Jones ("EDJ") Diversified Gas Index
over a five year period ending December 31, 1996:
COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURNS(a)
<TABLE>
<CAPTION>
EDJ
MEASUREMENT PERIOD EASTERN DIVERSIFIED S&P NATURAL S&P 500
(FISCAL YEAR COVERED) ENTERPRISES GAS INDEX (b) GAS INDEX (c) INDEX
<S> <C> <C> <C> <C>
1991 100 100 100 100
1992 103 110 110 108
1993 100 123 131 118
1994 109 108 125 120
1995 153 141 177 165
1996 161 178 235 203
</TABLE>
- ---------------
(a) Based on an initial investment of $100 with dividends reinvested quarterly.
(b) The EDJ Diversified Gas Index is comprised of companies with at least 30
percent, but less than 90 percent, of their operating revenues derived from
natural gas distribution.
(c) The Association does not intend to compare the cumulative shareholder return
on its Common Stock to the cumulative total return of the S&P Natural Gas
Index in future years due to the fact that such index is dominated by
companies that are significantly larger than the Association, whose
operations are primarily focused on natural gas exploration, production,
pipeline transportation and trading. Half of the 14 companies within the
index, accounting for 80% of its total value, are diversified energy
companies with immaterial or no natural gas distribution operations.
16
<PAGE> 20
CERTAIN TRANSACTIONS
<TABLE>
The following table sets forth information with respect to indebtedness of
executive officers of the Association to the Association in excess of $60,000
since January 1, 1997. No such indebtedness was outstanding in 1996.
<CAPTION>
LARGEST AGGREGATE AWARD OF AMOUNT OF INDEBTEDNESS
NAME AND RELATIONSHIP INDEBTEDNESS OUTSTANDING AT ANY OUTSTANDING AS OF RATE OF INTEREST
TO THE ASSOCIATION TIME SINCE JANUARY 1, 1997(a) FEBRUARY 28, 1997 BEING CHARGED(b)
-------------------------- ------------------------------- ---------------------- ----------------
<S> <C> <C> <C>
J. Atwood Ives............ $337,684 $337,684 5.51%
Chairman and Chief
Executive Officer
Walter J. Flaherty........ 168,751(c) 168,751(c) 5.58%(c)
Senior Vice President
and Chief Financial
Officer
L. William Law, Jr........ 101,903 101,903 5.51%
Senior Vice President
General Counsel and
Secretary
<FN>
- ---------------
(a) Indebtedness was incurred by the indicated executive officers under the Association's executive stock
purchase loan program pursuant to which officers of the Association and its subsidiaries may borrow
up to the amount of their individual base salaries solely to purchase shares of the Association's
Common Stock. Such purchases may be either open market or private purchases, in which case borrowings
may include the purchase price for such shares plus the amount of brokerage fees and similar expenses
incurred in connection with such purchases, or stock option exercises, in which case borrowings may
include the option exercise price plus federal income tax withholding amounts due upon such exercise.
Each of the stock purchase loans described in the table was made on an unsecured basis and is payable
seven months after demand.
(b) The interest rate on stock purchase loans, as determined by the Compensation Committee of the Board
of Trustees, is the Applicable Federal Rate for short-term obligations under Section 1274 of the
Internal Revenue Code, as published in the Internal Revenue Bulletin at the time the loan is made.
Interest is payable quarterly on such loans.
(c) Mr. Flaherty's indebtedness to the Association is comprised of two separate stock purchase loans,
one in principal amount of $103,009 bearing interest at 5.51% per annum and one of $65,742 bearing
interest at 5.69% per annum. The interest rate shown in the table for Mr. Flaherty is the weighted
average interest rate for such loans.
</TABLE>
INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP has been selected by the Board of Trustees
to act as independent auditors of the Association and its subsidiaries for the
year 1997. The Association has been advised by such firm that neither it nor any
member thereof has any financial interest in or financial relationship with the
Association or its subsidiaries. Representatives of Arthur Andersen LLP are
expected to be present at the 1997 Annual Meeting with the opportunity to make a
statement if they desire to do so and to be available to respond to appropriate
questions.
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<PAGE> 21
EXPENSES OF SOLICITATION
The expenses of making this solicitation will be paid by the Association,
which may solicit proxies by mail, telephone, telegraph or personal interview.
The Association will reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred in sending proxy
materials to beneficial owners.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1998 Annual Meeting
of Shareholders must be received at the Association's principal executive
offices no later than November 19, 1997.
OTHER MATTERS
If sufficient votes in favor of any of the proposals set forth in the
attached Notice of Annual Meeting of Shareholders are not received by the time
scheduled for the meeting, the persons named as proxies may propose one or more
adjournments of the meeting for a period or periods of not more than 30 days in
the aggregate to permit further solicitation of proxies with respect to any of
such proposals. Any adjournment will require the affirmative vote of a majority
of the votes cast on the question in person or by proxy at the session of the
meeting to be adjourned. The persons named as proxies will vote in favor of
adjournment with respect to any proposal those proxies which they are entitled
to vote in favor of such proposal. They will vote against adjournment with
respect to any proposal those proxies required to be voted against such
proposal. The Association will pay the costs of any additional solicitation and
of any adjourned session.
The Board of Trustees does not know of any business to be presented for
action by the shareholders in addition to those items appearing in the notice of
the meeting. However, if any additional matters properly come before the
meeting, or any adjournment thereof, it is the intention of the persons named in
the enclosed form of proxy to vote said proxy in accordance with their judgment
in such matters unless instructed to the contrary.
Reference is hereby made to the Declaration of Trust establishing Eastern
Enterprises dated July 18, 1929, as amended, a copy of which is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The name "Eastern
Enterprises" refers to the Trustees under said declaration as Trustees and not
personally; and no Trustee, shareholder, officer or agent of Eastern Enterprises
shall be held to any personal liability in connection with the affairs of said
Eastern Enterprises, but the trust estate only is liable.
EASTERN ENTERPRISES
March 19, 1997
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<PAGE> 22
DETACH HERE
[EASTERN
ENTERPRISES LOGO]
P PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
R FOR ANNUAL MEETING, APRIL 24, 1997
O
X
Y
I (We) hereby appoint J. A. Ives and R. R. Clayton and each of them as
proxies, with full power of substitution to each, to act and vote in the name
of the undersigned with all the powers that the undersigned would possess if
personally present, on all matters, including the election of Trustees, which
may come before the April 24, 1997 Annual Meeting of the Shareholders of
Eastern Enterprises and any adjournment of such meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE
BOX, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF TRUSTEES' RECOMMENDATION. THIS PROXY WHEN PROPERLY
EXECUTED AND PRESENTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
ELECTION OF THE TRUSTEE NOMINEES.
CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE. |SEE REVERSE|
| SIDE |
<PAGE> 23
[EASTERN
ENTERPRISES LOGO]
HIGHLIGHTS OF EASTERN'S 1996 RESULTS
* Eastern reported record operating results
of $2.85 per share versus $2.44 per share in the prior year,
after adjusting for non-recurring items.
* Both Boston Gas Company and Midland Enterprises reported
record operating earnings in 1996.
* Return on equity increased to 14.2% from 12.9%
in 1995, after adjusting for non-recurring items.
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THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of
Shareholders, you can be sure your shares are represented at the
Meeting by promptly returning your proxy (attached below) in the
enclosed envelope. Thank you for your attention to this
important matter.
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DETACH HERE
| X | PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" ELECTION OF THE NOMINEES
LISTED BELOW.
<TABLE>
<S> <C>
1. Election of Trustees. 2. In their discretion, the Proxies are authorized to
NOMINEES: Richard R. Clayton, Leonard R. Jaskol vote upon such other business as may properly
and David B. Stone come before the meeting or any adjournment
FOR ALL WITHHELD FROM thereof.
NOMINEES ALL NOMINEES
| | | |
You may direct the manner
of distributing your votes
for the election of Trustees
| | by affixing instructions to
- ------------------------------------------ this proxy.
(For all nominees except authority to vote
withheld from nominee(s) noted above.) MARK HERE
FOR ADDRESS | |
CHANGE AND
NOTE AT LEFT
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
Please sign exactly as name or names appear on this
proxy. If stock is held jointly, each holder should sign. If
signing as attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please give full
title.
Signature:_____________________________________ Date: ___________ Signature:_____________________________________ Date: _________
</TABLE>
